Ep 370: He Acquired 50 Saas Businesses & Warns You Of What Brokers Won’t Tell You with Kevin Peterson

If you're gonna replace $100,000 in income, you need to spend probably at least $500,000 to get into a business. You might get lucky and spend a little less, but typically, you should plan whatever income you want to replace, next that number, and that should be your starting line.

Hi, I'm Jaryd Krause. I'm host of the Buying Online Businesses pod, cast and today I'm speaking with Kevin Peterson. He is a serial entrepreneur and founder of Webfolio Management, a portfolio vehicle that acquires and operates small SaaS companies on behalf of investors and himself. And since getting started in the web business market, I think it was 12 years ago, he said, he's acquired dozens of internet businesses, e-commerce.

Things like including Pickreal and a refined, delibermetrics-driven approach to sourcing, cleaning, financials, and scaling recurring revenue products. And Kevin focuses on building investor-grade units with clean books and repeatable growth processes, then deciding whether to hold, scale, or exit through his SOPs.

So he's frequently coaching other buyers, investors on building SaaS portfolios, and his playbook centers on deliberate deal selection, clean financial segmentation, and operational systems that allow multiple assets to be managed without chaos,s and he has an amazing mastermind for software business owners and SaaS acquirers. It's called the SaaS to mine.

And in this podcast, we talk about his portfolio, how, when he started, why he started, how he's acquired over 50 businesses, what he looks for when he's acquiring a business, what he doesn't want to buy and why we talk about AI and how it is disrupting acquisitions and what businesses not to buy based on AI and which ones to lean into more, like what he has done with his portfolio and the specific types of things that a business may have like data within that business and why to acquire that because it can't be stolen from AI.

He also shares so much value on, like,e if you are looking at buying your first business or you're looking at replacing your income through acquiring a business, what are some of the things that you need to prepare and know and set yourself up for so you can do this successfully? Now there's so much more value in the pod.

Just go away, enjoy it.

Kevin, thanks for coming on the podcast. Yeah. Good to chat. Good to get to know you.

I just want to ask why, how you got started buying internet businesses, and why?

Jaryd, thanks for having me. It's good to be.

Yeah, so for me, it really was kind of a career pivot where I was consulting for about 20 years, mostly in financial services. And then, you know, I kind of hit that wall where I was like, you know, I'm good at my job. It doesn't feel challenging anymore. I want to do something more. I want to do something different. And then I really discovered that there was a thriving secondary market for online businesses, which I really wasn't aware of prior to that.

I think for a lot of people, they have limited awareness or maybe no awareness. Like, if you're in a career job and working normal hours on normal days, you probably have very little awareness that the secondary markets for a number of business types exist and they really are thriving, right? So you've got buyers and sellers and brokers and funders and operators and everything in between.

Yeah, I mean, it's a great place. There are great businesses to be bought, great money to be made, and it's massively life-changing, I would say it has been for me. How did it change your life? As you said, you work in the financial sector. How did it positively change your life way?

Really was a true career pivot, as I said, where I stopped taking new consulting projects, and I started buying, operating, and selling businesses full-time. And then from there, that has just evolved. So I've done more than 50 transactions in the past 12 years, and deals mostly, well, I started out doing mostly micro market deals.

Acquisitions might've been 5,00 or 70,000 or a hundred thousand. And then eventually they were firmly six figures. And then at some point, I started double-figure transactions. In the past two years or so, I've been on sight-figure transactions. I've not closed an eight-figure deal yet, but I've got, I'm actually under contract on one now.

Are you in the LOI? Cool. Exciting. And is it a software business?

Yes.

So I am clearly favoring software plus hardware now because of ike AI, which is fantastic, specific, and it's making software better. It's easier to take software to market,rket and that creates a risk for an acquirer that you may have more competitors because of AI. And so one of my answers to that is looking for businesses that also have hardware.

Cool, cool, yeah. And so did you start with software businesses primarily, really as well, or have you bought other types of business models?

Yeah, so I have also acquired some e-commerce. I really dabbled in any kind of online model that I could get my hands on. So yeah, some e-commerce. Of course, I have had an Amazon-affiliated account for several years and played with that model quite a bit. And then just true like publishing.

Like the publishing model, where your only source of revenue from the online business is clicks, right? pay per click and Google AdWords at the time. Yes, exactly. So I've done a little bit of all, but I really favor SaaS.

Cool. Yeah.

So you bought so many SaaS busin, esses and what's like a weird tiny one tiny metric that you attract that tells you like the deal is going to not be good or is goothere typically what I like to say there's a bunch of different things that add to the picture of what the business looks like. But is there a couple of things or one thing that's really important for you when you're doing due diligence?

There are a couple of things. One thing that I have is a marketing background,ound and I'm comfortable doing sales and also enterprise sales, which is not true for everybody. So that's something to consider when you're going to acquire a business. But one of the things that I look for is businesses where there are untapped markets or just underappreciated audiences.

It's exciting for me when I'm getting into due diligence, once, and I hear from a seller that they have a massive email list or a massive social following, and that they're not engaging with their own audience. You're like, it's very common. It's like typically the best source, and it's such a value add for somebody acquiring.

Yes, there are a lot of times there are some pretty easy wins just in the existing audience.

Yeah, cool. Yeah. So also what I see as well, that's super valuable when it comes to the audience, in that the clients can give feedback and ask for different, maybe different features in a software business or different things targeted, is like a standout thing that the business would flourish or grow if that was provided.

And you can come in and optimize for that and increase customer lifetime value or decrease churn or whatever it is in a software business. The same with e-commerce. If you're looking at something and people want an added product that's going to benefit the product tthey they hat just purchased. And you can use that as an upsell or a downsell, and increase average order value as well.

And it's a massive optimization that is typically a low-hanging fruit that increases revenue significantly. The owners in these businesses can get bored and stagnant,nant and they've been in the business for a while, hile and they just feel like they don't have, or they may just not have the energy to even optimize for the low-hanging fruits, right?

That is right. Yeah, those are all great comments and observations. And I'll add one thing to that, which is that it gets into a little bit of secret sauce for me when I'm having that first seller call with the founder. One of the questions I like to ask is if you were building the business again today, like starting from scratch again today, what would you do differently?

And a lot of times, you'll get very revealing answers, where some of the answers can be very helpful because it's not uncommon for a founder to say, " Well, we started down this path, and we built this tool, and we're serving this audience. And I've always wanted to have this other feature. We've just never, for whatever reason, they never got to it. A lot of them are really gems that you can add to our playbook post-acquisition.

Such a great question. And I think most buyers, when they first start, are pretty pessimistic towards a seller, or why they would be selling, and how helpful they could be. But typically, they're super helpful, and they just want to see what they've put so much time and effort into grow, and everyone wins from the transaction.

Have you ever though had like a deal where the business looks so good on paper, but you've just had this sort of bad, IBE, or energetically, it's just not, you're not picking up a good energy, energy, and don't proceed with the business, n ess or have you yet? And what does that look like for you?

Yeah, so I've had a few that did not go as planned, and that's to be expected.

Yeah, well, I'm in 50 trans, actions of course, you can't be hitting holes in one every single shot.

Yeah, that's right. And especially Earl,y on when I was doing microtransactions, microtransactions just inherently have greater risk.

You've got a smaller... Smaller business, Smaller customer base, less infrastructure. So scaling to a point where you can acquire larger businesses that do have a track record and infrastructure or people, right, is super helpful and lowers your risk. But then to answer your question, I had...

There's one business that comes to mind. I'm not going to name what it is. Some people listening might know it. There's a business that I got into, and there's a funny dynamic with retaining current talent, right, where I usually offer incentives in the purchase agreement to retain talent. Yet I had one business that acquired, and it was like, they all ran for the door as soon as it was closed.

And I was like, man, that's like, now what? And so that was not helpful. And then of course you have to course correct based on those things. But part of the value of SaaS is that typically you've got some runway to react to these things. But certainly that was a landline.

I had no idea that some of the key people were just waiting for the deal to close before they would hit the exit.

Why were they waiting for the deal to close to leave?

Yeah, I think they were just ready to move on. The business was already seven years old when I bought it. And I think some people were just ready. And of course, they just didn't share that I'll be perfectly honest.

It was annoying for me when they did leave because they did not let on during due diligence that they had any plans to. They were saying all the happy things like" This is great. We love working here. It's a great business. It'll be around for years to come.

So with software businesses,sses due diligence can be a little bit different than, say, a content business or an e-commerce business. What are some of the things that you think are really important for you to look for whilst doing due diligence? Are there like big things that are like that's an absolute no-go,o-go or if something excites you, what would that look like?

Yeah, so customer concentration is certainly one of the key points. I mean, there's really a handful of key points for software. So yeah, it's cost of acquisition, churn, customer concentration. There are really two pieces to that. One is concentration by count. The other is concentration by dollars, which can be very different.

And then, as we talked about earlier, like the size of the marketable audience, whether that's on social media or email or on a, you know, like a YouTube channel or something, that's all indicative for sure. And then, and then beyond that, it really gets into just efficiencies and, you know, I'm guessing a lot of your listeners have probably heard this before, but SOPs, your standard operating procedures, like is the business well documented?

Like if the founder were to leave on the day that it closes and never talk to you again, could you still run the business based on documents and the personnel who are staying on? So a lot of it is that, like, it's just the continuity plan.

Like you said, when you had this last business that you bought where a lot of key people left, did you have SOPs that you could run those SOPs and rehire people to get the same results, similar to the same results? What did that look like for you?

We definitely did. I do have some advantage in that. Well, I really have two advantages. One may be a segue here, but one advantage is that I just have enough experience in the space that I know who to call to take care of certain things. I do have a team that I've been working with for more than a decade.

And then, beyond that, I also run a mastermind community for tech founders and investors. And so I do have some comfort in that I feel like any challenge I could ever face in the business, I only need to make a couple of emails or text messages to my own mastermind community in order to get help with the thing that needs attention.

Yeah, the network is such a valuable tool to have. And by being in this space for, like you said, 12 years, you build that organically, but you also intentionally built it by building a mastermind as well. And, obviously, use a team with a baseline, as you said, like you've done 50 transactions. What does your portfolio look like now? I'm guessing you don't have 50, and you may have less than that. And then what, what one, how do you decide whether to sell?

Like flip or hold for the long term.

Yeah, that's a great question. And I'll share with you one of the things that I've challenged my team with, which is creating an exit scoring model. And it's for that very thing you just said, right? Like we've had an acquisition scoring model for, I don't know, eight years.

And that gives us some, you know, it sort of objectifies the evaluation process. So when we're looking at an acquisition target, we've got criteria that we look at, and we have a scoring model that says, okay, this business, ness based on our own model,l is scoring here. And then it takes some of the emotion out so we can say, well, why is this one that's scoring low, you know, or it's growing lower than other businesses we've pursued in the past?

Like, why do we like it? Or conversely, why are we not excited about this business that's scoring high according to our own model? So, the acquisition scoring model, I feel like we're doing a good job with. But then conversely, having an exit scoring model, I think,k is helpful as well, where you kind of get those indicators, know, the key indicators that say, hey, you might want to consider offloading this business now.

And I've seen that at a number of SaaS conferences, you know, people put up slides that show that the right time to sell is before you get to the peak of the business. You don't want to go over the top and be heading downward and then try to sell, and if you had a model for that that looked at certain KPIs in the business, certain performance indicators, that would certainly help guide that. But I'll share just full transparency. Historically, they have held businesses too long, which is painful.

Me too.

It is painful. It's just you're pouring resources into something that's just no fun and not providing a great result. Right. And so it's just like, what, what have I done? Like I've left it too long, and that's just on my part, it was just having other businesses that were making more money and more fun at the time.

And I just neglected the ot, hers, and it's just human error. Whereas if you've got some KPIs in place, then you can kind of hopefully predict, that I guess. The way I think about it is like when you've got a port, it's like resource allocation and making sure that you're providing the portfolio the right resources at the right time to the right businesses.

So how do you, I, guess, before we get to that resource allocation question, what are some of the KPIs that you have that help you see, okay, this business is something we should be looking to sell in one to two years?

Before it hits its peak or before it hits the peak of resources you have for it, or skills and labor you have for it in the team that you have, because it may not be the business's peak alone. There might be a better owner out there to take it to another level, right? So what are some of those? KPIs.

Yeah, I think the top two that come to mind are conversion rate on closing new prospects, converting them into paying customers. Because there are times when you're running a business and your timing in the market is just right, it seems easy. You run a,n ad and everybody wants what you're selling.

When that changes, that's a pretty good sign that something's different. Either the market changes or the technology changes, angle, or maybe there's a new competitor. And those are all things you need to keep an eye on.

Conversion rate is certainly an indicator. And then I think one piece that a lot of operators miss is the feedback loop with customers who do leave. Because it's inevitable. You're not going to please everybody all the time. Some customers are going to cancel. And it's super important to have that feedback loop that collects the information around, why did they leave?

Did they go to a competitor? Did they feel there was a pricing issue? Is there some feature that they wanted that they don't have? Was there a problem with your software? Like, what is it that caused them one day to decide, I'm out?

And so if you're paying attention to that, that can certainly help guide you, you know, when the business might be turning, or conditions in the marketplace might be changing. So those are the top ones that I can think of.

Yeah, I like that. As you say, you never like, you're never gonna please everybody. And maybe there's something within us within the software that peowantting, and it's, it's going to be a hefty investment. And then you've got another thing on top of where the conversion rate may have decreased slightly, but somebody else might be able to come in and say, cool, I can update this software, provide that tool, increase value significantly, but you just may not have the capacity for it at the time, or it's just not the right thing for you moving forward when you could, you've got another business in your portfolio that might have a far better ROI on the resources you're putting into it.

But somebody else, this might be a great business for still, right? Cause it's one thing that people think people are just selling businesses cause they are no good. Like, the reality is that there are parts of that for sure. And that's why we need to do due diligence, but there's other, there's other reasons as well.

Yeah, absolutely.

So I guess let's talk about the, maybe that's one of the answers, where there is like asset allocation. How else do you decide to make sure you're investing in the right businesses at the right time, and or acquiring another? How do you manage?

So yeah, a couple of things. One thing I thought was that rolling up simibusinessesness in a portfolio would be easier than it is. Like, and I'll just share that as a word of caution. Like you're running one business and then a complementary business.

It's easy to expect that the audience of one will also want to pay for the other. And I've found that that's way harder than it seems. People like to stay in their lane. I mean, the customers do, right?

So that's been a surprise for me, even when I have put two or three very similar businesses together, cross-selling between them is way harder than I ever imagined. Getting back to your question, how do you know what else to buy or when to buy? I'm really just trying to stick to a thesis, right?

So, I buy cash-filling, B2B SaaS that is typically lower middle ma,rket and I'm vertical agnostic, but I like things that have a moat. So if it has to be, there has to be some typically either technological barri, or a financial barrier to entry so that you're not just competing with cheap knockoffs around the world.

And especially now with AI, right? Likeif, a business goes to market and it's doing well, somebody in somewhere in the world who's savvy and can use AI can build it create one just like it for half the price, right? They're like, thanks for proving that the model is there and that the audience is there. Now I'm going to build one for a fraction of the cost and I'm going to charge half price for the service, right?

So that's what you need to look out for. So for me, it's just about finding the businesses that truly match my thesis or my buy boxes, they say, right? And you'd never know when those are going to come along. You know, you can get three in one week and then none for two years.

This is my qualm with people that I work with is like, I don't just want to buy you a business just so I can get a fee. It's more about whether we get the right one for you that really sets you up, so we can continue doing this.

And it might take years. Ase you said, with that said as well, we were talking about AI, the AI and a big fear that a lot of people have is, my business is not going to exist after I buy it any year or two or three because of AI?

What are some of the things that you steer clear of when recording now because of AI, and what do you think would be something to steer clear of in the future because of AI, like just the risks that we've just talked about, it just being taken over or replaced?

Yeah. So for me, like MarTech is not what it was five years ago, and AgTis ech similar, right? It's just not, yeah, it's just too simple,stic, or another way to say it,s it's harder to have that secret sauce or the competitive advantage. And then by contrast, some other markets are wide open, right?

So like FinTech, there could be a thousand FinTech platforms built by AI today. But the audience is still massive. It's like you just need some market share to do well with it. And with the cost of producing or building a platform and taking it to market, the cost is coming down thanks to AI.

Your risk of entry is a little bit lower than it was. But then the other thing is, I think I mentioned at the top of the call that I'm favoring SaaS that has a hardware or device component where like a device gets installed and then it's capturing data and then that data becomes the SaaS product business analytics and ways to monetize the data that are almost completely separate from the original SaaS model that that platform serves.

So for me, that's a differentiator. Like if there's some hardware component or some device component that feeds the data set, then there's less risk of AI just completely replicating it somewhere.

Cause it doesn't have that data to be able to revive that business model or advantages or insights, would say based on the data that you've got.

Exactly.

Yeah, that's exactly right.

Are there some that you would just lto avoid during the time of recording? People are dying to know an answer to these questions.

Definitely. Yeah, I'm not bullish on you know, social media. Like, hey, I have social media. Like, we'll get you 10,000 followers by Friday. So, and then what? Right?

Yeah.

Great, exactly. Is it just AI talking to AI?

It's a funny thing that you've got all these influences optimizing for a bigger audience, but they don't even know if that audience has money or wants to buy. You've got influences with hundreds of thousands of followers, making hardly any money, sleeping on couches and stuff.

Yeah. For somebody looking to replace their income, say they want to get to a hundred K wage from acquiring an online business or building a portfolio of online businesses. What sort of advice would you give to someone who's in a job, wanting to get out of it and acquire business?

There are a few things. Oneto follows the Warren Buffett adage, which is to invest in things you know. It's easier, especially if you're changing careers or trying to replace a regular job. Start with something that you at least understand. You may not be an expert in it.

That's okay. You can always hire experts, but get into a vertical that you're comfortable operating in or that you intuitively understand. You understand why a customer would, and what they're willing to pay, and why the business exists in the first place. So if you understand the need and you understand the business model, and it matches something from your past career-wise, then that's certainly a step in the right direction.

And then the next thing is, do you write down your investing thesis and get your proverbial ducks in a row before you start searching? Know how much business you can afford? Where are you gonna get the money? What about growth capital?

I mean, I can tell you from my own experience, early on, when I was buying businesses, I was so focused on the acquisition cost that I really underestimated the growth costs. It's one thing to buy a business that's a certain size. It's not always going to be that size. It's either going to grow or it's going to go out of business. And so you need to plan for that plan to inject some capital post close.

And, you know, like I challenge my team now with that, like, hey, if we complete this acquisition, then what? Like, what are our first two or three next best steps,s and what is it going to cost to do that? And is there an audience that we've been overlooking? Is there a new feature that we want to build? And all of those things cost money.

So it's not enough to just say, okay, I'm going to go out and buy a business for whatever, 500, like if you're going to replace $100,000 in income, you need to spend probably at least 500,000 to get into a business. You might get lucky and spend a little less, but typically, you should plan whatever income you want to replace, next that number, and that should be your starting line.

Like, I'm gonna buy a business for half a million dollars, and then you gotta figure out, okay, is it coming out of my pocket? My retirement savings now, some type of loan from somewhere, how do I fund it? And once I close it, that's gonna be the most exciting 15 minutes of my life, and then I'm gonna start sweating because I have to run the business and grow it, and you need to have a plan and a budget for doing that.

Great advice. I love the one about the least understanding of the business model, how it works. Cause if you, what's the poof int buying something that doesn't make sense to you. And you know, you might not, this is the thing.

Some people might see a business that doesn't make sense to them, and they go, cause they're just looking at the listing information or something like that. And they just walk away from it. Like, if you dig a bit deeper, then you can typically get to understanding how it works, and then ask the question, is this something that I'm willing to take on?

Based on how much work is required, other capital investments are required to achieve the results that you want to achieve after purchasing. As you say, there are so many things to prepare before the search as well.

And then during the search and also during due diligence in terms of like a business plan, as you said, you put one together with your team to make sure, okay, what are the first moves, how much they cost, what's our lead time to possibly get there? If it doesn't work, what do we do next?

Sort of thing. Yeah. So many, so many things to think about. Kevin, thank you so much for your time. Congrats on what you've achieved. You know, 50 acquisitions, building out your team, getting a toe-in-the-water deal, all the way from like smaller content sites to your first multi-million-dollar close.

Hopefully, that works out for you, but I really appreciate your time. Thanks for coming on. Yeah. Where can we send people to reach out if they need, or yeah, check out where you're up to.

Yeah, thanks for having me on.

Yeah, so one of the best places to start would be through my Mastermind network. The website is sastermind.net. That's a great way to connect with me and also just see how we think about the world of SaaS.

Love that. Everybody, reach out, say hi to Kevin. Thank you so much, Kevin, for your time. Looking forward to speaking to you again soon, hopefully. And everybody else.

Very good. Thank you, Jaryd.