Osterman: Three consecutive profitable years guarantees buyer confidence in SaaS
Harris Osterman · How to Build SaaS for an Industry No One Knows About (Except Your Customers) · Oct 16, 2024 · at 17:34
Talk Hiring founder Harris Osterman discusses lessons learned from selling his startup with Acquire.com CEO Andrew Gazdecki.
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“If you run a business, and it has at least three consecutive prior years of profit, and like, let's say six figures of profit, like a very small amount that's what buyers want. So, like, there are a lot of companies that have had a lot of profit, but they're pretty new, or they've been around for a while, and they don't have that much profit but if you want to, like, build a startup or a company to sell it seems like three is sort of like the magical number where people are confident that this is a business that isn't going to go away anytime soon.”
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“There's also a point when you're in an acquisition process where you have a bunch of people interested, but no one's going to jump until someone else jumps and like gives you an offer or like there's some deadline.”
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“Working capital requirements can really screw you over, you know, cut your deal.”
Osterman: Buyers hold all negotiating leverage after an LOI is signed
“Once you sign the LOI now the buyer has all the power, and, like, if they back out, now you have to go back to the other buyers.”
Osterman rejected higher acquisition offers to avoid post-sale earnout requirements
“There were offers that would have earned me a lot more money, but I'm not going to be running the business anymore. So I don't really want to do that.”
Osterman: Talk Hiring evaluated seven acquisition offers from varied buyers
“We had seven different offers that we were considering but it was tough to vet all of them, and, like, some of them were public companies, some of them were private startups, some of them were, like, individuals, some of them were search funds”
Osterman: Mitigating revenue and distribution concentration is essential when selling a business
“Buyers are always, not always, but generally wary about if you have certain, like, a certain percentage of your customers, or a certain percentage of your revenue comes from a small percentage of customers. It's tough to avoid that, though, as a company. Like,…”