Deep Dive: Acquisition of Website Building SaaS
The behind the scenes of acquiring a business and bringing it to $1M/year ARR
When I was a teenager, I built a programming and web development company. It was my first business that reached a million dollars in revenue+ per year, at age 16.
My SaaS model for my portfolio is based on a simple notion.
No unicorns. Only tuck-ins.
What does that mean?
Simply put, I only acquire software companies that failed to find market/fit, or were not able to figure out marketing and sales, or simply couldn’t afford to scale due to costs.
A while back, I came across a website builder that is specifically built for coaches and consultants. A massive part of my audience, along with those education businesses that I mentor (and own) are the perfect ideal client.
Simply put… most of those people I know, put off having a website or have a bad website because they don’t want to spend the time to build a website or they don't want to pay $10K+ for a personal brand “high-end” website.
I saw an instant opportunity here.
The founders, originally didn’t have time for it, however, the technology was solid. They sold it a few years ago to a programming team, they improved the technology, however, they didn’t have the budget to grow it.
However, what is present is a great piece of technology
I did extensive due diligence on this one, which is even more important when acquiring the assets of technology and things checked out the way I wanted them too.
The annual recurring revenue, upon purchase was just below $100,000, however, it was being sold quick and was certainly not packaged for “sale”.
I knew that, if we bought this and refreshed certain parts, it would be extremely easy to be able to add into our ecosystem, make marketing costs, zero and create a profit centre.
If you have no cost of a new customer… you win.
If you host someone’s website… you’re last to get disabled.
If you’re in a sub-niche of a niche… it’s easy to be relevant.
If the technology is good and isn’t being used by “techs” the requirements of the technology to develop is low.
Originally, I was thinking I would need to hire an operator and a programmer
Instead, I called up one of my old programmer friends, I was looking at the same time for someone to manage the high-level tech for the different software I’m in.
He was “in” to work together, after just finishing a contract, so we hired him for this company plus others inside of the group.
Then, next was the operator, looking at the business, the owners of the business weren’t great at operating a company, so I knew that this would need help.
After purchase of the business, I started talking to the only person who worked in the business, I was dumbfounded at how perfect he was as an operator-role, however, due to money, the last owners, didn’t let him grow.
We hired him, full-time and gave him the control of the business and operations and are now mentoring and advising him.
Through this process, we also found out that they were selling “DFY” website services
Now, I’ve done that in the past, I used to sell websites that cost $50,000, even sometimes $100,000.
I was skeptical at first (I hate DFY-services), however, again, this operator surprised me at the process and found that the churn rate for those who did DFY was 0.
They would pay $ upfront, then pay the monthly fee.
A part of us rebuilding the business, was simplifying the product. In the past there were 4 plans.
Now, there are 2.
DIY and DFY.
This is when I went into research mode…
I went and asked 20 of our ideal clients a simple question…
“What would it take to get a website online for you?”
Almost every single one said they wanted a website, however, most of them ignored it, simply because of the time and money investment.
That meant, in my mind, that selling DIY, was going to be hard.
So, we redesigned the product, based on the customer.
I’m leaving out a lot on the delivery and operations here
However, there is a lot that will still need to be worked out and building forward, however, the operator is working full-time and “all-in” on being able to make that happen.
A sidenote: This person really loved this business and was with it from the start, we increased how much he was being paid by 7x, with the option for profit share within a year. This allowed for both emotional motivation and physical motivation.
From this point, it was time to start developing the marketing and sales
Quite simply, this business had no marketing and sales. I was blown away it even had $100,000/year in revenue. It was purely feature-based, however, if you compared to something like Square Space or Wix it sucked.
We’re in the process of redesigning the website.
In 2023, we’ll do a rebrand.
We’re focusing on email marketing (they had a list of 3,000 people who came through lead magnets, but never bought)
We’re focusing on helping people see that it makes sense to spend a little money (not a lot) to create lead generation.
We’re focusing on the education of what it means to “have” a website.
From here, we will have the following as our high-level marketing and sales plan…
→ Email: 3x Emails a week, which will be a newsletter to help Coaches and Consultants
→ 1x “Long” Promo per month, which will be focused around a specific pain and how we focus on solving that.
→ We moved away from allowing people to sign up directly and now, it will go to a phone call, so that we can qualify and increase the capture of people to customers.
→ We won’t do any social media, we don't believe it’s a good play.
→ We will do Google Adwords and Retargeting on Facebook/Instagram
→ SEO-focused blog that is very specific to the (low, but high value) search traffic.
→ We will create a very simple funnel that will go to a “Guide” that will share people how to build a website for a coach, which will go to a video, that will go to a phone call. We don’t need to convince people, deeply here.
→ We will partner with coach experts and do monthly “sessions” that the lead lead can join, this builds a community with these people.
→ We also own a coach-specific newsletter, this company will “sponsor” that newsletter.
→ We will integrate this software with both partners who will promote it, include it inside of their email sequences and give free trials to their customers.
→ We will integrate this into all of our education-focused businesses, so that people get discounts or free time to be able to join.
That’s the plan.
Now, I have to be honest, the unfair advantages we have here is WHY we would do this deal, because without it? It doesn’t make sense.
And the truth is, if you don’t have unfair advantages on a deal. Don’t do it, or find someone who does and do it with them.
Now, let’s talk numbers…
Currently, the expenses on business, if you exclude the costs for the team that is helping this with my portfolio group, is roughly $8,000/month, I expect these costs to balloon upwards to $20,000/month at maximum.
My intention with this business is to be able to help it generate at least $1,000,000 in yearly recurring revenue.
Our DFY product, as it stands right now will cost $2,000, for year one, then $97/mo going forward, with our DIY, costing $35/month (or $350/year).
On top of this, if we do our job correctly, we have multiple cross-sells that we can make for our companies that also serve this group of people… which creates an entire affiliate stream of revenue.
My feeling is that in 2023, we’re able to complete at least 200 DFY websites, along with enough momentum to have 200 DIY websites, this would create a scenario where we would generate well over $500,000, if we exclude affiliate.
If we are able to do this, the following year (excluding churn), we will generate from recurring revenue alone, another $350,000+.
The thing is, a business like this starts to become exponential as more people use it and it becomes a preferred option.
Let’s say this continues for 3 years, with a yearly churn of 10%.
In 3 years, we would upfront produce: $1.2M in upfront DFY fees
In 3 years, we would generate $450,000 in monthly recurring for our DFY
In 3 years, we would generate $231,000 in monthly recurring for our DFY
Total, including a level of churn (% off by 10%): $1.81 Million
and my expected costs, even at maximum, I would expect would not go above $240,000/year, making the maximum costs of $750,000, for a net profit of > $1,000,000.
Now, let’s say, this continues… by 2025/2026, even if this doesn’t grow a lot, I will have business that is on track in 2026 to generate well over $1 million in recurring revenue, that has low cost.
At this point I have a couple of options:
- Let it sit and continue or
- Sell it to someone who doesn’t have the unfair advantages and exit and take the money to invest elsewhere.
My worst case scenario is
That I’m generating $1M in profit a year and have a list of tens of thousands of people who are potential customers for the rest of my portfolio.
My best case scenario is
That I’m able to sell for $5M+ and use that money for the rest of my portfolio
Combine and roll-up with other software in my portfolio and sell the entire thing for a much higher multiple.
Obviously, there are lots of risks here…
However, what I love about buying software in a scenario like this, at this level, is that it’s a small bet.
I can sustain this business for years, because the costs are so low. They risk to reward profile, is beautiful.
My unfair advantages, make it so that if I only promoted it to my audience (across all platforms 500K Entrepreneurs), it would do well.
And… already, I deeply enjoy seeing the daily Stripe notifications.
The lessons here are clear…
If you’re going to acquire, have an unfair advantage, or even a full set of them.
Make small bets, with high reward, to risk.
And know what you’re aiming for.