How to sell your B2B SaaS? with Thomas Smale. Welcome to the Growing a B2B SaaS podcast, where we provide actionable advice on all aspects of growing a business-to-business software company. Whether it’s customer success, sales, funding, bootstrapping, exits, or scaling, we’ve got you covered. In this episode, we’ll dive into the topic of making your SaaS startup sellable and discuss the steps to selling your business successfully. Our special guest today is Thomas Smale, the founder and CEO of FE International, Inc, a tech-focused M&A advisory firm with an impressive track record of over 1 billion in closed transactions and more than 1200 deals completed worldwide.
Getting Ready for an Acquisition
Understanding the Path to Acquisition Thomas begins by emphasizing that the decision to sell a SaaS business should be considered early on in its journey. Once a business starts gaining traction, usually at around $1,000 monthly recurring revenue (MRR), founders should start thinking about their long-term goals. It’s essential to be honest with oneself about what you want to achieve, whether it’s building a billion-dollar valuation or a smaller, million-dollar valuation. Each path requires different strategies and efforts, and defining your goals early will help you align your business accordingly.
Thomas explains that valuing a SaaS business is a complex process. While the most common approach is using precedent transactions (comparing the business to similar ones that have been sold), there are various valuation methodologies. These include discounted cash flow analysis (DCF) and multiples of revenue or profit. However, no single formula fits all businesses, and it’s crucial to consider the specifics of each case to arrive at a fair valuation.
Common Mistakes to Avoid
One of the most common mistakes SaaS founders make when preparing to sell is artificially inflating short-term profitability to improve valuation. This involves cutting costs or laying off staff to increase profit margins temporarily. Such tactics can backfire in the long run and are easily spotted by savvy buyers. Instead, focus on building a strong and sustainable business model with genuine profitability.
Challenges in the Selling Process
One of the main challenges for founders is managing their expectations during the selling process. Unrealistic valuation goals can hinder the selling process, leading to wasted time and missed opportunities. Thomas advises being open to negotiations and realistic about the market value of your business. Additionally, founders sometimes try to handle the selling process themselves to save money, but this can result in suboptimal outcomes. Engaging an experienced M&A firm can lead to better deals and higher returns, making it a valuable investment.
Preparing your B2B SaaS startup for an acquisition involves careful consideration of your long-term goals and a realistic assessment of your business’s value. Focus on building a strong and sustainable business that will naturally attract buyers. Avoid common mistakes like inflating short-term profits and be open to professional assistance in the selling process. Stay tuned for Part 2, where we’ll discuss the actual steps to successfully selling your SaaS business and hear more insights from Thomas Small, an expert in M&A for tech startups.
Thomas discusses the typical process they follow when helping a company sell. Here are the key points:
- Valuation: The process begins with valuing the business. This is essential for setting clear expectations and building a relationship with the client. If the valuation aligns with the client’s expectations, they proceed to the next steps.
- Engagement Letter: If the client is happy with the valuation, they sign an engagement letter, which states that the firm will represent them throughout the selling process.
- Discovery Process: A detailed discovery process takes place where the firm learns as much as possible about the business to understand it thoroughly.
- SIM (Confidential Information Memorandum): The firm compiles a SIM, which contains information about the business, including financials, operations, and other relevant details. This document is used in the subsequent steps of the selling process.
- Buyer Outreach: The firm reaches out to a variety of potential buyers, including strategic buyers, financial buyers, individuals, and public companies.
- Bidding Process: Depending on the size of the business, a bidding process may be run, typically with a one-month window for offers. If multiple offers are received, a second round of bidding may be conducted to identify the best offer.
- Due Diligence: Once an offer is accepted, the due diligence period begins, during which the buyer verifies the claims made during the negotiation process.
- Deal Closing: After successful due diligence, the deal is closed, and the acquisition is completed.
Thomas provides advice for SaaS founders at different stages of growth:
- For founders starting out in the growth to 10K MRR: He advises them to balance their focus between product development and marketing. It’s important to spend at least 30% of their time on marketing to ensure the product reaches potential customers.
- For founders aiming to grow beyond 10 million ARR: Thomas emphasizes the need to focus on reducing churn and improving customer retention. Onboarding is a critical area to address to ensure customers understand and effectively use the product. Additionally, founders need to learn how to manage people and build a team as the business scales.
He also encourages founders to be patient and not give up too early, as building a successful SaaS business often takes several years.
- (1:16) Why you should listen to Thomas
- (1:55) – What is M&A?
- (2:52) When should SaaS founder consider acquiring themselves?
- (6:50) Different ways to value businesses.
- (8:27) The most common mistakes companies make before they try to sell their business or even while selling their business?
- (10:53) What are the most common challenges startups face while selling their business?
- (12:04) Set realistic expectations.
- (13:10) The acquisition process
- (17:41)– When to sell your SaaS
- (18:47) When to ask for help?
- (21:22)– 10k MRR advice
- (22:59)– Multi-Channel Marketing approach
- (26:36) 10million ARR Advice
- (27:33) What Thomas Wishes he knew 10years ago
[00:00:00.000] – Intro
Welcome to Growing a B2B SaaS. On this show, you’ll get actionable and usable advice. You’ll hear about all aspects of growing a business to a business software company. Customer success, sales, funding, bootstrapping, exits, scaling, everything you need to know about growing a startup, and you’ll get it from someone who’s going through the same journey. Now your host, Jeroen Hoffman.
[00:00:29.170] – Joran
Welcome back to another episode on the Grow Your B2B SaaS podcast, where we discuss all topics on how to grow your B2B SaaS, no matter in which state you’re in. A lot of SaaS founders build their startup for an exit. To get there, though, you will need to build a good company and make yourself ready for an acquisition. That is what we’re going to talk about today, what you should be doing to make your SaaS sellable, and then, of course, how to actually sell your SaaS. Our guest today is Thomas Small. He’s the founder and CEO of FV International, tech focused M&A Advisory firm with over 1 billion in closed transactions. They’ve closed over 1200 deals working with investors and founders all around the globe. I had the pleasure to have a beer with him on a boat in Mika Nas during the SFM founder retreat this year. And I can’t think of a better person to talk about selling your startup. So let’s just dive in. Welcome to the show, Thomas.
[00:01:14.170] – Thomas
Hey, Joran. Thanks so much for inviting me on.
[00:01:16.210] – Joran
No worries. I like to ask this question always at the beginning. Why should people listen to you today after the event, even though they’re not convinced of this intro?
[00:01:23.750] – Thomas
Yeah, as you mentioned, we’ve closed over 1200 transactions. I’ve been doing this for 13 years. I graduated college or university in 2010. So all I’ve done in my entire working life is help people sell businesses. Right now, we have offices all around the world. We have people all over the world. Across everything we do, we have about 150 team members. We’ve worked with not just thousands of different people, but we’ve worked with people from all over the world as well. So it’s not like the advice is only relevant if you live in the Netherlands or you live in England or you live in the US. This is relevant to anyone that’s lifting.
[00:01:55.860] – Joran
Nice. And the terminology might not be familiar for everybody. M&a stands for mergers & Acquisitions. Are there any different.
[00:02:02.060] – Thomas
Types within this? I think a lot of people say mergers and acquisitions, but really in most cases, it just means selling your business. If you just use a simple way of looking at it, deals can be structured legally in lots of different ways. S ometimes people might not sell all of their business. Sometimes they might sell their business and then they take shares or stock in acquiring companies’ company. Sometimes M&A refers to the buy sides. Sometimes we’ll work with a buyer who’s trying to acquire a business and we’ll be on that side of things. The M, as in mergers, I’d say are much less common. That’s when you combine two companies together. Generally speaking, that’s still actually an acquisition. So if you decide to buy my company and we call it a merger, it might still mean that you own us, but often it’ll be a n out merger. But in really simple terms, it’s just selling businesses, buying businesses. And then there’s lots of different ways within that can happen.
[00:02:52.360] – Joran
I actually just left LeadFeed before their merger, but in the end it was an acquisition. The private equity bought two companies and then they merged them because they saw synergy between both of them. But I think you can’t call them actually an acquisition as well. When should a SaaS founder be thinking about getting.
[00:03:09.640] – Thomas
Themselves acquired? I think as soon as your business starts to get some traction, so let’s keep that simple and say that’s at least 1,000 a month in MRR, regardless of what currency we’re talking about. But let’s say it’s US dollars or euros, any of those currencies are fine. Once you get to that level, you should start deciding what you are trying to build and what you would like to achieve. When it comes to deciding when you should exit, part of that is deciding what stage you want to get to. If you want to build a company with a billion dollar valuation, the things you might have to do to get there are completely different from the founder building the same business who just wants to get to a million valuation. I think sometimes people say, Oh, I just want to sell my business. But they’ve never really thought about what they need to do to get there because they don’t know what they’re trying to achieve. If you’re trying to build a billion dollar business and I’m trying to build a million dollar business, you do have to do significantly different work, probably more work, probably work harder, do lots of different things, execute on a bigger scale to get there.
[00:04:07.630] – Thomas
To build my business to a million, I would not necessarily have to do that. So I think a lot of people just generically think they should think about X thing. But if you think about it early on, you can then build around it. And you need to be honest with yourself as to what you want to achieve. And there’s no right or wrong answer. You can’t tell people or can’t tell people what they should be looking to do. That’s something they need to decide personally. And obviously that doesn’t mean every business can be built to a billion valuation, but almost every business can get to a million valuation. In my mind, we’ve seen tens of thousands of businesses a year, and it always amazes me what businesses get to that level and that size. They things that you would never even heard of before. Whereas at a billion dollars, that’s usually something that can be understood by a wider range of people. Yeah. So in short, think about it relatively early, but you shouldn’t be spending huge amount of time doing anything different in your business because you want they want to sell. Ultimately, people want to buy good businesses and that’s never really anything that’s changed.
[00:05:07.670] – Thomas
I think if we do the same podcast in 10 years time, that answer is still going to be exactly the same.
[00:05:13.450] – Joran
Yeah, because in the end somebody wants to buy a proper business and not just a business which is built to sell itself.
[00:05:19.920] – Thomas
[00:05:20.650] – Joran
When you say you have to keep in mind where do you want to go, you mentioned valuation a lot of times. Is it always purely I want to go to an X valuation or is there something else I guess people look at when they want to get acquired, they want to get to a certain point first?
[00:05:36.210] – Thomas
I think people have one or two goals and usually it’s a combination. They either have a value based goal, so I would like to get to a 50 million valuation, or they have a time based goal, which is I would like to sell my business in the next 10 years. And then usually you end up with a bit of a combination of that and it might change as you go. So you might get 10 years into your journey and your business is is worth 40 million. So either you decide, fine, I’ll sell now for 40 million, or you decide, I’m going to work two more years and I think I can get to a 50 million valuation. Usually it’s a combination of the two. I think most people who don’t know much about M&A think that almost all M&A is driven by people who want to retire, but that’s not usually the case. Almost everybody we work with selling their business then goes on to launch another business, or they go buy a business, or they invest a business businesses. Depending on where you live in the world, retirement age is different, but let’s say at 65, not many people are there saying, I’m going to run my business until I’m 65, then I’m going to sell it and then retire.
[00:06:39.700] – Thomas
That’s not very common at all.
[00:06:41.560] – Joran
When we talk about valuation, what is now the most common way to evaluate your company? Is it still a multiplier or what are you guys looking at?
[00:06:50.290] – Thomas
Lots of different ways to value businesses. And generally speaking, the technical way to do it is use a variety of methodologies and then you take the statistically most relevant of those or you combine them. We’ll often look at four or five different methodologies of valuation and then we say, Okay, because this business is so small or so big, this methodology is not relevant. This methodology is not relevant. So we’ll take these three and then we’ll take the average of those three. Probably the most common way and the most accurate way to value a business is what we would call or what most people call precedent transaction. So that is looking at similar businesses that have sold and establishing what multiple of profit or revenue they sold for and comparing it to the business that is being sold. That’s the most predictable way of valuing. But often you don’t have all of that information. Hence why you have to use other forms of valuation methodology. So most commonly, if you are at university studying valuation, you’ll learn about DCS, which is a discounted cash flow analysis. So while in theory that’s great, that doesn’t necessarily work for all businesses.
[00:07:54.730] – Thomas
It’s not that easy and it doesn’t always work. So we look at a lot of different things. We look at tens of thousands of data points on every single deal, but there’s no set fixed formula that works for every business. Some people think that, for example, let’s say we’re talking about SaaS businesses, they think every SaaS business is sold for five times revenue or 10 times revenue. Yes, there are some examples at that level, but that’s not true all of the time and it’s not really how it works.
[00:08:23.370] – Joran
Because in the end it’s not that simple.
[00:08:24.900] – Thomas
Indeed, as you mentioned. Exactly.
[00:08:27.200] – Joran
I think that’s one mistake a lot of SaaS founders make. And coming to an acquisition, you can make a lot of other mistakes. I think what are the most common mistakes companies made before they try to sell their business or even while selling their business?
[00:08:41.080] – Thomas
I think you actually made a really good point a few minutes ago where you said that no one wants to buy a business then built to sell. People just want to buy a business that’s good and running. What a lot of people do is they’ll hear that businesses are sold on a, generally, a multiple of profit and they’ll say, Okay, how do I increase my profit just before I sell? I’m going to lay off half of my team, I’m going to cut a bunch of costs, I’m going to stop spending on advertising and marketing, and I’m going to then say to the buyer, Hey, look, my business is now making twice as much profit as it was three months ago. I want you to pay me a multiple on the last month, not all of the previous months before. That’s generally the worst thing to do. If you have wasted in your business or things that are not productive, so you might have team members who are not contributing, yes, maybe you should let them go to be more profitable. But often people will get rid of things that will fundamentally hurt the business in the long run, such as marketing spend.
[00:09:33.400] – Thomas
That’s not a good thing to do. You might not notice it, particularly in SaaS businesses, you won’t notice it right away. It might take many months. You have things like if you have a low churn rate, you’re not necessarily going to notice that lot of many new customers are being acquired in that time or whatever it might be. So that’s probably the most common mistake people hear that it’s a profit multiple, or the more profitable you are, the more your business is worth, which is mostly true. And then they make a bunch of changes which short term make the business look better, but long term fundamentally make the business look worse. And the vast majority of the time that’s not going to work. Buyers are increasingly more sophisticated. If we were doing the same podcast 10 years ago in, say, 2013, it was a little bit different. Buyers were less sophisticated, most were relatively new to the space. But now that’s not the case. There’s a lot of information out there. If you want to buy a business, there’s a lot of advice you can get farmers like us who can work with you and help you buy a business.
[00:10:33.500] – Thomas
People see it straight through. You have to use cutting cost just before you sell.
[00:10:38.410] – Joran
As you mentioned, you’re looking at 10,000 data points, five ways of valuation. This is just like one hack they can do. But it will come out just by looking at the data and exactly what they’ve been doing in the last months before they actually sell their business.
[00:10:52.210] – Thomas
[00:10:53.060] – Joran
What are some of the challenges or the most common challenges startups are facing while trying to sell their business?
[00:10:59.760] – Thomas
I think probably one of the most common ones, to an extent, already spoke about is just getting to the size they want to get to. I think some people get a little bit stubborn and they build their business to a certain level. They don’t know how to grow it further, so they want to sell. But they’re still very stubborn around their expectations. So it might be you’ve got a great business, it’s worth 50 million. Fantastic, great outcome, but you’ve really wanted to sell for 100. Some people will say, I’m only going to run a M&A process if I can get 100 million valuation, but that’s not realistic. So they’re just going to be wasting their own time in that process. And particularly in SaaS, there’s always a bigger exit that’s happened. There’s always one person who has sold for a multiple, which is extremely high. Everybody knows someone who sold business for 50 times revenue. But the reality is 99.99 % of people are never going to sell for that multiple. And you don’t know all of the circumstances that went into that. So a lot of people are like, I’m not selling unless I get that multiple.
[00:12:04.400] – Thomas
So often it’s just unrealistic expectations. And this is maybe me being a little bit biased, but people think if you have to pay an M&A from us fees, you’re paying us a lot of money. People think that cost, I view it as almost a saving because if you try to sell your business yourself, you will do a worse job and you’ll get less money for the business. We will get you more. And even after paying our fee, you would have made essentially more money in your pocket. So a lot of people try to save cost, but try to save cost in the wrong area. Similar to nobody running a business does their own accounting, or almost nobody does their own accounting. Almost everybody knows you should not do your own accounting. Exactly the same with law. You hire a lawyer or you hire an attorney to do your legal work. You don’t do that yourself. It’s exactly the same with an M&A firm. People try to save money, do it themselves, but usually that’s not going to come to a good outcome.
[00:12:59.200] – Joran
Because in the end, you’re making sure you speak the same language as the buyers. And then also, of course, you make sure you’re going to get the most highest return for them. So in the end, you have their.
[00:13:08.580] – Thomas
Interest in mind. Yeah, exactly.
[00:13:10.710] – Joran
When we talk about an acquisition, I don’t know if there is a typical process you follow when you’re going to sell a company?
[00:13:19.540] – Thomas
Sure. We definitely have a process we follow every single time. There are some things that might change a little bit based on the business, but you work with us, the process. So the very first thing we do is value your business. And the reason we do that is partly to start building a little bit of a relationship and some trust and also setting clear expectations. So in the example I just gave, you have a business worth $50 million. Fantastic. You’ve done a great job. You want to get $100 million for that business, we will tell you, Sorry, that’s not realistic. If you want to sell for 50 million, we would love to help you. We would love to work with you. But we don’t think the business is worth 100 million. And if they say, What do we need to do to get to 100? Then there’s other things we can do and other things we can offer to help them get to that stage over time. But assuming they’re happy with the valuation, we sign an engagement letter which essentially says that we’re representing them throughout the process. We then go through quite a detailed discovery process where we learn a lot about the business and do whatever we can to understand your business as well as you do.
[00:14:22.700] – Thomas
We put together what’s called a SIM, so a confidential information memorandum or prospectus. There’s lots of different totally terminologies for it, but that’s essentially what we’re doing. So we learn about your business, we put together information on your financials operations, everything we can learn about it. And then from there, we will reach out to a variety of buyers. There’s lots of different buyers we’ll speak to in a process. We’ll reach out to strategic buyers, we’ll reach out to financial buyers, we’ll reach out to individuals, we’ll reach out to public companies. Depending on the business, we’ll reach out to generally thousands thousands and thousands of different buyers. And then depending on this is where the process changes a little bit, depending on the size of the business, we then run a bidding process where there’s a window of time, which is usually, say, one month where offers have to be made by buyers. And then generally, we run a second round of bidding where, let’s say we get 10 offers in the first round, we then say, okay, we got seven good offers, three bad offers. We’re going to go back to those seven offers and say, all right, what’s your better offer?
[00:15:33.840] – Thomas
You’re through to the next round. And then we go from there. And then hopefully we end up with one final offer which is accepted. We run a process, we valued your business at $50 million. The best offer comes in at 55. Great. Exceeded expectations. You’re hopefully going to be very happy to accept that offer. Then we go through a due diligence period. The due diligence period does depend a little bit on the size and complexity of the business. It’s usually anywhere from 30 to 75 days. And in that time period, the buyer is essentially verifying everything that we’ve claimed. So if we say you make $10 million top line revenue per year, they will verify that you’ve been making 10 million top line a year. If we say you have 25 employees, we will prove you have 25 employees, what to get paid, what their contracts are, all of those things. And then ultimately the deal closes. So start to finish valuation, preparation, outreach and negotiation, agreeing a deal and then due diligence and then finally closing.
[00:16:37.210] – Joran
It almost sounds like buying a house here in the Netherlands. You also have the bidding process.
[00:16:41.360] – Thomas
It’s very similar to buying a house.
[00:16:43.930] – Commercial
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[00:17:24.540] – Joran
I guess there’s many ways, of course, going into an acquisition. What is the most ideal scenario where startup can go into an acquisition period? Is there anything you’ve seen that worked really well? If they have done that before acquisition period, then they got what they wanted.
[00:17:41.260] – Thomas
There’s never a right or wrong time to start a process of selling your business. But usually the best time is when a lot of people think you should be selling, which is when the business is doing really well. It’s growing, it’s consistently improving every single month. The market is good, everything is going well. A lot of people only think about selling when times are not so good. So maybe there’s a problem in their business or maybe it’s not doing very well and they say, Oh, I don’t like this business anymore. I want to sell it. That’s usually the worst thing to do from a deal perspective. You’re not going to get the best deal. So usually in a situation where you’re growing or just when you’ve achieved the level of valuation that you want to get to. But a lot of people are just quite disciplined. They want to build their business to that 10 million valuation. They hit 10 million valuation and then say, Okay, now I’m going to sell. It doesn’t really have to get much more complicated than that. If you go into a process when your business is growing and doing well, that’s usually the best time to sell.
[00:18:42.370] – Thomas
The worst time is the opposite of that when your business is not doing well, maybe you’re not growing anymore.
[00:18:47.530] – Joran
In that respect, it’s pretty straightforward. You have to build a good business. It has to grow. At the peak time, you have to start considering basically selling your business. When they are at that point or maybe once each step before, when should a SaaS startup start reaching out like a firm like yourself? As in when should they ask for help? I think.
[00:19:08.120] – Thomas
Quite early in the process. One of the things we do is we put together a valuation for you. But to get a valuation, you’re not obligated to pay us anything, you’re not obligated to work with us. We’ll often provide people valuations once a year, every year for multiple years until they decide to sell. We have a lot of clients. We have a client we’re working with at the moment. He’s actually Dutch. The first time I met him, we sold a business for him 11 years ago, and he’s now going through his fourth exit working with us. He told us about the business he’s selling now about five years ago. It was a staff business. He told us a long time ago, we valued that at the time, and he said, I want to get to this. And we said, Okay, go work on it and see if you can get to this stage. And that’s exactly what he’s done. So it’s never too early. As long as you’re honest with intentions, firms like ours will always be happy to give you a valuation. If you pretend you want to sell just to get a free valuation and then waste everyone’s time, then that’s not going to work.
[00:20:07.480] – Thomas
Ultimately, firms are not going to want to work with you. But it’s never too early to have a conversation and you’ll never, at least you shouldn’t be obligated to work with a firm just because they’ve given you a little bit of free advice up front. So speak to a variety of firms, get variety of opinions, and make sure the process you’re signing up to is a process that you like the idea of. We get a lot of people that come to us and they’ve heard about our reputation. They’ve heard we’ve done lots of deals and they like it because we have a very fixed process. But some people don’t like that. They’re like, Oh, if I work with you, can I reach out to my own buyers and I’m going to run my own process and I want to present everything in this way? If they want to do that, fine, but they’re not going to be working with us. They’ll have to do it themselves. So never too early to have a conversation. You should have multiple conversations. And I think if you’re honest about intentions, there’s never going to be any problems. Yeah.
[00:20:57.330] – Joran
And I think the example you gave with the Dutch founder is a really good one where he wants to work towards a certain point, as you mentioned before, he wants to work towards certain valuation. He keeps coming back to you to find out, Okay, where am I? He’s building, hopefully, a good proper business. And in the meantime, he’s working towards the valuation he wants. You guys can tell him when he’s ready, and then you can have, he’s still a client probably, but you can have a new client or a new deal you can close.
[00:21:21.680] – Thomas
[00:21:22.550] – Joran
When we talk about advice, I want to split it up into two bits. What advice would you give SaaS founders who are just starting out in the growth to 10K MRR?
[00:21:33.620] – Thomas
I generally think SaaS founders who are at that stage spend too much time focused on product and not enough time spent on marketing. So obviously, you have to build a good product. I can’t argue that’s not true. But many people spend all of their time, they spend 100 % of their time on product and basically no time on marketing. And then they say, I haven’t made any money yet. I’m still at $2,000 MRR and they’ve been working on it for 12 years because they haven’t done any marketing. So I think early stage, you need to balance it. So I don’t know if there’s a perfect percentage, but I think you need to be spending at least 30 % of your time marketing. It’s impossible to build a business if people don’t buy your product and people will not buy your product if you don’t do any marketing. Unless you already have an existing audience that you’ve built somewhere else that you’ve built before, but that’s a little bit different. If you’re starting from zero, your only option is to get out there and tell people about the business. And there’s no one marketing channel that everyone must work on.
[00:22:29.820] – Thomas
It really depends on your business. But I think it’s important to focus earlier on a few, so maybe two or three, up to five marketing channels that work. So you’re focused but a little bit diversified and making sure that you are trying a range of different things. The worst thing is to start out and do, you hear this and you say, Okay, Thomas said I need to do marketing, so go try 50 different things. That’s probably not a good idea if you’re at that level. You should try a few, get them to work, and then hopefully continue to focus on growing those channels.
[00:22:59.010] – Joran
Exactly. Choose a channel or choose a couple of channels and focus on that because nowadays you can be present everywhere on Instagram threads, on.
[00:23:06.470] – Thomas
Twitter, LinkedIn. Exactly.
[00:23:09.040] – Joran
So pick one. Maybe this is a big assumption we’re going to make, but this is a problem a lot of technical founders have.
[00:23:15.450] – Thomas
Always is usually technical founders. But I’d say the majority of people launching fast companies themselves or without outside funding tend to be technical. It’s quite uncommon for someone who is a market to buy background to build a SaaS product. Developers will build a SaaS product and then they don’t know how to market it. That’s usually the problem. And the ones who succeed are the ones who figure out how to do marketing and do sales.
[00:23:39.910] – Joran
When we move past the 10K Monday recurring revenue, what advice would you give somebody It is a big step but growing to 10 million ARR?
[00:23:48.390] – Thomas
I think the key thing is to grow to 10 million ARR. We got that a number of years ago now, but I think the biggest challenges are focusing on metrics like churn. If your churn is extremely high, why? It doesn’t mean it’s impossible. You can grow to $10,000 a month with churn at essentially any level. There’s lots of different ways you get to that level. But to get to 10 million, so almost a million a month, you have to focus on churn. You have to focus on retention. And I think the best way to do that is early in the funnel, so focus on onboarding. Too many people completely ignore onboarding. They spend all their time doing marketing because they just listen to my point in the last section. They spend no time on onboarding. So you have all these customers potentially coming in and they’re doing free trials. If you have a free trial and they’re never signing up for a paid plan because they don’t understand the product, or maybe your free trial gives away too much, or maybe it’s just confusing. So don’t focus enough on onboarding. If you can fix onboarding, generally, that helps with churn.
[00:24:43.520] – Thomas
People stay around if they’re fundamentally actually using your product. People are always going to churn if they don’t know how to use your product or don’t get set up properly. And then number two, and this is the same for any business really scaling beyond 10 million in revenue, you have to learn how to manage people and build a team. You can get to a million a year revenue with no team or a very small team. And I see it all the time. People who have a team of two plus themselves, you can get to a million. But I don’t know if it’s impossible, but it’s close to impossible to get to 10 million without building a team and learning to manage. That’s definitely not saying I’m not an expert at managing. Yes, we have 150 people, but I’m not the world’s best CEO or anything like that. You’ll constantly be learning. But I think you need to be willing to hire people, willing to delegate tasks, whether they’re full-time employees or whether they’re freelancers or contractors. That’s what you need to do and they need to take over parts of the process. If you have a marketing channel, so we spoke about Instagram, Sreds, Twitter, TikTok, all of those different channels.
[00:25:43.460] – Thomas
Maybe you can hire someone that helps with that, yes, you might still need to be involved. For example, with your podcast, at the moment, you might be doing all the production yourself, but if you want to grow, you might hire someone full-time who’s your podcast producer, and then you hire someone who’s going to also do the marketing, and then you hire someone to make sure that you’re doing social media well or it’s being emailed out to your email list and your audience. So you hire people for all the different stages as you go. And I always think it’s important, particularly on the way to 10 million, is figuring out what you’re good at. And you probably still need to do that. I still work within my own business today. I still essentially have a job, but I work on the things I’m good at. And I definitely do not do the things I’m not good at. Get out of the way of people who are better at their job than you are. That’s really the only way to grow to 10 million. And if you ask exactly the same question, how do you get to 50 million or how do you get to 100 million, it’s exactly the same.
[00:26:33.100] – Thomas
Again, the only real difference is you need to learn to manage managers. On your way to 10 million, you just need to learn to manage people. Once you get beyond that level, I spend almost all of my time speaking to managers. I don’t literally manage 150 people. I’m responsible for 150, but it’s actually the managers within the team, the senior people that I spend all of my time working and speaking to.
[00:26:55.540] – Joran
Nice. Maybe to make two references to two other podcasts, we did one with Mike dry in season one regarding CS, where we definitely talked about churn and onboarding. And then our previous podcast with MUTZ is regarding building culture, which he does in a really great way. So definitely listen to that as well. And I like the point you make as in the next step is managing the manager. So I might create a podcast on that, but there’s probably not that many SaaS partners listening to this podcast who are really at that stage right now already. We’re coming to the end. Is there one thing you wish you knew 10 years ago? So something you know right now, you said, I wish I knew this 10 years ago.
[00:27:33.720] – Thomas
I think the biggest thing, particularly if you’re very early on, it’s very easy, particularly now with social media and all the great information out there. So when I was starting out, podcasts like yours didn’t exist. You couldn’t get good information that easily. You have to figure it out. Now, if you start a business, there’s this constant, almost like social pressure of seeing other people doing really well. But the reality is, if you speak to almost anybody, and I’m very fortunate to have a peer group of founders in the, say, 10 to 100 million revenue range, almost all of them will say it took 10 years. It takes a long time to get that level. And if it took faster than 10 years, they probably did not start from zero. So maybe they had a corporate job or some experience or a previous business they had run in a similar industry. For almost everyone, it takes 10 years. I think a lot of people starting out give up too early. And we see it all tied to people who are very early stage friends who want to start businesses and that they give up in six months.
[00:28:32.660] – Thomas
You’ll probably make almost nothing in your first two years. That’s really common. Same for any business. For my first two years of running FPE International, I could just about pay my rent in a very small apartment. That was essentially all I could afford. Then I think after 10 years, that’s where most people get to that eight or nine figure revenue range. But it definitely takes a long time and you have to be patient and you have to not ignore what other people are doing. But often on social media, particularly, it’s like everybody lies. A lot of people just give the highlights. They’ll just give the, Oh, it was really easy. Look where we are now. But a lot of people will either be lying or just giving a slightly misleading story. So be patient. It takes time. Almost everyone I know who’s got to that eight figure level and it’s taken 10 years. I have very few exceptions to that rule.
[00:29:25.020] – Joran
Yeah. And I think also when you actually talk to SaaS founders who look successful on LinkedIn, for example, I’m present a lot on LinkedIn. We do this podcast, we share a lot. But in the end, I’m having no salary, I think, for almost one and a half years already. Hoping to get to that two years where I can finally get some salary out of the company. But I agree, as in everything looks shiny from the outside. But when you dig in and you actually talk to founders, then there’s a whole different story. So indeed, be patient and don’t give up too early. Really good advice here. If people want to get in contact with you or maybe with your team in your case, what would be the think the best.
[00:30:00.400] – Thomas
Way to do it? Sure. So if you’re interested in valuation, maybe you want to buy a business, a business to sell, go to the F International. Com website, and it’s pretty easy to navigate. If you want to buy, click on buy. If you want to sell, you can sell. We have a lot of content. We’ve ever been interviewed on lots of podcasts like this. There’s lots of information you can find free without having to speak to us. Pretty active on most social media channels like I mentioned, LinkedIn, Twitter, you can find us on most channels, but feel free to reach out. Always happy to help or point you in the right direction or inquire through the website. More than happy to work with you.
[00:30:37.770] – Joran
We’re going to link your LinkedIn profile in the show notes so people can find you and then they can reach out to you. And of course, the website is going to be there and, oh, thanks again for coming on to the show with Thomas and sharing your knowledge today.
[00:30:49.100] – Thomas
Thanks so much, Joff. Take care.
[00:30:51.450] – Joran
[00:30:53.120] – Commercial
You’ve been listening to Growing a B2B SaaS. Youron has been ahead of customer success before founding his own startup. He’s experiencing the same journey you are. We hope you’ve gotten some actionable advice from the show, and we hope you had fun along the way. We know we did. Make sure to like, rate, and review the podcast in the meantime. To find out more and to hook up with us on our social media sites, go to www.getreadedus. Com. See you next time on Growing a B2B SaaS.
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