Apr 3, 2018
If you’ve ever wanted to sell or purchase a SaaS business, listen to this Podcast because Nathan Singh has done both. He sold his own SaaS business in early 2017, only to turn around and buy a bigger SaaS business in December of the same year.
He’s a former NASA Scientist who out-negotiated a full price, all cash buyer to win the deal and close on a multi-million dollar SaaS website. In this interview Nathan shares how he approached his listing review, initial seller conference call, due diligence, navigating the SBA process and the transition after the sale.
Nathan also shares why he feels SaaS businesses are the right fit for him, and what other types of website business models he looked at during his search.
Episode Highlights:
- Learn how to make a buyer love you – and want to sell to only you.
- Interviews should be conversational, friendly and flow naturally.
- Nathan shares his SaaS due diligence process for this business.
- Seller was meticulous using Asana and Dropbox with SOPs and a streamlined process.
- How to navigate the SBA process and the team he worked with.
- What was it like to take over a remote team that was loyal to the owner.
- How he took over the business, worked for three weeks and then went on a three week vacation.
- SaaS Businesses produce recurring revenue without product working capital.
- Seller worked part-time and Nathan is planning full-time to expand and growth the business.
- Nathan purchased this SaaS business with an SBA Loan.
- Tax returns matching the P&L is great, but not always the case for solopreneurs.
- Keeping the sale confidential is critical until the APA is singed.
https://youtu.be/yj_XkpWdRKs
Transcription
Mark: Hey Joe, how are you doing?
Joe: Doing great today, how are you doing today Mark?
Mark: I’m still under the weather.
Joe: I had somebody tell me at the prosper show recently that they obviously enjoyed the podcast they came out to pay this compliment, but that he could tell we were in different parts of the country. I’m not sure how, I said “Did you watch” he said “No, I listened”. And he knows that we’re in different parts of the country. So where are you in the world just so people understand?
Mark: How in the world did he know that?
Joe: I don’t know. It’s your funny accent I think.
Mark: I’m up from Minnesota, although people think that Minnesotans have an accent, we do, but especially up north. Not as much in the city. I’m in the Twin Cities the Saint Paul side. If anybody’s ever coming to the twin cities just drop me a wine and be happy to get together. Where are you?
Joe: I’m just northern shell at North Carolina out in Morris zone North Carolina, and the more people I talk to, there’s lots of sellers around here, lots of buyers around here and I’ve connected to just quite a few so anybody in this area, reach out.
Mark: I thought down in North Carolina you guys supposed to have a bit of a twang accent, aren’t you?
Joe: No, not from here. [inaudible 0:01:47] from here. Everybody moves here because they’re too darn cold up north. I grew up in Maine. We fled to the south back in 2006.
Mark: Ah, ah. Whoever that was that knew we were in different parts of the country, I want to know how. That’s pretty good.
Joe: Not only did he know that, he came up to me to thank you and me personally for doing the Podcast, number one, and doing it with Norm Ferrar on SOP’s because he got to connect with Norm, and it helped take his business to the next level, and he said it has made a huge difference in his business and his life.
Mark: That’s fantastic!
Joe: Yeah! It’s a feel good moment at that time.
Mark: We got to be careful; our heads are going to get really big.
Joe: I know, I know. Let’s talk about somebody who doesn’t have a big head but should, because he’s a really impressive guy. That’s Nathan Singh. He bought a multi-million dollar SaaS site for a million. He has also been a client. We sold his SaaS businesses before. You remember Nathan well, right?
Mark: Absolutely!
Joe: Well, Nathan is one of the nicest guys, very humble. Former NASA scientist, NASA engineer, and turned entrepreneur. We worked together first on the sale of his business last spring, and then he purchased a multi-million dollar SaaS site I’ve closed in the fourth quarter. And in review, we’re sharing on this Podcast a lot of the things that he did right to make a great impression on the buyer, to out-negotiate all cash buyers to work with the SBA and lender to literally, quote, Nathan is one of my favorite clients of all times from the SBA lender, and the under writer as well. He instilled confidence in everyone all along the way that made him the choice to be the buyer that they approved him overlooking at other buyers as well, and he has just done a great job. Getting the business sold and then he talks a little bit about what he has done since purchasing the business including going on a three week vacation within three weeks of buying a multi-million SaaS business.
Mark: Wow that’s pretty brave! I don’t think I could’ve done that.
Joe: He had it planned, he took it and things went well, and they continue to go well.
Mark: That’s really good. So I’m excited to listen to Nathan. Nathan is generally, one of the nicest guys I’ve dealt with in 10 years, and I’ve dealt with a lot of nice people but he rises at the top of the list of one of the nicest guys. I’m excited to see him in the video, because I don’t think I’ve ever met him in person. Also, more importantly, listen to what he has to say.
Mark: Let’s go to it!
Joe: Hey Nathan welcome to Quiet Light Podcast! How are you today?
Nathan: I’m doing well, thanks for having me.
Joe: Excellent man! We haven’t chatted for a while. I know you’ve been traveling so welcome back. Listen, we’ve talked about this briefly but the tradition on the Quiet Light Podcast is that we don’t read scripts and do flowing introductions of our guests. We’d rather hear it straight from you so, for the folks that are listening today, can you share some background on yourself as an entrepreneur and where you come from?
Nathan: Yes sure. So, before I was even an entrepreneur, I started off doing software engineering, and mostly high level stuff on requirements and project management. Work on department of defense for a couple of years and then moved on to their space operation. So while I was there, I really got the bug, for trying to start my own business that we knew we have an idea what I was going to do, but I just happen to run across somebody who was selling an app and basically started his app and it was a screenwriting program called Scripts Pro, brew that out for a couple of years and then it got acquired, and I was like “I want to do this again” so it just rings and repeat. After that I had an online ordering platform called Order Zen and had the same with that. At that time was actually easy to broker. So I brew that out till what I can do, and then we got that acquired, of course with a seller for that one. Pretty much after that, we became very tight, and I monitored your listings specifically, very closely, and then we came across the listing for Envira Gallery and that’s kind of have [inaudible 0:05:57] Basically, that’s pretty much the background that I had since industry extinct and that’s why I [inaudible 0:06:02] it over to this senior entrepreneur acquisitions have been online businesses.
Joe: I think you sort of lightly flew, touched over the fact that you were a NASA scientist. I mean, come on, that’s a glowing thing to have in your resume. Let’s not make that too light. It’s an interesting transition from a scientist working at NASA to becoming an entrepreneur. I guess once you get the bugs, you will get the bugging, and you can’t stop. So that’s great. So I want to talk a little bit about the process that we went through, and you in particular, went through in buying Syed’s business. Syed was a guest on the Podcast as well, as you know. In terms of how it works for you and what we looked at, can you, for the people that are out there looking at businesses and building portfolios of online businesses, can you talk a little bit about your vetting process and how you went about it? Then we’ll jump into how you handled the call of Syed and the whole process right through the closing.
Nathan: Yeah, absolutely. So the good thing, I mean I had some pretty good time between the time that I sold my last business and the time that I was working. So I got pretty acquainted to what was in the market, multiples they were going for, and the kind of business that sell out. So predominantly I was looking at SaaS businesses. I’ve been it in before. I love the fact that it was recurring revenue, there’s no product I had to deal with, so I really zero in on that as my primary, well, it’s more left open to great businesses that had good year over year return, and Syed just sort of filled all those checkmarks. They had great in over a year return, it was growing. In his case there was kind of a lower owner involvement which is great because that allows me to come in at full time and really push at the growth. So those were some of the main key characteristics. But one of the biggest ones, I know that you’re familiar with this one. First question I’ll ask you is, “Joe, is this taxable?” and I wanted to make sure that was it, because I wanted to leverage my money as much as possible. It may not be for everybody but we certainly list, so I’ve been trying to pursue SBA business and the loans for a while, [inaudible 0:08:04] And as you know that’s not been easy for the last, however many years. But I would say within the last year too, I’ve seen more qualified banks and qualified SBA folks come in and be able to really take that sort of thing with ecommerce businesses and SaaS businesses, know what they’re talking about, and present it to their credit department, and make it happen, and I actually solve with Stephen Speer, he’s not even a competitor, he’s a guest as well.
Joe: That’s right Stephen Speer from BankUnited, for those that haven’t heard the Podcast, he was a guest. Very informative, as far as lenders go, I’d say Stephen is top notch, the best, and he’s an entrepreneur, sort of, himself. Yes he’s a lender with BankUnited but he works from home often, more often than not, and lives our lifestyle which is really unique, and he understands ecommerce and so he is underwriter, really important. So for those not familiar with the SBA, it’s Small Business Administration. If you’re buying a two million dollar business for instance, you don’t have to have two million dollars. You can have 200,000 dollars and really leverage your money. But note, is Austin a ten year note which obviously works very well in terms of these online businesses. Let’s jump to the first call that you had with Syed. Nathan, can you talk about your objective was on that first conference call would start?
Nathan: Yeah, so the objective is pretty much similar as with most sellers, you try to get a feel for the seller and knowing the business with its seller personally. You’re going to be working pretty close to this guy or girl. So, the main thing is, I want to understand what Syed does day to day, what is his outlook for the business, you know, kind of that more, the regular things that you’ll for even if you’re buying a house, and how the thing was maintained. So with Syed, it was really, we talked about this before. He knew early on that I was a gator so that kind of help me knock a little bit there too.
Joe: What do you mean gator? What does that…
Nathan: For the gator, so quarter gator not [inaudible 0:10:11] it’s seminal, it’s two different things..
Joe: Did you see the Podcast by the way?
Nathan: I heard the Podcast with Syed.
Joe: I put the hat on and I have a gator said hold up… There it is right there folks..
Nathan: But yeah, it was really bad to understand, you know, kind of gains and knots in the businesses. I was a buyer, one of the specific things you’re looking for is, is there anything I’m missing that wasn’t in the perspectives, in terms of, what is the seller doing that if I remove him from this equation, will I still be able to do this? Because that taught something that you will rarely see at perspectives and even on conversation. You’re kind of feeling out for that but at the main time, at the main thing, what I would advise, anybody that’s listening that’s looking to buy a business, because I’ve been doing this for a while, in terms of talking to sellers, and back and forth, and I’ve been selling my own business. You don’t want this to be a stringent interview where you’re just running through all these questions, you want to be very conversational and let it flow. I’ve gotten a lot of good results by doing things that way. I think that was the main thing, is that we kept it friendly and conversational instead of, “I’m trying to figure out why you’re selling this because I don’t trust you.” It was just a totally different approach.
Joe: I can tell you that, with the conversation that you had with Syed, he has told me that on that call he wasn’t looking forward to it being over. He enjoyed the conversation and the things that you had in common like the gators, but more along the line of taking care of the customers, and taking care of your people or your staff first, and he really enjoyed it. Where some of the other conversations that other seller have, they can’t wait until it’s over. I had that experience with one of the people that called me when I had my business for sale back in 2010. He was rude, he was abrasive, and I did all I could to stay on the line and be polite, and just wanted the call to be over. Even if he made me a full press offer I would have a hard time selling him the business. So that makes a huge difference, I think when you ended the call with Syed, his thought was, “Man I really hope Nathan makes an offer, loves to do business with him, and the people that are using my services and products, and the staff that I have in place, will really enjoy working with Nathan and thrives with him as the leader of the business.” Is that kind of what you were shooting for or it’s just natural that you did that?
Nathan: You know I think it’s a little bit of both, I’ve sold being on the opposite side and being on Syed’s then while I was selling my business, I’ve come across different buyers and newer party’s conversations, when you just talk to them, you’re like, this is not the right fit. Even if this guy came with a complete cash offer or whatever it could be, this may not be the right fit. With Syed, I kind of guessing here, I think he was sort of looking, not so much about the deal or the money but he was looking for a right fit because he was worried about his folks that were, i mean these are all permanent employees with no contract, there’s really in this business, five of them, and so he really cared about them and he really cared about the customers. A lot of it came from me just doing things that were customer centered, I’ve always run companies like that, I’ve run teams that way, and I just sort of mentioned that, I was like, I don’t know who else your other buyers are, but this is the way I do things, so I don’t know if that fits within your battle, it just happen to be that way, and then I heard later on that these were his core values, and those are my core values, and we just sort of mesh over that.
Joe: Yeah, it was exciting factor in choosing you over the, technically, two other buyers. Let’s talk about, jump forward to your due diligence process, what was your goal in due diligence, how did you approach it, and how long did it take?
Nathan: You know, it’s funny. I’ve done more due diligence in past businesses that was much smaller. I’ll sort of elaborate it on line. So the initial due diligence I’ve coarsely didn’t know, returns on profit and loss versus statements and all that good stuff, what you’re supposed to do. I did not do as deep with due diligence solely because of the talks that me and Syed did have, and just the reputation that Syed had. So his influence in the WordPress community, he has got a lot on the line. So I didn’t really have to worry about him ripping you of and stuff like that. He was really worried about, they going to the right buyers, versus me worrying I’ve got the wrong seller and the wrong product and…
Joe: But you still verified that financials that was to make sure…
Nathan: Yeah, the basic stuff was all done but I didn’t lose any sleep worrying if it’s something was going to happen because, again, there’s still background that you’ve parked over this. When you see that the tax returns are completely reflective with the P&L that got submitted and the perspectives, that right there gives me the warm fuzzy I need as I go forward. I don’t have to kick and [inaudible 0:15:00] as much, trying to figure out where am I getting ripped off. You’re going more with the mindset, okay the basis is there and everything else should just work flow and it did. But that was the main stuff, it’s just making sure that everything wind up with ways that it was.
Joe: You only note on the tax returns, for those buyers and sellers listening, Syed had a business partner, so often time with partners, the tax returns and the P&L’s are very very clean. When you are a solo entrepreneur, your more things, personal things with the business, it can get a little bit messier. The SBA looks at the tax returns, first and foremost, they’ll use the P&L’s if it’s halfway through the year, and three quarters went through the year, thanks for that nature. But the tax returns are first and foremost, and what they do, their valuations off of. So don’t be completely afraid if you’re a solo entrepreneur, that you cannot sell a business, then have it be, financed with an SBA loan because you absolutely can. With the lenders that we’ve worked with, they understand the add tax schedules and the personal benefits that anyone takes, and so do the underwriters within the group that we work with there. So, you didn’t worry too much about the due diligence process, naturally, you verified the financials, you had several calls with Syed, and you went through the process with the SBA. Let’s jump to that for just a moment, what was it like going through the SBA process and what did you had to do?
Nathan: Yeah, the fun thing is that I had actually been through this process with previous businesses before, and so I’ve actually gone to that fun part of the business. We just had issues and pulled out. I was familiar going in. So first of all, kudos to Stephen, kudos to you, and kudos to Syed for just being an awesome team for making it all happen. That’s probably why we had them work speedy close than what’s usually expected. But you know, aside from that, I think having everything ready to go, I mean, Stephen was good about that, and pretty much gave me more or less the stuff that I needed in terms of, “These are things on the checklist, you should probably have this done because from my experience I know that it’s more of that likely go through”. That helps, because a lot of times, there’s always [inaudible 0:17:17] going on, a lot of times the buyer takes a long time to get stuff back. So we didn’t really have that issue here. But you know, again, it really mattered. I’ve worked with SBA bankers before, and it really matters on who it is that you’re dealing with. With Stephen’s case, he just had everything down. He’s done ecommerce, he’s done SaaS businesses, there is no “Well how does this work or where is the? So tell me where the hard assets are in the business?” There was none of that. So that kind of straight lined the process really well for all of us. But I think just having that stuff done upfront, that’s what helped us get really done at speedy line.
Joe: You said that Stephen and myself and the underwriters all worked very well together and Syed and so on and so forth. I happen to have dinner with Stephen and the underwriter that worked on your business, they were both in Charlotte a couple of weeks ago, and they both talked about you being one of their favorite buyers. So for anybody listening, this stuff matters, Nathan brought a business, would that note to the seller, when somebody else made and all cash offer. The seller chose Nathan over that all cash offer at the same purchase price, because he liked Nathan and what he stood for. The SBA lender and the underwriter, both said that Nathan was one of their favorite buyers of all time which makes process easier. They’re going to work harder for you when they like you. It’s human nature, so really really important to understand that aspect of it. Let’s jump now on to closing, training, and transition, and what’s taking place since then. I think we closed just before Christmas. By the way it was probably from letter of intent to closing about 50 days which is fairly short for an SBA loan, and we had a full week of thanksgiving in there, so call it 45ish. What’s transpired since you close, how was it going, what was training and transition like and so on and so forth?
Nathan: Yeah, again, comparing it to the past businesses I’ve had and worked with the past sellers, it’s been night and day. The great thing is that because of the level of business, you know that will add the seven figures, because Syed runs seven and eight figure business above, he’s very meticulous. So the first thing he did was setup, you know when they found a project in a drop box to view list. With all other things that his team needed to do for me, everything I needed in there. So that made it a lot more extreme ride then. Again if you’re selling your business and you’re getting to that point, make sure you have something like that in place, because that’s the other warm fuzz and that lets you know that “Okay it’s stuff I’m not thinking about as a buyer, the seller informed about for me” and we kind of running through those checklist. So, you know, I would say the transition went pretty smooth, I mean not really that he cuts.. You know, I talked to the CTO, I talked to the CFO, we all had these one on one’s where we talked about what they did, so I made sure that I knew exactly what each person role is because I was taking over a couple of people’s roles…
Joe: How did they feel by the way, the staff, with you coming in and taking over Syed’s role? Were they excited? Were they scared? What was that like to tell them that news?
Nathan: You know, I think that initially they were, like most transitions, they were maybe a little one sided, just because, there was a lot of grey areas up until the actual deal was inked. So they were a little one sided, they were a little confused about what was going to happen now, they are getting the impression at something else or did I keep the same things they’ve had. So from my end, it just took a little bit of, getting them all on, talking to them face to face and letting them know, “Listen, everything stays the same, I’ve liked the way that Syed have done business, I’ve planned to keep those same things in place, let me know if there’s something you’re customed to and that is done because those things have all been accounted for” and so I wanted to do it and make sure I went above and beyond what they were expecting what happened after this transition and just kind of talk them down on the fears of what naturally happens when there’s a transition even in corporate out and serious stuff. We’re good to go now and that’s what kind of passed that.
Joe: While we kept it confidential, we didn’t want to let the staff know that the business was even for sale, until everything was finalized, inked, and really truly going through. That’s something all sellers struggle with, when to tell the core people. In my case, when I sold mine, I think I waited until the asset purchase agreement was signed, because she was valuable to me and I wanted her to stick around for me and for the new owner of the business. So that’s what we did here, and I know that Syed said you did a great job instilling confidence in the staff and making them feel comfortable. One of the attractive things about this business is it was one of many businesses for Syed so he wasn’t working full time on it. How was the workload then for you, taking over the business? Are you working full time early on or you’re finding yourself with more than full time? You’re working less? What’s that situation like?
Nathan: Yes, I’ll say initially, at first two weeks, just like any transitions, it was pretty much full time. But I had a pre-planned vacation that’s about three weeks long, that I have to go to India. So for me, that was a big deal to make sure that I would be able to leave and just do the minor stuff in the background and have some question, to get things while I’m abroad.
Joe: So just, you bought the business, we closed, and then you had two and a half weeks of being around and then you went to India for three weeks?
Nathan: Correct. Yeah.
Joe: And everything still ran smoothly.
Nathan: And everything is still smooth. I mean, that was mentioned to me early on and that was again, that was a really attractive factor to know that. You know, I think you’ve mentioned that you could move and go to the Far East and come back. That’s kind of what I did. So, it was good to come back and see that everything was still in place, that the team was, the team was phenomenal, that Syed did assemble. Each individual player plays a major part in what they do, and for that reason they’re also very turnkey. That’s a turnkey business, turnkey team. So, that’s why when I saw where am I inserting myself, it was kind of learning the role to what’s already being done. How can I improve, how can I make things better for them, and be the leadership that Syed has been able to provide and do his other businesses.
Joe: Okay, so where do you see your workload now? You were working really busy, after just a couple of weeks you went away for three weeks…
Nathan: I would say that corporate atmosphere, it’s like still checking at 8:00 to 9:00, I’m out by 5:00 – 5:30 and I’m told, you know, the employees do the same thing. Let’s not make this a full 12 or 14 hour a day, and I want to balance that, that work-like balance too. Because I came from that kind of environment and I know it pays good. I usually work the eight or seven hours, sometimes nine whatever it needed. Rather than that, at a certain time before my wife comes home or whatever, I’m usually done, closed out, and I’m trying not to think about it.
Joe: Well, what are you working on? Syed didn’t work in about a few hours a week on the business and now you’re working 30-40. Are you fixing broken things or are you working on to projects and growth opportunities?
Nathan: Now the great thing is he built a solid foundation so what I’m really doing is I’m working on the stuff that he wasn’t able to do, which is the marketing advertising taking that further gain, the PPC’s setup, optimizing on the SEO getting the right content writers in to put that detailed information that we really liked, that’s been attracting the other folks and traffic. So it’s been really centered around the business development, the marketing and advertising stuff, which has really been done, because again, he’s got great and recurring revenue, we’ve got a great organic traffic through Google, so from that right now, it’s the going above and beyond the PPC stuff. The stuff that he didn’t have to give and didn’t really have to focus on because the business is really self-sustained.
Joe: Right, so you want to grow the business, you didn’t buy it and just collect a check every month, you’re trying to grow it so you’re putting in more hours.
Nathan: Aside from just the business development, it’s also providing that the one on one with these folks. I mean again, these are not contracted. These are folks that have certain benefits and they’ve liked that type of attention and focus from a leadership. So that’s what I’m enable to do, I’m enable to gear about the product road map, provide my input to that where we want to go, instead of just kind of them doing whatever, it’s done and just see that the money reach the bank, it’s not really that.
Joe: As far as much, one thing we haven’t touched on is where they work from. You’ve got five employees, are they all working from an office or they’re all remote?
Nathan: They are all remote, they have been doing that for many years, so again, I tried to focus and know what side has all of you been doing, since Syed has 40 plus employees, they’ve been doing this for years, and I think Syed began and has been doing it for 14 to 15 years. So I liked that idea, and I liked the fact that they’re able to do this with milestones. I don’t know, there’s no… You know a lot of times, I would just set a meeting yesterday, but some other guy, they own a company here in Houston, and they were like, how do you keep track? I was like, I don’t. There’s a lot of trust involved, and there’s milestones that are set, and as long as these milestones are being set, I don’t care where they’re working that 40 hours.
Joe: What’s your favorite software? What system are you using to communicate and track what they do and work with them? Are you using Slack or what are you focused on? For people that are running remote staff that are having trouble with it, what would you recommend?
Nathan: Yeah for Slack it’s been awesome. I’m pretty new to Slack, I used Skype on my last business. Slack is way better than that so I highly recommend that. We use Zoom, we do a lot of this, the face to face meetings. I think that matters a lot with the remote staff, was getting at Facetime, and again, letting them know you’re just not an employee behind the computer that’s just in another state. We’re talking to each other, we’re going to do once or twice a year meet ups. So we do team building activities, that’s super important too. Yeah I would say that Slack, the Zoom, and also Asana. Those things are big key to really help with the project management and the milestones we’ve set, and Github as well for the developers.
Joe: Okay, awesome. Alright Nathan because we’re running out of time, how do you see the future of the business? What are you looking over that 12, 24, 36 months? You’re going to hold to stay, you grow at 10%, you’re going to grow 50%, what are you predicting?
Nathan: Yeah, you know, I hate to throw a prediction at it right now, I’m happy if we’re over the double digits, anywhere in the double digits will do triple digits in over a year growth, I’m a happy, happy camper. I think when possible again, got a great business, great team in place, and there’s nothing but upsides so, I’m looking forward to it.
Joe: We’ll going to have to check in, in the future and see how it turned out. You have any last minute thoughts for multipliers and sellers? You’ve been in both shoes, you sold, you offer your services, business, you bought one, any last minute thoughts in terms of what they should do or focus on?
Nathan: Yeah, I would say the huge takeaway from this and for me has been, you know, when you’re doing these buyer and seller conversations, no matter what side you’re on, keep it conversational. It’s great to have your question beside, but don’t run through it like a machine gun and keep it just robotic and mechanical. Because there’s a huge human element here involved and this was a prime example that actually happened.
Joe: That’s great. Nathan, pleasure doing business with you twice now, I’m looking forward to hearing some great news, great success, with Envira Gallery and so on and so forth. I hope that really works out and maybe we can check in, in the future and do another Podcast update and let the folks know how you’ve been succeeding.
Nathan: Yeah, I would love to.
Joe: Awesome man, thanks for your time today.
Nathan: Awesome, talk to you later Joe.