Why SaaS Founders Sell with Kevin, CEO and co-founder @ SureSwift.com - Escape Velocity Show #33
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Summary
Kevin Shurrif is the co-founder and CEO of Shurwift Capital, a venture capital firm that has acquired 34 companies in the past 4 years. In this episode, we talk about how he s acquired these startups, why he s done it, and how he got to where he is today.
Transcript
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There are a hundred reasons why people want to sell a business. They could be getting married,
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they could be getting a divorce, they could be having children, they want to buy a house.
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They've got, often they've got another project they want to work on. They realize that they're
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sitting on a pile of cash and founders still get anxiety about their business going away.
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And sometimes it's just like, let's take this pile of cash from here and put it over here,
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Shurswift Capital, you are the man who's bought in 34 companies in the last four years?
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Just because when we first started rolling them up,
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So we do have some still in the portfolio that are pure content.
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I mean, most founders have a hard time managing themselves
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that look after the day-to-day operations of each business.
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And so really, I am just running one company, and that's Shureswift.
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Like, lots of stumbles along the way of, like, hiring too slow and then hiring too fast.
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And I wouldn't say we've got it perfect, but we've got a really solid team, and we've got a better process for making decisions about, you know, hiring and firing and those sorts of things.
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So in regards to, A, capital to even buy these companies,
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Started with just myself and one co-founder pooled our own
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And we bought small so we could make smaller mistakes.
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And everybody but me put in materially more capital.
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This is what I'm going to do for the foreseeable future.
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As we continue to make acquisitions and we've got a stable portfolio, healthy P&L, healthy balance sheet, then banks were OK with lending us a little bit of money to extend that runway.
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So what level does a banker, like what's the ratio?
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Like you've been around doing this so you've got a track record?
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or is it the acquiring entity has to look a certain way
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so you can get some funding on it, like mezzanine?
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that we set for ourselves, we can go make the acquisition.
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They'll look a certain way, keep the ratios in check.
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And so in terms of time, and we had been in business
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for less than a year, I think, when all this started happening.
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That's pretty impressive that they were willing to.
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Well, but we're buying profitable companies, right?
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The challenge we had was that this is a traditional.
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I mean, yes, but they needed to have it explained to them.
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Unlike now Stripe is giving certain businesses loans,
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and when to give it to you, and what the term should be.
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Banks are really, really old traditional businesses,
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and I don't see them moving fast in this direction.
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And there's a couple big ones, like Silicon Valley Bank and
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Square One or something in Chicago that does this.
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But the ones that I found are very traditional.
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that you would do high level, what does it look like?
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So a prototypical business would be founder, developer.
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If somebody's even taken a little bit of angel money,
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all of a sudden you've got another person with a vote,
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And we've had deals blocked by minority investors when me
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a developer themselves, they grow to a certain scale.
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versus customer satisfaction or customer success
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So typical business is a founder and three to five contractors
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What's right in our wheelhouse is revenues from $25,000 MRR
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It's kind of like a million in ARR kind of thing.
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Yeah, and actually it could go higher than $100,000.
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Like we've made offers on businesses bigger than that.
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And so market multiples, this isn't Kevin's opinion.
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The market multiples are around four times trailing 12 profits.
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And that's SDE, like seller's repressionary earnings.
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And that means their salary and profitability, essentially,
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minus like one-time big expenses they can kind of.
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Anything that they've been taking out of the business for themselves
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And we're just looking at the ongoing expenses.
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um, let's say they're at, you know, probably what 40%, I'm assuming like 40% around that.
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Yeah. We've had some that were as high as, you started margins. Yeah. Yeah. We've had some as
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high as 70% margins. Yeah. And they still want to sell. Yeah. People it's, it's fascinating,
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right? Cause like they could not sell and just keep it as an asset. Cause that's what you're
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going to do. Yep. Um, and people sell businesses. I have learned, I learned this. I didn't know
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going into it. I thought it was just all about the money and maximizing price. That's not it at all.
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There are 100 reasons why people want to sell a business.
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They've got, often, they've got another project
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They realize that they're sitting on a pile of cash,
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and founders still get anxiety about their business going away.
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And sometimes it's just like, let's take this pile of cash
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from here and put it over here, and your risk goes away.
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And it's a life-changing payday for anybody, right?
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So yes, some people think, well, why not keep the business?
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of founders who sell an asset like that as being foolish,
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And they're getting a really nice return on the investment
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Another really common reason is that somebody's
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been working on something for five, six, seven years, and if
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they were that prototypical founder developer, I want to
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start my own business so I can quit my day job and stop
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working for the man, then all of a sudden, they've got this
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team of, you know, five contractors, and they are the
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man instead of working for the man. And a lot of developers
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are just like, I don't want what I want to do. Right? And so
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it's that is also not about money. It's about personal
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happiness. You know, they decide I will be happier. Money
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helps with the happiness, but I will be happier doing something different. And then you've got
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control of your life back. And not everybody's able to organize a business and run a business
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while still controlling their life. So you bought, so let's say the number,
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keep it simple, 50%, you know, trailing 12. So you get a million dollar business,
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you pay them for 2 million because you're going to give them essentially
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uh forex on that 500 so it's two million dollars and then so you've got your capital investors
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capital you put that you buy the asset and then this thing is kicking off you know 40 some thousand
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a month and like that's the that's some that's how this thing ends up like do you when you buy
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the asset the the company is there like a playbook that you execute to kind of extract more value
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What do the terms typically look like for a seller?
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If somebody's watching this and they're like, hey,
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Kevin seems like a good dude, but the numbers sound good,
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a way to extract themselves from the day-to-day operations
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And that's the spot we would love for it to be in.
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So the degree to which somebody has done that somewhat
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If you're still writing the code and answering support
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And there's more things that we have to replace.
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So kind of down-the-middle deal terms that we offer people a lot is we want you to help with the transition for six months.
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For months one, two, and three, you keep doing exactly what you have been doing every day.
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And we're going to watch over your shoulder, and we're going to start executing our playbook.
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And then months four, five, and six, you should expect that we have replaced all of the day-to-day functions with either a person or a process from SureSwift.
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And we start with, like, the headaches that every founder knows that are HR, finance, accounting, keeping the lights on with the tech.
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All those get, you know, pulled into the Shursworth machine.
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So the role of the founder gets smaller right away.
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And then we generally have a good idea before we even close what the plan is for the people.
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but that those first three months give us time to hire the right person for that business
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or take somebody from the existing team and put them in charge of that business.
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And so we've got a playbook and a process for just about everything. And it starts actually
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from when either somebody reaches out to me saying, I'm interested in selling my business,
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or I might reach out to them and say, I love your business. If you're ever interested in selling,
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please call me. And then there's a process and a checklist that takes us up through close day and
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then 180 days after that. And it's all from the learnings of 34 acquisitions and some going really
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well and some not going well. Is there escrow or what? Yeah.
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Yeah. Yep. Always escrow. So how does that all look like?
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Well, some of this stuff, it's deal by deal in terms of how much money is released at what
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Well, if somebody agrees to a six-month transition,
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there's almost always some sort of a holdback of money
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for that end of six months, just to make sure they live up
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Depends on the deal and depends on how complex that transition
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Could be that there's an earn out if a founder makes a case
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So you can get the deal done today and still get anything.
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And it's a good way to just squash that rebuttal.
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They're like, yeah, well, it could be worth more in a year.
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Yeah, well, that's a year that you'll be running it.
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The rebuttal is usually raise your selling price
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because I know it's going to do well in the next six months.
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So if you want to hang out and help meet those goals
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Well, there's a group of brokers out there in the world
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And I know that they like, and we've had a few.
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I know that some, they like people they know are going to buy.
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So if Thomas would say, if you put Kevin beside a buyer
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that they don't know, Kevin's the safer choice.
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but even if the money, even if I'm offering slightly less.
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Yep, and that's part of their value in the transaction
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And it's really stressful, really hard, very emotional.
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And part of the broker value can be coach them through that.
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Help them understand when a process is working as designed,
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what's normal, what is not normal, what risks to look at.
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Because, for example, if somebody offers 20% more
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the seller might be more interested than that 20%.
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But the broker is going to, and we would coach them, too,
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The terms, what are we going to do with the business
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People use analogies like sending a kid off to college
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Because these founders are tied to their business forever.
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So we think about that a lot, and we put a lot of importance on that.
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And we try to kind of make the founders part of our squad over time, long after their six-month or whatever month transition period is gone.
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Other people are like, hey, I heard you sold your company, Kevin.
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Yeah, but it's also just the right thing to do.
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You know, like we like doing business with people
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And that fondness doesn't go away after they're done.
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Like there's a guy that sold me two businesses.
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He's still in our Slack channel helping out with like, hey,
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But we're not friends just so he would refer somebody to me.
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You wanted to be friends with him regardless if it was.
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I will be friends with him if SureSwift goes up in smoke
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or I quit someday, which I don't have plans on doing.
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But he and I are friends because it's a great relationship.
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do you always disclose to the customer base of that company
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that it's been changed management or been acquired?
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Yeah, well, there's varying degrees of how we do that.
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So at a minimum, you've got to change the details on the website.
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So if they want to investigate who owns this thing, we're being honest.
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What we like to do is tell people after some time has passed, because I think announcing something the day it closes, we did that in one case, but there was reasons behind it that were more about a local market, which is usually not the case for what we do.
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announcing something on a day and saying these are the good things that you can expect from us
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is one approach. That's fine. The approach we prefer to take is announce maybe four or five
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months into the transaction. You can be like, hey, we bought this four or five months. You
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haven't noticed any difference because we're... Or, yeah, we bought it four months ago and now
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you've got two people on the support desk when you're used to dealing with one. We've hired this
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person. We're injecting more into development. Look at these features we've released. So it's
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more of a, the story is, we're in a better place.
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And let us know if you have questions, that type of thing.
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And you're like, hey, I'm interested in the numbers.
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What's the Kevin kind of like, what am I looking at?
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Well, there's some easy filters that then get down to hard.
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Is there any companies that you can disclose that you've bought?
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that sold me two, his name is Moritz Dowsinger.
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He's a German-born developer living in Paris with his family.
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which takes data from email and extracts the relevant stuff
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and puts it into a CRM or a Google Sheet or any one
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Built a great product, built it the right way, solid team.
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And he knew he was sitting on a really valuable asset,
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hold it for a period of time, but at the same time
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that he was smart enough to have a separate LLC for.
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That may not be the right term because it's a French business,
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And so when I saw him, I'm like, this business is amazing.
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It looks like the other one's going to be amazing.
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did the transition. He's an amazing person, an amazing founder. So it was like our best
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acquisition to date. The business kept trending up. He did all the right things in transition.
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We put somebody else in charge of running it. We remained friends. And he and I would
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just catch up every once in a while on the phone or I'd see him at a conference or something
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like that. I was like, oh, how's Doc Parcer doing? Oh, it's fine. And he was like, it's
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struggling with this. I could do better. But, you know, and I really enjoyed working with
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your team. And so at one point he and I both knew where it would probably end up, but he was waiting
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to maximize value. So we, we structured a deal that let him take the chips off the table. We got
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the, the, the deal directly, you know, he didn't make it a competitive process, but because we
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both knew it would be worth more in 12 months, 18 months, we just set, we set an earn out. And so
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He got way more money for Doc Purser than Mel Purser.
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What's it like having so many companies that do you,
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I guess because you have a team that helps operate and monitor
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kind of the KPIs, do you ever worry around gateway processing
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It's like all, everyone's its own little thing.
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So it's not like you're going to have one major system that's
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I worry about those things like any business owner would.
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I am fortunate that I have the broad portfolio.
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So if some business has a really bad day or a really bad month,
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We acquired a business, and later my technology team
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found that somebody was mining Bitcoin inside our app
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are independent of one another go down completely
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He's like, hey, listen, something bad's happening.
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He's like, Amazon web services went down for this one region.
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I'm not a technical guy, but big pharma servers went down.
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that I try not to get too high on things that are going well.
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And I try really hard not to freak out about things
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that are going poorly and just focus on do the right thing
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every day, hire smart people, stay out of their way,
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how predictable some of these SaaS companies are.
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And I remember just recently, I sold my company Clarity
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And marketplace, if you can get the flywheel going,
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And then I was talking to Will, and I was like, how's it doing?
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And he's, dude, it still keeps growing and doing its thing.
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And I was just like, but you guys haven't done anything.
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Well, I don't think, I think it's good to be active.
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And then it goes back to like, shit, I should have kept it.
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Yeah, there's a couple of things that I think of.
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Yeah, we both have a man crush on Robert Smith.
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He's just an amazing business person running a business
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I don't care if it's marketing tech or business
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incent the right behavior, keep customers happy,
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And the other thing I remembered as you were saying that was I
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saw Sahil from Gumroad give a presentation at a conference.
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He's got an amazing blog post about the roller coaster
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And he was showing this chart of his MRR going.
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He had a team of 20 people, and then everything
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And he had to fire everybody, and it was just him.
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You can't, because the business did what it was going to do.
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You can only push the boulder up so fast, I guess.
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Plan the work, work the plan, and do the right things.
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always try not to let things fall through the cracks, which
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And I trust our people, and I trust our process,
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but then learn from that and don't make the same mistake
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twice, then generally good things should happen.
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doing it for their own product, let alone that many products.
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And there's obviously opportunity in the market.
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How do you decide how to invest in improving those assets
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Yeah, like customer happiness and Y percent on development.
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And they usually have really good ideas about like,
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if it were me and profits weren't as important,
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which they know it's not for us, growth is important,
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I would do X, Y, and Z. And so we generally listen to that,
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Some of the best ideas come from their existing team
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Either they weren't asked or they didn't take the advice
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or what I don't know what reasons there would be.
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Or they're just like, we're prepping this business for sale.
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And yeah, just to answer your question more directly,
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businesses that are doing better get more investment
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And we've got a pretty good process about like either the leader of that business or Tom, my VP of product, will make a case that says, hey, I think if we add a developer to this business, we can knock out, you know, these 10 features a lot faster.
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And so we have just like the return on investment conversation.
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It's interesting because I think a lot of founders
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going to spend some dollars because it's going to increase.
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for one of the first playbooks is increase price,
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look at expansion revenue, maybe tweak the value metrics.
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How do you, what are some of the value, the things,
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the first things you're going to do to a new asset?
00:26:21.640
Well, we've got a checklist for just about everything.
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So we, you know, do SEO checklist, you know, technology checklist, look for like small wins or small things that we can fix that might have a big impact down the road.
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We that's we don't like businesses that are reliant on that.
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But if they've got organic working, if they got organic working, then you can throw some paid on it.
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And most of the founders that we have purchased from either
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never tried, because they didn't want to spend the money,
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Or they didn't want to pay a consultant to do it.
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And so we at least have the expertise in-house to try it
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and see if it's something worth reinvesting in.
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Robert Smith has 110 standard operating procedure.
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We always pull the customer base just as a routine,
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from customer base, too, on guidance of the product
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people, you learn a ton from talking to customers.
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How many companies do you think you could manage?
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to have bigger companies than so many little ones?
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there aren't a lot of really professionalized operations
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who have access to money, and they'll go buy a business.
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You get into bigger checks, like the north of $10 million
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range, you're going to hit a lot more strategic competition,
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become those kind of, like, you buy them, build them up,
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if we have an asset that's making this great money,
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So I have kind of two numbers tied to each business.
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If somebody offers us that or above, yes, deal.
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and we think, OK, if we just shed the asset, recoup some cash,
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and move on, we've got a price for each business there.
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that the team and I make about the whole portfolio.
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Should the buy it now price go up, and things like that?
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It's funny, because I think, Kevin, you've done this so much
00:29:40.560
that it's just kind of like, yeah, it's what you do, right?
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Because they're like, I don't know where the bodies are
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And you're talking SureSwift, or did you learn it before?
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So I saw kind of how, but that was a way bigger thing.
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There was investment bankers involved on both sides.
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Like, I was the business person making the final.
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that process is so different than what we're talking about.
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There were times where I trusted people a little bit too much.
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There were times where I overestimated our ability
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have the right team or add value beyond the fact.
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it's because I've made so many mistakes that I've learned from.
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And now I have a team of people that are generally
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And so I'm like trying to narrow my focus to just hire smart people and get out of the
00:31:22.960
And like the VP of tech, because I'm assuming that each one of these things are built in
00:31:27.580
He helps guidance on, hey, maybe we should upgrade this framework.
00:31:32.220
But like, is that person like a programmer in PHP and Ruby and Python?
00:31:40.260
He still digs in and writes code every once in a while
00:31:55.160
Whenever we acquire a business, we bring on the team.
00:31:59.220
to go do something else that they want to after six months.
00:32:03.960
Bootstrappers are great at having amazing teams, I have learned,
00:32:07.320
because they don't let anybody that's not pulling their weights
00:32:11.760
So we've had so little unplanned turnover with team,
00:32:24.660
And they're like, what's the SureSwift group all about?
00:32:26.780
Do you have a comp structure to help retain them?
00:32:30.260
Usually we say, keep doing the same job you're doing
00:32:39.860
And you get the opportunity to work at a much larger company
00:32:51.360
and he was working half time because the founder felt
00:32:54.980
like that was all he needed because he was still writing
00:33:01.080
So right away, we said, would you like to work full time?
00:33:04.140
And by the way, here's all these other businesses
00:33:09.180
want to lean in on this business and do some work here?
00:33:11.460
And now he is the team lead for all Ruby stuff.
00:33:17.320
has anything to do with Ruby, he helps manage that.
00:33:29.380
should say that the acquisitions have gotten easier
00:33:38.880
talk to the developers and understand more about that.
00:34:09.420
Yeah, we look at all the finances and things like that,
00:34:12.420
kind of study competitors and see what they're doing
00:34:14.940
and how does the potential acquisition stack up in that case.
00:34:21.540
And I mean, Robert Smith, for sure, he's incredible.
00:34:26.500
I mean, one of the first African-American billionaires
00:34:32.220
What other people do you feel has some really smart thinking
00:34:37.180
One guy that I've gotten to be fairly good friends with
00:34:48.820
But business-wise, he has a much bigger business
00:35:10.960
And he's also probably five years ahead of where I'm at.
00:35:20.640
But because we're not competing for the same deals,
00:35:25.520
I can be an open book with him about what am I?
00:35:27.800
There are other people that are acquiring software businesses.
00:35:35.980
don't want to be as open in sharing about what they're doing.
00:35:39.720
So yeah, Brent does a lot of things right in terms.
00:35:55.520
that we know today he's been doing for a long time.
00:35:59.500
are out there that are in this sweet spot for you?
00:36:04.920
And you asked earlier, how many do I think we can operate?
00:36:10.620
I don't put an upper limit on it because I've seen us go from zero to 34 in four years.
00:36:18.320
And there were times where the wheels got a little wobbly because we acquired too many
00:36:22.320
too fast, or I hired too slow, or I made bad hiring decisions.
00:36:25.860
but we got through it and we're in a really good place. And our most recent acquisitions have been
00:36:32.340
our smoothest, like we're getting really good at this. So, and it's sort of a linear thing,
00:36:37.340
you know, we, you need to add sort of leadership levels to make sure that each business gets the
00:36:43.000
right attention. But, um, you know, it's, I think we could scale very large, but it does become
00:36:53.700
But if we want to stay in this range, like I told you,
00:36:56.520
I think is our sweet spot, then it is about numbers
00:37:06.400
How big do you think, how many of these companies
00:37:13.060
I think it is uncountable and growing extremely fast.
00:37:19.980
And you see all these niche SaaS products, right?
00:37:26.260
When these are the people that have been doing it for 10
00:37:32.820
I walk into a coffee shop and I see a young woman
00:37:44.300
in terms of where this, especially in the bootstrap
00:37:46.740
world where it's going, because I think more and more people are realizing that's a really,
00:37:50.840
really healthy way to run a business and to run your life.
00:37:59.160
Bootstrap and get the MRR going, write some software, and there is a very clear public
00:38:04.700
playbook of how to build a company well like that in a million niches that you would have
00:38:13.320
So I don't think the supply is going to be a problem for us.
00:38:17.000
I don't think we'll run out of businesses that, you know, could be acquired.
00:38:20.120
I think we are showing a path for founders who are, like, really happy with the results.
00:38:31.900
Because they're really, I mean, like, there's not, where else do they go other than a transaction
00:38:37.240
where they're uncertain of what's going to happen with that, you know, their entity, right?
00:38:43.780
Yeah. Yeah. And it's a it's a it's kind of a messy market out there in terms of like, you know, who's going to do the right thing with the business and who isn't.
00:38:54.700
And like you said, it's a really uncertain process that there isn't a clear playbook for a founder who wants to sell a business.
00:39:02.320
One of the things that we're working on as a team is just like, how can we share more of what we know to help people, whether they sell to us or not?
00:39:10.460
Because there's a whole segment of the universe that we won't touch.
00:39:13.140
Anything that's related to Amazon, any e-commerce business.
00:39:18.580
And there's still a seemingly infinite supply of businesses.
00:39:21.040
B2B SaaS products that are catering to those customers.
00:39:24.240
But if we can share with people what we have learned, either from successes or mistakes.
00:39:33.720
So we acquired a business called Feedback Panda.
00:39:37.080
And it is a, it's software to help English as a second language teachers run their business.
00:39:46.840
So we're selling to business people, but mostly they're independent contractors helping mainly, mostly Chinese children learn to speak English.
00:39:57.040
And it's for them to manage their work schedule, their billing, their invoicing, their workflow, checking, checking the work.
00:40:05.580
Yeah. For that niche of English as a second language teachers. And it's an amazing business. Two co-founders, Danielle and Arvid. Danielle was an English as a second language teacher struggling with how to run her business. Arvid is a super talented developer.
00:40:24.100
They're now married. I don't think they were married at the time.
00:40:27.220
But they did they meet because no, no, they were together.
00:40:38.180
and started selling it to her network of other teachers.
00:40:47.120
to where you're at today as a CEO and entrepreneur,
00:40:49.820
SureSwift, who did you need to become to be the CEO today
00:40:55.640
What shifts in mindsets or beliefs did you have to kind of overcome to become this person today?
00:41:05.540
There have been a lot over the last four years.
00:41:10.440
Originally, I would say I needed to trust myself a little bit more and be okay with personal risk.
00:41:17.620
There was a period of time in my life where I cared way too much what other people thought of me
00:41:22.360
and the decisions I was making, the work I was doing.
00:41:25.640
I was sort of, and I think corporate America is designed that way to, you know, like titles and
00:41:31.980
promotions and how many people report to you and all that stuff. And I cared way too much about
00:41:37.960
that. And I needed to be able to say, I'm doing this thing that all of you corporate America
00:41:44.940
people are going to try to talk me out of because you think it's crazy. And I don't care anymore
00:41:50.240
what you think. And even some of people in my family were like, is this a good idea? And I had
00:41:55.320
to, I needed to get to a place where I cared less. You can't not care at all, but I, I can now care
00:42:01.000
less. Um, and it's super healthy. And then as we grew, I had to be a better business person,
00:42:08.380
frankly, you know, like when you're in a corporate job, you can be great at a few things and suck at
00:42:14.580
other things. And there's like a lot of machinery to prop you up and like, you know, you hire a
00:42:20.720
person or, you know, whatever. But when it's just you, the things you suck at get exposed really
0.94
00:42:27.120
fast. And so then I had to like, start looking for those things and admitting that I suck at
0.99
00:42:33.900
certain things and then hire people are better at that. And I think what I'm, the person I need to
00:42:40.160
become now is being even better at trying to make my job small and, you know, get even better at
00:42:48.640
hiring great people and even better at like just staying out of the way. This morning, Amy from
00:42:54.420
my team sent me a note over Slack and she's like, yeah, we were in this meeting and we made this
00:42:59.460
decision. And it is the opposite decision that I would have made. It's not a huge thing. And
00:43:05.480
normally I would be like, uh, hold on, did you consider these other things? And I think maybe
00:43:09.840
the way I would have done it might've been smarter, but I'm now thinking, okay, well,
00:43:25.080
Yeah, I like to tell my clients that 80% done by somebody else
00:43:31.340
It's like, I got to let those things go, because in the grand
00:43:43.480
of the ones that have removed themselves from the day-to-day operations, and they're ready to turn
00:43:47.440
the business over to somebody else. I think about that in my job, not because I'm ready to sell the
00:43:51.320
business. I love what I do, and I love what I do, and I'm unemployable. Now that I have
00:43:58.300
swallowed the pill of founderhood, it's over. I'm not going back to work for anybody else.
00:44:05.360
But I still want to make my job really small and have most decisions made by other people,
00:44:09.900
because that frees me up to do other things that are more long-thinking,
00:44:16.480
So I'm trying to make my job as small as possible.
00:44:21.760
Kevin, I really appreciate you coming on and sharing, man.
00:44:25.160
Thanks for watching this episode of Escape Velocity.
00:44:28.320
Be sure to like and subscribe and leave a comment
00:44:31.080
with your biggest insight from our conversation.