Buying and growing SaaS products to a total of $50M ARR. Tim Schumacher shares how he does it.

Tim Schumacher of saas.group purchases SaaS businesses and blows them up consistently — to the point that his portfolio is currently grossing $50M ARR.

I caught up with Tim to find out how he does it. 👇

Starting and funding saas.group

James: So how'd you get started?

Tim: In 1996, I left my hometown for Freiburg to study business at the University of Cologne. In the month of my last exam, we started the domain marketplace Sedo.com, which I ran as the CEO for over ten years. That was an exciting time. I moved to the U.S. for a few years, came back, took the company public, and eventually sold it to the United Internet.

James: How did that lead to saas.group?

Tim: During my final year at Sedo in 2011, but even more after leaving Sedo, I started co-founding and investing in new startups.

[Now], I own and run saas.group with 15 different brands, mostly ranging between $1m and $5m ARR. It's currently at around $50M ARR

Besides saas.group, I also have a few other companies where I am either Angel investor or even majority owner (e.g. Eyeo.com).

James: How did you start saas.group?

Tim: We started saas.group in 2017 as an alternative investment for ourselves. Following our interest in SaaS products we initially invested our own money (around €5m to date) only to buy initial cash-flow and to test our assumptions.

Angel investments and cashflow made us aim higher, a few friends invested another €5m. We managed to acquire larger companies with higher growth rates while keeping margins. And over the last two years, we mainly financed further acquisitions through debt.

James: Why debt?

Tim: Debt is a lot cheaper than equity, but it comes with risk, and you have to have a proven business model before you can aim for debt. So, we need to balance both, to not have too high of a leverage, meaning a profitability-to-debt ratio.

James: What's a good ratio?

Tim: There's no fixed rule for a profitability-to-debt ratio - a good ratio is one where you can still sleep well at night, but you still use debt as a primary ratio.

In practice, I would say that about 2x-4x the free cash flow can safely be taken up as debt: so, if you're making a million in free cash flow every year, you can leverage 2-4 million easily without losing sleep.

What he looks for in a business

James: I'm sure a lot of indie hackers would like to know what you look for in companies.

Tim: We look for SaaS companies with pure subscription-based pricing models. Our ideal company is around $1m-$5m in ARR, has a niche but growing product, and is supported by product-led growth. We like low-touch self-serve models.

[We also] look a lot at the cultural fit and the reason why a founder wants to sell.

James: Are they all in the same industry?

Tim: In general, we focus on areas which we understand (developer, marketing and productivity tools), but then treat the projects independently.

They are all low-touch SaaS products, so while they are different products, under the hood there are 80% similarities (in marketing, billing, product etc).

So if we see that a certain best practice worked at Juicer.io, there's a good likelihood that it will also work with our other social media project (Snip.ly)

James: How do you find them?

Tim: We scrape various sources on the web (of course using our own product, ScraperAPI.com), analyze multiple factors (traffic, social signals etc.) to gauge revenues and then email founders whose products we like.

If we get a response (around 50% of the time), we first email with the founder, and talk to him or her if it makes sense. So we talk to a few hundred every year.

We have an internal CRM where we put notes and data from all businesses we look at, which is turning into an awesome knowledge base for us.

James: Do you go after VC-funded companies or bootstrappers?

Tim: We really admire bootstrappers, but also do occasional acquisitions which were VC-funded (where the VCs lost interest).

James: Does the tech stack matter?

Tim: Not all of our projects have the same tech stack, but we try to keep variations limited. Just makes things more manageable. For example, we can better have some team members take care [of] multiple projects.

James: What about technical debt?

Tim: Minor technical debt is not a problem though, that’s very common and can easily be fixed.

In our entire history we only had one case where after looking through the code, we came to the conclusion that the entire platform would need to be re-factored, and we had to back away from the project. But in this case, it was not the only problem, there were other other messy things as well which the due diligence brought to light.

James: Documentation?

Tim: Most stuff, including missing documentation, can easily be fixed. Sometimes this can be part of the transition time or even the earn out.

James: So what does matter?

Tim: The main factor is the company profits. Or potential profits, if there are unusual expenses which can easily be cut.

On these we - like most acquirers in this space - we usually apply a multiple of 2-7x on profits/SDE (Seller's Discretionary Earnings). I know this is a wide range, but: The low end for high-risk and/or low-growth projects, the upper end for low-risk/high-growth projects. Most projects are somewhere in the middle (4-5x).

James: Anything else you look for?

Tim: We look at every project and look at things to improve, this can be product stuff, technical stuff (e.g. we often see a lot of unnecessary AWS/server costs) or growth opportunities (e.g. we often see a lack of structured marketing/SEO).

You can always reduce AWS costs a bit, like 20-30% by some tweaks and re-negotiation. [In one case], reduced our annual server costs by a whopping 80% — from $1M to $200k — by moving away from AWS!

How the acquisition process works

James: How do you handle the acquisitions?

Tim: We work both with brokers. If there's a general agreement on price and terms, there's usually some sort of handshake agreement (in the form of an LOI), followed by a deeper due diligence. After this, a contract is drafted and executed, usually in the form of an asset deal.

An asset deal is a deal where the buyer does not buy company shares, but the assets of the project (e.g. the website, the source code and the customers). Sometimes we also do share deals, but that's more rare in this market segment.

James: What happens to the founders?

Tim: saas.group only acquires as an exit for founders. Some founders want to get out asap. They are burned out or simply have other life goals. It's not ideal, and certainly has a small negative effect on the price we can pay, but it's totally possible.

Most founders like to stay on for a bit. In some cases, this can be a few months or a year. In other cases, even longer. In these cases, we definitely try to figure out a model to maintain motivation and align long-term incentives. Depending on the goal of the acquisition, this can be revenue/profit-based, or include some project/roadmap goals, or a mix of both.

James: Ever had any flops?

Tim: We’re very happy with all of our companies, but we did acquire one which didn’t grow but rather shrink – Sniply.io. And that despite the brand CTO putting in fantastic work. So, in these cases, it’s important to rethink options. Selling, merging it with someone else or outright closing. That’s OK, because like with every project, not everything works, and focusing resources is super-important.

How to consistently grow SaaS businesses

James: Sounds like you're pretty consistently growing these businesses.

Tim: Well, yes, if there's product-market-fit and good momentum, we should be able to grow any business regardless of the niche/technology. However, it's really about accelerating existing product-market-fit and good momentum. We've found it much harder (and in some cases even impossible!) to grow products which don't have such a fit. Or in other words: Turn-around cases are harder than acceleration cases!

This is reflected in the price of acquisitions.

James: Here's the million dollar question. How do you accelerate it?

Tim: We start by improving the "boring things“ first, such as onboarding and email marketing, because founders often ignore them.

[So we] research, mostly UX research, user testing, and issue tracking (we love UserSnap.com for this). The goal is to figure out what the main issues are for users. It's really important to not jump to fast conclusions and take things for granted (which people tend to do if they build a product, and thus know it inside out).

After that, it is all about designing the different use cases and personas for a product, and then delivering the right onboarding and subsequent email marketing to both the dormant users as well as the active users. For this, our primary tool at this point is Customer.io.

James: Then what?

Tim: We focus on low-hanging fruit in marketing (like SEO & content marketing).

It's best summed up by a "data-first approach" - it starts with "Never assume you know your keywords". Our SEO lead Ane Wiese has summarized it very well in this article. I'll let her speak to it, since I'm not an SEO expert.

James: Anything else?

Tim: We apply modern methodologies (Agile development, Product Led Growth, Funnel Marketing). We build central support functions where possible (Product, service reliability engineering, finance). We keep businesses independent & lean as much as possible. We hire remote first & globally to get access to the best talent on the market.

Overall, none of this is rocket science, it’s merely good and patient execution. Like SaaS in general. 😉

How to get acquired

James: A lot of indie hackers want to eventually exit. What would you tell them?

Tim: I strongly believe that the best businesses aren't the ones where the founder is gunning towards an exit. The best businesses are always the ones with no end goals... so my mantra is "just run a good business that gives you plenty of options”.

Simple logic: If you have a healthy business, growing, ideally low churn, and large enough, it’ll find a buyer without problems. But it’s also important to be prepared.

We wrote a guide on this.

James: Anything to avoid?

Tim: [The most common problems are] wrong pricing, bad user onboarding, and complicated/clumsy UX which hasn’t been properly tested.

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