Ep 312: Selling $15M – $150M Saas Companies & Negotiations with Diamond Innabi

What multiples do you think software businesses in the seven, eight and even nine-figure range sell for? Hi, I'm Jaryd Krause. I'm host of the Buying Online Business Podcast and today I'm speaking with Diamond Innabi and she has 10 years of middle market &A experience in software businesses managing successful deals in a wide variety of products, categories and industries and verticals, including energy, government, higher education, real estate, supply chain, technology and workplace and facility management.

Obviously every deal brings unique challenges, including ensuring the seller is getting proper credit for the recurring revenue that's been built and accurately presenting opportunities at a fast-growing company. And she has a keen understanding of how to properly position companies with challenges such as eye customer concentration and complex technology that requires additional education for interested buyers.

Now she's also a skilled negotiator who frequently achieves deals that exceed her clients' expectations. And since joining SCG in 2014, she's been instrumental in growing the team, serving as a mentor to analysts and aspiring investment bankers and developing processes and improvements that contribute to client success in the company.

And we do dive into so much about what it takes to sell a software company. We'll talk about the first call that you have and how long it can take to get that person ready to sell; it might be one year or two years, even until they are ready to sell and then the preparation time. How long is the preparation time?

What happens in the preparation time? And then we talk about different sizes of businesses and the multiples that these businesses sell for. Then we talk about what kills deals, why deals die and there's many different factors, which is very, very fascinating.

And then we talk about negotiation and what are some of the things that you can do on any size deal when you're acquiring a business to be properly prepared for negotiation and know the weaknesses and the strengths of the businesses and how to communicate that effectively to be able to ensure that you know and are empowered that you're going to get what you want out of the deal and/or if you should be walking away.

Now, Diamond is highly experienced in this and we have such a great chat you're looking at either selling or acquiring a business. There's so much value in this podcast alone. I know you're absolutely going to love it. Obviously, it's not the only way I can help you for free. Get my due diligence framework. It's what takes the guesswork out of buying businesses. All of my clients use it; I use it. Go away and get it. Buyingonlinebusiness.com for free resources and I'll chat to you guys on the pod.

Diamond, hello and welcome to the pod. Thank you for your time.

Yeah. Hey Jaryd. Thanks for having me.

How and why? When you're a kid, it's not like, yeah, I want to be an &A advisor. Like, I didn't even know what &A was until, like, maybe a decade ago. So how did you get to this point? Yeah, it's funny because I started at SEG in &A when I was a baby. I was like 18 years old when I started and I majored in economics. I was looking for internships and I was thinking, Okay, I want to be on the cutting edge of something.

So I really like technology. really like healthcare. Healthcare does not come into this. I just wanted to point that out. And I was also thinking, okay, where and how can I use my economics, like my background? And luckily enough, I found an investment bank that was in San Diego, where I went to school, that was at the intersection of both technology and finance.

And they were doing merger and acquisition advisory for SaaS companies. And so I said, Hey, let me, let me try this out. Let me become an intern and see how it goes. And I loved it. It was really good at it. And I've just progressed for the last 10 years in this field and in this company from intern to principal today, which is. Cool. Principal. Awesome. Congratulations.

Yeah.

And so what does that look like as a principal? Do you have stock in the company? No shares of stock really, where I say is kind of the management level where I'm orchestrating deals. I'm really one of the dealmakers at SEG, trying to win business, getting clients to market and then selling those companies.

So we have three principals at the firm and we're all kind of deal orchestrators where we're doing pretty much the same job description but with a lot of support under us. And so you basically sell to get clients on board and then get them ready for market. Is that right?

Yes. And then orchestrating the process from trying to get them a buyer or investor, negotiating all those offers and then eventually selling the business. Cool. All right. Well, throughout this part, I'd love to break down what that actually looks like, but what sort of SaaS businesses and sizes of SaaS businesses do you guys typically help people exit?

And also, as a part of the work, getting them ready to sell, is that? What does that timeframe look like? And do you help them scale a little bit to get ready or de-risk a little bit to get ready and get a better valuation? Yeah, that's a fantastic question. Yeah. Really good question.

So the companies that we work with are anywhere from five to $30 million in ARR, annually recurring revenue. So lower middle market for the most part, and they're B2B SaaS companies and usually verticalized. So 80 % of our deals are working with companies that are in industries like government, real estate, education, or vertical specific.

We used to do a lot of horizontal work, but the market has shifted to focus more on these verticalized software applications all of the market. So the majority of our deals are in those markets today. Can you explain the difference between horizontal and vertical? Yeah, so a horizontal company is really serving everybody.

You can have a CRM company that can serve a government client, a real estate client, an education client, a healthcare client, or a vertical company where the product suite is specifically verticalized and focused on one specific area. For example, you'll have something like classroom management for K–12 education, which would be an example of a verticalized software solution.

Cool. Cool. So five to 30 mil ARR. So we're looking at 15 million to $90 million. Well, even more. 100, like mid-nine figure exits, right? Yeah, it depends. I mean, we've had more than a handful of companies exit in that above $100 million range. It all depends on the process. Yeah. We've gotten some really competitive processes, but I would say that range is pretty good.

Yeah, definitely. Everybody's happy with that, right? Even the acquirer, right? They've bought a great company. At that size, what sort of acquirers do they look like? Are they private equity firms or strategic acquisitions from larger companies? What sort of buyers do you normally promote?

Yeah, that's a great question. When you get past that hundred million dollar mark, we see a lot of strategists because they do have the cash on hand where they can go out and do that. They don't have more of the red tape that we see with a lot of private equity firms, but we have seen private equity continually getting more aggressive on deals. We've had a few private equity companies start bidding in those ranges for companies of our size. So it's a mix. It's strategic; it's private equities; private equity-backed strategic where they kind of have leverage from both ends is really interesting. But I wouldn't say there's one that's dominating that. Yeah. Okay. And is that you mentioned some strategic where companies have some cash on hand? What's the majority? we, are a majority financing through private equities using finance and family funds and whatnot, like, how are they normally acquiring with like on it?

Yeah. So the offers that we're getting, I'll answer this in two ways. The offers that we're getting are typically all cash offers where our client is getting cash. We do a really good job of structuring our processes and our deals in a way that we're avoiding any kind of contingent consideration like earnouts or any kind of structure like seller financing.

It's one of the benefits of being able to run a competitive process that you can ask to avoid things like that. But then when we're looking at the strategic and private equities, the private equities are looking at equity from their funds and debt and the strategic are looking at cash on hand and debt usually.

So that's why it's so important to be watching interest rates and kind of what the Fed is doing because that dictates a lot of the risk appetite for buyers on both sides, where if the interest rates are really high and you have to have a little bit less of a risk appetite because the cash is expensive, it affects our deals. So I would say that's the majority of what we're seeing with both of the buyers, actually.

Doing this for a decade yourself and on myself as well, a lot smaller size deals where I'm at. And I've noticed some changes throughout the last three years economically and being heavily more of a buyer's market in the last sort of year and a half at least. What does it look like as money has gotten tighter?

Has it been good for you guys where there's more sellers being like, Hey, this business is getting a bit more expensive to run because of maybe finance and we should offload? the business? Has that been a thing? We haven't seen much of that. What we have seen is those businesses that we consider high quality and there's a couple things that go into that and I'll go into it: you know, you have really nice retention rates. You're keeping customers around. You have good gross margins.

So you're capital efficient. You're growing, but not growing at all costs, where you're doing it at the expense of profitability. These companies that are going back to the fundamentals of how to run a business have been attracting a lot of attention. So the shift that we've seen is actually having companies focus on those fundamentals and get rewarded for it in the market. would say, like you said, cash has been expensive.

There's been less of a risk appetite. So the companies that do have more of that standard profile have been receiving these really aggressive multiples because there's so few of them right now. And those are typically the companies that we're representing. We only take on a handful of companies every year because we are extremely high touch and we want to be successful and our success rates are well above the industry average.

And it's because we want to make sure that when we're taking a company to market, the buyers and investors want to buy it. Even in a market where maybe it's a little bit tougher, cash is a little more expensive, and people are a little afraid to do deals, we're still being successful because of the types of companies that we're running on. Yeah, cool. So handful of companies—you're talking like two to five companies max a year? I would say it's two to five companies per deal team. So you're looking at closer to 15. Okay. Yeah. Cool. You mentioned multiples. We all know SaaS multiples; typically, the business models compared to media businesses and e-commerce businesses get a higher multiple. What are you seeing in terms of multiples? And guys, I just want to preface this before Diamond answers this for the listeners. Besides buying 50 mil to a hundred million dollar SaaS businesses, the multiple is going to be different from a one mil to $5 million SaaS business, right?

But I've heard some crazy multiples, right? Like down on the lower end, you can get up to like the nine-year, 10-year, but I have heard some crazy multiples in the world market. So what's the average? What's just one absolute outline that most people like your clients shouldn't be expecting? Yeah, it's a great question because it's hard to communicate sometimes.

Yeah, it is based on risk, like if every business is different. So we've got to preface that too, right? Like it's what's the, you know, if you've got something that's got the lowest possible churn rate with an incredible customer lifetime value, amazing RR, ARR, systems and a great team.

And there's the competitive risk, which isn't high. There's so many factors that go into it and then it's dependent on the business niche and everything. So, but yeah, in general, like in very general terms, no one's going to hold you accountable to this. Promise.

Say for SEG's deals, on average, we're seeing something; you kind of mentioned it in the high single digits in terms of multiples on ARR. The Broader SaaS market is a bit below that. And then those outliers—you get outliers on both ends to a lot of what you were saying.

Maybe the churn is a little bit higher. Maybe you're in an industry that's a little saturated. There's a lot of factors that go into it. So you get on the lower end, but like on the upper end, you're seeing, you could see 15X, a 20X, which is as a result of having really nice business metrics. if you're able to drive competitive tension and you have a buyer that says, This is not a want to have; I need to have this because of what you're opening up in a new market; you have a product that they really want, then you can really drive that tension and start driving up those multiples.

That's awesome. Talk to me about that because that's very attractive for a seller to understand and know. When you say you're opening up a new market and you are the things that a business could have that can attract that sort of high multiple, when you say it's a need to have, I need to have that multiple.

So when you're looking at acquisitions, there's a couple of things that buyers are really honing in on. And I think it's a little bit different when you're looking at the private equity community versus the strategic community. When you're looking at private equity, they want doubles, where they're saying this company has all the financial metrics—low churn, growing efficiently, maybe growing a lot—that private equity specifically wants.

I'm doing it efficiently and doing it in a market that maybe they have a thesis around. So we see a lot of private equity saying, I really want to get into GovTech this year. I really want to get into Entech this year. Or they have a couple of investments in the space where they're saying, This is a buy and build strategy where I have one investment in the space and I want to do more.

And I want to be the consolidator. So that's a really good buyer. If you're in a specific industry where you're offering a product or something that one of their portfolio companies has, or you have a platform form that they say, this is a really good baseline and foundation for us to go and be the consolidator and go and buy new business in this specific area.

For strategic, we always like to use the analogy of a fork and a knife and a spoon. So if you're looking at a strategic acquirer and they're offering a specific product functionality to the market, that's a spoon. Do you have the fork or do you have the knife to complete the set?

That's really going to make them the dominant player in the space. And that's really when we get, you know, the strategic interests where they're saying, This is really going to round out my solution and going to make me as the buyer more competitive in the space. And they're also looking at cross-sell opportunities.

Can I sell my product to your customer base? Can we do vice versa? When we look at market, we're thinking both market in terms of end markets and customers. So are you opening up a new customer base for me?

And we also look at geo. Are you going to be able to open up a new geo for me? Geo gets a little bit trickier because there's oftentimes where they're saying, I don't want to go in certain areas just because it's going to be too complex logistically. if we're talking about a company that really wants to go into the Canadian market, for example, and you dominate the Canadian market, that's a really great way for them to do it in that fashion.

Yeah, great. And then there's, yeah, obviously all the other bits in between; though, from what you've mentioned as well, there's so many different ways that it can be a very good strategic acquisition that can bump up the multiple. I mentioned before the timeframe of preparation and what you do for preparation, because I fire host you with so many questions, we haven't gotten to it yet.

Yeah. Preparation. What does preparation normally look like? Yeah. So I would say with SCG specifically, we do more work upfront than a lot of other advisors. So our prep period could be anywhere from six to eight weeks, which is longer than what you'll see from a lot of folks.

But the reason we do that is because we're basically diligent about seeing the entire business before we go to market. And the reason we do that is because we want to know all the red flags, all the yellow flags, and all the green flags. So that way, when we get into the market, we're really proactive and we're able to answer questions before they're even asked. That gives us the leverage.

Yeah, that gives us the leverage to make sure that we're dictating the process and not the buyer set. You know, if a red flag is coming up, we already have the answer for it. We already have the remedy for it. So that avoids a couple of things for us. It avoids buyers dropping out of the process and shrinking our buyer set because something like that came up and we didn't know how to address it.

And it limits retrates when we're in due diligence because we're in due diligence. We don't want them discovering anything that we don't know because we won't have a way to negotiate it out. really when we're in process and we're in preparation, we're driving two things. It's de-risking the deal before we even go to market and we're driving value.

Going back to the green flags, what are all the really amazing, unique things about this business that we can strategically position around that we want to make sure we're getting to market and explaining to buyers and explaining to specific buyers, right? Because the messaging for one buyer will not be the same for doing all of that work up front and making sure that we have that story to tell and avoiding any risks is why we take so long in the onset of it.

Yeah, it's the best way to go. And there's one other thing that you didn't mention that I'm sure you guys know you're doing; why you're doing it is timeframe gives the buyer, like once you have done your basically all the DD and you've worked out how to present it in a way it was like, this has to be a no-brainer for, like, having to acquire this company. Plus, you've got all the information in the data room and they've got access to everything.

It cuts out the timeframe of a deal, and a lot of deals die because of how long things can drag out. For example, if you already know what they're going to ask and what information they need, why wouldn't you just have it already ready presented and help them make the decision as fast as possible? Even if it's a no, it means you can move on to a time and attention with another possible buyer.

And you just, it's so much more efficient for, can get your deal. It might take a little bit more time upfront with your client in preparation, but it can typically, and I would say you would probably see that it would end a faster exit for them too. Absolutely. It's the ability to, if you are running a broad process where you're marketing the business and getting multiple bids, be able to run that process meticulously and be able to prepare for everything.

But like you said, when we're in diligence, let's say with one or two parties, we want all of that to be confirmatory. We don't want it to be exploratory. So everything should be a check the box, check the box, check the box, not we have to do work to actually learn about this business.

So instead of having those due diligence periods that I used to see 10 years ago of 90 days, more than 90 days, we've really been able to shrink it down to 30 days or less in a lot of cases where they're truly checking the box. You're sprinting towards the finish and you're avoiding anything like you mentioned, like any retrates or any possible downfalls during that period. Yeah.

Do you have, when it comes to strategic acquisitions for companies, do they already have like a small M &A team that does DD basically that, like where they can get a CPA that just is just boom, they've just &A CPA that just does the quality of earnings as fast as possible. Like, do they already have that stuff in place or are they hiring it?

Yeah, for the most part, every single buyer, whether it's private equity or strategic, is going to be bringing in third parties to do a quality of earnings review, etc. I think the one department one area that might differ for strategic is that they typically have an in-house tech team where they don't need to bring in tech specialists to go review your tech because they have that in-house.

And it also depends on the size of the company. If you have a huge strategic acquisition that they're growing through inorganic growth, sometimes they'll bring some of that in-house because that's just a focus for them. But I would say for the most part, in the majority of cases, they're bringing in third parties.

Okay. Yeah. Cool. Now talking about timeframes that can drag out deals and not having things presented and everything ready for an acquirer. What are some of the things outside of that? What are some of the things that can kill a deal or what's the most common reason a deal would like to fall down?

That is a great question. I think there's two things that immediately come to mind, and I could probably get a better answer for you. But the first thing is something dramatically changes in the business.

We presented a $5 million end-of-year forecast and you lost your biggest customer and you didn't hit your numbers because your sales motions flowed. That is a dramatically different acquisition target than what the buyer thought. So that's because the business has like some single source dependency on like one or some level of dependency on one sort of client. Right.

Yeah. So if there's customer concentration, they lose their biggest customer. They dramatically miss their forecast large things like that, which don't happen often, but they do happen, that change the acquisition profile for buyers.

The other thing that we see is a buyer discovering something, which is why we do so much work in the prep period, discovering something that is a huge red flag for them, whether it's there's a provision in customer contracts that makes the acquisition impossible because there's a change of control position where they can renegotiate all the contracts if somebody gets acquired, or they find out that the tech is not using proprietary information or misuse of open source, something really dramatic where it could have been avoided and we could have mitigated it if we got to it early, but it's coming out later.

And then the one other thing that I'll bring up is that sometimes emotions get in the way. It's a really stressful and high-stakes process for both buyers and sellers. And if there's a mismanagement of the process, there's a miscommunication for whatever reason; it doesn't happen so much with a third party involved, like an advisor like SEG, but it does happen where we call it going nuclear, where they just say, They throw their hands up and they're just like, I'm not dealing with this anymore.

That happens. you say going nuclear? Yeah, going nuclear. They just say, I'm done. I'm not dealing with this anymore. I'm walking away. And that does happen because it's very emotional. It's a very emotional process for both parties. Yeah. Yeah. Especially if it's a cash deal. Yeah. Cash deal and for second, with markets that you and I are looking at, there's a lot of founder-owner operators.

This is what we've been building for years and years and they want to make sure that it's going to be in the right home, in the right hands. So you're seeing your clients going nuclear more than maybe some buyers. Yeah, occasionally. would say because it's such an emotional process from the perspective. We don't see it often. mean, we're seeing emotions get high.

We're not seeing a lot of people walk away, but it is a possibility because this is a company that they've been building for 20 years; let's say, they're ready to transition. And they want to make sure that the culture fit is there, that they're respected, and that this is going to be in the right hands. And sometimes just the deals are a lot of work and they get to feel fatigue and they're exhausted and sometimes in a relationship.

I was going to ask you, What's the most stressful part of the deal and why? mean, is it just that? it, when it comes to negotiation, like at the end of the day, means, obviously, you're going to have an LOI and then you can renegotiate.

Is it really when it comes to renegotiate again or do things change on either side? that the post, or are there other reasons that cause more stress? In every part of the process, the answer is going to really depend on who you're asking. But I would say every part of the process kind of has its stressful moments.

When you're in a prep period and a company doesn't have clear, accurate data, that's pretty stressful where we have to go and clean up. Maybe we have to bring in a third party to help us and we can't really do our job without the data. that's a big portion of it. When you're in market, if you're running a broad process, there's a good chance you have 80 parties involved.

So how do you make sure that all 80 parties feel loved and they're getting the attention they need, they're getting the information they need, and you're building that competitive tension to get multiple bids at the end? Managing the horse race, so to speak, so everybody gets the same part at the same time. In the diligence phase, making sure that we are dictating everything.

We're not having buyers dictate the process from start to finish and we can stay ahead of them and make sure that there's no renegotiations, delays, all that good stuff. And I would say in the negotiation period, that is a stressful portion of it just because if you are down to it and there is a renegotiation of some sort. Managing both parties in a way that you're able to communicate effectively the whys.

If there's a reshade for a legitimate reason, being able to communicate that to our clients, saying this is what they found and this is the plan. Or going to the buyer and just saying this is a whole lot of nothing so we need to talk about this and get to a mutually agreeable part of this process. So I would say that is stressful but it's usually because of the way that we're running and making sure that you're doing all that prep work and really managing it from start to finish.

You're really avoiding those really dramatic portions. Yeah, dramatic portions and the stressful conversations because you already want to uncover all the risks and know all of the weaknesses of the businesses first and all of the strengths and then how to combat those conversations when it comes to the weaknesses, right?

And it's not maintaining that level of transparency—the right level of transparency—with your client and with the buyer. So we communicate with clients; we want them in the know; we want to make decisions with them. That way, like if something like this happens, it's not a big surprise. And then with buyers, you're kind of balancing that level of transparency. Those we want to work with you, we want to do right by you too. Our fiduciary duties to our client, but we want to do right by buyers too.

So managing the transparency with confidentiality and that competitive tension is always really important. Managing expectations in a deal on both sides is so, so important to have people on your ground, which we're basically talking about negotiation now, and you're a skilled negotiator.

What preparation is very, very important knowing the strengths and the weaknesses of the businesses, but what are some of the skills that you use or strategies that you use to prepare yourself for negotiation and/or during negotiation? That's a great question. For me personally, what I love to do is a lot of scenario planning. What are all the possible ways that this conversation can go? The good, the bad—what is my response? Running that by my clients, frankly, I want to, again, overinform them, saying, This is a strategy you can take.

And these are three different options. So it's really, I call it a decision tree. So just having all these branches of the different ways that conversations can go, what I've seen in the past, what I think is the most likely situation, but also all the other options. So I'm saying something; I'm getting a response and I already have the response. So it's not me acting from just the top of my brain or from emotion. It's very logical. And I know everything that's going to happen in that.

It's like overpreparation for these conversations. And it happens; it comes with experience; it comes with years, but you typically know when these conversations are going to happen throughout a process. You're getting that gut feeling; maybe the buyer's investors are not as responsive, or something like that. We were saying, Okay, this conversation is probably going to happen at some point. So being prepped for that.

And I say the other thing that is the best negotiating leverage that I could ever have is the ability to walk from a deal and you don't always get that, but if you do have the ability to walk, it gives you so much leverage in your own mind and in the conversations that you have. And the ability to walk is really two ways, right? You have other bidders, which is the benefit of running a competitive process.

You have options, or you're saying, I'm just not going to take this deal right now or whatever you're trying to give me or retrade or whatever it may be, because I can just go back to business and I just grow it and try again in the future. So having that mindset of saying, This is not the end all be all; I do have other bidders; I have other options is a really favorable negotiating tactic that I try to work with my clients to get to.

It's an amazing energy to have when you go; when you get to that point of, well, we walk because it's not worth it. And for them to see the confidence levels in the sellers to say, I'm going to stay with the business versus what you have to offer actually radiates energetically. If we think about it that way, confidence in the buyer, whether they decide to move forward and come back on some other strategies or not, actually definitely radiates confidence, like confident energy radiates, right? I love your explanation of the decision tree.

What I think I like to do personally is I like to have it; I like to think of it like a chess game. I don't play chess, but I like to have multiple moves. you said I like two to three different strategies, right? So if they say, "I would like to know, typically I like to get on the phone and it's an important conversation to have verbally and sort of see where they're at with it as well.

And then get on a Zoom call, have that conversation and have one strategy that is presented because we need to change something; one strategy, they say no to that and the second strategy, they say no to that, and a third strategy, they say no to that. Then, to the point, get to the point where it's like, okay, well, we're at a stalemate. You can choose one of the three strategies that we've mentioned, or we're happy to stay with the business; get back to us in one to two days.

And when they hear that, they're like, okay, these guys know the value of the business, and they've presented three strategies. It's up to us to see if there's value in the business enough to go with one of those strategies. So you provide them with three options, but you're not desperate. You're not just like, okay, we'll have to think about it; let us know.

You've actually said at the end of the day, Look, if you don't want to get close to one of these ones or be precisely on one of these strategies, that's fine because we will keep the business or we'll speak to the other possible acquirer if you have one, which isn't, don't like personally, I don't like to just throw that there's another requirement in there. there isn't lying; there is no way to go at all, ever in deals and life.

But if you've got one, it's a legitimate and it can work. Agreed 100 percent. And I think you brought up a really good point about the strategies being problem solvers for buyers being so incredibly important where they're saying, Hey, we're having this issue and we're saying, Okay, let's work on it. Let's figure out how we can get you what you want or need.

So that way we can avoid this retrait or whatever it may be, or we can get you a successful exit client. We want to be able to work collaboratively to get to that point where you don't want to walk. You want to do a deal. This is why you're getting into this process. So how can we solve this problem for you and work together to get to a successful conclusion for both parties?

Yeah. I guess with those all-cash deals, it's a lot easier without having to be regulated by and have certain boxes checked by the lender and finance. That must be nice. Yeah. I mean, that's right. We've run into those where they can't get the debt or they can't get whatever they need. It doesn't happen as often, but yes, it's very nice when a strategic comes in and they say, Yep, we could just finance this from cash that we have on hand. It's phenomenal.

Yeah. Yeah. And typically, don't know, correct me if I'm wrong, if you've got a strategic come-in that can acquire something for cash. Typically, at that level, it's got the cash in the company. They're going to be sophisticated enough to move through the deal pretty fast as well, right? And probably going to be less negotiation anyway. Is that a general yes or what do you think about that?

I would say when, again, it comes back to, they sophisticated acquirers? they going out and doing this? Is this their first go around? It makes a dramatic difference about how they approach transactions for the good and the bad. Sometimes you have less sophisticated buyer who just says, I just want this product. Let's just do the necessary things that we have to do to get to the conclusion.

Or you have one that needs to bring in a lot of help, a lot of third parties and it takes a bit longer. You have those acquirers that do have a lot of experience and they are growing through inorganic growth. The majority of the time they pretty much have a streamlined approach to how they're acquiring businesses and what they need. And so it speeds things up a little bit more.

Cool. And so what's somebody who's thinking about working with you guys once they get to an exit or what are some of the things they need to do to sort of get themselves ready for an exit to work with you guys? Yeah, that's a great question because we are often having conversations with parties very early, sometimes ahead of them exiting because we don't know what we don't know.

So if you're coming to us and you're saying, just give me an assessment of where my business is today ready to go to market or are there things that I need to work on to prepare to get there? I think the first step is having that conversation and saying, Where am I and where am I in my life cycle?

And what do I need to do to give myself the best chances of a successful exit? I think where we see the most work that needs to be done is not looking at big issues in the business. Like, if you have a churn issue, obviously that's where you want to spend your time. If you have a sales issue where you're just not winning new customers, that's where you want to spend your time.

But if you're prepping more logistically, it's just making sure that you have your house in order in terms of having your MRR schedule or having clean financials, giving yourself the opportunity to get all of that cleaned up so that when you do come to an advisor, it's really easy for us to quickly analyze your stuff and say, yep, this is where you're at. And then you can move on.

It's actually interesting how often I see software or SaaS companies coming without a schedule. This is how they run their entire business. it's really, it happens less often now, but a few years ago it was very, very common, which we can help out with. It just takes; it takes longer to get to the answer. I often find that information is so valuable that we should be making decisions for growth in our business based on information and the better data that we have, the better decisions we can make.

When somebody is getting ready to sell their business, they might be like, okay, I could focus on the growth things like just go straight to sales or churn first and then sales, right? Obviously you want to fix it in a linear fashion. But I think a lot of people may forget that, like, hey, the linear fashion starting at the top is having the data correct, which is the finances first. And then you know what you actually know—what your retention rate is. You actually know what your conversion rate is on sales.

And then you can, so it's fix your MRR schedule first, and then you can work on your retention and then you can work on sales. And that might take one to two years, but not like, let's just do some retention stuff or some sales stuff and then we'll get the MRR schedule set up. It's like, you can do it both at the same time, really. you can; typically, you want to have the data first, right?

Yeah. That's a good point. It's how do you fix a problem you don't know you have? So it's really important. And also knowing portions of your business that may be better performers than others. need the data to do that. We had a client many, many years ago where we found that we segmented their customer base, small, medium, and large, very, very simple analysis. But we realized there was so much cost of acquisition going into the small and medium.

And obviously the lifetime value of those customers was extremely low. And in our process with them, where we said, Hey, wait a year, focus on large customers and see what happens because we have this data and we know that this is giving you the best bang for your buck. They focused on it. It was a dramatically different business a year later. were extremely successful with them.

Yeah. Just increasing revenue and decreasing risk is so cool in terms of, yeah. I mean, just adding that you would have made, they would have made many millions more, probably tens of millions more because of that change, right?

Yep, exactly. Diamond, thank you so much for your time. Thanks for coming on. Where can we send people to check out more about what you're up to and yeah. Yeah. Thank you for having me. So our website is softwareequity.com.

We have a bunch of resources on there. Lots of research reports, lots of blogs that are really helpful content pieces for software executives and software teams generally. You can also just find me on LinkedIn if you want to connect directly. My name is Diamond Zanabbi.

Awesome. Yeah, guys, I've got links to Diamond's LinkedIn, as well as that SAS scorecard and that quarterly SAS report that you guys have at softwarequity.com.

So thanks so much for coming on Diamond.

I hope everybody else loved the chat.

I really appreciated Diamond and I'll speak to you guys soon.

Great. Thank you.