Case Study: Digital Service Acquisition | Entrepreneur Rithesh Menon On What You Need to Know

Digital Service Acquisition Case Study

Rithesh Menon has always been very entrepreneurial in nature, but he didn’t start out knowing exactly what to tackle on his own. He began his career as a consultant and worked with numerous startups. With experience comes expertise and awareness.

Since a decade ago, Menon has almost exclusively worked in media and marketing startups. A year ago, he decided to finally acquire a company: Audiology Plus.

Making the Choice to Acquire

Many entrepreneurs think they have to pick a passion and build something great from scratch. It’s hard to be groundbreaking when there are no foundations built yet. Menon chose instead to acquire a business, which he views as much easier.

“If we look at it purely logically, the probability of starting something in your garage and becoming a billion-dollar business is ridiculously low,” Menon says. “I think you have better odds of winning the lottery. When you acquire something, depending on the process, you can have a pretty good chance.”

Menon points out that it’s key to buy something that is a known quantity. You want to maximize your chances of getting a golden egg.

“It’s a lot of work to try and grow your business and also keep your investors happy,” Menon says. “From that perspective also, it is more attractive to acquire an existing business and operate it.”

Another issue with founding a startup by yourself is that it can be incredibly lonely at the start. Someone has to be willing to come work with you for very little money. “You have to convince other people to invest money into something that does not exist,” Menon says. “In the beginning, most people think you’re crazy.”

Menon says that acquiring is a better experience from that perspective. “I went from basically sitting by myself in a co-working space to now, you know. Sitting by myself alone in a co-working space, but having other people to talk to,” he explains humorously. “Mm-hmm. Definitely an upgrade.”

What to Look for When Acquiring a Business

The first advice Menon wants to give is a golden one: “Don’t suffer fools.” More precisely, don’t suffer fools if you’re going to do the acquisition alone. Acquiring a business can be a tough ordeal. Here are the strategies he used to simplify the process of acquisition.

Explore Your Options

Menon began by examining brick-and-mortar businesses. He spent three months talking and learning about laundromats, vending machines, ATM routes, gas stations, motels, and franchises. Everything real, concrete, and researchable to increase his experience. “I basically wanted to know if there was something else out there. I don’t think anyone’s born saying, ‘Oh, one day I will own a hundred gas stations’. Now it’s like someone makes a conscious choice, right? So, I want to understand why.”

After that, Menon moved on to research online businesses, e-commerce in particular. He eventually figured out what he wanted. “The initial sort of quote-unquote search thesis was: I want to go with a SaaS business,” he says. “The marketing space actually came later.”

Set Standards for What You Want

Menon knew that he wanted the business to be at least five years old, with close to a million Annual Recurring Revenue (ARR). He later identified that he wanted it to also be US-based, with the team all US, market all US, et cetera. But he started out broad to paint the big picture of what he wanted and focused on eliminating what he did not want.

Take Off Your Rose-Colored Glasses

In Menon’s case, having a clear goal helped him. “[My goal] was to buy something that makes money and essentially get it to make more money. The proof of the pudding is essentially dollar bills,” he says. “I think that helps. But others may have other motivations.”

Menon also advises other entrepreneurs against zeroing in on a single industry or sector if they want to stumble upon diamond opportunities in the rough. “I don’t think there’s anything wrong with it,” he says. “But in my case, I was fairly industry agnostic. I was clear on stuff I didn’t want, like a heavily regulated industry. Anything government, defense, or certain aspects of healthcare, I wasn’t thrilled about. But for the most part, I was very industry agnostic.”

Why would you want to consider a boring industry? Well, Menon points out that there is an entire business where someone sits and polishes widgets. And people are willing to pay hundreds of dollars to get their widgets polished. Boring markets can be extremely lucrative.

It can also be good to be realistic and discard trying to enter spaces that have very high barriers to entry and harsh market conditions. “I quickly realized I couldn’t even compete in the e-commerce space because market forces were heavily focused on rollups. I was going up against lower middle market funds that were essentially doing cash purchases.”

Build a Network

Menon says that he cannot emphasize enough how much you need a network. “It isn’t industry- or sector-specific,” he says. All networking is important. “Anyone who has been through the process or is involved in the process either as you know and that subject matter expert, a vendor, it doesn’t matter.”

He further explains that, even though it’s a terrible analogy, if you think of most networks in life like Facebook, those who post the most and shout the loudest get people’s attention. “But it turns out there are plenty of people who aren’t on Facebook who do great work. The only way to know them is if you talk to enough people. I would definitely recommend that you kiss a few ugly frogs,” Menon adds. “It will just make your life a lot easier.”

How an Advisor Can Help

It wasn’t clear to Menon at first that advisors existed in the space, as it isn’t obvious to many who are just experimenting with the idea of buying a business. He was talking with another investor who mentioned FE International. After speaking with Kevin from FE, Menon registered for an account. After that, he went around Google to register with a bunch of brokers. Ultimately, he returned to the team at FE, where he got most of his leads.

“It’s basically like every single superhero saga, it’s world domination,” Menon jokes. “No, I’m kidding. But I acquired a company. To the credit of the founders, it was already set up for scale. For the next 24 to 36 months, scaling was my focus. The product market fit had already been defined. It was quite nice.”

Finding a business that was already looking bright made continuing its operations easier. Other parties can improve your due diligence and acquisition process. Want to know what made it even more seamless? 

Working with FE International

FE International helps with four main types of buying a business: SaaS, e-commerce, content, and technology. Menon already decided he wanted to buy a SaaS business, so he explored how FE could help.

“I had a blast working with Jake and Kevin and Zach on this,” Menon says, glad that he got to know them very well over the course of acquiring Audiology Plus. “Would I want to [be an advisor] as a career choice? No. But I admire those who choose to do this because it’s a bit of a thankless job. These guys were pros. They handled it well, and I learned a lot. There were like 8 million things that I did not know when this process started. The team was very patient.”

Menon was grateful that he managed to jump through all the hoops of funding and due diligence to make the acquisition happen. “But there were a lot of other things that are far more nuanced and frankly, [the FE team] was dodging curveballs all day long. So yeah, it was good. It was really good.”

Menon was pleasantly surprised by how much depth and consistent value FE brought to the table and behind the scenes. “It was six months of working on something together,” he explains. “It wasn’t just about, okay, how do I get this deal over the line. In hindsight, it was probably one of the more consequential decisions I made.”

In terms of expectations, Menon thought it would be less than it was. “In the beginning, it’s like, oh, here’s a listing. Here’s a person who’s going to talk to me about the listing. You’re not thinking that, wow, I’m going to be working with these people for six months! But it makes a big difference.”

FE is the leading global M&A advisor for SaaS, e-commerce, and content businesses. We have acted as the sole advisor on over 1200 online businesses sold — totaling $1 billion in acquisition value. Want to see how FE can help you? Contact us today and a team member will respond in a business day.