398: saas.group: Scaling Bootstrapped SaaS Startups Through Acquisitions - with Tim Schumacher

Tim welcome to the show hello so tell us about SAS group what does the business do who's it for what's the main problem that you're helping to solve so SAS group buys and operates lots of small and Innovative independent SAS products so we're essentially like a holding company for SAS products we uh we offer Founders an exit they deserve give them Financial Freedom for their next adventures and at the same time try to keep their companies in the bootstrapper mindset which made them strong in the first place so today we operate 18 SAS companies um

in various different segments online marketing productivity uh and developer tools great uh can you give us a sense of the size of the business where are you in terms of Revenue so we're at about 60 million any recurring Revenue uh we've been growing about 100% from 22 to 23 and also trying to forecast strong growth for this year um lot of the growth is through Acquisitions but we're still growing the business uh organically and we're 300 employees in 33 countries great so you're you're a global business you yourself are based in Germany the the companies

in your portfolio are they from are they mostly European us-based a mixture of everything they're they're a mix of everything we've got uh a lot of businesses in US and Canada we've got a few in Europe Germany Finland Austria the UK okay we've we've bought things everywhere it's um for us it's more important that we're comfortable with the products um and where they sell to uh than we're actually the entrepreneur sits we've looked at Great businesses in locations all over the world but it's it's more important what they do and whom they sell to so

the business was founded in 2018 but I think your your story starts well the relevant part of your story here I think starts when you founded uh a business schol cedo which I I think most people will have heard of um can you can you tell us about that like from the point of you founding that company to your your journey in in terms of getting to the point where you decided that SAS group was you know really the business that you were going to focus on yeah so I've been an entrepreneur all my life

I started coding as a teenager then coded websites and games for sold them to to others finance my studies that way and yeah after graduation then then started sedo.com and interestingly enough a lot of entrepreneurs have bought a domain from cedo at some point it's uh the world's largest domain Marketplace uh and of course you know buying domains but also project has always been kind of my DNA I ran ran cedo for 10 years um uh ipoed it at the German stock market um and then at some point left the company uh so sold my

remaining shares and um and became an angel investor and also started a few other compan companies for example one of the companies is I I used to run is the company behind Adblock and Adblock Plus the big adblocking companies um and that that was one of my aha moments because Adblock was not a product I developed but it was a a hobby project of a developer and I scaled it to also now a couple hundred people um it's it's it's run by external management now but I I kind of realized that I was much better

at scaling things than building something new and i' I've got a ton of respect for people who like can figure out something from nothing really this zero to one phase uh building out an MVP starting for the first kind of get the first customers and um but then very often they struggle at a point when I'm like okay this is this seems to be my sweet spot and then after I I uh I left zto I was I was approached by really talented Founders who were really kind of the opposite of me and they were

Builder they were Builders like early Builders and really they didn't enjoy operating bigger Ventures and so I was like wait a minute you know that's that's actually something um I I could do and I I just started uh buying a few projects uh SAS projects and um one thing kind of came to the next one and I like yeah uh improved them um installed like B basic operating structures into them and it's it wasn't rocket science but it was just kind of one thing after the other and um and yeah now now we've got 18

projects um and a decent Siz business uh but it was it was kind of a step-by-step thing okay great so in this interview what we're going to do is deep dive into SAS group we're going to talk about you know what's the criteria that you use to acquire companies uh what's your acquisition Strate stry and process look like um I know on your website you talk a lot about a Founder friendly approach so I want to dig into that and um we have a lot of Founders listening to this who will be interested in what

that means and uh I want to talk about the the future plans that you have what companies you plan to acquire and just generally your insights on you know how you see the the market and and sort of Industry Trends around m&a in the in the SAS space um and and I My Hope Is by the end of this interview we're going to get to a point where Founders who are listening to this are going to have a clearer idea of number one whether selling to SAS group or you know a similar type of you

know organization makes sense for them and secondly how to make sure that their SAS company can stand out as an attractive acquisition Target so I think with that sort of set as the what we you know the goal for we want try to achieve let's dive into like just generally what's what's your criteria when you are looking for uh potential acquisition targets for SAS group so F first of all we look at the size of the business we like to acquire businesses between 1 and 10 million in AR um we obviously like to uh have

growing businesses we also like profitable businesses uh sometimes we've done turnaround businesses where uh there there have been VCS for example who've kind of abandoned the company or Founders who just couldn't get the company profitable uh but in the majority we've been focusing on uh already profitable companies um with a with a with a very healthy bootstrapper mindset um then topic-wise we're we're looking at General topics so we're not going into Super Niche uh vertical businesses uh which we don't understand but we go we try to go into into General productivity tools developer tools um

online marketing tools those sorts of things um and um yeah then customer based should be in the US or North America and Western Europe that tends to be the market we understand best but the the location and the origin um of the business can literally be anywhere in the world um and those are pretty much the main criteria I mean then it kind of we drill down into lots and lots of criteria we obviously do a Thor D and everything but but kind of that sums up the the main things okay so a business between

you said one and 10 million in ARR and obviously the other signs just in terms of making sure that it's a healthy business it's a a growing business or at least has the potential to to grow with the right you know kind of focus and and investment uh I know there's from looking at your website there was there was a bunch of information about the importance of cultural fit and values you know that's not necessarily something you know we hear a lot about when we're talking about acquisition so as can can you just tell us

about that yeah so so I mean at the end of the day we're acquiring uh people um more than anything else uh a team sometimes including the founder um by by the way we're we're pretty agnostic whether the founder stays on board we've had cases where the founder is like hey I'm burned out here are the keys um I'm going to be out in four weeks and we've cases we have cas where the founder is still with us after 2 3 years um and both are great cases obviously the latter is better we love to

work with Founders but at the same time we totally understand if people just don't want to do it anymore it kind of has an influence on price but but it goes either ways but regardless of the founder Founders build a culture and we we will and we want to work with the people there and and we just want to have people who fit who who are autonomous uh independent that's we're a remote company so people should work autonomously and independent who are who have a can do attitude also a bit of a humble attitude of

um yeah just um just good people to work with and and so that that we think that actually we can work with them many years to come and of course some some cultures uh change a little bit after the acquisition um but but overall it's it's really important that that it fits to our culture because otherwise um there's there's kind of a conflict in the making and does the business have to be bootstrapped to be a potential acquisition for you no we we we really have um a knack for bootstrap Founders we really think that

those businesses are usually super healthy um they're very lean um and we we prefer them but we've had quite a few cases especially in the last two years when some some companies got got a lot of VC funding at some point the VC are like this is not going to be a unicorn um we're going to sell it uh on dime on the dollar um or also we've had two cases which were in insolvency in bankruptcy and uh uh and we took them out of bankruptcy um and got them nice and profitable again and they're

running really well now and um and tucking along how do you find these companies is it is it mostly inbound or are you going out there and and sort of searching for them uh it's it's more more inbound um the beginning was only outbound because nobody knew us um I've written tons of emails myself hundreds of not thousands of emails um uh now we're doing a lot of Outreach like for example we have a um a SAS podcast ourself uh sass Unbound uh by my colleague Ana uh we also uh yeah we do a ton

of social media my my colleague Derk DK salmer he's he's uh doing like just a lot on S metrics and stuff and has tens of thousands of followers and that so so we've got a decent size origination team now um and uh also a lot of Founders recommend us uh it's a lot of word word and mouth because um doing an acquisition right and in a Founder friendly way is is um something we really try hard um it mostly works it doesn't always work it's hard to acquire companies but um those things go around and

and Founders recommend us and um so we're getting more more inbound I also want to talk about what type of support do you provide these companies once you've acquired them because from what I understand you you you still give them a lot of autonomy to continue running as a standalone business uh as you mentioned earlier the founder may decide to stay on or they may leave and um you know you you've obviously got you know this this expertise you know which is getting better better at at um taking these businesses and and helping them to

scale so along with that autonomy what type of you know support are you providing those businesses to help them succeed yeah that's a that's a great question um and and exactly that that um balance between autonomy on the one side and support on the other side is something uh which we really try to try to perfect over the years um so yeah first of all I think the default mode is autonomy we we we trust Founders we trust the teams we also want to keep those companies independently we don't change the name we we don't

destroy their culture um we um yeah we we want we want to build a community of lots of independent Zas companies because we really also believe that that small is beautiful um but at the same time we also see that every founder has a strength in some and with every strength there's a weakness so for example we' have a lot of Founders who are really strong in product and Technology they've built beautiful products but we've come across sites which have a beautiful product but like on the website it's almost impossible to find any documentation uh

find a sign up button so they're very simple things we sometimes improve just make the website proper um uh and and then start do some marketing um and those there we've really kind of we've pretty perfect processes for for for marketing um for bi for onboarding um for lots of different topic and and then also all the things which really nobody loves to do uh Finance uh hrr Administration those sorts of things those we usually just do centrally by default um and nobody minds and also this way we can really use that as as um

a value ad um so there are a couple processes which really uh centrally run all the time but the majority um is is autonomy by default and then the the founders or the the leaders of the brand they kind of they pick the services we offer almost like in a restaurant menu there like okay I want a payperclick specialist um to to to make my Google campaign super efficient and I want to have a bi specialist to really do all those dashboards super pretty and so on and and then some other things they just do

in house got it great so it's kind of like you know they're as they're a standalone autonomous business but at the same time they're part of a larger company and able to Leverage The the in-house you know expertise or that kind of infrastructure that you've built to kind of just basically be more even more efficient I guess with the way they they grow their business so let's talk about the uh the acquisition process so you said you know these days most of you know these leads you're getting are inbound what happens what are the main

steps involved in in doing an acquisition yeah so the the first step is uh the founder deciding that he or she wants to get acquired um and as um as simple as that sounds that that step can take years um and also sometimes we approach a Founder it's like hey you know have you ever thought of selling your company and could we be the right ones and then that thinking process starts and it might not be the right time and it can take years until the founder is ready and in other cases for example we're

approach the founder is like hey I've made up my mind I want to sell either directly or I've even hired a broker um and then is kind of that's when the process starts but it really there's there is this big part before before someone needs to make up the mind if if it's the right strategy and I think we'll we'll touch upon that later what when is an acquisition right like an acquisition of course or selling a company is a huge is a huge step it's equally big as sell as as starting a company and

uh when like the question on when when someone really wants to sell the company is um yeah is is magnif full is there multiple reasons and everything but like kind of thinking is okay the the the real process starts when the founder made up the mind and then it's really okay it first starts with um W with an with a very very basic overview of the company like a first first call um we exchanged some ideas um uh see what we we we all want to know why the founder wants to sell and obviously we

want to have some basic information about the business um and then we usually can make up our mind within one or two hours uh one or two hour call whether this is a business that fits for us or not um if it doesn't fit we'd be like hey this is not for us um uh we might point the founder to a few different directions but generally that's that's where the conversation ends for us but uh if we then take it further of course we we learn more about the company there are multiple calls with different

people we're looking at some data and then kind of the first big inflection point is when we uh when we give an indication of what we're pay willing to pay um uh so that's that's called an indicative offer um and uh at at at some point then um usually a week or two later this leads into into into a letter of intent um so a non-binding uh non-binding term sheet and and there are different ways on how people view those term sheets um there's some acquires who basically I'm just going to put down a term

sheet and then I'm going to start my DD for us a term sheet is bit like handshake agreement is like if I don't find any real problems in your company um so literally like dead bodies in this in your basement then um then we're going to move move ahead so term sheet is really is is uh is quite a big step for us um and then after term sheet and and now from kind of the first Contact to the term sheet we're now maybe four weeks or something um we are pretty fast but it still

takes a little bit of time uh we're then in the DD phase uh and DD stands for due diligence um we look at everything we look at the technology we look at uh the people we look at some financial and legal stuff um and and we continue to interact with the founder quite a bit and in in the meantime we're drafting a contract probably another four weeks sometimes six weeks um um and that's that's when we then close the deal so the whole process from kind of initial contact to closing is is usually around three

months but it can be shorter we've done things in six weeks but it can also drag on for months um if if there are stumbling blocks got it okay and you know I think this it can be a a very difficult time for Founders not knowing whether this thing is going to happen or not I I think it's I I'm I'm curious on whether the way that you approach the term sheets helps reassure people a little bit um as opposed to you know kind of doing it the other way around in terms of well let's

go through this first and then we'll decide if we're going to go through this or not um you're kind of doing it a little bit differently yeah that's right um yeah we try to be very open and transparent uh with everything and why we're doing things um and also we're not like we're not Finance people we we we obviously have Financial professionals on the team but we're all operators and I think that's we approach things a bit differently also we're trying to work as little as possible with lawyers sure they're important at some point uh

along the Route but a lot of things are just kind of like two human beings um who want to continue to work with with with each other uh doing certain things and you just yeah you don't need a lot of legal complexity when selling a small SAS business so we we want to keep things simple and personal and really that's that's what we mean by pound friendly and then how do you think about valuation and the way you structure deals and um you know is there a sort of a ballpark sort of multiple that typically

plays out with the types of companies that you're quiring yeah well that's that's always kind of one of the first questions it's also one of the hardest because it can be like we've paid multiples of0 point something for an acquisition on AR and we've all the way up to 10x um on on AR um majority kind of in the two to three times AR region um for small SAS businesses but it depends on a lot of factors profitability growth status of the business and and then also on the structure so really kind of price and

structure are really they kind of go hand inand because if the founder the the the main the main lever in designing a structure is uh is the earnout and if so basically if founder says I am going to be willing to stay on board for two or three years I believe in my plans I'm going to bring this business together with you to the next level and I'm willing to put my money where my mouth is then we can pay much higher prices than if found is okay give me cash and I'm going to be

out in 4 weeks um and we're basically on our own to figure everything out and and so the is is like it's a huge range and uh and of course sometimes Founders read about multiples somewhere in the press or even compare with public multiples and then it becomes kind of difficult to realign this um but it's a conversation like everything else and sometimes also people need to shop around and then see that actually our valuation is good and um it's it's it's a long process and it's also new for most Founders I mean we do

this all the time but for most Founders it's the first time they're doing this um they sometimes have an advisor but even that it's still themselves doing it for the first time so talking about Founders and going through it the for the first time you you know looking on your website you you talk about a a Founder friendly approach so I think you've you've you've kind of touched on what some of that means but just you know to just tell me like how you think about that what does that mean to you and why is

that important yeah so we we believe a Founder friendly approach is important because uh at the end of the day price isn't everything yes sure if if someone offers a crazy price then most Founders are willing to sell to anybody but you for one thing you want to you want to usually continue to build your business for a little while at least you also want your people the employees you hired uh to be with someone who treats them well and um also to understand what they're doing there are a lot of Financial acquirers in the

market who really they've got some people who can just do Financial modeling but at the end of the day they've never run a business we've run a lot of businesses we've scaled businesses to to hundreds of people um and done this multiple times and so I think a lot of people can really see the value is that that we're going to essentially take their baby and like if you start a company this is like your baby so we're going to take their baby and take it to the next level and they see that we've done

it a few times we've also failed I mean it doesn't work all the time we've had a few businesses where it didn't work but in the overwhelming majority um it worked and and people can see that and um and then they relate to that because most people are operators and Founders and also the the bootstrapper mindset we're not this type of people who are like hey you know we going to build a unicorn out of that and and and do some crazy stuff but we actually just continue this this very sustainable bootstrapper mindset uh which

made a lot of companies strong um in the first place and I think that resonates with people so you you talked about there are some Founders who will be like okay I just want to sell the company and and you know I'm I'm out of here and other Founders who decide to stay on and and continue the journey with with your your help and support what what are some of the common challenges that you've seen you know maybe Founders have during this transition and and how do you help them through that yeah so um it's

it's a tough decision for Founders uh a lot of Founders have built this business for 10 years and that's it's their life it's also they've all their eggs in in one basket uh like 90 90% of their net worth or something times 99% of their net worth is this one company so uh of course especially during the the the transaction process they're very afraid of screwing this up they're afraid that something goes wrong and rightly so because it's it's a it's their main net worth um it can relax quite a bit once the transaction is

over and that for example can go both ways we've seen people who relax a little too much um and then sometimes it's better if if someone who is new and hungry takes over but we've also seen a lot of Founders who are then willing to make a little bit Bolder bets because they've they've secured a few million um behind the firewall and they're like okay uh I actually can now grow this um and I can be more relaxed because it's not uh it's not their main um their main net worth anymore and uh and that

actually like injects a lot of creativity um uh and and positive risk taking and um yeah and and some of them have a lot of fun also in different roles so sometimes we take the administrative side away some Founders actually love to stay in their company they just don't want to deal with managing people with salary reviews with financial stuff they just want to build their product and we can actually free them from a lot of the uh administrative side and um and uh that that of course is is something a lot of people appreciate

especially some of those early Builders so you have 18 companies in your portfolio today what are your plans for the next year like how many Acquisitions are you hoping to do where are you planning to take the business yes so we're trying to grow the business by currently about seven or eight Acquisitions every year um but also growing this number every year um so we're trying to grow about 2/3 by Acquisitions and 1/3 uh organically that means means the our level of about 50 million last year um means we need to acquire um yeah if

we want to double the business needs to we need to acquire about 30 million of AR um and um that's uh no small feat uh that that's a couple of companies and then I think we just want to grow this business the the the great thing is that it's a it's quite a scalable thing because we've got processes and we've got those Central teams and uh the actual businesses still run very independently and people like this they they run it like their own startup and I've talked a lot about the founders and them continuing but

also we've got a lot of great people who would not become Founders in the first place um sometimes people just also have Financial constraints they need a certain amount of salary and then running one of our Brands actually gives them both they give them gives them the Financial Freedom um with a normal salary but kind of the autonomy almost of a Founder um and and they're doing a great job because it's actually yeah it's it's a very interesting thing to run and maybe at some point they go go out and do their own stuff um

or they continue to run bigger and bigger companies within SAS group um but it's overall just just it's much more interesting for a lot of people than just being um some some little piece in a in a in a large corporate do you have any advice for uh Founders early stage Founders who are you know looking to to build uh a sellable business maybe they are you know in already a seven figure AR business maybe they they feel they're they're close to that what what advice would you offer them if they're thinking about you know

potentially selling the business yeah great question so first first of all I think they should continue to build a good business because the most important thing is just a good business Healthy Growth making your customers happy at the end of the day um but then of course there are a few specific things which you can do to increase your chances your sellability of a business a few things just kind of keeping your house in order you know making sure numbers are are there you've got proper tax advisers uh everything is sorted uh so basically taking

a data room and uh and you can you can just Google data room and get a list of things what a potential acquirer would ask and you basically should ask yourself do I have that information ready and that gives you a good idea um where you might have holes and you could start working on them and actually it's not for the acquir actually just for making your business better it's things like I employee contracts that's simple but for example IP assignments just to name one simple thing we see all the time time is like a

lot of people have Freelancers and that's great but sometimes just um there's IP isn't properly assigned that what the Freelancers do is is owned by the company and so you know it's just sometimes just a few pieces of paper and so they're little things uh like that which can just improve the sellability of the business and maybe one last thing it's trying to make yourself redundant as a Founder is if you have that one person who could technically become your success and you really groom that person then you're already going a big step towards making

the business more independent from yourself as a person because the tough thing is if if we see a business and we're basically like okay this business is like 100% dependent on that founder um and if the founder goes away we have a real problem that that is a challenging thing in a business so it's much better if there's a a group of people or at least one person um who in a to the founder um can really understand uh everything and and could run the job before we sort of wrap up is there anything else

that you think that we haven't covered that you feel like we should uh share with with the audience before we uh we wrap up yeah maybe maybe in terms of Acquisitions I think the the the biggest questions Founders should ask themselves is kind of the why why do I want to sell is it the right thing to do right now should I wait a little bit and kind of really dig into kind of the inner motivation is it to get some money behind the firewall is it sometimes it's very understandable things hey I need some

money to for example get a house for my family um uh but in other cases really really also especially if there are two or three founders really discussing among the founders is like who wants to sell who doesn't want to sell because also that can differ from one to the other one and it doesn't need to be the right Pro the right thing for one founder which is uh good for the other one uh and just really be open and and transparent and think about the why before you kind of go into the details um

that that would probably be my biggest advice yeah yeah that's great and and as you said it's it's uh from your experience with many Founders it's not a it's it's a question that could take a long time to answer and and feel confident about that you made the right decision and that's okay it's that's it's not an easy decision it's like starting a company and leaving your job for example that's also not a decision you take likely lightly so I think take your time all right uh let's uh wrap up we're going to get on

to the lightning round I've got seven quickfire questions for you so you ready yep what's one of the best pieces of business advice you've received don't don't listen to business advice um actually it's one of my one of what my professor always said in first year university uh they kind of said if the consultants and bankers who give give you all that advice knew uh what they're doing they they wouldn't be sitting there what book would you recommend to our audience and why I would recommend um the ministry of the future um it's a novel

it's kind of a mix of a novel um and um fact-based book and it's about climate change uh this is kind of my other passion produ project uh outside of SAS the SAS world is is climate technology so all the tech software but also non software things that can uh help help us get away our addiction from fossil fuels and and and protect the climate and that's a great book because it's also it's it's a science fiction book and um uh it's just a lot of it's fun to read also scary to read very well

written um and also very educative Ministry of the future um highly recommended great and that that other business you referred to that's World fund that's World fund it's a climate fund great uh what's one attribute or characteristic in your mind of a successful founder uh stamina just just continuing and yeah being there and uh that's uh that's already 50% of things what's your favorite personal productivity tool or habit uh it's using Gmail signatures as as as a hack for email templates I get a lot of emails with all sorts of things uh for example like

hey I want to sell my SAS company and then um I I just have a few templates for that and I just put them as signatures into Gmail I know there are also a lot of other better tools but uh that's always the simplest thing and it basically just takes me one click to answer and uh it it improves my email messaging Time by like 50% or something what's a a new or crazy business idea you'd have to pursue if you had the time so I hope someone takes this idea because I don't have time

for it but I I'm looking for someone for a true kind of 50/50 or one3 one3 one3 office sharing and I don't mean wework or any of that because I I've never liked wework but what I like is I like and most companies like having their own office but they don't use it all the time and if they would have just kind of they would be trusted Partners to share it with you still have your own office but there's one group which comes Monday Tuesday the other one Wednesday Thursday answer on um I think that

would be great yeah yeah it's happening more and more these days right with with businesses going hybrid that it's like I don't know you know how the logistics of of many of those but yeah it does seem like there's a a lot of excess capacity there that uh hasn't been tapped into uh what's an interesting or fun fact about you that most people don't know yeah one fun fact the first company uh I founded so ca.com um holds an official Guinness World Record a Guinness World Record for what for selling the the most expensive domain

name um ever and it was sex.com wow how much did that sell for ah I think it was like 50 million or something I don't even remember I hope we still hold the I mean that was like 10 years ago um I hope not someone surpassed them but I think it's still in the Guinness World Record and finally what's one of your most important passions outside of your work yeah uh I touched upon it in the book question it's it's climate action so it's including my climate uh Tech VC um and I think software is

great that's kind of what I do well and what I know but I think you know in terms of what what we need to solve as Humanity I think software we're on a pretty good path to solve it to digitalize the world but we need to solve this decarbonization and uh getting away from fossil fuels um and a lot of few other things and um and and that I think is is uh is something I also want to contribute to and also I think by the way SAS companies can do that by getting the right

servers screen servers screen power um becoming efficient not flying too much those sort of things but um yeah overall I think that's that's probably my biggest passion out outside of software so if you want to check out uh SAS group they can go to SAS dog group and if folks want to get in touch with you what's the best way for them to do that uh email um is Tim at SAS group very simple um or also LinkedIn of course um just connect me also using the Tim at SAS group email um when you connect

um via LinkedIn awesome well Tim thank you so much for joining me and uh educating us on on on on your business and uh hopefully whether Founders you know choose to at some day come and you know get acquired by SAS group or um you know go another route hopefully I hope we've we've done enough to uh educate them a bit more and uh be able to move forward a bit with the bit more confidence so so thank you for doing that I appreciate your time thank you very much for having me on the show

my pleasure cheers