Ten Things to Focus On Now If You Want To Sell

Summer is here and the Big Band team is kicking it off with boots on the ground in Austin attending the inaugural SaaStock US. We’re here networking with SaaS Founders, builders, and operators and looking for both acquisition opportunities as well as learning about the latest and greatest technologies we can take back and implement ourselves. It’s refreshing to be back meeting with peers face to face and we hope to run across some of you here!

Ten Things to Prepare for Sale

We continue to be impressed by the many types of businesses and Founders we’ve come across - while we’re just getting started at Big Band, we’ve already had the pleasure of reviewing many opportunities thanks to the many founders, scouts, and bankers that we’ve connected with. One thing is certain, there is no perfect way to prepare your business for a sale. That said, there are some emerging themes in terms of what Founders could, or should, be doing in advance of talking to a buyer like Big Band. While the window for ‘spring cleaning’ may have passed - it’s never too late (or early) to prepare for an eventual exit.

1. Establish clear financial reporting and metrics: Make sure you have clear and accurate financial records, including income statements, balance sheets, and cash flow statements. Many Founders rely on 3rd party accountants that focus on reconciling the books on an infrequent basis - be sure that the numbers are updated and you’re able to speak to the changes and trends.

2. Have SaaS metrics at the ready: Potential buyers want to see metrics such as MRR, customer acquisition costs, and retention rates. One of our favorite reports to get is MRR by customer by month - this allows us to build a MRR roll-forward and calculate gross and net retention. Even better, tools like Profitwell or Baremetrics will do this work for you.

3. Focus on customer retention: Buyers will want to see a loyal customer base that is likely to continue using the product or service after the sale. Focus on customer retention strategies, such as excellent customer support, regular communication, and customer feedback. SaaS is such an attractive business model due to the predictability of cash flows and the predictability increases (as well as your valuation) the higher your retention rate climbs.

4. Build a strong bench: While it’s often impossible to replace a Founder with a direct replacement, buyers want to see that at least some of the day to day operations can run without you. Founders are sometimes hesitant to let go of administrative or task based work while at the same time running Sales, Product, Customer Service, etc. What can be delegated should be delegated so that your time is focused on the most critical things such as growing and scaling your business. We use the ‘Three Week Vacation’ test - are you able to step away for several weeks and have your business continue to run?

5. Diversify the customer base: Reduce the risk associated with customer concentration by diversifying your customer base. Aim to acquire customers from various industries and geographical locations. This demonstrates stability and reduces the impact of losing a single customer. It also shows there is product market fit and future growth opportunity.

6. Reduce dependencies: Customer concentration isn’t the only dependency risk we come across. There are cases where a single vendor, employee, or technology (including platforms the business might be built on) is critical to the business and diversifying these as much as possible will reduce risk and make the business more attractive to buyers.

7. Build a scalable product: Make sure your product or service can scale as the business grows. This includes having a robust infrastructure, scalable technology, and processes in place to handle increased demand.

8. Document your processes: Document all of your company's processes, from sales and marketing to product development and customer support. This will help potential buyers understand how the business operates and identify areas for improvement. It will also help with passing the baton to the next leader when the time is right.

9. Establish intellectual property protection: Make sure all of your intellectual property is protected, including patents, trademarks, and copyrights. Buyers will want to know that they are acquiring valuable assets that are protected from infringement.

10. Have flexible pricing terms: Make sure that customer contracts and terms of service allow for future pricing updates. “Lifetime” deals and pricing guarantees create a drag on future growth strategies that many buyers rely on.

THE PLAYLIST (What We're Watching, Reading, and Listening to)

• Why Misunderstanding Startup Metrics Can Cost You Your Business - Mark Suster dives into the common traps Founders find themselves in when looking at their CAC, LTV, and LTV/CAC metrics and why the Payback Period should take a front seat if your goal is to profitably grow your business.

• AI Eating the World? Generative AI has been the rage these past several months and this article fires warning shots across the bow of B2B SaaS. We don’t know what the long-term impact of AI will be on SaaS but it is something that every owner and founder should be educating themselves on in order to stay one step ahead of the change.

• While we’re on the subject of AI, the advances are coming at a mind-blowing pace. Here’s a great thread from Aakash Gupta outlining ‘what happened’ last month alone:

• We’re proud to be backed by ParkerGale who was recently named Private Equity Innovator of the year. Check out this video to see what makes them different from your typical private equity shop and why we’re thrilled to be partnered with them!

UPCOMING IRL GIGS

• Chris and Jason will be in Austin, TX through June 2nd attending the inaugural SaaStock USA.

• The full team will be in Boston, MA the week of June 4th, spending time with our partners at SaaS Academy and attending their Intensive event. We’d love to carve out time to meet with friends and founders in the area so please reach out if you’ll be around!

JOIN THE BAND

We’re building our database with the best leaders and operators out there. If you know exceptionally talented people that may one day want to work with us, please have them get in touch with us at [email protected] or fill out the form on our Connect page.

• We are excited to announce that we have selected and hired a summer associate - stay tuned next month to meet her!

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