Getting Acquired: How I Built and Sold My SaaS Startup

Getting Acquired

GETTING

ACQUIRED

HOW I BUILT AND SOLD MY SaaS STARTUP

Andrew Gazdecki

Copyright © 2021 Andrew Gazdecki

Getting Acquired: How I Built and Sold My SaaS Startup

All rights reserved.

Hardcover ISBN: 978-1-5445-2289-0

Paperback ISBN: 978-1-5445-2288-3

eBook ISBN: 978-1-5445-2287-6

Audiobook ISBN: 978-1-5445-2410-8

I’d like to dedicate this book to my son, Julian Timothy Gazdecki. If you’re reading this, I hope you’ll believe me now when I say your dad was a cool guy! Seriously, though, I credit my success to an unshakable determination to give you and the rest of our family a better quality of life. Right now, you’re just two years old, but nevertheless, I want to thank you for being an awesome little dude, and I can’t wait to see how you change the world.

Contents

INTRODUCTION

Chapter 1

Please Don’t Give Me A Job!

Chapter 2

Chico: Time to Get Serious

Chapter 3

How We Solved the Scalability Problem

Chapter 4

The San Francisco Years: How I Learned What It Means to Be a Good Leader

Chapter 5

The San Francisco Years: How I Learned the Value of Storytelling

Chapter 6

The San Diego Years: From Growth to Profitability

Chapter 7

The San Diego Years: Refining Focus, Redefining Motivation, and Other Challenges

Chapter 8

End of an Era and Beyond

Resources on Entrepreneurship

Chapter 9

Should Entrepreneurs Think More Like Angel Investors?

Chapter 10

Who Needs Investors? Why Many Startups Should Bootstrap Instead

Chapter 11

Five Ways Bootstrapping Can Make You a Better Business

Resources on Growth

Chapter 12

Want to Grow Your Startup? Use Storytelling to Slay the Competition

Chapter 13

How to Make the Competition Your Greatest Asset in Sales

Chapter 14

How I Helped A SaaS Business Grow Over 1,000 Percent In Under Nine Months

Resources on Acquisitions

Chapter 15

Know Your Exits: When Your Startup Is Most Likely to Be Acquired

Chapter 16

How To Estimate The Value Of Your Saas Startup

Chapter 17

How To Prepare Your Startup For Acquisition In Just Six Steps

Chapter 18

What To Expect From The Six Legal Stages Of An Acquisition

Chapter 19

Due Diligence And How To Survive It

Chapter 20

How To Negotiate A Letter Of Intent (Loi) That Closes An Acquisition Deal On Your Terms

Chapter 21

Why Seller Financing Could Save Your Acquisition Deal From Disaster

Chapter 22

Why SaaS Businesses Make Great Acquisitions For First-Time Flippers

Chapter 23

Churn, Code, And Customers: Three Signs a SaaS Business Is Worth Acquiring

Chapter 24

How To Finance An Acquisition Using An Sba Loan

Chapter 25

Glossary Of Technical Terms, Acronyms, And Metrics

ACKNOWLEDGMENTS

INTRODUCTION

On August 15, 2017, I got a surprise phone call that almost destroyed my company.

I was giving a product demonstration to a local restaurant with my VP of Customer Success, Rosa Romaine. The mobile app we created was going to help them grow their business, and we were all super excited.

Then my mobile phone rang. I excused myself and motioned for Rosa to continue. I looked down at my iPhone and saw it was Stephen, my VP of Product. He knew I was in a meeting, so why was he calling now?

Andrew, he said, his voice cracking. I just got a call from one of our largest partners.

What happened? I asked.

All their apps are gone.

"What do you mean, gone?"

The App Store cleared them out.

I closed my eyes, balled my free hand into a fist, and sighed.

It’s all over, I thought.

Since launching Bizness Apps in my dorm room in 2010, I’d been helping small businesses compete with megabrands through app-based marketing. Our app builder saved companies up to $100,000 on app development and helped them compete against bigger brands with even bigger pockets. It was David versus Goliath, and our software was the slingshot.

Only it seemed Goliath also had a trick or two up his sleeve.

The next four weeks after Stephen’s phone call were a struggle for survival. Revenue fell 10 percent. Our best clients asked questions I couldn’t answer. I still remember the sleepless nights, skipped meals, and permanent headache.

I spent most of my time on the phone with the Apple executive team, begging for a lifeline. I needed a response to an appeal on paragraph 4.2.6 in Apple’s Developer Guidelines: Apps created from a commercialized template or app generation service will be rejected.

Paragraph 4.2.6 changed my industry forever. To Apple, it was just quality assurance. No clones, no sloppy code, no spam. But to ban all app builders? To us, it felt heavy-handed.

Nevertheless, my hands were tied. I was going to lose my company. Revenue was in freefall. Clients were asking for their money back. I dreaded resignation letters, the inevitable knocks on my door as employees fled the sinking ship. At my nadir, I remember laughing—yes, actually laughing—at how quickly my world had turned upside down. It was so sudden. It seemed so inevitable.

And then, a little over a year later, it flipped again.

On May 6, 2018, I sold Bizness Apps to ESW Capital, a $10 billion private equity firm, for a life-changing amount of money. I’d been a broke, twenty-something entrepreneur, fighting for the survival of my company, and now I had tens of millions of dollars in my account. I felt like the luckiest man alive.

The money was incredible. It felt like freedom. But when the shock wore off, I recognized a deeper sense of achievement. I had hundreds of employees, and our apps served millions of people. I had changed the world and helped shape lives and livelihoods. And this, more than the money, is what hooked me on entrepreneurship.

Looking back, I could’ve given up countless times, so why did I keep pushing on? Why did I stay up until midnight answering customer support questions? Why would I wake up at three in the morning to help with server issues? And why did I push on after the Apple 4.2.6 debacle threatened to raze my business to the ground?

It’s funny what the first acquisition does to you. It reveals things about yourself you might never have known. I don’t really care for money or material things (apart from maybe one nice car), but I love helping people. I love having a purpose, a mission, a chance to impose order on a chaotic and unfair world. I kept going because I love what I do.

Today, with two acquisitions under my belt, I’m starting to think of the future. I can’t wait to settle down, spend more time with my wife Michelle, and raise children. I want to be the father I never had. I want to see the look in their eyes when I tell them that in my early twenties I was running a multimillion-dollar software company featured in every magazine you can think of.

But my journey isn’t over yet.

Now, I want to help entrepreneurs like you achieve the success I did. Perhaps more. There’s a pattern to it—not a magic formula but a structure, a blueprint for boosting your chances of success. I know because I used it at Bizness Apps. I used it again at my second acquired company, Altcoin.io, as a growth consultant for several multimillion-dollar startups, and I use it now as founder of MicroAcquire, a startup acquisition marketplace.

As I wrangled with Apple’s 4.2.6 rejection, I reflected on my life as if it, too, was about to end. Yes, I know how absurd that sounds. Call it immaturity, if you like, but I’d invested so much of my time and effort into Bizness Apps that I believed I’d never recover if it failed.

Since I was a kid, I’ve always challenged the status quo. At twelve years old, I was interviewed by NBC, Fox News, the LA Times, and even The Dr. Laura Program for petitioning my local school to let me skateboard to campus. It was a fluff piece, I know, but that experience—that failure—is a lesson that stayed with me. About twenty years later, there I was again, up against a higher authority, Apple, standing in the way of change. I had to believe there was a way out. Otherwise, what was the point?

I did find the way out. And if you read on, you’ll also find out how I tackled a myriad of other problems along the path to my first multimillion-dollar acquisition.

You’ll discover how I got my companies featured in TechCrunch over a dozen times, how I became an Inc. fastest-growing company two years in a row (numbers fifty-eight and ninety-two), and how I finally achieved my dream of selling my startup for millions of dollars.

Not only that, but you’ll learn how to build a compelling brand story and catalyze growth on a budget, and how to position, manage, and get the best out of an acquisition.

I’m Andrew Gazdecki, founder, mentor, and entrepreneur. I want to share my experiences with you so you can put into practice the lessons I learned without making the same mistakes. If you dream of starting, growing, and then selling your own business, you’ve come to the right place.

So grab a coffee, settle down, and let me tell you my story.

CHAPTER 1

PLEASE DON’T GIVE ME A JOB!

How many business books have you read? If you’re anything like me, you’ve probably read hundreds. And while I’ve learned a lot from them, I still believe there’s no better teacher than experience. I know that’s a cliche, but like all cliches, there’s a kernel of truth to it to which we’ve long become desensitized.

Think of when you learned to ride a bike. No one told you how to balance. No one taught you how to pedal. You picked it up through experience (and countless skinned knees). It’s one thing being told what to do; it’s another to learn the right way yourself.

You might be wondering, then, why I bothered to write this book. If I’m such a believer in learning through experience, learning by doing, why take the time and effort to distill what I’ve learned into these modest pages?

In many respects, what follows is typical of many business books. You’ll read advice, tips, and strategies for building and selling profitable startups. But you’ll also get an honest account of my experience as a serial entrepreneur: from being a penniless student on financial aid to selling my first business for millions of dollars.

You’ll cringe at my mistakes, cheer the lessons I learned from them, and ride the roller coaster of emotions that is Startupland. You’ll get to know me somewhat intimately, and I hope you will, through a kind of literary osmosis, live through my experiences and absorb these lessons as if they were your own.

I don’t want you to make the same mistakes I did. At the same time, I don’t want your ideas to stagnate until they fossilize. This book will show you that no matter who you are, where you’re from, or what you do, you can build and sell profitable startups.

What follows is skewed toward Software-as-a-Service (SaaS). She was the first ship I sailed, and I haven’t left her since. However, most principles apply to any industry, niche, service, or product. And you don’t need a big chunk of capital to get started. In my experience, a startup needs to do just three things to be successful:

1. Solve a problem or fulfill a need or want.

2. Develop a viable business model.

3. Tell a great story.

You might have one nailed. Possibly two. Without all three, however, you’ll never scale. You might make a bit of money (like I did when I was building apps for every small business in my college town), but you won’t get much further than that. And that’s fine. We should celebrate achievements, no matter the size. But if you had the opportunity to break into the big leagues, wouldn’t you grasp it with both hands?

The Spark

Today, a lot of people ask me how Bizness Apps began. I could point to a hundred different moments: my past successes and failures, PhoneFreelancer (I’ll talk more about this soon), my wife Michelle’s support, my family and friends, the people who taught and mentored me over the years—I could go on. Without those lessons, that experience, the advice of people wiser than I’ll ever be, I might never have spotted the opportunity that later became Bizness Apps.

To start, you might be surprised to learn I’m no coder. I’m not a savant or a math wiz, or even particularly academic. What I am is persistent. Bizness Apps wasn’t my first rodeo as an entrepreneur. I’d been starting companies every summer since I was a teenager. While my friends were out surfing, playing sports, and hanging out at the skatepark, I was indoors squinting at my computer, brainstorming new business ideas.

I like to think most of my ideas were pretty good. One of my earliest came from the massively popular online multiplayer role-playing game World of Warcraft (WoW). The in-game economy runs on digital gold, which you buy using real money. If you want a fast track to the best weapons, armor, or magical items, you open your wallet and buy them from the auction market. That might sound nuts, but it made Blizzard, WoW’s creator, billions of dollars. Never underestimate the power of escapism, people. And all this virtual cash got me thinking, What if I could help these digital gold retailers find customers?

Back in 2008, Google Ads were super cheap to run. So I created a website to pull buyers in and then redirect them to the retailer, earning an affiliate commission on every sale. Unfortunately, my gold-hawking scheme didn’t last. Out of nowhere, Google Ads went from twenty cents a click to several dollars, pricing me out of the market. Needless to say, I didn’t stay in the virtual gold business for long, but at its height I was making around $2,500 per month. Not bad for a nineteen-year-old, right?

Well, we all have to start somewhere. In late 2007, while studying at CSU Chico State, I built a job board called PhoneFreelancer. Back then, I was dirt poor. I lived on instant ramen and 7-Eleven coffee, wore my high school wardrobe, and partied on the cheapest, nastiest vodka ($1-a-drink cheap). That said, I’ve never been a flashy guy. The shirt I’m wearing now cost just $5 and all alcohol tastes the same to me, so I don’t remember those years being especially hard. I was healthy, and as long as I was working to secure a comfortable future for my family, I was happy.

However, being broke meant little seed money for new ideas. As you know, I’m no software engineer, so I had to buy something ready-made that I could modify with a few simple lines of