Hey, there.
Dan Martell here, serial entrepreneur, investor
and creator of SaaS Academy.
In this video, I'm going to share with you how
to design your perfect exit.
It's a framework, a process that I've
used to exit my two companies and helped dozens of companies
exit theirs for the maximum valuation.
So you're going to want to watch this video very specifically
to understand how to do that.
And be sure to stay to the end where
we're going to tell you how to get
access to my private training, Fundraising Like a Pro.
If you plan on raising capital in the future,
you're going to want to know the three
phases of fundraising and the right way
to approach investors.
[MUSIC PLAYING]
So if you're planning on someday selling your company,
you've probably got a ton of questions around the process
and what's important to potential acquirers,
and what should I be doing today.
I know I did when I was starting my companies, Flowtown
and Clarity.
I knew that I was building a technology company
to create a lot of value, but I wasn't sure
what the process would ever look like, maybe, hopefully, someday
to exit.
And what I want to share with you today
is the process that I not only extracted from my experience,
but having helped dozens of my own coaching clients
in the last three years go through that process
to really maximize the value.
Just recently I had one of my clients exit for over $90
million on about 900,000 in monthly reoccurring revenue,
which is a huge multiple.
But the reason why is because they understood
working with me, the value drivers
for a potential acquirer to make sure that they
optimize those for that exit.
And that's why I call it the perfect exit.
Now, this is different, different, different people.
For you it might be a public offering.
It might be getting acquired by a strategic,
or it might be bringing in a CEO to run your business.
So a perfect exit is different for every individual.
But what I want to share with you in this video
are the strategies that I not only learned
through my own experience, but I've
had the privilege and pleasure of working with my coaching
clients to increase the valuation for them
using these five strategies.
Number one, know your numbers.
At the end of the day, if you have a software
as a service business, a SaaS business,
not a subscription business, although those are really cool.
They're different.
If you have a software product that people pay you for,
ideally or typically on a monthly basis,
there's only three things you need to know, is,
how many new customers do I add to my product every month?
What percentage of those people stick around?
And third, how do I increase the Average Revenue Per User,
or grow that value equation?
Essentially, it's ARPU.
Those are the three factors that you've got to work with.
If you haven't Googled what I call the churn flatline,
or growth ceiling.
I call it a churn flatline, but essentially it's
a growth ceiling.
Then go run your numbers, because you
may be on a path in the near future,
if you don't increase your acquisition, to hit
that wall, that period where you're not
able to add any new customers fast enough
to overcome the fact that you're losing customers.
And that's what a growth ceiling is.
There's a wall and then there's the point
where essentially you're going to max out
and you're just going to go sideways for ever.
So number one is just know your numbers.
How many customers do we acquire?
How many do we keep?
And how much do we actually monetize that current account
today?
Two, visualize maturity.
Now, this is such a, to me, a pretty obvious question.
But I love to ask my clients, it's, what do you
look like when you grow up?
As a software product, and maybe you
have this really cool feature, this tool that you do today.
And I have a client that does--
they just told me they just cracked 600K in MRR,
and they do this one very specific thing
in the real estate space.
My question to him was, what does
this look like in 10 years?
What is the product suite?
What problems do you want to solve for your core customers?
Because if you don't visualize what the business looks
like at maturity, then it's really tough
to make decisions today that are going to align with that
and it's really easy to just get focused on doing this one
trick, this one--
you know-- you saw this one problem.
You do it really well and everybody knows you about it,
but then all of a sudden there's competitors,
and they show up in the market.
And I've seen this in every-- especially in MarTech
marketing technology, everything from landing page competitors,
to email automation competitors, to chat bot competitors,
you name it.
If you have a hook in the market today,
you will not have it in two to three years,
other people will see the opportunity,
come in, do a little thing better, have more funding,
better product in UX, and they're
going to take you out if you don't understand and visualize
the maturity of what your business looks like
and where you're going to get you there.
Number three, become the person.
So one of my favorite things--
I was working with a founder the other day,
and they were struggling with some marketing stuff.
And I said, look, we'll solve that.
Those to me are-- those are skills,
those are things that are repeatable,
like, there's a process that I've built out in our playbook
that you can just use to get results in your marketing.
What I'm more interested in is who
do you need to become to be successful executing
that marketing strategy, or if you're a non-technical founder,
who do you need to become to lead a development team?
And those questions are more interesting.
Wherever you're at in your business, what I know
is that for you to get to the next level,
you're going to have to grow.
You're going to have to add some new mindsets,
some new belief systems to allow you to show up as the kind
of leader that can not only attract the team that's going
to execute your vision for you, because at the end of the day,
you're not going to do it, or you shouldn't.
So not only do you need to attract those people,
you also need to be the kind of person that
can lead those people and collaborate
to create those outcomes.
And too often what I see is just ineffective
leaders, ineffective founders that have not
asked themselves the question.
If I'm here and I want to go up there,
who do I need to become to be the kind of person that's
running that kind of business?
If that's 10 million in ARR, or 50, or like some of my clients,
over 100 million in annual reoccurring revenue.
Think about that, 8 to 10 million a month
in revenue through their software every month.
What kind of founder do you think
that individual is to be able to run that level of organization
versus the person that's starting with five to six staff
people on their team?
Like, those are two different people.
They approach their day differently,
different mindset, different communication style, et cetera.
And the question you need to ask yourself
is, who do I need to become if you truly want
to create that perfect exit.
Number four, invest ahead.
So one of the biggest mistakes founders
make when they're going after and they're creating value
is they're not investing ahead.
What they're doing is they're trying to be prudent.
They're trying to build a successful business.
So you read all these accounting books,
or these financial books, and they say,
we've got to be making 15% net profit, or 20% net profit.
And I totally agree.
The guy who wrote the book Simple Numbers, Greg Crabtree,
does all my financial modeling.
I understand that stuff, but I also
understand this, is there is a thing called return on equity,
essentially $1 left in your business,
how much return do you get on that equity over a 12 month
period.
And for some businesses it's very low,
like 30%, which is high if you consider the S&P 500,
or whatever kind of returns you're
getting in the stock market.
But the best businesses can get 200%, 300% return on equity.
And the reason why is because they're investing ahead.
They're looking at their unit economics of their business
model.
They're saying, yes, this works, this is profitable,
we can do this.
And then they're taking all that money
and they're plowing it forward into the business.
How are they doing that?
They're doing it through their team they're hiring.
They're doing that through investing in acquisition.
They're doing that through investing in retention.
They're doing that through investing in expansion revenue.
All the things I mentioned at the beginning, when
you need to know your numbers, if you understand them,
then you can understand how to properly deploy
$1 to get a return.
So you have to invest ahead of your growth
if you want to get the best possible exit
for your business.
One of my clients actually told me, I left $100 million
on the table by not building this function
in my organization, because when he went out to the market
to essentially exit, one of the things that they said
is, we're going to add this--
as soon as we acquire you, this is
one of the big things we're going to add
that you don't currently have.
And he looked at what the impact would have been on his business
based on their comps and it was $100 million potential upside
valuation, because they would've added
that revenue to their business that they would
have got valued on on exit.
That's huge.
Instead, he just tried to make it extremely profitable
and take money off the table.
I'm not saying that's a bad thing,
but you can understand, when you take that dollar off, you might
be giving up, $10 in the near future because you
didn't reinvest it in growing your monthly recurring revenue.
Number five, drive value.
For any acquire, there's two things.
There's value drivers and value detractors.
There's things that [INAUDIBLE] acquire--
it thinks it's really valuable, and then there's
things that they go, oh, this is not so good.
So for example, not so good, a contract that you signed that
fixed the price for 10 years with a very large fortune 50
company, et cetera, that just doesn't make money.
That would be a value detractor.
Or the fact that you don't have a CTO,
because you didn't properly invest in your team
and you outsource all your development to another company.
That would be a value detractor on exit.
What our value drivers--
are definitely the numbers that I mentioned, but those are just
like the baseline foundational conversation to start.
I mean, what people want to look at is how you innovate,
what's your product roadmap look like, et cetera.
So just understanding by talking to a potential acquirer,
and saying, hey, I know we're really small today,
but in the future we're definitely
going to build this business and we're
going to probably eventually look
at partners to connect with to do more.
When you've bought other companies in the past,
what are things you looked at that
really felt attractive to you?
What did you value?
And if you don't feel comfortable
going to a potential acquirer to have that conversation,
then just reach out to any M&A banker.
So search M&A banker SaaS in your city,
and you'll find probably one or two.
There's some great ones out there.
But they will-- and a lot of them
have content on their website, because its content marketing,
to explain to software founders like yourself
how to understand the value drivers versus the value
detractors to optimize your potential exit.
So that's a huge thing, is drive value in your decisions
today to increase the potential outcome in the future.
So five steps to design your perfect exit.
Number one, know your numbers.
Number two, visualize maturity.
Number three, become the person.
Number four, invest ahead.
And number five, drive value.
As I mentioned in the beginning, I
want to share with you an exclusive resource called
Fund Raising Like a Pro.
It's essentially my three phase process for raising capital.
One of my tenants, my rules, my principles in life,
is investors don't want to meet you,
they want to be introduced to you.
So I'm going to share with you how
to reach out and get those introductions the right way.
I'm also going to share with you the phases for how
to build a high level of demand in the right time to raise.
There's only two.
You either do it here or there.
And also the right way to pitch your company when you sit down
with an investor.
Those are all available.
So click the link below to download that training,
Fundraising Like a Pro.
If you like this video, be sure to softly tap the Like button
and subscribe to my channel.
If there's anybody that you think this video could serve,
feel free to share with them directly.
And as per usual, I want to challenge you to live a bigger
life and a bigger business.
And I'll see you next Monday.
You probably have a lot of questions that are,
kind of, big empty question marks--
you probably have a lot of questions-- da-da-da-da-da.