Should We Buy It?

Andrew Pierno -
Buy products, sell companies

Sorry for the cheesy ass stock photo. There's a special place in my heart where this shit will never not be funny.

This is going to be an open, stream of consciousness piece about whether we should buy 2 companies we have in the hopper. If you're not into that kind of thing, you may want to skip this week's post. Have to keep it generic for now. srry.

Isn't this a commodity? Like how long would it take me to build this thing, end to end. Two weeks (my default answer for how long anything can be built in).

But then again, we're not really buying 'tech'. We're not even buying 'companies' yet. We're buying tools. Tools that do a job.

But again, what are we really buying if it's not a company and it's not tech. Customers? Well, sometimes. Sure we've seen several companies with nearly 100 customers (paying small amounts), which is great. There's little customer risk compared to companies that have < 10 customers paying more.

But if you have 10 customers, then I can build it and get 10 customers right? I'm not sure this is true. How do companies get off the ground? I call them lightening strikes. Generally there's something that hits just the right people at the right time with the right message. Or hit's Google's algorithm at just the right time with the right keywords. How the fuck did some of these guys rank for these key words with out 'doing any SEO at all'. Drives me nuts.

So are we buying lightening? In some ways, yes. We're buying that spark. That's the part that is unique.  That's the part that's hard to reproduce.  Nearly all the rest is copy-able. Code is a commodity. SEO can be hard won with enough time and patience. Customers are fickle beasts.

So I think we're getting closer to the answer. We're buying a combination of:

  • lightening
  • a tool that does a job
  • a channel that works
  • a validated (to some degree) idea

And ideally we're buying it at a multiple that is reasonable and based on the amount of cashflow the product kicks off each month.

This would look different if we added zeros to the purchase prices. But for now, that's the best I can come up with. The code will probably need to be re-written. There really is no brand. Customers like something about the tool. The rest is going to be up to us.

The cowboy in me says fuck it, we should just buy 20 of these.... then we'll know. There's just not enough data yet. I'm personally convinced this model works. We've already sold one company that paid for the acquisitions of the other two so far. Those other two we've 5x-ed and 3x-ed and we're not even done with them. If we can sell them for reasonable multiples, then we're going to be not only in the money but posting excellent returns.

I still struggle with which avenue to pursue: lots of small deals, or fewer large deals. Larger deals generally have quite a bit more complexity and sales requires quite a bit more hand holding. These larger deals kick off more cashflow, but you then have to staff them up more, effectively leaving you where you were when buying smaller deals.

The smaller, pure b2b saas, self serve product led growth things are amazing. zero sales calls, small customer support surface, every marginal customer improves gross margins.

But, the larger ones approximate real companies instead of just products.

Enough for now. of course the answer is probably both or some combination. Buy products sell companies is directionally correct.

ask me again in 5 years.