Who wants to run a B2B SaaS startup?

by jefftkjefftk1 min read17th Jun 20219 comments

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A friend of mine has been bootstrapping a business-to-business software-as-a-service startup that's seeing serious growth. It needs someone who can put dedicated effort into scaling it, but my friend is near the end of their career and looking to retire. What do people do in this situation?

More details: they were running a traditional labor-limited small business and they automated some of the work. This automation was a huge improvement and they realized it could be useful to other companies. In early 2019 they had a web app ready and started taking external customers. In late 2020 they started to see serious growth, which has continued. They let me share some numbers:

This is a run rate of ~$340k/y, up from ~$100k/y a quarter ago, ~$52k a quarter before that, ~$12k/y a quarter before that, and ~$7k a year ago. That's growth of ~50x in a year, or 7.8% a week, which is extremely good. Expenses are servers ($40/m), plus the time they have been putting into it (~20hr/wk).

They have ~50 customers, and churn is essentially zero: they have only had one customer leave, and that was because that customer lost the contract they were using the service for. Their customers are really happy: the service is very reasonably priced given the large amount of work it saves. My friend estimates that they are at under 1% of their potential customers with the current offering, has ideas for several other things they could offer, and doesn't know of any competitors.

It looks to me like it's uncommon for someone to sell a business at this stage: typically a founder would at least stay through the hyper-growth phase. Unfortunately, my friend is not able to give the company the attention it deserves, and it could grow much more effectively under management that wants to be running a fast-growing startup.

I don't know what makes sense here. Possibly someone who is thinking of founding a startup might instead be interested in buying this one? I don't know if there's some thing where you buy a company with its own stock, vesting over some number of years? This would be a very good situation compared to most tech startups: they have product-market fit, customers love it, they're profitable, and they're seeing excellent growth. Alternatively, perhaps there are companies that buy businesses like these and run them? Does anyone have experience with something like this?

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It sounds like the value of the company is in one particular piece of software they have. Another option would be to sell the software to another already-existing company that could then continue licensing it to the current customers, and shut down this business.

Startups are individual, highly varied, and idiosyncratic.  ~20 hours/week sounds a lot like a pretty good retirement - why not carry on for a few more years, and figure out if the "zero churn" for the last few months is real, or just a blip from being first to notice this was worth solving?  Alternately, hire out most of the work, so they have a smaller income stream, but can spend half (probably not less) the time.

The primary question is who wants to provide the energy and vision to grow to the point that it's worth anything, either to hit a VC or to sell to a bigger company.   For many small businesses, transition is by partnership - someone "buys in" over the course of a decade by taking a lower salary in exchange for ownership.  But I don't know of any cases where that happens for a TINY business that's a sole proprietorship.

~20 hours/week sounds a lot like a pretty good retirement

They're only putting 20 hours a week into it because they have a lot of other things going on, but I think it would grow much more effectively with multiple full-time people. Given its current growth rate, I think it probably should have two full-time people, one technical and one non-technical, similar to a classic early stage software startup?

I would love to talk. Please let me know if we can get sometime.

Potentially interested!

Big picture, if your friend wants a different blend of upside-to-work, perhaps they should consider hiring someone to work 15-20 hrs/wk, freeing them up to do <5 hrs/wk of supervision?

I am (weakly) interested, but more curious than seriously intrigued.

I've found I have pretty strong personal preferences about, e.g. which types of businesses make for satisfying customers, what technology is interesting and satisfying to work with, and what other kinds of demands/needs are required or warranted for the business itself.

I'd also be more interested in a 'slow burn' (like a 'lifestyle' business) than a 'SV/VC-backed hockey stick trajectory to unicorn heaven' business.

I am interested. Can we set up a meeting to speak more about this business.