Long live the minnows!

Long live the minnows!
Photo by Ray Hennessy / Unsplash

XO is 2.5 years old. We're starting to have some history.

Recent milestones include the first ever product we have grown 10x since acquiring it. We bought Screenshot API, our very first acquisition, when it was making $500 MRR. It's now over $5k MRR. $500 MRR is obviously peanuts (I like to call it a bar tab). But $5k pays rent (yes, except for me in Santa Monica). Of course there's a 6-person full time team now so we have a lot of mouths to feed but still, we've put in the work and it's now meaningful revenue for us. Having 10 ish of these at $50k MRR starts to be interesting. Operationally complex, but interesting.

We're deep in the process of our biggest acquisition ever and I can hopefully reveal all about it as soon as it closes but in the mean time we decided to do something we've never tried before. XO as a rule only buys stuff with revenue. But we found a tool that we fell in love with immediately and bought it while it was making <$100 MRR. Again this is breaking our rule, but I'm a big fan of experimenting, especially since we don't have any investors to explain decisions to.

So far it has paid off. We bought ColdDM.me when it had < 10 customers paying under $9 each. Less than 2 months later, it's at $600 MRR. Total cash collections are almost $1k and we're on track to repay our investment in < 6 months. Again, this is a small win, but stacking small wins, especially as we're bootstrapped, becomes meaningful over time. Emphasis on time.

One meaningful metric I don't pay enough attention to when evaluating deals is time to value for the customer. ColdDM had the fastest time to value out of any product I've tried in the past 12 months. I was hooked. You log in, and (everyone says this, but this time it's true) in less than 5 minutes you could DM 200 people who follow one of your competitors and get a 4-7% response rate. That's better than Linkedin (for me) as well as cold email. While the rest of the world was anti-Twitter, we doubled down. My guess is that in a few years, Cold DM will be doing several thousand a month. Another small but meaningful win.

It's obvious that the biggest win (on a dollar / cost basis) is creating something from scratch. You buy it for $0 and sell it for something. There's an entire spectrum of risk vs reward. Of course our thesis is that actually we can buy stuff after it's a little more proven, take on a little less risk and still have an uncapped upside. We've wavered between buying larger businesses (and paying higher multiples) or continuing to dig for gold with these tiny ones. The reality is that we're trying both. We're bootstrapped and I don't care how we get there right now, just that we get there. This is one of those do as I say not as I do things. Are we great identifiers of businesses? So far, I'd say more often yes than no, but we've made mistakes. Two so far out of 7 acquisitions. Both of our mistakes worked out fine. One day we'll stumble. I don't see how we continue doing this for 20 years without a huge face plant at some point. But if we're disciplined, no single investment should ever have the power to destroy XO. Except of course the deal we're trying to close. If it goes through, it will be a bet the farm moment. So again, see above, don't do what I do. Naturally if it works, I'll pretend we were fearless lol.

It's easy to get caught up in trying to hit home runs. Base hits are awesome. They keep the lights on while you're swinging for the fences. This was the reason the venture backed company I was CTO of ultimately failed. We didn't have any minnows to snack on while hunting for whales.

Long live the minnows!