3 min read

Winning By Default

Winning By Default

I hate losing. I do. It's a character flaw that sounds cool but mostly manifests in stupid ways like trying to beat your sister at UNO on Christmas.

But we are here to win. It's worth it to spend a few moments looking at how deals can go right and how we can set ourselves up to win by default no matter what we acquire.

Keep in mind, these thoughts are bootstrapper's notes. If I had just raised a $10M fund, this would be bad advice, but since we're still just buying these with our own limited cash, a little risk aversion is warranted. Now, when we do raise a $10M fund, we will be playing a totally different ball game and most if not all of these will go out the window in favor of growth and speed.

Winning On Price

If you buy something for too much money, and are too reliant on the optimism of future growth, you're in a bad spot to win by default. Winning by default on price  means if we had to sell something the moment after we bought it, could we still not only get our money back but make a little bit of profit from the transaction as well. Thankfully transaction costs in this space are very low compared to real estate for example. I'm sure that will change as we do larger and larger deals but if we ever get to the point that it's more painful for us to buy a company than it is to buy a house (which is still a nightmare), kindly point me to this article and ask me to resign in disgrace.

Now we're not always going to get a great deal. We may end up with a fair deal, or a deal, but it might not be a great deal from a price perspective. Then we have to rely on higher risk things like execution. Obviously fine, but not winning by default. In practice that means we'll likely pass on deals we shouldn't. I'm okay with that for now. We're still building up our credibility where a few higher points of IRR will make a big difference for our eventual fundraise.

Sure, there is some opportunity for arbitrage here. You could buy off-market/microacquire and sell with a brokerage. You could buy on microacquire and then raise money on angel list for the 'startup'. Sub out angel list for a crowdfunding site. Still, arbitrage comes down to price and if you paid too much for it... well, you get it.

Winning By Growth / Sales

I'm not a great marketer. And it wasn't until 2020 that I ever sold any kind of software or service. I did have a job in a call center for two weeks trying to sell SEO over the phone (yes it was super shady), but I left before ever landing  a sale.

Despite that, we have managed to grow our portfolio companies decently well. Nothing crazy, just calm, comfortable growth. If you really knew what you were doing in growth / sales I think that you could win by default because you (hopefully) know a great product when you see one, and more importantly could make 20 phone calls and close a 6 figure SaaS deal.

This skill was our most recent addition to the team. Someone who knows sales (amongst other things). If you've ever made the mistake of hiring a sales person too quickly due to lack of product-market fit (spoiler alert, sales can't fix your market fit problem), then I hope you've made the equal and opposite mistake of hiring a salesperson *too late* (think of how much farther along if we hired this person a year ago!).

I've talked mostly about sales here, but the implications still hold for growth. A shit product is not going to get any kind of viral loop. It's also not going to work trying  product led growth if the product sucks. Also you'll probably fail at product led growth. I could include a section here on 'winning by product' but i think that would be really misleading. If you can't tell, I'm not a fan of the way people have been talking about product led growth, but I'll save that for another day.

Ok, you caught me. I've said nothing at all about tech. It's not that tech doesn't matter (it does), but it sort of doesn't. I can't tell you how many dozens of VC pitches I've done where not a single tech question was asked. It just doesn't matter as much as paying customers do, as much as traction does. And since we're in the business of buying cashflow, the same applies for us.

May you win by default in the  New Year.

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