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If you own a SaaS or other digital product business — such as a Slack plugin, Chrome extension, online publishing business, mobile app, or even a blog — and you’re looking to exit, you may have a lot of questions about how best to go about it.
In this episode of Growth Stage, we interview Flippa CEO Blake Hutchison about how Flippa works, as well as insights on what you should know if you’re a digital business owner looking to sell your business.
Listen for the full insights into:
- How Flippa.com works to connect for-sale businesses with buyers while managing the complexities of valuation and seller expectations.
- Advice on how SaaS or digital product company owners can prepare for a successful exit, including financial hygiene and knowing what the right time to sell looks like for themselves.
- How selling an investment business is very different from getting VC funding.
If it’s time to sell your SaaS, app, or other digital product business, listen to or watch this episode of Growth Stage now!
Jump to video. | Jump to transcript.
Podcast Full Interview: Audio
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Podcast Full Interview: Video
Transcript
Jesse Paliotto (00:04)
Hello, everyone, and welcome to Growth Stage podcast, where we discuss how digital product companies grow revenue, build meaningful products and increase the value of their business. I’m your host, Jesse Paliotto. I support the digital product community as part of my role with FastSpring, and I love bringing the best of the community to you here on the Growth Stage podcast. Today, I’m really pumped, we have with us Blake Hutchison from Flippa.com CEO.
And we’re going to talk to Blake and get insights and updates about flippa.com as well as get insights on things that you should know if you’re a digital business owner, SaaS owner, looking to potentially sell your business and maybe get some insights from Blake on how to go about that and how you might go about it on flippa.com. Blake, thanks for being here today. I really appreciate it, man.
Blake Hutchison (00:48)
Thank you, Jesse. Really appreciate it as well. Should be a great chat.
Jesse Paliotto (00:51)
Yeah, looking forward to it. For those who are not familiar, can you start just giving us a quick overview of what Flippa is and how it helps entrepreneurs and business owners?
Blake Hutchison (01:00)
Yeah, absolutely, thank you for that. Flippa’s the number one platform to buy and sell digital assets and online businesses. So, should be a really good fit for a lot of the FastSpring customer base and audience out there listening in today. But in short, if you own a SaaS business, if you own a Slack plugin, if you own a Chrome extension, if you own a…
an online publishing business, even like a blog or an iOS or Android app, we have the pathway to exit. So we can offer liquidity and match these entrepreneurs up to the universe of buyers out there who are looking to buy these assets. And they buy those assets much like buyers and investors buy any other asset. They’re interested in the return on investment, they’re interested in the growth opportunities, they’re interested in the strategies and the synergies that those businesses can bring them, either as individuals or as companies. So it’s a marketplace, it’s a platform.
Our sweet spot is really between sort of that $250,000 size business all the way up to maybe a $25 million business. Our job is to match them up and make sure that they can find a happy home.
Jesse Paliotto (01:57)
Mm-hmm.
I love it. I’m tempted to like dive into, I’ve already got some questions on the platform and some of the specifics, but let me ask before that, I’d to hear just a little bit about yourself. Like what led you to become the CEO, Flip? What got you into this particular business model? I believe you’ve got some different, you know, experience as well. So I’d just love to hear how you got connected.
Blake Hutchison (02:21)
Yeah, maybe a few things. I first comment would be I did sell my own. I was an entrepreneur. I did sell my own business on Flippa. So I’m a customer of the platform and have used it and therefore had some understanding of its power and that therefore created a bit of a love affair between, I guess, the board and myself. Secondly, I’ve worked across many, many business models. And of course, we need to know how those businesses work here at Flippa. And I’ve done that. So I’ve worked in SaaS businesses that were fast growth.
and
now very big in the case of, say, a zero, which is cloud accounting software.
I ran one of the fastest growing online travel agencies, of course is ecommerce here in Australia called Luxury Escapes. That’s now a billion dollar company. When I was running it, it was a lot smaller than that, but scaled that up very, very quickly. As I mentioned, I was an entrepreneur myself. I built a marketplace for specialty food and I’ve worked in the Valley based in San Francisco across a number of, well across one startup and then a very established online publishing business called Lonely Planet, which of course at one point in
It’s the biggest guidebook publisher in the world. I guess the of the dynamic number of different industries and the business models I’ve worked across has been of great assistance to me here. And of course we work with entrepreneurs across the globe, regardless of their monetization strategy and approach. So that sort of diversity is still being good stead, I guess.
Jesse Paliotto (03:48)
Yeah, that’s amazing. mean, even just having sort of the gut instinct for, you know, as looking at decisions for the business or how to grow it, like being able to very at a sort of instinctual level, take into account the diversity of business models and stuff that are out there. That’s like a huge, I would imagine that’s just a huge asset for yourself personally and for the business for having you at the home.
Blake Hutchison (04:06)
Yeah, and you know what, I say this a lot. mean, business is business. And of course, industries are different and some industries are very complex. But for the most part, the way you run run business is actually quite analogous to the way you might run another business. The tools and tactics tend to be similar, albeit you need to nuance those. But you just learn so much from seeing so much across so many different businesses. And I think that that’s been really helpful.
Jesse Paliotto (04:35)
Yeah, that’s that’s huge. How has Flip It evolved since you’ve become CEO? Has there been any big milestones or changes or has it been largely sort of this steady state growth process or what’s that look like?
Blake Hutchison (04:47)
Yes, we’ve certainly grown six years consecutively, but I think the biggest evolution for us was going from what might be a low value digital asset marketplace into an M&A platform. And the biggest difference between the two of those statements is one, low value to sort of medium and high value, and then two, the actual service layer built into the technology underneath the hood. And so in the past, it was really a chat environment. So, hey Jesse, I like the
look of your blog, can I buy it? Yes you can, Blake, let’s do a deal. And that’s the history of Flippa. Now it’s a dynamic M&A platform, so we’ve got obviously still that negotiation engine which is the chat room, we now call that the deal room, but then you’ve got M&A insurance which is basically a reps and warranties insurance, you’ve got due diligence built in, you’ve got 15 different data integrations, you’ve got an AI matching tool that does 20 million matches annually, just in excess of
400,000
weekly. You’ve got different asset types. You and I spoke about SaaS plugins, Chrome extensions, all these types of different digital business modes that are now sort of prevalent in 2024. So we’ve had category expansion be a critical part of the business. So I think it’s really the maturation of the platform in what is still a nascent industry and then the service layer that we’ve built within the experience itself.
Jesse Paliotto (06:15)
That’s that rings so true for me personally, because my I experienced flip of first, I think coming out of like a digital marketing background and probably 10 to maybe 15 years ago where I think at that time and please correct me if I get this wrong, it felt like very much like people were selling their blogs there. This was when blogging was very new or at least it was kind of in the upswing and everybody there monetization. I think people were like, my gosh, I could actually sell this. This is like a sellable business and flip it was one of the places you did that. Right.
Blake Hutchison (06:32)
Yes.
You’re absolutely right, Jesse. was the beginnings. There were more blogs than there were anything else. And of course, there’s art today, but the digital economy has evolved substantially. So I think, the number one, to be candid and transparent about it, we sell more ecommerce businesses than anything else. And then second to that would be online publishing. Third to that would be SaaS. And then you sort of have this long tail of new asset types. And so an example of that would be YouTube channels, which is very
fast growing category within the Flippa ecosystem. So people sell a YouTube channel as an asset, they sell the back catalog, we sell KDP, so Amazon Kindle Publishing. That’s a really fast growing category for us. And again, things like Slack plugins, Chrome extensions, this sort of evolution of the platform economy is starting to find its way to Flippa.
Jesse Paliotto (07:39)
That’s interesting to me, partly because I think a lot of the logic around owning a business is that you have to really own your own platforms so that you are in control of what you’re selling, right? But if you’re selling YouTube channels and stuff, is there any, I don’t want to say gotchas or tricks, but any complexities or nuance is probably a better way to say that, around those categories you mentioned at the end where you’re trying to sell a business that is largely built on a third-party platform that you yourself do not entirely control.
Blake Hutchison (08:07)
Yeah, it’s a really great point. I candidly, I still think ecommerce is the most complex to buy as an investor because there’s so many moving parts. So, you know, it depends on the ecommerce.
sort of type, you’ve got direct to consumer, you’ve got drop ship, you’ve obviously got Amazon, you’ve got the other marketplaces like Walmart, et cetera. And so there’s complexities there. And you’ve got the warehousing, you’ve got inventory, you’ve got cost of landing that inventory from maybe China or any other market in the world into the US. So ecommerce is maybe the most complex with respect to how many moving parts there are.
And funnily enough, I mean I obviously take the question, but funnily enough YouTube channels as an example are probably the least complex. the reason being is YouTube is the second largest search engine in the world. So it’s actually similar to buying a blog. What you’re actually looking for is something which dominates YouTube search, something which has clearly high views, which is the equivalent of page views on a blog.
Jesse Paliotto (08:51)
really?
Blake Hutchison (09:13)
And
it’s kind of the most passive. And I never want to say that there’s a passive business you can buy because I’d be setting people up for failure. But it’s kind of the most passive in the sense that if something, you know, if a video about trampolines is consistently generating 100,000 views each month, and it’s been doing so for last 12 months, well, it’s highly unlikely unless Google search changes its search algorithm, which is probable. But it’s highly unlikely that all of sudden this thing drops off a cliff.
100,000
views, it will probably generate 100,000 views the following month. And then of course you generate revenue in much the same way as a blog. You’ve got the equivalent of AdSense, which is a Google product for YouTube, and they’ll serve up ads and you’ll generate revenue, you’ll take that check home every month. So it’s actually relatively consistent. And when you’re doing the due diligence, there’s only so many assets within a YouTube channel you need to assess. So it can be complex in the sense that
If the channel you’re buying is so dependent on new fresh content all the time, you obviously imagine yourself being able to produce that and produce that in line with your audience expectations. But if you’re buying mostly a back catalogue, then it’s less tricky.
Jesse Paliotto (10:18)
right.
You know, a slightly different lens to look at kind of the audience and like this through would be geography. Like you mentioned the different industries that you see coming up, the ones that are sort of leading the pack, these interesting ones that are rising. Is there any kind of places where geographically you’re seeing like we’re starting to see a lot more business or a lot more acquisitions in these regions?
Blake Hutchison (10:50)
Yep, so the US is our biggest market by an absolute stretch. Still 70 % of all trade happens in the US on Flippa. What we have seen though, Jesse, and I think it’s super interesting, is the rise of sort Southeast Asia and Eastern Europe entrepreneurial environment, entrepreneurship hubs.
And what is interesting to watch when you look at the graphs at Flippa that we track each month, US buyers still rocketing up and to the right. So the number of buyers investing in this asset class continues to increase, but what they buy is more regionally diverse. so Americans buying American assets and now it’s Americans buying global assets. And so 67 % of trade on Flippa is cross-border.
Jesse Paliotto (11:28)
Mm-hmm.
Interesting.
Blake Hutchison (11:41)
and essentially what they’re doing is going after all of the entrepreneurs across places like Poland, Bulgaria, Romania, places like Hong Kong, Singapore, Malaysia, Seoul, Thailand, etc. So many entrepreneurs building great small businesses that are infinitely leverageable.
Jesse Paliotto (11:48)
Mm-hmm.
Mm-hmm.
Blake Hutchison (12:05)
and
they’re then applying their understanding of the US approach to running these businesses, they’re applying their skill set, and they’re buying these businesses regardless of where they’re based around the world. So that’s been a substantial shift in the supply side of the Flippa marketplace.
Jesse Paliotto (12:22)
It’s interesting you just said that phrase literally what I was about to say. It’s interesting to see diversification as a supply side driven phenomenon rather than a demand side. Usually it’s like I want to diversify so I’m not all in one market. But this is the other way where there’s just so many good things out there around the world that people like, well, I guess I could buy a company in Vietnam as well as I could in Illinois. That’s interesting.
Blake Hutchison (12:32)
Yeah, no.
Yeah.
And there’s so many stories of that. mean, you know, there’s a San Francisco based company there, they’re called Sporcle where they’re the largest online trivia business in the world. And they recently bought a business out of Helsinki, Finland. And the AI matching connected them up with that opportunity. There’s no way that they would find that opportunity without the platform and the matching algorithm existing. So all of a sudden they find themselves in a deal room negotiating with a broker and entrepreneur based on the other side of the world. And that therefore is their pathway to growth.
Jesse Paliotto (12:55)
Mm-hmm.
Blake Hutchison (13:13)
and in organic growth through acquisition and they find that asset happens to be that the perfect asset is operating out of Europe.
Jesse Paliotto (13:21)
Yeah. Yeah, it’s interesting that AI is a key driver, at least if I infer that from that example where, because of course, I mean, it’s the problem of all digital world that we live in. There’s just so much opportunity, so much content, so many connections. And so that’s how you guys are steering people through that, that breadth of.
Blake Hutchison (13:36)
It’s
become enormous and yeah, I’m sort of jumping on the bandwagon, I, with respect to commentating about it, but the reality is it’s become an enormous driver of our business and it’s because it’s adding so much greater efficiency and accuracy to the matching process. so, know, deal flow and deal origination is one of the challenging things about M&A. And so if you are the founder, the CEO or the analyst working at Sporcle,
You can’t just be logging into marketplaces and platforms every day and seeing what’s out there. Your reliance on us pushing to you the deals that we think are the best fit. And you’ve got to get that right because if you don’t get it right, just annoy the client. And the AI, the precision that we’ve been able to build with respect to those matches has been outstanding. So what it does is it looks at intent signals. So if they are browsing the marketplace,
Jesse Paliotto (14:23)
Mm-hmm.
Blake Hutchison (14:36)
basically makes an inference as to the the fit of one asset based on other assets that they’re looking at so it’s kind of piece one that’s relatively simple and rudimentary the second thing it does is obviously read the mandate and the bio and then it picks up keywords within the mandate and bio and goes and finds relevant assets and then the third thing it does is you kind of got these graph neural networks so it looks at all the assets on the platform and that sort of
Jesse Paliotto (14:46)
Mm-hmm.
Blake Hutchison (15:06)
It creates synergy, so it’s a scatter plot. What is the proximity of one asset to another based on this network? And then it does that on the buyer side too. So it actually looks like buyers like you and what those other buyers are finding interesting. And then it infers that you will also find that interesting. In short, we then ping a text message, ping an email, and we say, we’ve got a match for you, check it out here. And that’s substantial scale in.
Jesse Paliotto (15:08)
Mm-hmm.
Mm-hmm.
Blake Hutchison (15:36)
in our magic business.
Jesse Paliotto (15:38)
Are you familiar with Pandora.com, the music company?
Blake Hutchison (15:41)
When I was living
in Francisco in 2005, they had just started and they were in West Oakland alongside me.
Jesse Paliotto (15:48)
What you just described to me is like a two-sided Pandora. It’s not only correlating the, people that like this band also, or bands like this or like this other one, but they’re correlating you. People like Jesse tend to log into this and you’re kind of doing it on both sides to kind of optimize and match, which is pretty cool.
Blake Hutchison (15:58)
Yeah.
Yeah, it is cool.
Jesse Paliotto (16:07)
Is there any, you this, may have been what you’re just talking about would answer this, but I’m curious if there’s any particular unique challenges around a place like Flippa and running that. It feels very complex, you know, in so many ways and kind of the types of deals that we’ve done, vertical industries, geographies. Is there anything about that that’s like, hey, this is really different than anything I’ve done in the past and here’s how I tackle it.
Blake Hutchison (16:30)
Absolutely, Jesse. I mean, it’s a managed marketplace. so firstly, you’ve got the marketplace aspect of that. It’s two-sided. You must fill up supply to ensure that you provide the adequate service that your demand side is looking for you provide. That’s an always-on battle. And so we’re what you call a high-value, low-repeat marketplace. And so all the transactions are…
of a high value, there’s very few marketplaces that operate at this value. You might have something like, obviously, a Zillow, a Redfin, an Opendoor, all of these are sort of managed marketplace businesses that are selling high value, and then the low repeat nature of it. So you’ve got to get it right first time around. If you don’t, you lose the opportunity to sell and collect revenue. And the likelihood of that customer coming back is quite rare. There’s very few entrepreneurs who spin up more than one asset.
mind that more than one business. And ultimately, there are buyers who are very prolific buying 10, 20, 30 assets, but in reality, most people are buying one or two. you’ve got to get the customer experience right from day dot, and that takes some time to evolve, and we’re continually evolving that. In addition to that, the matching piece is hard, the cross-border nature of it is hard.
Pricing is really difficult, so these athletes are complex. so one YouTube channel with 100,000 views isn’t the same as another YouTube channel with 100,000 views. The category is different. Where it derives its views from is different. An American audience is worth more than an Eastern European audience, just by nature of what advertisers will spend. So the pricing…
Jesse Paliotto (17:59)
interesting.
Blake Hutchison (18:22)
algorithm that goes into valuing these businesses is tricky and we got it wrong for a long time actually and I’d say it’s a lot more accurate than it’s ever been. Of course staffing, you you’ve got to have sales staff on the ground across all of these major entrepreneurship markets so that someone understands the process of selling.
It’s all good and well to do that through an outstanding onboarding experience, which we’ve clearly built. But if someone’s going to sell something for $250,000, it’s a highly emotional sale. And so you’ve got to get that right. And that requires good quality staff operating across, in our case, 20 different countries. So it is complex.
Jesse Paliotto (18:55)
Mm-hmm.
What? Yeah. And even that last comment about the emotional nature of it and that it’s a large deal. It’s maybe analogous to, people talk about if you’re if you’re buying a residence that you’re going to live in, it’s often the biggest purchase of your life. And it’s it’s this massive, massive moment for you. Like when when you’re with pricing, do you find that part of that emotional kind of like walking people through the sales process is educating them on what the pricing should be to people come loaded with a lot of maybe misconceptions around how the process works?
or most people pretty kind of hip to the flow of this.
Blake Hutchison (19:40)
Yeah, so if we step back a little bit, the first problem is most business owners aren’t thinking about exit. Most business owners are thinking about the day-to-day operations of their business, how to put a roof over their head, how to grow it, how to generate revenue and pay their staff. So the complexity of the business starts with one awareness for the problem at hand. And the problem at hand is that ultimately businesses tend to not last forever.
Businesses are assets. They are valuable and there’s a liquidity opportunity that we can provide. So you’ve got to make people aware of that. Then yes, to answer your question on pricing, they mostly have an inflated view, as you would expect, of what their business is worth and they tend to tie that to what they read about the VC industry or what they’re seeing in the public markets.
Jesse Paliotto (20:37)
right.
Blake Hutchison (20:38)
And of course, these businesses don’t have the scale or opportunity that a VC asset would typically have for growth. Its growth profile is different. And then secondly, you don’t have the always on day to day, minute by minute liquidity that you get in the public markets. So it tends to be that they are not valued as high as businesses which have that liquidity or have achieved that scale. And people need to be educated as to that. And then of course,
Jesse Paliotto (21:03)
Mm-hmm.
Blake Hutchison (21:08)
People don’t really know how businesses are valued. They’ll say, hang on, my brand’s great, my product’s great. And we’ll say, well, that’s great. We understand that, we respect that. But the way these businesses are bought and sold is on historical performance, not future opportunity. The future opportunity is for the new owner to realize, which is actually more analogous to buying property than it is to investing in a startup or buying public stock.
Jesse Paliotto (21:35)
Yeah, right. The potential
is there, but you have to put the work in to realize it. Yeah.
Blake Hutchison (21:39)
Yeah, so there’s some education that happens. The good news is we have the equivalent of like a Zillow’s estimate where we’ve got so much sales data that we can predictively price these things and tend to get it right.
Jesse Paliotto (21:46)
Mm-hmm.
Is there any advice you’d give to a SaaS or digital product company that is looking to sell their business on Flippa? What should they be thinking about? I some of the stuff you just said, obviously, anything else that you’d say, you know, be considering this if you’re looking to do an exit here.
Blake Hutchison (22:08)
Yeah, so investors are pretty savvy. If they’re buying a SaaS asset, they tend to know the metrics that matter to them. And therefore, we try to educate founders as best we can as to the metrics that matter. So you can have a SaaS business that says, hey, we’re great. We’re doing $2.5 million ARR. But the reality is they’ve got a high churn rate, their LTV is low, and their cat costs are high. And so the metrics that matter to a SaaS business, we would highly encourage most SaaS business owners.
to study, to understand and to improve and show consistent improvement or at least consistent effort to improve.
The second thing is just find a good quality sort of financial hygiene. Are you using accounting software? Do you understand your inflow? Do you understand your cash flow? Do you have a good feel for how the business is performing on a day-to-day basis? And we find that sounds simple, Jesse, actually, but we find that entrepreneurs are obviously so busy in the trenches that…
that financial hygiene is less likely to be there. So we highly encourage people to a bookkeeper and manage a clean set of books day in, day out, because it does improve their ability to run the business well, but it also sets themselves up for a better possibility at an exit long term. Probably the other thing is to start to imagine.
when the time will come that you may want to move on. And so we often find that people come to us, they suddenly say, I had a, you know, I was at Christmas lunch and I was talking to my family and I’ve decided that in 2025 is my time to exit. And then things aren’t in place. They don’t have standard operating procedures. They don’t have the financial hygiene that we alluded to before. They don’t have a sense for what it’s worth. They don’t have a sense for how much.
Jesse Paliotto (23:49)
Mm-hmm.
Blake Hutchison (24:04)
they are willing to part ways with this business for. And so we encourage people to start to think about that time. They’ll say, well, I’ll never wave the white flag. That’s okay. Think about all the things that annoy you in the business and start to plot a pathway to understanding when that time might come for you. Is it a year out, two years out, three years out? And then imagine the check. What size check will make you happy? You sort of need to work toward that and build a financial position in the business that will give you that
Jesse Paliotto (24:28)
Mm-hmm.
Blake Hutchison (24:34)
best possible chance of success.
Jesse Paliotto (24:37)
Yeah, that’s an interesting way of reframing, you know, what you had said a few paragraphs ago about people often they look at the VC markets, they look at that and they value their business according to these things, but their business is very different. But another I really like that framing like, if you think your business is worth X, then let’s build the framework and the pieces in place that value it at that. So you can feel good about that sales price and getting realistically getting it.
Blake Hutchison (24:56)
you
Yeah, mean, you know, if you take good quality public market SaaS multiples right now, they’re quite compressed still, right? And so you’re looking at maybe five, if you’re lucky, seven times for the average publicly traded SaaS business. Well, in the small market dynamic, you might be looking like sort of two and a half to five times. Two and a half for a standard business, five times for a great quality business with a reasonably low churn rate, maybe sub 7 % churn.
So for those businesses, let’s say therefore that you’re a million dollars ARR but you’re saying, I want a 10 million dollar check. Well, a million dollar ARR business that is subscale, i.e.
generating substantial revenue at this juncture, that business isn’t going to give you a $10 million check, but you can plot your pathway to that and say, okay, well, now I need to get this business to maybe three million ARR, $3.5 million ARR to imagine myself getting that $10 million check.
Jesse Paliotto (26:04)
I wanted to ask you, kind of mentioned like we have like a Zestimate type tool that will kind of value and what are the key factors that it values on? Is it mainly sort of using those default metrics for SAS multiples and then maybe considering churn rate? Or is there some other key things that people should think about when they do sort of a back of the envelope calculation of their value?
Blake Hutchison (26:24)
Yeah, those things are included, but yeah, let’s just go through them. you know, revenue, your cost base, your
profit and we understand and respect that SaaS businesses are not always profitable. They’re reinvesting for growth. The cost of the technology is high, the cost of customer acquisition is high. So it doesn’t need to be profitable, but those things are still taken into consideration. So that rule of 40 top metric is considered in this landscape. Cost of acquisition, LTV, retention rate, churn obviously.
Then location, you the reality is if you’re trading to an American customer.
Let’s say for argument’s sake you’ve got a trade, you know, a trade tech business going after construction companies or builders or plumbers or something like that. The reality is there’s more plumbers in the US than there is in Australia. So if you’ve got a trade tech business and you’re going after plumbers and you’re selling a business to an investor on Flippa and you happen to be US versus Australia, well you’re going to get a compression to your multiple if you’re Australian, unfortunately compared to if you are.
US just by nature of the target addressable market and the opportunity for that new acquirer. So those things are all taken into consideration. Growth rate is taken into consideration. Clearly a declining business. There’s very few people in the world who want to buy a turnaround. You’re talking about a very specialist acquirer.
Jesse Paliotto (27:52)
Mm-hmm.
Blake Hutchison (27:56)
And so again, this comes down to timing. A lot of entrepreneurs will suddenly say, wow, I’m down, I’m down again, I’m down again, shit, I better exit. Well, the reality is that wasn’t the time to exit. The time to was when you were moving up and to the right. Now we’re not looking for moonshots, so we’re not looking for triple digit growth. Those businesses are actually considered a little bit speculative in a market like Flippa.
We’re looking for consistently growing businesses or even flat businesses where the predictable nature of the business is what an investor is most interested in.
Jesse Paliotto (28:33)
Yeah, very interesting. So assuming somebody’s sort of got their business in a place, they’ve got realistic expectations, they have some growth going on or at least flat line performance that they’re not in this kind of bad situation of being in decline and then deciding. So they got those ducks in a row, they get the flip up and they want to pursue doing an exit. Are there any strategies or patterns or things that would be like, if you’re going to come in and do it, here’s some advice on how to pursue that.
Blake Hutchison (28:59)
Yeah.
So one of the best tactics that most people won’t do is to point out the weaknesses in the business. And the best way to do that is, know, investors buyers are pretty savvy. They can see the strengths. The strengths are obvious. What is interesting to a good quality buyer are the things you don’t do well. And so you have to be vulnerable. You have to say that
I’ve never invested in an SEO and I have no idea what content marketing is. So therefore, if you have that capability, then my business will be beneficial with it. I’ve never advertised for customers on Facebook and Google, but if you have that capability, that will be an opportunity for this business.
Jesse Paliotto (29:39)
Mm-hmm.
Blake Hutchison (29:53)
Our churn rate is poor, but we actually know why. And we haven’t got the means to develop that feature set that will help us with our churn and retention. So therefore, if you are a developer with experience in SaaS businesses in this particular category and industry, this business can be optimized. Because buyers are trying to imagine themselves.
taking over these businesses, right? Again, for the most part, they’re not investing, they’re acquiring. And so when they acquire, they then have to take it over. So they need to understand how it works today, they’re the strengths, and they need to make sure that they can continue to run it to the same level that the business owner is running it today. And then secondly, they need to then understand what the weaknesses are, so that once they’ve …
taken the asset over, understood it for some number of consecutive months, they can start to work away at those operational weaknesses and start to fast-track their ROI.
Jesse Paliotto (30:58)
Yeah, that’s interesting. It’s almost a reverse SWOT analysis. So the way I’ve done SWOT in the past, I imagine a lot people have, is you do your strengths, weaknesses, opportunities, threats, and you go, here’s an opportunity, apply our strength to the opportunity. But you’re doing it different. saying, show your weakness. And the weakness is actually where a purchaser or an acquirer say, I can turn that into an opportunity because I have a strength that you don’t. So it’s almost this inversion going on.
Blake Hutchison (31:13)
Yeah.
Yep.
Yep. And it’s an interesting one. Sometimes what is perceived as a strength, a buyer,
considers a weakness. So let me give you an example of that. Now, middly, I understand your audience is, know, SaaS, gaming, et cetera, and this is not an example of that, but I think they’ll get it regardless. So there’s an ecommerce business for sale right now. It’s a $6 million listing. It’s had a lot of attention. And what ends up happening is that acquirers and buyers find out that a lot of the stock,
that is bought is then personalized. So Jesse’s buying a baby romper and then his son or daughter’s name is stitched on the front. And so this…
Jesse Paliotto (32:11)
Right.
Blake Hutchison (32:14)
The founders consider a strength, right? The personalization aspect of what this business offers is what is most attractive to it for parents all over the world. They love the personalization of it. Jesse loves that he can have his name stitched into this romper for his new baby that’s been born in the last six months.
That’s cool for you as a customer. It actually is what sets this business apart. But it’s spooky to acquirers because the acquirer is going to spend $6 million on this business. And if they haven’t worked in or operated a business which is built around personalization before, and is more mass market, churn and burn, high speed retail, that can be…
Jesse Paliotto (32:51)
All
Blake Hutchison (32:58)
challenging. so sometimes we do get entrepreneurs come to us and they’ll say, this is a highly niche operation. And we agree that that should be a strength. And ultimately, our matching algorithm will find the relevant buyer for that type of business. But it can sometimes be a bit debilitating. And it does limit the chance of finding a buyer fast.
Jesse Paliotto (33:23)
Yeah, is most of the buyers, do you find they are people that run the business? I think you said this a couple minutes ago, it’s they are acquiring, not investing. So most of the people that are purchasing the businesses intend to run them themselves.
Blake Hutchison (33:37)
Yeah, they run or they have a team to run. We have what we call the side hustler, we have acquisition entrepreneurs, and we have institutional investors. Regardless, so the side hustler is I’ve got a job, I’m Jesse, I’m Blake, I want to supplement my income and I want to run this digital asset on the side. They’re, know, Slack Plugin, Chrome extension, SaaS business, whatever.
Jesse Paliotto (33:41)
Mm-hmm.
Mm-hmm.
Blake Hutchison (34:05)
I’ve got the acquisition entrepreneur, so that’s Jesse or Blake, but we’re gonna quit our jobs and we’re gonna buy something. We’re gonna buy our next job. So we are an entrepreneur. It happens to be that we won’t do the zero to one, we will do the one to 10. So that’s a safe play because you don’t have to invest all of that time up front in requiring your first hundred or thousand customers, building a technology, understanding how it works and then finding product market fit. Somebody else has done all of that heavy lifting for you.
Regardless to your question, yes, I’m still operating. And then you have the institutional investor. So yes, they call themselves investors, but the reality is they do have a team waiting in the wings to operate. So they’re either rolling up multiple assets that look the same, or they’re buying an asset that looks different but is an awesome extension to some of the business that they already run today. Typical PE type strategy in organic growth for a good quality business.
Jesse Paliotto (34:49)
Mm-hmm.
Blake Hutchison (35:03)
answer your question. Again, they’ve still got a team to run it so yes they are owning and operating.
Jesse Paliotto (35:07)
Yeah.
Yeah, that’s interesting. Well, this is all been extremely interesting. Blake, thank you so much for your time today. This has been great. Is there any final thoughts or comments that maybe I didn’t get to open up that you wanted to make with the audience before we wrap up here? Just wanted to see if you had any final advice for people in the SaaS and digital product world looking to sell their own business.
Blake Hutchison (35:32)
I’ll maybe two quick comments. If you want a very quick valuation, it’s completely free. Just head to Flippa.com, you’d get a free valuation. Hope you don’t mind me plugging that, Jesse. And then the second one is, you asked the question about investing versus operating, so we are imminently, we are just about to launch Flippa Invest. So Flippa Invest will basically make available just an excess of 70,000 accredited investors on our platform who are looking to invest in good quality small businesses.
Jesse Paliotto (35:40)
Absolutely.
Blake Hutchison (36:02)
only, tech only businesses. They’re not looking for moonshots, they’re not looking for IPOs, they’re looking to invest in good quality businesses where they can apply some advisory. So Flippa Invest will launch soon and if anyone’s interested in that just reach out to me on LinkedIn.
Jesse Paliotto (36:16)
that’s wonderful. To reach out to best thing to look you up on LinkedIn?
Blake Hutchison (36:20)
Yeah, LinkedIn’s my platform of choice, so grab me there. I’m pretty active there and I’m happy to chat with anyone about it.
Jesse Paliotto (36:28)
I love it. Well, thank you so much for being here today. I really appreciate it. Blake, this has been super interesting for me personally and I’m sure for people that are listening.
Blake Hutchison (36:36)
Thank you, Jesse. I really appreciate the time.
Jesse Paliotto (36:38)
Thanks everyone for joining us on the Growth Stage podcast. I’m your host, Jesse Paliotto. I support digital product. Community is part of my role here at FastSpring and I love getting to do this. Hang out and bring the best of community here on the podcast with you all. Thanks everybody. Have a great week. Catch you next time. Thanks.
