He bought a micro-saas for $140k and scale >$1M in Value | Eyal Toledano

Blake Harber (00:12.302)
What's up everybody? Thanks so much for joining me on the Routine Revenue Podcast. Today we have Ayal Toyodano of Micro Angel. He has acquired two small SaaS companies. We talk in depth on the first one that he paid only $148 ,000 for and he got off of acquire .com. And when he bought the business, it was cash flowing about $4 ,000 a month. And we talk in depth of what that experience was like, how he bought it.

and what he had to do to scale that business. He now owns a portfolio. This is only after two years that's worth over $1 .5 million. We also talk about how trading time for money is the same whether you're in a W -2 or whether you end up buying a small business through acquire .com. I think it's really relevant to those that might be in a full -time job that are looking for side hustles that they could possibly invest into and build on the side and eventually scale an asset that you own outright.

and 100%. It's a really interesting conversation. There's a ton to learn here about what it's like to buy off of acquire .com, what things to look for, how to make sure you're not buying a lemon, and how to understand some of the technical challenges of buying a SaaS company, but also the compound effects of that type of revenue and how quickly you can take something that's relatively small and build it into an asset that's worth over a million dollars in a really short amount of time. We're really excited to dive in.

Ayal is really experienced and has done a phenomenal job just breaking down some of these complex ideas into really simple, actionable ways that other people can learn from and go out and buy their own small business and build it as a side hustle and potentially scale into a full -time gig. Let's dive in. Thanks for joining the Routine Revenue Podcast. Stoke the happy day and talk through some of the acquisitions you've made. We love just a high level.

background doesn't have to be too in -depth and would love to just dive into the...

Blake Harber (02:14.19)
What you're building, why you, why you decided to build this and, uh, and what happened there. Awesome. Happy to be here. Happy to chat. Always a good time. So I'm Al. I've been in technology in one way or another for like 15 years now. I started my career basically in the venture funded area. Um, you know, started, had a CEO, had it 18 years old. Uh, and then over time I transitioned to gross.

roles typically, and I eventually decided to build a couple of products, including Shopify apps. And I got to a point where I decided that I wanted to acquire apps. So today I operate this personal fund of mine called Micro Angel that seeks to challenge the typical catch 22 of entrepreneurship, which sort of forces you into a decision of either bootstrapping and everything that it entails or going the venture funded route.

which of course is a completely different monster with its own set of consequences. And because I know I'm going to be building stuff for the rest of my life, I decided that I needed to solve this problem at the core. You know, because for you to be able to take on really big challenges, especially technology startups that try to solve the world in some really big, hairy, ambitious way, you can't do that if your own, you know, like your own ribs are strong.

So to speak, you need to have some strong foundations, health -wise of course, but also financially, so that the decisions you make in a startup like that don't reflect some of the personal consequences you might feel from those decisions. A lot of first time CEOs run into that, like how many decisions they make worrying about rent in the background. It doesn't work. So with that in mind, I...

typically would have sold my time in a consulting, you know, agreement. Then I would use my open time to do things, whether it be build things or improve things. And that was the catch 22 that I wanted to solve because I didn't want to do nights and weekends anymore. Uh, and so I figured if I could acquire apps, um, that sort of short circuit, the initial zero to one phase of not having to figure out product market fit, not having to build an MVP, not having to.

Blake Harber (04:39.726)
get to your first dollar of revenue, not having to go through the thousand sleepless nights with a thousand different improvements to get to a point where it's a working machine. If you could take a shortcut and get to that point from first part, the entire journey is very different and a lot more straightforward as far as like building wealth. And so that's what I ended up doing. I decided to acquire those apps and that's basically what Micro Angel today is.

Uh, it's the manifestation of that and me operating them and perceiving the revenues from them and trying to buy more apps and trying to repeat the cycle. Basically. I love it. I think you, you've done a great job and kind of form this path in, uh, in a space that there's a lot of the audience and people talk to. It's a lower barrier of entry. You're not buying a $3 million business. I don't have to go get a crazy SBA loan and like go through that process. Yeah. How can I take something?

relatively small, make a little bit better and spits off a little bit more cashflow. It doesn't have to be this crazy number. And I just love that approach. It's even simpler than that, I think, because you know, like one of the biggest mistakes an entrepreneur can make is start from the question of like, how can I make money? You know, like typically you want to answer a problem. And in this case, the problem, the customer is me. So like I was trying to build a new product, a new way of operating for myself that would

result in the kind of performance that I would need for me to have the life that I would need. And I would work backwards from that. So, you know, like the current future state, the future state that I wanted versus the current present state, all you have today is the present state. For me, it was, okay, well, I'm a consultant at this point. You know, like I've been on the, on the saddle for a long enough time that people want to buy my time for my experience and my know -how. Today, the...

problem, right? The happy issue is that that value is large. And so if I stop it, there's a large amount of things that I need to make up. But then also in the meantime, I'm not able to save enough to buy to your point, like a $3 million business. So I'm like stuck in this loop. The right way to start, that's where I decided to like look at the problem is to solve that very issue, to stop selling my time, to be able to go do the stuff. Yeah, maybe I wouldn't.

Blake Harber (07:06.766)
be able to have as much on hand. I wouldn't be able to generate as much, but I needed to solve that inevitably. I couldn't, I couldn't go out and do this full time. If that problem was still there. Um, and so I started to work backwards from, okay, well, what is the minimum I basically need to sustain the quality of life that I currently have for myself? What is the baseline that needs to stay? Which typically we already make that calculation when you think of like, I'm going to stay at my job for X amount of time.

The reason you do that is because you need that baseline that your job gives you. And so if you work backwards from that, in my case, I decided, you know, like on the low end, every month I needed 15 grand in my pocket for everything to run. Let's work backwards from what it would take for me to acquire enough MRR for me to keep 15k in my pocket. And that defined a minimum sort of deal size right off the bat.

Obviously I wasn't looking for a $3 million business and that number wasn't arbitrary. It was very clear. It was because if I could acquire that and therefore the kind of margins that I was looking for needed to be very strong and healthy. Right. I would now be able to acquire something close to 15 K a month in MRR and keep most of that. And if I could do that while operating a product that doesn't take a lot of my time, you know, like SaaS is a perfect example of that.

then I'd have all that time back, the revenue would be coming in and then I'd be free to choose how I would choose that time. And if I would then invest that time back into the product, then there would be a two way benefit that I would get. And all of this would be worth it because I would own the product and then one day I'd be able to sell it and actually get that large sum of, of proceeds that I could then reinvest in them. It's a virtuous loop. That's sort of how I decided to like the book stopped there, you know.

I needed to understand what it would take for me to be able to jump on day zero. Um, and then at all, all your planning then comes from that. Yeah, I love this. I mean, it's super relevant to me. I'm still consulting perhaps I'm trading time for dollars. And I think what people maybe miss sometimes is in a W two, you're still trading time for dollars. Yes. It's just a fixed amount. And the reality is it's requiring a 40 hour work week. I would actually love to maybe just like double click in.

Blake Harber (09:29.966)
there is you thought about that. You kind of basically reverse engineered it and say like, okay, I need 15K a month. That's, that's my baseline. What is, and that defines your buy box on starting to evaluate some of these SaaS businesses. It can be somewhat passive if you buy the right business, right? Like tell me just a little bit more about that. I think that's super relevant to this audience. And that is defining the buy box, which isn't a million dollar acquisition. It's actually

Not that big. Your first acquisition was $148K. I completely agree. So for me, you know, like there's typically you want to stay in your lane, meaning if you're going to stop consulting, and again, the implication of you being a consultant or somebody who sells their time is that your time is valuable because you provide some expertise and an X. That X is the thing you should be leveraging moving forward in whatever it is that you're buying or you want to do, right? So you understand.

your own ecosystem, let's say, right? In my case, that was software and software as a service. I didn't doing that, helping startups. My value prop as a consultant was I helped startups grow really big, really fast, you know? And so the way that I would do that was sort of like a surgeon. I would go, I would find the current patterns. I would do a lot of analysis that allowed me to understand what currently is in the way of the product growing on its own rather than the team.

having to build demand for the product. So like looking at things the other way around. And so I had an educated understanding of the SaaS ecosystem as a whole, as an example, I had already looked and missed on, on a lot of different deals. I've, I knew I wanted to buy something for years, right? I just didn't know how to orchestrate it. Right. And so no matter what field you're in, you probably have an understanding of that field in sort of this way, you know,

And so in this case, when I did define sort of that initial 15K a month of net cashflow, I started to work backwards from that based on things that I knew. In this case, since I had already invested a bunch of time building a Shopify app, bootstrapping it, and I decided not to, like the context that made me choose to buy Shopify apps is that I'd already built some expertise in that. And that I understood the ecosystem and that I saw a pattern emerging.

Blake Harber (11:56.942)
where there were single developers basically who had built these small apps that do one thing really consistently really well. And they were selling them because they were like, they couldn't do this. You know, like the thing had grown despite their efforts, you know, like they were just working on it nights and weekends and it was too big now and they had a job and they didn't want to maintain it. So they wanted to sell it. But the good thing about that is that I would, I was able to buy things for really cheap.

And I knew that because I could do that, inevitably people would catch on. And so because of the rules of supply and demand, those multiples would eventually start to go up. There's less apps to go around. And so I'd be able to resell those for a multiple. Like I saw that pattern. That's the reason I started to think, oh, okay, maybe I want to buy a Shopify app rather than just a SaaS. And then further insights matter. In this case, I knew that Shopify apps might sell for a 3X multiple.

If I'm buying it for 2X, I know I'm aiming to sell it at 3X. And so if I want to sell it at 3X and I bought it today, it's worth 15K. How much does that need to be worse? And I could start having these assumptions that are pretty grounded in reality based on how the ecosystem is working. And what I ended up with was this basic idea of, all right, well, I'm going to invest some of the funds that I have actually saved up.

I know I could go leveraged so I could buy even more MRR if I wanted to, but then my margins are going to be lower because I'll have debt to service. I don't want that. So I will buy all cash. So already that started to define what I was looking to do. If I'm buying all cash, then the amount of cash I need is this much based on the fact that I want to buy 15 K a month of revenue. 15 K a month. What is that? So 180 ,000, I think 180 ,000 times three.

You start to get an idea of how much money you need. Right. And so times three already was pretty high. I was, I needed to go lower than that. And that was lower than what others were already offering. The difference was that I was going in all cash to these loan developers. I was coming in aggressive very quickly. I want to close a deal. You're going to sell to an individual, not to some faceless PE fund. We're going to, you know, and so I was building relationships and I was moving very quickly.

Blake Harber (14:22.51)
And that allowed me to close those deals. And then, you know, once you close those deals, it's about, okay, well, I'm at that 15K. Now I've invested half a million dollars, you know, my own cash into this. The 15K buys back my time. So that alone already is worth just holding onto this thing that I could resell it. But if I'm going to do that and now I have my 40 hours plus a week back, what would happen if I reinvested my expertise, which in this case is SaaS and growth.

Like you should buy things you've got an expertise in. What would happen if I invested that expertise in my own products? So now that MRR starts to grow. So I started to become more ambitious about what it would mean to fold on to these assets for some time in a very similar way than a real estate developer might. You know, like if you buy a building and you know, there's 10 units, but only two of those are currently rented. The next place your brain goes to is, well, what would happen if I could fill those 10 places?

It'd be worth a lot more. And what would that be worse? And what am I working for now? And it all starts to come together because that's what I realized. I realized I could buy something, perceive the value of the cash flows because it's high, literally 90 % plus margins. The products are simple. They do one thing. So I'm not spending all my time on them. And if I do spend all my time on them, I'm growing the MRR, which grows the valuation. For every dollar of MRR I drive,

My valuation goes up $40 basically. So like, I'm just working to increase either my retention. So I keep more of the revenue I get, increase expansion, increase acquisition, do the things that I'm already doing that I used to sell my time for. Except now it's driving value into the future, you know, and into the present. Cause my MRR now today is 30K. It's not 15K. So I get a higher cash on cash. Like I've paid back that half a million dollars last year already.

It's all pure profit and I'm getting pure profit every month. And then when I sell, so like that's the, the real, that's big unlock. I realized is, wait a minute, the value here is not that I bought back my time or 15 K. It's actually that now I have a reliable, straightforward path to an exit in two years where I've chosen to stop this journey or in three years or whatever.

Blake Harber (16:48.11)
And that's a way more straightforward path to wealth than me building bootstrapped startups and hoping for X amount of years to reach product market fit or worse build somebody else's dreams selling, you know, like equity on an app table to investors and having to 10 X or a hundred X every dollar they give you. And then hopefully having enough equity seven years later when it sells maybe no.

In that time, in those seven years, I could go through three or four cycles of buying and selling at a small enough scale that it creates wealth relative to my wealth. You know, like if today I worked at a $500 ,000 chunk, somebody else could start at $100 ,000, you know, and it's 2K MRR. You get that to 4K MRR, you've just 100X, that 200K, you know, like it, it makes a big difference under just stairs. You know, you play where you're at, depending on where you're at.

I love this concept. And I mean, we talked about this a little bit, um, in our previous calls, even it's at the end of day, you're trading time for someone else to build their dream to some extent, like 40 hours a week. I mean, even if you're going to make 350, 400 K a year doing it, let's call you an executive, your VP, whatever you might own 1 % of the business. They got to exit a hundred million dollar valuation to get 1 % assuming.

You have some preferred payout, right? Like, and all the investors aren't going to get paid first and you even get that, right? And that's for a million dollar exit. It might take seven years, might take 10 years. It might take, it might never happen in reality. I mean, how many companies have passed a hundred million dollars of revenue and gone to zero? Well, I mean, a lot of, a lot of folks who worked in tech may not realize this, but they make the same calls as investors do. The difference is that investors can make 10 a year.

by writing checks and you only get to do one every seven years or every one at three years or whenever you choose to quit because the one you saw your investments is wrong. You're choosing your - the wrong one. That's right. And it's done. Seven years down the road and what could have been a million dollar payout potentially. Yeah. You made 300k a year, pay a bunch of taxes on it and then maybe had an exit. The kicker, the kicker is that this math only works if you do 10 a year. That's right.

Blake Harber (19:12.846)
Because you're going to write off, you know, you're going to write off eight out of those 10 and one of those 10 will be worth all of the 10 and more. So why would you take that risk with just one a year? You know, like the, the luck, I guess, because especially if we talk about like one individual having that main influence on the outsize, like most one people aren't the ones that are causing that. It's like a team effort and the bigger the payroll gets, the more the team, you know, so it's like.

You're really, it's you and your luck and the kinds of people who will be hired and everything else in between. And so many things have to work for you to then at the very end of that funnel, get a small chunk. And, you know, I'm not down with that. I, uh, I've been part of three very successful companies. I joke that like I should have been in VC probably more. I just pick them right. That's the reality. And the amount of network.

that I will gain from those three very successful companies. It almost doesn't even compare to what I've been able to accomplish in the last 12 months. And you look at my time of a decade of doing that. Don't get me wrong. Let's discount the experience. Like I, yes, incredible experience. I've seen it. I've been part of it. I'm very fortunate. I've seen stuff that most people never have in a SaaS career. I understand that, but what I've been able to accomplish and we could argue like what I've done in 12 months,

couldn't have happened if I didn't see them. I don't know. Maybe that's true. But, uh, anyways, I'm at the end of day I'm working for myself and what I love this comes back to like, it doesn't have to be a million dollar acquisition. We're talking about you're taking something at 148 ,000. Like the people will drop that on a down payment on a house to cashflow a thousand bucks a month. Yes. Like that's actually where I started because.

The weird part was that I had already put the money aside in a bank account to fund a seed round into my own startup that I had bootstrapped. And the reason I didn't do that was because my co -founder ended up getting a child and he couldn't quit his full -time job. And so I was sort of left like this really fortunate, fortunate situation, but left with the money in, in my hands wondering what to do with it. And that's when I allowed myself to have these ambitious ideas about, well,

Blake Harber (21:33.198)
Not only do I not want to burn the money, because that's what would have happened, invested this pre -seed, we would have X amount of time. That's all this money was. It was time. And then at the end of that time, if we didn't have a working business, we were done. We would have to sell more equity. I didn't want to do that. In fact, I wanted it to grow. And I started asking myself, well, I've been doing software for quite a long time. Maybe it's time I start looking at real estate. And I did that. I spent a lot of time trying to work out the math.

for my first real estate deals, because I knew a half a million could get me a lot of leverage. And so I started trying to work out how that would look like. And it just made no sense. Especially I live in Montreal in Canada. It's even worse in Canada. How much worse? You know, and it just made no sense. And I have like family and friends who did buy real estate in between, who are not even cashflow positive. It costs them money and it's insane to me. So.

And like, when you look at it too, software benefits from a lot of the benefits of real estate with more like magical elements. You know, it's software as a building where you can choose the rent anytime you want. You can increase the number of rooms you have to sell anytime you want, infinite number of them. You can find tenants anywhere. You could sell internationally. It doesn't matter where they come from. You know, like it's not physical, so you can improve it. Like you can make renovations as you go.

You know, like it's, why would you do something that like that? And then when you layer on top of that, my own experience of having worked in SAS, it's like, okay, we're going to be working, that's what we're going to be doing. And the cash on cash returns speak for themselves. You know, when you buy something, even at 3X ARR, well, you're paying everything off in three years. You know, like if, if it works out and the numbers make sense, three years is 33 % a year. That's not bad.

33 % a year else, like it's quite good. Even at 4X and 5X, you're at 20%, 25 % a year. That's really good. As long as the margins are good. And it becomes interesting, just like when you have real estate, like it takes money to make money. Once you have a paid off building, all right, do you pull out leverage out of that building and go buy another? Do you just hold onto it and benefit from the cashflow? It depends. You know, like for me, for the last year, I benefited from the fact that these are

Blake Harber (24:01.902)
not needy products, you know, because I had to be away from the office to deal with life, you know, and the machine continued to home. That's to me, that's part of the value that I got. So I want to dive into reconciliation. Reconciling. Am I saying that right? I actually just call it reconciling. So people are reconciling. So let's talk a little bit about that. You paid 148 ,000 for it.

It was doing just less than 4K MR when you bought it. Um, I think one of the biggest questions I got is people, people scour micro acquire like crazy. You got this off micro acquire acquire .com. I should say, um, uh, how do you not buy 11? How do you make sure you, people have never done due diligence before on a deal. How do they make sure they're paying the right value? I mean, valuations are generally easier to understand, but.

How do you make sure you're not taking someone garbage? And so this is a, it's a bit of, this is, I want to say fertile grounds, but then at the same time, risky grounds. Like this is part of where you either, this is an advantage or something that stops you from being able to do this. And in my opinion, knowing how to code is a prerequisite. If you want to go slow, if you don't, you sign up for pain in different ways.

Number one is you won't know what you're getting yourself into. You just, it's just not possible. Number two, you're going to rely on others to tell you that. Number three, there will be the blurry filter in between where things get lost and you don't actually quite get it. And then the other way around of you wanting to make changes to it and you having to go through a gatekeeper, having to pay that gatekeeper, that changing the math of it all. It's a different gate. It just is. You know, like if you can be an owner operator.

the benefits become vastly superior because the margins are going to be healthier and the speed of iteration and everything in between is better. I went through that. So I've been, I went for the first half of my career, I was non -technical. I was basically scrappy. Like I was technical enough to like do small things, but I couldn't build my vision, you know? And even like to a point where I was like in senior product management, I could

Blake Harber (26:26.898)
Explain it. I could materialize it. I could get a team to work on it. I could not sit down and write the code and make it happen. And I couldn't wrap my head around it. And I needed to solve that. So I actually took a year. Like what happened is I lost a, one of the biggest deals I wanted to get two or three years before my cry angel started. And I lost it because I was slow, very, very slow. And I was trying to get.

debt and I was trying to like orchestrate a bunch of stuff and put in just 5 % down and just make it happen. You know, and I started to realize what I was going to get myself into is this blurry technical land that I wasn't going to have full control over. And a lot of the assumptions I was making were very shaky because of that. And I lost the deal in between thinking through this whole thing. And I realized, okay, good. I can't.

play the game in this way, I need to be faster on the financing and I need to be a lot more confident in the thing I'm getting into. That's when I started thinking about like what a good deal actually means. Like, and that's going to be different for everybody depending on what their skills are. And it was everything from can I work on this? Like me as a person, but also like, is there an opportunity in the product and all that? Is it complicated enough? Like when you can answer the question, whether or not it's complicated enough.

then you're educated enough on it. If you can't tell whether the improvements you want to bring to the product are going to be technically hard and you don't know the details of how technically hard those will be, you have no idea what you're saying you will do. You're hoping, right? And like it's a plan, but that plan will fail once it reaches like first contact, you know, with the enemy, so to speak. And so I needed to be educated in the sense where I could build my own confidence in the plans that I would.

build and in this, in the case of Reconcilie, part of the reason why I even had that conversation was because it was a Node .js app. So I had just worked on a Node .js app for a whole year. It was built with a front end and React, which is something that I had just worked on for a whole year. It was a Shopify app, which is something I just worked on for a whole year. It was something I understood. I wasn't going to go learn another language when I had just painstakingly done that for like eight months.

Blake Harber (28:48.398)
just to get to this point, you know what I mean? So that was part of the investment. Like that whole year of learning to code was a bitch because I wasn't producing anything. I was, and I felt like I was at a point in my career. You know how we're saying like it's a big mountain to make up. Like once you're there, you don't want to go back to being a student. You feel like you have enough information. It's not, it's not about more information. It's about just.

making your own thing and going and being sure about it. And that was, that was a lot of friction because I knew I was, I was meant to have this technical skill and that it would open up a sort of part of my brain that would make this whole thing possible. I didn't feel confident otherwise. Like that's a big tangent. I strongly believe in this. Like this is a key, an absolute key. And the benefit is that when you have it,

You're different from 80 % or 90 % of all the other buyers. Now you're able to have not only a clear conversation with the seller, especially if he's the engineer too, like you can have a personal level relationship and you understand what it is that you're actually buying and what you will have to deal with on day zero. When he signs over the GitHub repository over to you, what are you doing? Like.

If you have to worry about what that will look like and you have to use somebody else to get there, it's just going to be a different game. And that's just sort of my perspective on it. Maybe two areas I'd like to dig into there for, for the non -technical people out there. I mean, maybe aside from dedicating a year and learning to code, what would you suggest? You know, people are scouring acquire. I'm a salesperson. I don't know shit about code. Yep.

How would I view or what you go about doing that? So I have the same problem of like not knowing what I didn't know. Um, I used, um, I actually paid for a bootcamp for coding bootcamp, which was a part -time bootcamp. So I was basically putting in like four to six hours a day in it. So I kept doing what I was doing. This was the only way, honestly, I couldn't, and nobody else would be able to either. Uh, it's called flat iron school.

Blake Harber (31:07.246)
They're based out of New York. There are a bunch of these, honestly, it's not like that one is the only one. Um, but like once I was dedicated, I signed up, you know, it was 10 grand. So it was an investment. I put my money where my mouth is. I redesigned my personal calendar and every night from like, you know, 8 PM to noon to midnight, I was coding and I was bragging my brain and just trying to get there. And the good news about these kinds of.

boot camps is that they solve the, you don't know what you don't know. They're feeding you things in just the right order so that you can go, aha, in just the right order so that you start to understand everything and it all stems together. And the good news is that the threshold where you don't know what you don't know rapidly disappears within a few weeks. Cause you start like, what coding is, is not rocket science, you know, and it's like a set of instructions. Once you see the full cycle.

Cause you're a technical person in the sense of you're tech savvy. You know what I mean? So you'll get it. It's not like this weird language that nobody, it's English words strung together to make things happen. You just need to understand it and look at it. And once you see the wheel spin, you'll get how it works. And like everything else makes, starts to make sense. It's that initial, like it's still an investment, you know, like I'm not saying it's a requirement, but I'm glad I did it. You know, like I certainly would not.

have been able to do any of it in the way that I did if I weren't, you know? Are there resources out there for the salesperson that's...

Blake Harber (32:49.134)
needs validation on a deal that they're looking at. What would you suggest? I know, um, first of all, Andrew's team had acquired amazing, just fricking amazing. Um, I would get in touch with them. They have, they have like an advisory, like, but not an advisory firm, but like they talked to them and they could tell you with help you out and find a dealer to buy. They also have some financing partnerships, I believe with Bupos, if I recall. Um,

Like if you're going to not going to get like an SBA loan or something like that, and just want to work with someone who gets it. And they'll be able to finance you based on your, the cash flows you're going to acquire that might work. Um, you know, like, but again, if you're acquiring something like a SaaS, you need to have the product and the engineering part of that solved, whether it is through you or through somebody else.

Now we're getting to a full other thing, but like, if you're going to bring on a co -founder, that's a whole, like that's a marriage, you know, like a full thing and it has to work. It has to be someone you know. And again, like I didn't want that. I wanted to have my own cash cow and that only works if I can go and do it myself, you know? So if you're going to acquire something, you need to be proficient enough to work on it, either to maintain it or to improve it to the extent that you can then hand it off.

Cause like, that's the thing. Are you buying to just hold it? Which I don't think makes sense, you know, especially if you're not technical. Or are you buying it to improve and then resell it? And then what is the scope of that exactly? And what does that imply? And how much is engineering and product going to get in the way of you accomplishing that? You know, how many people have bought, okay, I'm saying it like there's a lot, but like there are people who bought products, increased the pricing, resold the products three, four months ago, made a bag.

That was it. You know, like, but that's what they ended up doing. How many of them bought a product that was pre -launch already had everything set up, no revenue, took it to revenue, made a bag. A lot of people, you know, but like you got to be hustling like you're, and that's a thing I forgot to mention is that the year after I learned to code, I recognized that my growth and marketing swords were getting rusty.

Blake Harber (35:15.566)
I was thinking a lot more in terms of inputs and outputs and like very pragmatic and straightforward and a lot of the blurry like, you know, thing that marketing and growth can be where you're trying to understand the user and trying to understand their pain and like really get in the weeds of the job to be done and all of those things. I wasn't as concerned about them to the extent I used to. And that's that matters. Of course it matters because now I'm.

further removed from something that I used to be very into that fed into the kinds of things I haven't done a Facebook ad in two years. I used to run those like, like crazy, you know, like it, it matters because what you're going to start relying on might no longer make sense. You know, um, there are a lot of things that go into it, but at the end of the day, you need to buy something you understand that speaks to you, right. And that you feel you have a reasonable chance to improve and.

If you can then make sure you're buying that and like, it's a good deal, meaning you're buying it at the right price. You're always going to win because from day zero, that arbitrage of you having bought low and eventually you'll sell high is there. And you have an educated guess and like path to improving it and some level of control over that. So it's very hard to screw up something like that, you know? Yeah. And that first acquisition, what did you see? You kind of have this.

plan of a two year exit strategy and certain 20, 30 % returns on. What did you see initially that gave you the confidence that you could achieve that within two years? Yeah. So my perspective on acquiring products was that I wanted them to be what I call default alive on any given month. Revenue is going up. Not a lot, mate, but it's going up. It's growing. It's not stagnant and it's not declining. It's growing. It's default alive.

If it's default alive, I can quantify how default alive is it really? Is it 50 bucks a growth a month? Is it 200? Is it a thousand? And like, you can look at that with the data that you're asking the person who's selling their app, right? So what I would do is typically, like I had a pivot table on a spreadsheet and I could just have like a Shopify apps get paid by Shopify, like these payouts.

Blake Harber (37:40.334)
And you can export a CSV of all those paths. And so I would take in the CSV and basically chart the revenue. And from that, I'd have things like the ARPU is the ARPU growing. How many like users on any given month, I would do my own analysis and I would see, oh, it looks like based on the fact, I would marry that to other insights. For example, reconciling a hundred percent of the installs came from the app store. There's no marketing. All app store.

And so all growth, 100 % of the growth is from the app store. If I look at the growth and the growth is a hundred dollars a month on average for the past 24 months, and all of that is coming from the app store, it stands to reason that for the next X amount of months, I'm going to observe a similar amount of linear growth based on X number of installs, installing every month and X amount turning into customers and then paying some average and that turning in time. Right? So like...

If I know that, then I know where I am a year or two from now, assuming I keep adding a hundred dollars a month. So like, it's just like maintaining. And so I can get an idea of where my MRR at is and how close is that to the goal that I need to sell for a million dollars, which was my ultimate goal. And it turns out that Reconcilie was bringing in enough new MRR every month that if I were just to hold it a year into holding it.

I would be at my two year goal. And that's without me improving it. And that's without that white swan event I told you about, you know, like I've Shopify deciding to remove commissions from all apps doing under a million of revenue, which increased net MRR. So that's how I reasoned through this is that like, okay, well, if I'm going to buy it at this much at this multiple, I want to be buying at a certain multiple first of all, so that I could sell it later on.

But if I'm buying this thing and I'm holding it for some amount of time, what does that look like? And I can reasonably chart that and there is no guessing in there. It's just like based on how things continue. That's the big difference with bootstrapping. It's not like a model is fiction until you start to bring in actuals. This is actuals that you're then basing your models on, you know? And then from there I could start thinking about, well, if there is a Delta between where I will be in two years,

Blake Harber (40:04.91)
And where I want to be, what is that gap? And if I divide that gap, you know, in ARR terms by 12, how much extra MRR am I trying to grow? And how am I going to do that? And can I answer that question? You know, like, then you start, you're in specifics now. You're not like, it's much, much lower level of question than, you know, can this thing, is this a good deal? And the answer, of course, it's a good deal. You know, like I have maybe 20 or 25 individual things that I look at.

And then I make a score, you know, like out of a hundred. So things like, like my personal vision or my personal understanding of growth in SaaS, like the most reductive way you can look at growth in SaaS is to grow exponentially. You simply need to ensure that your revenue expansion outpaces your revenue term. Meaning the people who upgrade every month.

The value you get from that is more than the value you lose from people churning every month, which also means all the new revenue you get from the new customers you keep. And automatically that means you're growing, right? Like logarithmically. And so when you start working backwards from that, that's what I want. Right? So like, do I have a reasonable, like healthy expansion rate right now? Yes or no? What is that expansion rate? Is it like, is the retention or I guess the churn?

Lower than 5%. I know from working in the Shopify ecosystem that there's this involuntary churn from stores just closing. It's just going to happen. And so there's this benchmark. Are you at that benchmark or are you way higher? If you're way higher, you actually have real voluntary churn. Right? So like working through those by looking at the data that the seller makes available to you and then using those basically as the assumptions in your, in your.

model and trying to understand like based on all of these indicators, is this like 70%, 80 %? Like I would be able to draw a score based on all these yes, no, yes, no, yes, no. And quite simply anything 80 % or better is like a must take deal. There's so many good things about it that they make up any of the bad things and the bad things are things I'm going to go out and improve. You know, I have a direct roadmap.

Blake Harber (42:30.126)
So you have this target of 15k a month, which you're chasing. You make this first acquisition. It was just out of 4k MRR. Would love to talk through the first couple of months of that and running that, what you did, what worked, what did, and some learning there. Sure. So I determined that I needed something like $8 ,000 in MRR to fill over the two year period.

with the two products that I had acquired. I was fortunate enough that like a month into that, both apps MRR went up by 20 or 25 % because Shopify reduced the commissions. So a large amount of that cap was filled right off the bat. And so what I wanted to do was to simply increase the net growth rate a little more aggressively, knowing that the kind of apps that I had weren't super high growth apps in terms of installs. They just weren't getting a lot of installs, lots of competition.

Like it's a niche thing, right? So like you have to make the most out of that slice of the market that you have, uh, or figure out how you're going to take over some, like a bigger slice. Um, and what I determined was that one of the biggest levers was pricing. I found that a lot of the value, like really I worked backward and again, this where being technical is useful. I looked at the server load of Reg and Siley and it appeared as though most of the server load.

was generated by the larger stores. Obviously they have the most orders. The problem is that they were paying $38 a month and the other customers were paying $24. It just wasn't enough. Fees of the value we were delivering to them. And the fact is the value proposition of a product like Reconcilie, which automates the creation, like syncing of data between Shopify and an accounting system. The more orders you have, the more time I save you because I'm getting that over the QuickBooks. There's zero for you.

So the bigger you are, the more time saved. And so really the more orders I process for you, the more I ought to charge you because I'm saving you way, way, way, way more. And so I felt confident that increasing pricing, at least for those customers would result just in more revenue and almost no churn because for them, it was a no brainer. We were saving them so much money. So to be clear, you didn't change the pricing model. It just wasn't necessary. I mean, a band of usage or, or at least it wasn't.

Blake Harber (44:59.342)
at a justifiable cost when they're doing it. It wasn't the value of the pricing plans weren't high. But not across the board because one plant, the first plan was $9 a month and these were all new starting stores. I couldn't triple the price of that. And yet the other guys were more than happy to spend a hundred dollars a month and I was just charging them 35, 38. And so that's what I ended up doing. The first thing I did was I increased pricing on the

on the tiers, now it became $9, 29, 49, 99. Went out, went without a hitch. In fact, conversion went up. And then right after that, I added annual plans because one of the biggest things I needed to solve on the marketing end was to open acquisition channels that currently were closed on the basis of the lifetime value I could elicit from these customers paying only $38 a month.

And so I needed to increase the average revenue per user so that the lifetime value would increase so that the amount I could afford to pay for customer would also go up. And then I would be able to go use channels where those customers would cost more than I was able to afford. And so those $99 a month plans were now available at a thousand dollars a year, which now is very interesting because on the basis of an annual plan, you're paying upfront a thousand dollars.

So now the most I'm able to elicit out of this conversion is a thousand rather than $38. It's a completely different game. Um, lifetime value exploded, ARPU exploded, everything is going up to the right. We started making more money. And at that point it started to become obvious that the bottleneck with the top of the funnel, like retention was really, really strong. Conversion was super strong. Like.

70 % of users who would install the app would turn into subscriptions. It's really, really strong. Um, and so I wasn't worried about the middle to the bottom of the funnel. It was quite good, but I came and I started brushing shoulders with the reality at the top of the funnel, which is there's a lot of competition. It's a fairly commoditized solution, right? Like sending information. Yes, you can be really high value and have some really specific use cases and like try to be.

Blake Harber (47:19.822)
you know, best of breed, I guess, in your category, but it remains like a red ocean, so to speak. And so you need to battle it out there. You know, like I realized I was bringing in 30, 35 installs a month. One a day, just one install a day. That's not enough. And then potentially losing as many as 20 to 25 a month. So like the net growth was coming in because the conversion was strong, but like it was, it.

paled in comparison to what it could be if we would start developing the top of the funnel, which is a good and a really bad place to be when you're a solo operator. Because now you need to take your own resources and decide where you're going to go focus. If you do a lot of everything, you do nothing, right? For me, the value had been work on the product so that you can then justify increasing pricing so that you make more so that you can then go do marketing. You know, like it was all serving and working.

But then when I was at that point, I realized, well, if I go and build marketing channels, I can only go one at a time because it's just me. If I try to build multiple channels at once, it's not going to work. It needs to be well -made. And then I still had a lot of stuff on the market, on the product side that I could work on to elicit more revenue. Like that was working. Why go do... You know, it's a lot, in this case, it was a lot harder to get more customers than it was to make more from customers, which is a good place to be. You know, today...

Since January, I decided to actually increase payroll. So now we have a team. This like Monday, head of marketing is starting at right at Mike Rundell, which is pretty cool. And so there's all the tools and the right things and insights needed to actually be successful. But at that point, I had to think about where to put my time. Um, and I, I ended up only having to plant seeds. So, you know, like I've made a new website. I put in a couple of.

Um, a bit of content in the blog that didn't exist before that started to ring. I could see that we could rank so that there's something there. You could double down. Really what I was trying to do was to find like in a Pareto rule, you know, for, for the channels, like which of the channels out of the 10 or 12 that I might reasonably be able to use for this Shopify app has the highest likelihood to bring in 80 % of my users. And which are the top three of those. And let's go just do that.

Blake Harber (49:42.126)
And I was able to start getting some movement there, but very quickly I realized it was still a function of product because inherently, reconciledly was connecting Shopify with Xero. And I realized there this demand for this, my solution, the job to be done also existed with merchants on Amazon and on Etsy and on Walmart and on eBay and all these other e -commerce platforms are sources of orders.

And every last one of them had a need to get that into their accounting system. And so I started to dig deeper and I found a competitor that does $80 million a year doing exactly what we're doing, except they'd built out all of these integrations. And so the vertical and the horizontal growth opportunities started to become more obvious. It wasn't so much a factor of like the Shopify ecosystem, but rather how can this thing grow from being a teenager to being a mature product?

that can answer demand on either of those sides and then build demand for itself rather than relying on the app store. And the main way I could test that was by releasing QuickBooks. So, you know, I built the integration, now Reconciler could create invoices either in Xero or QuickBooks. And I stealth launched a bad by changing the keywords on our Shopify app store listing to include QuickBooks all over. And lo and behold, installs went from 30 a month to 65 a month.

because now we're getting a couple of those installs. And of course, like that means it works. And I started to zoom out and realize, wow, the demand for Amazon based reconciliation versus Shopify is 20X that of Shopify. I'm wasting my time working with Shopify merchants when I should be doing this with Amazon merchants who are currently paying 20X more with a competitor. So like,

Where, where this thing can go becomes super obvious in between. We got acquisition offers, like strategic offers, not like what I expected at all from like an, one example is a, um, a company that wanted to basically build an e -commerce tailored version of QuickBooks. You know, like QuickBooks is bastardized for it. You try to make it work, but there's, it's not built for e -commerce.

Blake Harber (52:06.958)
That's a huge gap, huge opportunity. And they wanted to use some of our core IP to make it work, which makes sense, but it didn't work out. You know, like I wasn't going to go work for them for a year or two or something like that. Like the alignment there was never going to work. It was a conversation worth having, but it gives you an idea of like, once you're beyond the model is working and it's continuing, like I get my net growth there. You start being able to be more ambitious with what this could be.

And like a 10X opportunity becomes possible even though you're gunning for 2X in two years. And in 2X in two years, you can still get out or decide how you're like all the control is in your hands and all the benefit from what you do was still going to be free. Not anybody else. Yeah. Yeah. You get to make that decision, not a board.

Yep. Maybe last point, we'd love to just hear like you hired a head of marketing. Where are you going with this now? I mean, obviously it's been a hell of a couple of years for you. What's next? So the truth is there's a change in strategy because initially like my whole plan was to sell in two years for 2X. At the end of the two years, it was worth more than that. But the market was starting to deflate a little bit, especially with interest rates.

And so it made, and I was on the on -ramp with revenue. So it made sense to just hold the products for six months, a year, whatever it is. And my view essentially is if I'm going to do that and I've already paid off my investment, I'm going to remove myself from this organizational chart, invest whatever I've been pulling and putting into my pocket, into the team and hopefully grow a little faster and beef up the cow. You know, really just, just as simple as that. And the really nice thing is that, um,

This culture enables you to bring on people will have actually a piece of that pie. You know, like I'm more than happy to share because it's all pure profit now. You know, like what I'm looking for is the exit, the liquidity of it, not so much the cash flows. And so I can give them nice rates. I can get them to work on whatever, you know, schedule they want. It's, it's an awesome job. You know, like I wish I could work on something like that. And now I'm, you know, like in January, I started to recognize that.

Blake Harber (54:24.814)
The top of the funnel was still in solved, right? And so the fastest way I could accomplish that the root product rather than building like before building more marketing infrastructure was to go for something called Shopify, built for Shopify. It's a designation that like 2 % of Shopify apps get from Shopify itself, which basically tells the merchants this app was built for Shopify itself.

It's embedded into your own admin experience. Everything just works. It's like best practices. This app slaps, you know, like get this one. And so there are no competitors of mine right now who are on either app category. If I can get both of my apps designated for builds for Shopify, there's a very, very strong likelihood my rankings explode and my run rate goes up with it. You know, and so that's currently where I'm focused on not trying to build features.

We're literally rebuilding the apps user interfaces inside of the admin so we can do this. And I know a lot of the competition who's only on Shopify is doing that too. And those who are not, they're built like they're more mature. They can't do it. Even if they wanted to, they can't, they're too slow. And so that's the advantage we were going to take advantage of. And I wanted to get the team to basically help me do that faster than me spending a whole year trying to get both apps rebuilt from scratch. Like no.

If we're going to do that, we're going to do it right. And then we'll see where we get, you know, because something like that could, could accelerate run rate to a point where I'll be able to start adding more resources than I think I can. And if that happens, the product roadmap and just the, the, the velocity of what I'm trying to make happen will accelerate and I'll expect to go faster and be more ambitious. And this can become something bigger than what I thought it would be, you know, like.

That's kind of the advantage. It's still built to sell. Everything is built to sell and it could be sold at any point. I'm still having those conversations, you know, I'll always be selling. Um, but in the meantime, we're just lining our pockets, you know, making money hand up with us.

Blake Harber (56:38.446)
Um, what advice would you have for the people that are scouring acquire .com right now and looking to buy in a very similar area that you are? I, number one would probably be to think about who you're competing with. So if you put yourself in the shoes of the seller, your messaging, that seller is receiving a lot of messages. The good news is nearly none of those turn into something tangible. Most people are just talking vapor.

That is an advantage if you can be direct and pragmatic about your approach, you know, like, Hey, I'm looking for this. You fit this. I would like to make it happen. This is what I'm thinking. Let me know if you're interested, we can meet tomorrow. You know, like I am in, I want, I want you to know that I'm very serious from the start, that this is a deal that I'm interested in, not just one of the hundreds that I've reached out to with the canned message or something. Uh, and typically me as a seller.

Being on acquire, I've actually had the products listed for a while to test the demand. The first questions you get in those messages are very telling about whether or not you're a serious buyer. Um, and, or whether you're going to waste my time, you know, like I had one buyer reach out to me, asking me for details on how he could get this financed. And like, if I could get in touch with, like, it made no sense, you know, um,

So I just think about that for me, my big, like my strategy there was all cash offers. Like if in that first message, I mentioned the word all cash and I can make you an offer. Like that's so qualified, you know, I have to at least answer you and give you a number or whatever it is. We need to have a conversation. It's an all cash offer. I could sell my thing. Like it answers why he put his, so to me, that's the biggest greenest possible flag. Um, and.

Like know ahead of time how you plan on instrumenting this deal. You know, if you're planning on going in there with like 5 % down, you need to understand the time it will take for your lender to spin their wheels and go through the red tape they need to for you to get money in the bank. So many deals die in between. So like be an educated buyer, I guess would probably be the number one thing and know what you want. Yeah, it's solid. I, uh,

Blake Harber (59:05.934)
Uh, I went ahead and got pre -approval on before my acquisitions and got a letter from the bank on a pre -approval. And, uh, and I would send it first, same thing. And it sounds like you did that on your first deal was like cash offer here's I did. Right. Yep. Same thing. So I'm very interested out of my brain. I'm not worried if you're going to not be able to make this. Now we can have a real conversation, which is fantastic. Yeah. 80 % of the couple of hoops you got to jump through to get there. So.

Hey, if you want a house and you want to make an offer, but you're not pre -approved for a mortgage, it gives me the jitters. Yep. Yep. Thanks so much, man. This has been fun. Where can people find you, reach out to you if they want to talk more and learn about this? So I'm terrible, but I haven't been really putting out any comment for content for the last year. I'm on Twitter at yaltoledano. I'm also writing on microangel .so. That's pretty much where the...

tire story is. So from the moment I had the idea to do this through till like January, 2021, 2023, which is way further after like everything is said and done, like it has a word and like, I'm just ruminating at that point. And I didn't feel like it made sense to write anymore. Um, but now I think I'm going to start writing a little bit more often just because the story is different, quite frankly, and there's like thousands of people who want to continue following along.

And, you know, like they're the team now and maybe those people can write things and like, it's just interesting. I want to see where it goes. Um, but I'm very approachable. You can also send me an email. It's my first name at microangel .so.

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