How to Sell Your Company

So we’ll skip these intro slides. This is the summary of what we’re going to talk about. Number one, your exit strategy. Number two, goals, targets and projections. Number three, making your business actually sellable, so making sure someone actually wants to buy your business. Then the selling process, what it takes from A to Z, start to finish. And life, and what happens after the sale. So first we’re going to talk about exit strategy. I’m putting this first because it’s starting with the end in mind. A lot of you might only think about selling your company much later on. You think, “I don’t need to think about this now. This class isn’t relevant right now. I’m just starting my business. I’m not selling it for years.” But no. I encourage all of you to think about selling your company before you even start your company. Don’t just work aimlessly forever and say you’ll sell it one day. You need to think about it early on and set the goal from day one. So before you even start the company, or right now, you’ve got to ask yourself a few questions. Do you want to sell this company? Do you

even want to sell it? And if you do, in how long? In two years, five years, ten years? Definitely set a timeline for yourself. If you don’t want to sell the company, does that mean you want to run the company forever? Is it a lifestyle business? Are you going to pass it on to your children one day in 20 years? So that’s another question to ask. And number three, do you want to retire early? Is that something you’re interested in? There’s something called the FIRE movement, which maybe you’ve heard of. It stands for Financial Independence, Retire Early, and a lot of people are retiring at age 30. That’s a whole new movement. And if you do want to retire early, at what age, and how much money do you need? These are all questions to think about right now, before you even start the business. Now, when you start thinking about that, you need to ask yourself the very important number one question: what is your number? That means, how much do you want to sell the company for? Now that you have your magic number, let’s just say it’s $10 million. At least come up with a

realistic number. Don’t just say $20 billion. Something realistic in the beginning. You will need to work backwards to figure out your time horizon and what you need to get there in X number of years. For example: I want to sell my company for $1 million within five years. So set that concrete goal. And there are actually experts who say that instead of saying “I want to,” you visualise it as if you’ve already done it. So: I will sell my company for $1 million in five years. You’re already visualising the success, visualising the sale. So, assuming you’re working backwards, now you need to ask yourself how much revenue you will need if you want to sell your company for $1 million, and how many customers you need. I’m going to go over a quick spreadsheet example of this, so let me just open it up and hopefully you’ll see it. You should be able to see it. If you cannot,

just let me know. I’m sharing an Excel spreadsheet now. Basically, this is quick math. I put the link to this spreadsheet, and many other spreadsheets, in the PowerPoint, so I’ll give you a link to the PowerPoint at the end and you’ll be able to access this spreadsheet and many others. So, assume you want to sell your company for $1 million. We haven’t talked about multiples yet, but let’s just assume you’ll get two times revenue. If you’re making $500,000 a year in recurring revenue, and that’s for a software, SaaS company, then that’s how much you’re going to sell the company for. Let’s say you’re going to make $1,000 on average per client. You will need 500 clients. Once you get to 500 clients paying you $1,000 a year, you will have $500,000 a year in recurring revenue, which means you sell your company for $1 million. A very simple mathematical equation. Let’s say you want to exit and sell the company in five years. That means you need 100 clients a year, or 8.3 clients a

month. So that’s what I’m talking about, working backwards. Then you build projections that say, “I’m going to grow by eight customers a month. How much money will I need for marketing, for this, for that?” You build your projections, but you start with the end in mind. Then you check: “I need eight customers a month. Am I getting there? Am I doing it? No? I need to tweak my strategy.” So that’s the working-backwards spreadsheet. If you have any questions, let me know. Now, the next thing is building projections. I’m going to pull up a few more things here. So this is an example of one projection spreadsheet. It’s a very basic one. We’re not going to get into the complicated ones because they’re too much for this class, but I’m putting other ones in the slides, which you’ll see here at the bottom: basic projections, standard, and advanced projections. This is all very important when starting any company: build out your projections. So here’s an example of

advanced projections. Many columns, many rows, many different sheets. This is much more advanced, and this is what we do in our company, for example. I’m giving you all the links here for yourself. Let me just pop this back open. So, a warning: hit your projections. Now, I’m saying hit your projections only once you start thinking about selling your company and you start talking to VCs and investors and private equity firms, people who want to buy your company. We’ll talk about what a VC is and stuff like that. When you’re talking to these people to try to sell your company (I know this isn’t going to happen for a while), you’re going to be giving them your projections, and they’re going to negotiate with you based on those projections. Projections aren’t that important on their own, but if you don’t hit your projections, they will discount how much they’re going to pay for your company. Let’s say it’s January, you’re negotiating, and you’re about to close in April. But then in March, your numbers are going down

and you’re not actually hitting your projections. They will renegotiate and lower the price for your company. So be aware of your projections once you give them to people. Now, for software companies, SaaS companies, which we spoke about, there are three major things that matter when selling your company, and you need to focus on them. Obviously, number one is ARR, annual recurring revenue. What that means is, if I charge each customer $100 a month, forever, my annual recurring revenue is my monthly revenue times 12. So $100 a month times 12 is $1,200. That’s my ARR per customer. Now, the beautiful thing about software companies is they have much higher multiples and valuations than non-software companies. Let’s say you own a clothing store. You have to sell to every customer every single time. Every day you start over from scratch, from zero revenue. With

software companies, if I make 10 sales and I have 10 customers, those 10 customers are going to be with me maybe for 10 years, maybe for life. So it’s great. It’s a very stable business with a high LTV, which stands for lifetime value. Think about it. I’m going to pull up a calculator on the screen. If someone is paying me $59 a month, times 12, that’s about $700 a year. They might stay with me for 10 years. So that customer isn’t worth $59. That customer is worth $7,000 if they stay with me for 10 years. When people are buying your company, they know these metrics. They know how long your lifetime value will be. They have all these fancy calculations. So if you’re making $100,000 a year in revenue, they’ll say, “No problem, we’ll pay you $200,000 for your company.” Why? Because they know they’ll make $1 million in 10 years. So it’s a game of multiples and valuations, which we’re going to cover in a minute.

Now, the next important thing is your growth rate, which we’ll talk about for most of the next few slides. Basically, how fast you’re growing, month to month and year over year. And then there’s also churn, which we’ll speak about. You’re gaining customers every month, but you’re also losing some, because they cancel or downgrade their subscription. If you’re losing 10 customers a month, then within 10 months, 100 of your customers will have cancelled. So you have to keep getting new customers every month, and you want your cancellation rate to be as low as possible, which means customers stay with you for as long as possible. I’m not mentioning it here, but margins and profits also matter. Just not as much as you’d think with software

companies, because investors know they can make you profitable if they want to. In the beginning, it’s all about growing, growing, growing, reinvesting back into your company and adding more money so you can grow even faster. So, net growth. Here’s an example. Let’s say you’re making $10,000 in recurring revenue every month, and you’re adding $1,000 a month to that, so now you’re at $11,000. But you’re losing $100 a month, so your net growth is $900 a month. That’s $1,000 minus $100, so $900 a month, or 9% a month, or 108% a year, which basically means your company is doubling in size every single year. That’s amazing. Now, there are three different charts I’m going to pull up here, and this is what investors want to see. This is exponential growth, the famous hockey-stick growth curve, meaning up and to the right. It looks like a hockey stick. This is what everyone

wants to see: continual, exponential, high growth, up and to the right. What they do not want to see is when your growth starts stagnating and slowing down. And this happens. I spoke to a company yesterday (I’m not going to mention the company), a huge company worth hundreds of millions of dollars, and the founder said, “It’s a good business. We’re a cash cow. We’re profitable, making a lot of money. We’re not growing, but we’re stable.” This is what he means. They grew a lot in the beginning, and now they’ve levelled off. They’re stable. They’re not making much more money, they’re not losing much, but they might be making $20 million a year in profit. So not bad. It’s a stable, good business. That’s the middle chart. And then the worst thing, the thing you never want to see, is this: you’re growing, growing, you taper off, and then you start dying, which means you’re losing more customers than you’re gaining. I’ve seen this happen, and it’s the worst. You stop innovating, new competitors come out, and

then you start losing a lot of customers, and your company will die a slow and painful death. That’s one thing to watch out for. Now, multiples and valuations are tied to your growth rate. If you look like this, meaning you’re dying a slow and painful death, you’ll be lucky to get a zero to 1x multiple. When I say multiple, I mean: if you’re making $1 million a year in recurring revenue, ARR, a multiple of 1x means they will pay you $1 million for your company. That’s what the multiple means. If you’re growing like this, maybe one to three. This is very generalised, by the way, and it depends on a number of things, but one to 3x means if you’re making $1 million a year, they’ll pay you anywhere from $1 million to $3 million. But if you’re growing like this, you are killing it. You’re unstoppable. You’re blowing up, and investors see a path to turning you into a billion-dollar company, which is called a unicorn, and they’d rather get in early,

before you get too expensive. So this could be a 5 to 15x multiple, which means if you’re making $1 million a year, they’ll pay you anywhere from $5 million to $15 million. And that’s $1 million a year in revenue, not even profit. They’ll pay you 5 to 15x on revenue. Maybe you’re making $1 million a year in revenue but only $50,000 a year in profit, and they’ll pay you $5 or $10 million. It would take you 20 years to make that money yourself. That’s why it’s worth it to exit and sell your company when the right offer comes along. Now, this is interesting. These are some software, SaaS companies on the public stock market with the lowest multiples, and you’ll notice their year-over-year revenue isn’t growing that much, and their multiples aren’t that exciting: 5x, 6x, 7x. But look at the companies with the highest multiples, the ones growing the most, 300% a year. You’re talking about a 30x average, up to 120x multiples. This is crazy. They’re paying 30 or 40 times revenue, which is

insane. That’s how high it can get on the public stock market. Tesla, for example, is very overvalued. Investors pay a lot because they see it’s going to be very profitable down the road. So, switching gears: preparing for the sale. Once again, this starts today, before you even start your company. I wish I had done many of these things before I sold my company. It would have helped tremendously when I sold. So prepare from day one. Number one, be super organised with everything. The next thing is documents. Save all your documents, neatly organised, tucked away in properly named folders in Dropbox or whatever you use: your incorporation documents, your LLC, any legal documents, any signed agreements and contracts, all employee offer letters, non-competes, trademarks, patents. Save everything. The reason is, when you go to sell your

company, they are going to ask you for everything from day one. If you don’t have it neatly organised, number one, it’s a bad sign to them that you’re not organised. And number two, it’s going to take you forever to find these documents, and you might not even find them. That’s why it’s important to be organised, especially with documents. Number three, know your numbers. When you start a business, you need to be tracking your revenue, your cancellation rate, your profit, your goals, your projections. I can’t tell you how many people I speak to where I ask, “How profitable were you last month?” and they say, “I don’t know. I think we made like $10,000. I’m not sure. Let me just check my bank account.” You don’t have QuickBooks? You don’t have an accounting system? You need to know your numbers. It’s very important. Now, number four is one I always love thinking about: easy handoff. What I mean by this is, when you’re doing your job right now, working in your company, always envision someone else taking over and doing your job for you. Are you making it easy for them? Are you leaving everything

super easy for them to take over? If you’re a developer, write really clean, organised code with instructions. You can put instructions in your code. That’s one example, and we’ll talk about processes and procedures too. But keep that in mind: someone else will be running your company one day if you want to sell. So keep that in mind when building it. Now we’re about halfway through, and we’re going to talk about how to make your business sellable. Why should someone even buy your business? This is one of my favourite lines: you should be the least important person in the company if you want to make your business sellable. As the CEO and founder of my own company, I used to think the opposite, that I should be the most important person in the company. It makes you feel good. It grows your ego. “I’m so important. The business can’t run without me. The business is me. The business needs me.” Only later did I realise it needed to be the opposite, because

think for a minute. What if something happens to me? What if something happens to you? God forbid you get hit by a bus, you get really sick, you get COVID, you’re in the hospital. Or you want to take a vacation, you don’t want to work anymore, you quit. Will the business die? Is the business named after you? Are you the business? So be careful with that. I don’t usually advise people to name their business after themselves, because when someone wants to buy it, the business is you. You are the business, so you can’t really step away from it, especially if people only want to call and talk to you. So try to think beyond just yourself: a bigger company with a lot of employees, a lot of people, and one day someone else doing your role. So really, be the least important person in the company. What that means is your company should run like an automated machine without you. You should not have any involvement, if possible. If you took a month off for vacation right now, everything should keep running perfectly without you. So there are a few things to

get it to run like a machine. Automate as much as possible: automated emails, automated everything, as much as you can. Build processes and write them out. I’m going to show you an example of a process, even something as simple as, and I’ll show you right now, how to take a headshot for your employees. This is one of my processes. Even something as simple as this, for when you hire an employee and you’re training them. How to take a headshot, how to talk to a customer, how to sell to a customer, all these sorts of things. So here’s the example: wear the company shirt on a white background, take the picture horizontal, not vertical, compress the image, do this, do that. That’s an example of a process. If you proceduralise everything in your company, then when you want to sell the company or hire someone, you can say, “Here are my processes. You don’t need me. Everything is here for you.” Beautiful. Everyone loves that. Now, going back to this: record training videos as well. This is probably one of the most important things I can tell you. Before you hire an employee,

your first employee, record training videos. Why? That employee will eventually leave. They usually don’t stay around very long, and in today’s world, normally not more than a year. So record a training video. The worst thing is to train someone and have them leave three months later, and then you have to do the whole thing over again. Instead, when someone joins us, for example, the whole training process is training videos. They sit, they watch videos for two weeks, and they’ve got it all. We don’t need to train over and over and over again, because we have training videos. And hire people when you’re getting too overwhelmed. Hire employees and delegate. The important part is to do as little work as possible yourself, so the company can run like a machine without you. So this is the famous take based on Shakespeare: to sell or not to sell, that is the question. Eventually you’ll get to a point where people are approaching you to buy your company, and you’re going to think, “Should I sell my company now, or should I hold off and not

sell?” So if you hit your goal, meaning “I want to sell for $1 million in five years,” and people are willing to pay you that, you have a few options. You can sell 100% of the company and completely cash out. You can sell shares, like 40% of your company, and keep more than 50%, so you’re still able to make the decisions. Or you sell more than 50%, say 80%, but now you’re a minority holder, so you can’t make all the decisions. Or you don’t sell. You say, “I’m going to keep riding the wave. I’ll sell for more later.” Now, my one warning to you is to be careful about being greedy. If you have a good offer in your hand, usually you should take it, especially if it’s your number. So my next slide is: a bird in the hand is worth two in the bush. This is a famous saying that basically means it’s better to be content with what you have, and what you know you can get right now, than

risk losing everything by seeking more. And I’ve heard so many examples of companies that were offered $20 billion to sell and said, “No, we want more.” Then something happened to their company, and they were worth $1 million the following year. So keep that in mind. If you can sell for your original price, usually you should take it. Don’t be greedy. Anything can happen. Take the money, invest it, and move on to the next one. Obviously, there are situations I’m not covering here where it doesn’t make sense to sell: your company is blowing up, there’s so much more you can do, you could sell for a lot more, people are telling you you’re crazy to sell. We’re not going to talk about those, though. So your next question should be, “Great, I want to sell my company. How much should I sell it for?” The first piece of advice I’ll give you is to get multiple offers. Don’t just take the first offer that comes. Speak to at least three to five buyers. The next thing I’ll tell you is to speak to a broker. Just like in real estate, when you’re selling a home, there’s a broker who sells your home, there are people who will

sell your business. They could potentially get you a lot more money for your company. Sometimes they won’t, though. We didn’t use a broker, because they also charge very high fees. Also, if you use a broker, it’s usually exclusive, so you can’t talk to anyone else. Keep that in mind. And lastly, speak to people who sold similar companies. They will give you invaluable advice. They’ve already been down that road, and they’ll tell you one or two things that will make a huge difference. And if you’re going to sell the company, and you commit to selling it, and you’re talking to brokers and investors, go all the way. It’s much harder to sell the company after you’ve backed out the first time. So go for it all the way. And I have a little warning coming up here: no one cares how much time you invested in the company. I’ve spoken to many people who said, “I worked on my company for five years. There’s no way I’m selling for this much.” Or, if they’re raising money, “My company’s worth $5 million because I spent five years on it.” No one cares how much time

you put into the company. All they care about is how much money you’re making. So time doesn’t really matter to people. If you watch Shark Tank, and I’m sure some people here do, you’ll see people say, “I’ve spent 12 years on this company,” and the sharks say, “Twelve years, and you only made $50,000?” Next. The market has spoken. They don’t want your product or service. So time does not matter. Now, getting towards the end: who do you sell the company to? Number one is something called PE. You’ll hear that a lot. Private equity. This is usually a fund. They’ve raised, say, a billion dollars from investors, institutions, large companies, a lot of people, and they normally buy private companies, companies like yours that aren’t publicly traded on the stock market. So private equity is a big fund that buys companies, usually 100% of the company. Venture capital is similar to PE. It’s also a fund, like a

billion-dollar fund, but instead of buying companies, they provide growth capital. They invest in companies: early seed money, round one, round two, and so on. They’ll invest for, say, 10% of your company. That’s VC, venture capital. And number three, which is usually the best option if you can find it, though it is hard, is a strategic buyer. That’s usually another company in the same industry that wants to buy your company because it would improve their own business, since the companies are very similar. It could be a competitor that buys you out, and that competitor wants your customer list, your technology, your employees, your marketing, whatever it is. For example, my last company, not this one, PracticePanther: we sold that company, and the company that bought us bought a few other legal software companies, very similar, and merged resources together. So one CEO for all the companies, one marketer for all the companies. Then you can learn the

best practices from each company and merge and combine them all into one. So you have shared learning, basically. That’s a strategic buyer, and they will usually give you the most money. And then you have private buyers, private investors who like your company. This is usually for smaller sales. There are auction websites where you can list your company, people bid to buy it, and you can sell it to the highest bidder if you want. This is usually for smaller company sales, maybe $50,000 to $500,000. Now, the selling process. You will normally, hopefully, get a lot of cold emails. That means a lot of people are emailing you to invest in you or buy your company. If you’re getting these emails, it shows you’ve already done a really good job marketing your company online, because they found you, or your industry is very hot and investors see a lot of growth potential. The next thing is they will ask

you, when you start talking to them, to sign an NDA, which stands for non-disclosure agreement. It’s a confidentiality agreement. Pretty much, once you sign an NDA, you’re giving them all your information, which is okay. You’re going to share all your numbers and all your data with them so they can see if it’s even worth it for them to talk to you about your company. So you sign the NDA and share information: all your sales, customers, revenue, cancellations, competitors. You share everything. After you’ve shared everything, you start negotiating, and you negotiate and sign an LOI, which is a letter of intent. By the way, this is exactly the process we went through when we sold our company. An LOI is short, maybe even a one-pager, kind of a bullet-point outline, a draft of the much longer agreement. “We will buy your company for $1 million,” blah blah blah. A very short outline of the big bullet points you agree on. Once you sign an LOI, that’s it. You’re locked in with them. You can’t talk to anyone else. And now they

do due diligence, which can take anywhere from one to three months, maybe even longer, but usually it’s one or two months. Due diligence means they go through everything in your company from day one. They will send you checklists of things to provide: legal, accounting, financials, customers, employees, contracts, everything. This is also when you hire an M&A attorney, mergers and acquisitions, to help negotiate a super-long purchase agreement contract. And this is very expensive. Pretty much, you and the investors buying your company are both going to hire attorneys, and you’re both going to spend a fortune. Some companies spend $100,000 and up on attorneys, even millions of dollars. So keep this in mind. Everyone wants to close at this point, because they’ve already spent a lot of time and money. And then that’s it. At the end of this there’s the closing. Everyone signs the contract, you get the money wired to your bank account, and that’s it. It’s a very exciting day. And I want to give

you an example of a cold email. I know it might be hard for you to read, but this is a real email that I got. I just changed a few words around. I got this last week. Let’s just say it was from Jordan. “Hi David, reaching out because the market is hot right now. Prior to COVID, the market was strong, but now it’s even stronger, and as a result, many businesses like yours have increased in value. Now might be a great time to sell. When are you available to talk further?” This is a typical email that you’ll hopefully be getting one day. And don’t get too excited by these emails, because they’re literally blasting them out to a million companies. I don’t know if you can see this, but there’s an unsubscribe link at the very bottom in grey. So they didn’t just email me personally. They’re emailing a whole list of hundreds or thousands of companies. So don’t get excited that someone wants to buy your company. They’re just putting out feelers. If you reply and contact them, they’re going to ask you to sign an NDA, go through some questions, and so on. Now, it might be worth engaging with some of these early on, even if

you’re not ready to sell, just to get some information. How much do you buy companies for? How much revenue do they need to have? How profitable do they need to be? Good questions to find out. Now, getting towards the end: you’ve sold the company. So what are your options after the sale? Hopefully you did a really good job of getting the company to run like a machine without you. If not, if the company relies on you, no one is going to buy your business without making you stay for many years. They’ll make you sign a contract that you have to stay on board for one, two, three years or longer. So you’re still in the company, but now you’re an employee of the company, and that usually sucks. So try to avoid that, unless you want it, by making yourself replaceable. So your options are: you keep the same title. You’re the CEO, you’re still the CEO, nothing changes. You negotiate, you get paid a salary, maybe you get a percentage of profits, maybe you

keep a small percentage of the company, but nothing changes. The next option is a slow transition: they bring in a replacement, or promote someone in your company to take your role, and you train them. Maybe it takes you six months, maybe a year to train them, and once they’re ready, you transition out and leave the company or take on a different role. The next option is you leave the next day. You pack your bags, say goodbye, and leave the next day. You don’t work in the company anymore. Or the last option: you stay on as a consultant, advisor or board member. You’re basically behind the scenes, helping whenever needed. These are typically the four options you get when you sell your company, and usually it’s not your choice. Usually it’s the company buying you that decides, based on a SWOT analysis. Are you a strength of the company? Are you a weakness? They’ll figure that out for you. Now, what happens after you leave the company? That’s it. You sold the

company, you’ve moved on with your life, you’re done. It’s a weird feeling. I can tell you from personal experience. There are a few things you can do. Number one, hopefully you made a lot of money, so you can invest it and focus on your investments. Number two, you can start another business, so you don’t get bored, and try something different, especially if you need to keep working. You can start another business or work for someone else. Number three, retire and focus on family, friends, hobbies, passions, travel, charity, whatever it is. But the few things I can tell you: you want to stay busy, because being bored can be a curse. You want to find something to do, find your true purpose in life, and work on that. Take some time off. Celebrate your win. Do everything you dreamed of. “I want to travel. I want to do this.” Take some time off and do that when you eventually sell your company. And also keep in mind, you will lose your edge. Your brain is a muscle. If you stop using it, you will lose it. It’s a real

problem. So keep all those things in mind. Now, some final thoughts, and then we’re going to wrap up and take some questions. Final thoughts: success does not bring happiness. So be careful with this. Don’t think, “I will finally be happy once I’m successful and hit my goals and sell my company and make a million dollars and become a millionaire.” A lot of people fall into this trap, and it’s not true. There’s actually a famous study from Harvard by a guy named Shawn Achor, who found the opposite was true. He found that happiness brings success, not the other way around. That means the happier you are, the more successful you’ll be. So keep that in mind. There’s a great book, the only book I’m going to recommend today, called The Happiness Advantage. It’s one of my favourite books. He also has a TED talk. It’s 12 minutes long, one of the most famous TED talks ever. It’s a great, great book. But keep that in mind: money will not make you any happier. Trust me

on this. I didn’t have money before, and then I had money. I sold my company, I made a lot of money, and it doesn’t matter. It doesn’t change a thing. Life goes on to the next day. And: experiment, fail, learn, repeat. Try new things. Start new businesses. Don’t be afraid to fail. Learn from each failure. I started many companies, and I really only hit success with my fourth real business. So it takes time. Don’t get discouraged. You’re always learning and growing. Of course you’re not going to hit the jackpot overnight, the first time, on the first chance. I think the famous stat is that 95% of startups fail in the first three years, and something like 98% fail in the first five years. So the majority of businesses fail. That’s perfectly normal. Learn from them. And lastly, whatever happens, enjoy the ride and enjoy the journey. It’s fun. It’s exciting. You’re learning a lot every day, and doing

what you love. That’s the most important word of wisdom I can impart on you in my last class: do what you love. It’s so important. You’ve got to be excited to go to work, excited to do what you do, excited to be in your company and keep growing it. Do what you love. That’s the most important thing. Thank you, guys, again. I really appreciate it. Let’s open it up for questions. Feel free to turn on your video and audio, or send a message in the chat. And I’ll give you this link as well. This is the link to download the slides, right here: davidmbitton.com/bronx3. Any questions? “Hi, I have a question. You mentioned the prerequisites for selling a company: you need to have ARR, and you have to know your growth and your churn rates and stuff. But how can you sell equity in your company to venture capitalists if you’re a new startup and you don’t have those metrics

yet?” So that’s different. Great question. That usually isn’t selling your company. That’s usually raising money. It’s very similar. You’re going to talk to the same people, but you’re raising money to grow your company. Many companies today are raising money. That would be like: “Here’s my company. Here’s my business plan. This is what I want to do. This is my competition. This is my market size. This is everything. In order for me to really get into this business and make it profitable, make it a real business, I need $100,000, and I’m willing to sell 10% of my company for $100,000, because my valuation is $1 million.” And that’s the funny thing. In the beginning you have no revenue, right? So what’s your valuation? It’s a weird game. You’re just putting a random number on it. You’re making up a number at that point. You can say whatever you want, but you’re really just making up a number, and the investors also have their number in

their head. They’ll listen to your number, but they’ll probably negotiate and tell you what they think your business, or your idea, is worth. So that’s raising money. And you could raise 10% at a $100,000 valuation, so someone gives you $10,000 for 10% of the company. So, great question, and you can definitely do that in the beginning. Usually, if you don’t have a lot of experience and it’s your first rodeo, a lot of people raise money in the beginning from friends and family: people who know you, trust you, and know you’ll be successful. Maybe not with this company, maybe with the next one, but they’re willing to put their money down for you. That’s usually what happens in the beginning. A word of caution: be careful raising money from friends and family. It’s the easiest way to do it, but if you do, there’s a high chance they will never see their money again. So if you’re going to take that route, make sure you tell them, “You may never see this money again. We could easily fail. I’ll do everything in my power to succeed, of course, but this is a huge risk, and you might

never see this money.” Let them know that in advance. All right, great question. The next question comes from, I think it’s Jada: what if you’re trying to buy a business? How does the process change? Great question. If you’re trying to buy a business, hopefully you have very deep pockets, you have a lot of money, or you have investors to buy the company. The process is pretty similar, but you’re on the other side now. You’re doing the cold outreach. You’re cold emailing or cold calling all these companies, asking if they’re selling. Now you make them sign an NDA, and then you’re getting all their information. And you need to know how to buy a business. You need to know what metrics to look for. This is way too long an answer for right now, but there are a lot of great articles on Google about how to buy a software business, or how to buy a business, and they’ll tell you the most important things to look for: the revenue, the growth rate, the competition, what products they sell, their market advantage and unique selling proposition, all these things.

But I would also warn you not to buy a business unless you can run a business yourself, unless you know what you’re doing, unless you have that experience, or you have a partner who knows what they’re doing, or a family member who can help you out. Because it’s not easy. A lot of people buy businesses and never do well. A lot changes after you buy a business. The founder or owner might check out. They might not care as much about the business anymore. Which is why, if you were going to buy a business early on in your career when you don’t know much, I would tell you not to buy 100% of it. Buy maybe 40% or 50%, and leave the owner still running and still owning the business, because it’s in their best interest to keep growing it. All right, great question. Anyone else, ask away. This is our last class, and it doesn’t have to be on this topic. It could be any question in general. It doesn’t really matter.

“Can you explain how to find the ARR again? Because I think that part was a little bit confusing.” Yep. So let me pull up a spreadsheet here. ARR. So, MRR, and then ARR. How much revenue do you make? How much do you charge per month? Let’s say you charge $50 a month for your service, for whatever you’re selling. You charge $50 a month, and you have 10 customers. So the number of customers, or clients, is 10.

All right, next question. And by the way, do you have any other questions about ARR, or anything else?