The yearlong process of selling a business for $3.5M

Spencer Patterson is a non-technical founder who recently sold his company for $3.5M. It took about three years of blood, sweat, and tears, plus an arduous, year-long acquisition process.

But he came out of it with some serious M&A know-how and a pocketful of cash.

I caught up with him to talk about the acquisition process and how to get there. 👇

Learnings from a year-long acquisition

James: Why did you sell your business?

Spencer: I lost enjoyment in the day-to-day management as the project scaled.

Additionally, Covid delayed many personal plans for me, like my wedding and starting a family. I reached a point where I had sufficient funds to start enjoying life again and proceed with these significant life events… but I was still working 12+ hour days almost every day.

I felt trapped in golden handcuffs and yearned to ease the pressure.

James: And do you feel like the pressure is off now?

Spencer: Yeah, while I still have a passion for creating products and need an outlet for my creativity, I can now engage in this at a more controlled pace as a consultant, advisor, or investor, ideally capping my hours at 40 per week.

James: Are you less interested in building now?

Spencer: The 0 to 1 process excites me; the transition from 1 to 10 doesn't, as it becomes more about macro management and less about creativity.

James: You call mergers and acquisitions (M&A) your core expertise. Let’s talk about that.

Spencer: I would say that became my core expertise because of how long and unique the process became for a deal of this size with all the different types of interested buyers.

James: How long did it take?

Spencer: It took me almost about a year to get the business closed. And it was grueling.

James: Why?

Spencer: For the first six to eight months, I was trying to do all the buyer interviews and vetting for everyone. This is an extremely time-consuming task when you have 50 to 70 people asking to learn about your business and sign the NDA.

James: What does it entail?

Spencer: I had to determine who was a valid candidate and who was just information gathering.

For example, does each buyer have money in the bank? Is it in their personal bank account (not their business account)? Are they serious or working for a competitor?

Then I had to have multiple calls with the ones that were actually serious and interested. And I couldn't act rushed or impatient because these people are looking to offer me millions of dollars, but with 3 to 5 calls per day that were an hour long, I ran out of time to actually manage and scale my business.

It was a major balancing act.

James: I bet. So what did you do?

Spencer: I eventually chose to go with Flippa as my brokerage service.

James: You sold for $3.5M. How did you come to that valuation?

Spencer: It was actually just a multiple of the ARR based on what the current multiples were going for at the time.

That's another reason that it took over a year. There were lots of buyers to vet but only a small pool of qualified buyers.

How to get acquired

James: What advice do you have for indie hackers hoping to sell their products?

Spencer: The first thing you need to do in order to ensure maximum valuation is to make sure that you’re selling on an uptrend. Selling when there is stagnation or downtrend leads to questions and doubt.

If you’re looking to maximize value, you need to be putting your all into the scalability and growth. Reduce churn as much as you possibly can.

James: Interesting point about the uptrend.

Spencer: Before you undertake the daunting task of trying to sell the business yourself, consider how much time and effort you actually need to put into the business on a daily basis — it might be worth going with a brokerage service like I eventually did.

James: Is that pricey?

Spencer: A broker will charge anywhere between 5% and 15% of the total sale price. So you can save tens of thousands of dollars by doing it yourself, but realistically, you’ll end up spending anywhere from 10 to 20 hours per week doing it if you’re not experienced.

James: What else?

Spencer: When you finally pull the trigger of accepting a letter of intent, you’re locked into that buyer for anywhere between 30 and 60 days. Anything longer, and you should reconsider.

That means you need to be sure that the buyer that you are accepting the letter of intent from is capable and has full intentions of closing. Put the time into vetting them (if you don't have a broker).

Background

James: Okay, let’s go back to pre-acquisition. Where did this journey start?

Spencer: I was originally a licensed stockbroker and I ended up partnering with another day trader to day trade options in our spare time on the side. We ended up doing really well and I approached him with the idea that we should be selling the information on how to properly identify trends and opening range breakouts.

James: How’d that go?

Spencer: Within a few months of social media campaigning, we had hundreds of people paying us $30 a month to access this training and this information.

James: How did this lead to your product?

Spencer: Eventually, the number of members got to be too cumbersome managing the chargebacks, seeing who paid and didn’t pay, checking which users got access to which information. I decided to hire a developer to build the system in order to streamline and automate the process.

We ended up using it for our purposes. And with our hundreds of customers, we had a built-in feedback loop.

James: It wasn’t intended to be used by others?

Spencer: No.

James: So what changed?

Spencer: Soon after, a few other people in the community wanted to break off and do their own group similar to what we were doing and sell their own information. They approached me to see if they could use my system to do it. I offered it to them for free in exchange for feedback and testimonials.

I feel the best products founders make are ones that they would love to use themselves.

James: For sure. When did it start growing?

Spencer: It was slow to start because I didn’t have any plans. Like I said, though, it was at the request of people who wanted access to it so once I hired a freelancer to modify the system to make it available for public use, it had customers pretty much from day one.

James: Handy. Where did it go from there?

Spencer: Like most SaaS platforms, we started off small but it went parabolic once it started catching on and we started onboarding bigger and bigger clients.

Eventually, we were handling tens of thousands of transactions per month and $140k MRR.

James: How?

Spencer: It was just exponential acquisition of customers through marketing channels which, over time, started to add up.

If anything gave an edge, it was the pandemic and my business helped facilitate other content creators being able to do their influencing more effectively.

Growth: Building in private

James: Let’s dive deeper into your growth. Where did your users come from?

Spencer: The majority of our users actually came from social media.

James: Were you building in public?

Spencer: I started my SaaS before the whole #buildinginpublic trend. I guess you could say I was #buildinginprivate. I had ZERO audience. In fact, I didn’t really even start using social media avidly until a few months ago.

James: How did users come to you through social media then?

Spencer: It wasn’t directly my doing. It actually stemmed from the affiliate program and those users posting about the project all the time. We also leveraged some influencers.

James: We'll circle back to that. Are you glad you built in private?

Spencer: I didn’t know or realize the power of building in public. If I had to do it all over again, I would build in public.

James: What were the downsides?

Spencer:

• Limited feedback from the community

• Reduced visibility and lack of public profile

• Missed collaboration opportunities

• Slower trust building

• No building/release hype

• Reduced peer support or advice

• Developing in an echo chamber

Ever since becoming really active on social media, both on LinkedIn and X, I’m starting to see the value in having a built-in audience and followers who can support you every step of the way or at least provide valuable critique so you are not building in a vacuum.

James: Any upsides?

Spencer: I think it’s much easier for people to build in public, but building in private has competitive tactical advantages.

• First mover advantage

• Market surprise

• Lack of public scrutiny

• Feature Request Rabbit Holes

Growth: Affiliate marketing

James: Tell me more about your affiliates.

Spencer: The affiliate program, while not contributing significantly to our MRR directly, played a crucial role in casting a wide net. With thousands of people sharing our links, it created a ripple effect that caught the attention of social media influencers. These influencers reached out to my team, expressing interest in creating promotional content for us on a paid basis.

We actually should have created one sooner! It was an effective strategy.

James: What was in it for the affiliates?

Spencer: The biggest selling point for the affiliates was that they permanently got a percentage of the recurring revenue from the customers that they brought in.

This allowed power users to essentially use the system for free while earning monthly payouts for sharing their referral links.

I know this sounds counterintuitive because of the endless amount of money that’s needed to pay these affiliates, but it guarantees that people stay on the platform because they have someone who will constantly be looking to make sure they don’t leave.

James: How did you spread the word about the program?

Spencer: Initially, getting the word out was pretty easy. Every time I sent an email to my list, I would include the incentive at the bottom.

Growth: Influencer marketing

James: You mentioned influencers too. How did you get them on board?

Spencer: Other than affiliate word-of-mouth, I leveraged the short clips that other influencers produced for our influencer marketing and reached out to new influencers within the YouTube community. My pitch was straightforward: “Hey, this creator made these videos for us, could you do the same for $X?”.

James: What was X?

Spencer: I paid anywhere between $2,000 and $4,000 per video for them to create it and post it to their audience.

James: What was the response rate?

Spencer: The response rate was about 1 in 50, but after contacting over 200 influencers, the number was sufficient to achieve the traction I desired.

James: Were you looking for anything specific in your influencers?

Spencer: I had specific criteria: The influencers had to broadcast the content to their followers, possess a minimum of 25K followers, and ensure that the content was of professional quality and clean.

Growth: One-button signup

James: Anything else that helped with your growth?

Spencer: Another factor that I believe played in our favor was our one-button signup process using OAuth. Prospective users could simply click one button to sign up and connect their accounts, making the process incredibly smooth, easy, and hassle-free.

Finding product-market fit

James: What skill would you say allowed you to grow it to $140k MRR?

Spencer: The core expertise every founder needs to have is identifying a product market fit (PMF).

James: How did you find it?

Spencer: The best way is to identify problems in systems and methods that are currently in your own life, that you use frequently and that you feel could be done in a much more efficient manner.

If you’re frustrated by the process, I’m sure there are other people out there who are also frustrated by the process. People will spend money to save time and energy and frustration.

James: So it's more about the idea and dogfooding. How did you know when you had it?

Spencer: Once I found that people were seeking out my software, I knew that I had achieved product market fit.

After finding the initial PMF, the main thing is being able to weed out the feature requests that will produce ROI vs rabbit hole features.

James: How do you know the difference?

Spencer: Consider features that enhance user experience, increase usage, or add significant value. The entire goal is to make the product as sticky as possible and make it as difficult to leave the system as possible — so much so that it would be inconvenient to the user to not use the system.

James: So I take it you rejected most requests?

Spencer: To be honest, the feature requests came in from day one and I said yes to almost everything.

Eventually, customers came over from Patreon and had specific things that they wanted as a condition to migrating over so I pretty much had to say yes if I wanted those accounts. Being a non-developer, I had to prioritize the feature requests and I did so almost entirely by ROI and reach.

I also analyzed the market trends and prioritized features that aligned with what competitors were doing... and what they weren’t doing.

And then, of course, the features with the highest frequency of requests solving a major problem with the system came first.

Hacking support

James: How did you handle your support load and feature requests?

Spencer: To keep costs low, I struck a unique deal with a power user who was active daily on our system. We agreed that he would lead a volunteer team of other power users to provide customer support.

This arrangement eliminated the need for paid customer service or handling most inquiries myself, except for escalations. The support team operated almost autonomously.

It allowed me to concentrate on the most important objectives and key results.

James: What was in it for these volunteers?

Spencer: The support team members received significantly discounted rates.

James: How did you get the rest of the team on board after getting the leader?

Spencer: Once I found my lead customer support person, I gave him pretty much full autonomy of managing the other volunteer support. He reached out to them, selected them on his own. And in some cases, I asked him to approach users who frequently opened tickets and offer them a discount in order to help facilitate onboarding of new merchants — they knew the system better than anybody else.

Building software as a non-technical solopreneur

James: You mentioned you hired a developer. I take it you're a non-technical founder.

Spencer: Yes. If you find yourself in a situation where you need to partner with someone who has an area of expertise that you simply have not mastered yet, make sure you know who you’re partnering with.

Determine personality types and work ethics. These can make or break a relationship if you have to work with someone for 8 to 12 hours per day every day.

James: For sure.

Spencer: I had to interview almost 100 developers before I found the one who I thought was qualified enough.

There are a lot of people out there who fake it until they make it, which normally is fine, but if you’re relying on this person to build your business, you want an expert who actually knows what they’re doing.

James: How did you interview developers if you aren’t a developer yourself?

Spencer: Knowing who was full of sh*t versus who was the real deal was very difficult. I knew enough on a macro level to ask the questions but I had to also learn the answers and best practices.

I YouTubed dozens of hours of tech interviews based around the tech that I wanted the platform to be built in. Then I judged them based on how confident their responses were.

James: Anything else to look for?

Spencer: I also asked detailed questions about their work ethic to see if they had founder or worker mentalities.

Make sure it’s someone who has the founder mentality, and has run their own business before or worked in a startup capacity.

Be prepared, but not too prepared.

James: Any parting advice?

Spencer: You don’t need to be an expert in your field before you start.

I know a ton of founders, including myself, who didn’t know what they didn’t know before they started, and they learned a lot along the way.

James: So anyone can do it?

Spencer: A lot of people think that starting a business is easy or that it’ll immediately grant you freedom or increase your income dramatically. While this may be true for a select some, this path in life isn’t for everyone and not everyone will make it.

James: No?

Spencer: Embracing long working hours is part of being a founder, and anyone suggesting otherwise is either exceptionally fortunate or downplaying the effort required.

During my business venture, I averaged about 5 hours of sleep per night. Being constantly 'on call' in case of emergencies was necessary, as I had to make critical decisions swiftly.

Remember, if it were easy, everyone would opt for this path over a traditional 9-5 job.

James: So what does it take?

Spencer: You need to have two traits in order to succeed. Persistence and perseverance.

Chances are your first idea will fail, so will your second, and third, and so on until you learn enough lessons to make something successful.

James: Sounds dire.

Spencer: My advice would be to really take an introspective look and see if you are that type of person because there will be a lot of late nights, long hours, mini heart attacks, and failures before you see success unless you get lucky.

If you don’t have the stomach for that, don’t start. Spending time and money to give up doesn’t help anyone. If you are going to commit, it has to be a lifestyle.

James: Where can people find you?

Spencer: My goal is to start a small venture capital studio with other founders. I have already connected with several tech-founders and business-founders and we are pairing up to build or buy new businesses as a sort of collective.

I am also now working with founders who are looking to exit their small business and partnering with others who are looking to scale their startup to hopefully achieve that life-changing exit.

If either of these sound like something you’re interested in, connect with me on X, LinkedIn, YouTube, or my website.