
How I Built and Sold My Company in 18 Months - jaxsonkhan
https://campfirelabs.co/blog-1/2019/3/28/how-i-built-and-sold-my-company-in-18-months
======
dyarosla
Save your time and skip this article if you want any tangible takeaways; if
you want to know what the company actually DID or how it MADE MONEY, spoiler
alert: this article neither mentions or links to anything of the sort.

Without this basic intro description, there’s little to no value in this
article to prospective readers- companies aren’t created equal and lessons
learned in one industry don’t necessarily translate to others (this is not
always true, but without context, I still stand by the lack of utility here).

~~~
pbreit
[https://getsimpledata.com](https://getsimpledata.com) ?

~~~
dyarosla
Like I said- not only is this website not linked in the article, this website
_also_ does not describe what (exactly) the company sells, how it sells, who
it sells it to, or how any purchasing company would continue to bring in
revenue post purchase- NONE of this being covered while talking about how the
business was valued and ultimately bought.

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cylinder
Why didn't you have any representation, such as legal or a deal negotiator, on
your side? Broker isn't your friend. Is there any reason why you saw 2x
"earnings" as the golden ticket?

~~~
runako
Not the OP, but I would consider 2x earnings as a reasonable discount given
the youth of the company. Given a normal customer acquisition curve, most of
the revenue would be coming from customers with tenure < 1 year. So a buyer
could reasonably wonder how long these customers would stick around. Put
another way: the LTV hadn't been demonstrated yet.

(No scare quotes needed around earnings; the article doesn't suggest that
there was any reason the owner couldn't just pocket the monthly earnings.)

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mwcampbell
> But no one likes contracts and I don’t like conflict, so I didn’t ever
> transition to long term contracts. Again my lower brain (fear and the desire
> to be liked) took control and I decided to stick with month-to-month
> contracts. Then my upper brain came up with convincing arguments and
> justified this decision by saying I had created a “customer-friendly”
> pricing model.

Your upper brain was right. You did the right thing, and this is an example of
where building to flip is at odds with doing the right thing for the customer.
I hope we'll see more bootstrapped companies that are profitable enough to be
sustainable and offer a good living for their owners and employees, but don't
maximize profit or valuation at the expense of doing what's right.

~~~
hodgesrm
This is not correct. From the perspective of the buyer long-term contracts
limit liability for an extended period of time, which reduces variability in
expenses and lowers overall cost. Not every buyer values the benefit equally
but to say 'no one likes contracts' is simply inaccurate. It's a big deal
especially in enterprise markets.

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ticmasta
This is an interesting, feel-good read and I'm legitimately happy for the OP's
success, but I do have a few nits. First this is a pretty simplistic way to
value a business, using the tools we were introduced to in 2nd year management
accounting. They're all useful but the reality is that different buyers have
very different goals and their valuation is reflected in what they plan to do.
The approach here is most aligned with purchasing as a going concern. It's the
classic built a solid business that does pretty well but still requires a lot
of hard work and the owners want to retire. I'm going to be focused on
cashflows and growth, historic and projected. This is very different from the
types of businesses we talk about on HN everyday, or a value investor looking
for things like assets devalued by underperformance, etc. The point is "it's
complicated".

My second nit is more philosophical, related to this statement:

>> That’s because the process of creating an attractive business for someone
else to buy naturally makes it a better business to own.

I only feel this is true if your definition of a good business to own is one
that you can sell at this point in time, which seems a lot like a dog chasing
it's tail.

There are lots of counter examples to refute this idea, such as deferring
hiring, capital replacement or any real long term investment. Amazon is such a
valuable company today because of the things it did through the early 2000's
that made it look so unattractive to buy.

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gnicholas
> _Had I understood these simple concepts I believe I would have made very
> different decisions in building my business. I would have likely focused
> less time on maximizing profit (E) and more time investing in future
> earnings and value (M)_

It sounds like he's suggesting that the acquirer didn't care about how
profitable the company was. I'd be curious to know if others have found more
focus on revenue and less on profitability. I've definitely talked to some VCs
that invested based on revenue numbers, and didn't care at all about
profitability. Does this happen with acquirers too?

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csdvrx
TLDR: this person sold a money-printing machine for just 2x the yearly revenue
which means that either he got shafted (a 2x price earning ratio is very low)
or the buyer got shafted (company was at risk of tanking very soon, explaining
the low PER).

More politely, you could say the risky asset was priced according to risk by
both the seller and the seller ("hot potato")

