Michael Frew is someone who is never content to sit still. An experienced world traveler, he has lived in faraway places from China to the Grand Caymans. Yet, he says it’s his experiences during his childhood as a, quote, “military brat”, that helped shape how he conducts business the most. “I always say, you had to learn how to find a friend to sit with at lunch on that first day…you’ve got to make friends really [quickly].” In this article he shares his best advice for buying a SaaS business and why buying an existing business is a great investment.
As one of the many others who got their start in the dot-com era, Michael was bounced to different companies and positions almost as frequently as he was moved to new schools in his youth. He credits a portion of his success in the corporate world to his ability to quickly empathize and connect with new groups of people.
Yet, he wouldn’t stay comfortable in the corporate landscape forever. Around 2015, after a brief period of restless retirement, he began talks with FE International to buy his first business. In our recent interview with him, he sat down with us to discuss his experience in buying a SaaS business and share his unique insights on how to acquire a business.
Why More People Should Look into Buying a SaaS Business
“I’ve tried to start many businesses like everybody, right,” Michael says, “And they just get so hard to get from zero to one. The idea of going from one to a hundred, I could do really well because that’s what you’re doing in the corporate world.”
From his perspective, there are many merits to buying a business over starting a business for creative and innovative individuals looking to break into the space. As he implies in the above quote, and as the adage saying goes; “the first step is always the hardest.” Buying a SaaS business means that one can skip the messy and difficult process of finding their niche and free themselves up to build something that is their own from a pre-existing framework.
As Michael says, “I’d love to pretend like I knew what I was doing at the time but finding FEI and being able to purchase that first business. And say, oh, okay. This is something I can completely run. I can take all the skills that I had from before…That was incredibly valuable.”
A Different Perspective on Business Acquisitions
Extrapolating from his perspective that more people should look into acquiring businesses, Michael delved into his main motivations for getting the word out there. He likens the situation to his father’s career in the military, saying that he had a lot of mentors that helped him through the process of moving up. However, in Michael’s own professional journey, he found very little of the same support. As he says, “I think the disadvantage of changing companies and doing all these consulting, you’re always by yourself. So, I never had a mentor and someone to help get me to the next spot… It’s a lot different than being able to have someone show you, like, I’m one rung ahead of you. Here’s how you get here, then you and I move on to the next one.”
Michael considers himself someone who both deeply enjoys writing and sharing knowledge with others. The intersection of these two things has led him to try and fill a new space as a mentor to others on the subject of how to acquire a business. “I was like, ah, let me write a little bit about my experience because there’s just not a lot out there from the buyer’s perspective,” he says, “I just wanted [to put] a different perspective out there.” Read more on Michael’s website: Point of Frew.
Beginner Mistakes as an Acquirer
As with any serious undertaking, there are always several pitfalls to be on the lookout for. Acquiring a SaaS business is no exception, as Michael has learned over the years. When asked what sort of mistakes a novice acquirer might make and how they could avoid them, he emphasized that prospective buyers should try to stick with the fields they know best as a rule of thumb.
“We developed a team that’s really good on cloud deployments and working with developers,” he said of his first serious mistake as a buyer, “And then I bought a business that was based on a different language, on a different e-commerce platform. And it’s an e-commerce site instead of cloud SaaS that, because I wasn’t an expert in that industry, in that vertical, we were always playing catch-up. And that business went from a million-dollar business to nothing.”
Despite this, Michael is grateful for the experience and the lesson that it taught him: “It made us realize that we have a small area of expertise that we’re very good at. And I’d like to stay in that.”
What Can You Do Now to Prepare for an Acquisition?
Let’s say this is the path you want to take, and you’re looking for the best first steps to take when it comes to how to acquire a business. Michael Frew has one serious piece of advice, one that he wishes he would have had when he was first starting out himself: “Start saving now.”
“I wish I had saved money somehow before,” he went on to say, “I don’t see people talk about it a lot, [because] there’s so much financing, but you know, you do need to have some skin in the game, so you’re going to have to save it somehow, whether it’s retirement or anything like that.”
Michael also recommends studying as much as possible. As mentioned in the previous section, not having a working knowledge of the field you’re buying into can have serious ramifications. He suggests learning all you can, “so when you buy the business, it’s not a complete pile of chaos.”
Delegating Tasks as a Business Owner
By his own admission, delegation is not Michael’s strong suit. He’s a hard worker who is rarely comfortable sitting still for long, so he’s often eager to keep his plate fairly full. Even still, he is willing to admit there are some areas he isn’t an expert in. “Let’s say it’s Google ads. That’s where I’m going to delegate and maybe hire someone else to do it. For delegation, whatever I’m doing the worst with, then I’ll hire someone else to do it.” He says.
The Biggest Changes and Trends in the SaaS Space
There are many avenues a prospective acquirer can take when buying a SaaS business. For his part, Michael has used FE International to buy his new projects since 2015, including his most recent acquisition Gigalixir.
The SaaS market is still relatively new as compared to some other major economic sectors and is constantly changing and evolving with the times. When asked about the changes he has seen, Michael said first, “The biggest change I’ve seen the last two years is multiples, increasing quite a bit from the acquisition side. We’ll see how that changes as money gets a little tighter…there’s just so much cash.”
He continued by discussing the rise of subscription services in the SaaS space, and the benefits that can be found for anyone buying a SaaS business. “It’s gone meta where there’s subscriptions to manage your subscriptions,” he says, “And we’re doing the same with our customers. The really cool thing obviously about that is on the first of the month, I pretty much know what I’m doing. I could probably tell you what I’m going to make for the quarter and even be within 10% of the year…you’re not waking up on the first of the month being like, man, I’m starting at zero and I got to do this all again.”
What Was the Process of Working with FE International?
Michael considers the first time he contacted FE International to be a “pivotal moment” in his career. “I spoke to one of [their] brokers and kind of outlined what my background was. It didn’t take long. I would say it was like two or three months before we were talking about a six-figure business to purchase and went forward with that.”
Over the eight years since then, he has maintained a positive relationship with FE. He still owns the first business he bought through them, one that he says has been quite successful. While he loves running it, he says that if he ever were to sell it, “I will sell it through [them].”
“It’s been a really valuable relationship for me.” he says, “I wouldn’t be anywhere if they hadn’t sat down and professionalized the online broker space.”
What’s Next?
Moving forward, Michael says that he means to maintain his independence. He says, “I don’t particularly want partners. I don’t want to be part of a fund. I kind of like how it’s running right now.”
Michael is a self-labeled introvert, one who prefers more often than not to work by himself. Whatever it is that comes next for him, he intends to keep changing and adapting. “Maybe as I get older and I’m kind of tired of doing the day-to-day operations, then I can perhaps utilize my experience and advise or something like that.”