Upright Labs Case Study: Selling an Enterprise SaaS Business

It is becoming increasingly easier to sell clothes online. During the course of the pandemic, thrifting became a new habit, and it’s sticking. According to the online thrift store, thredUP, “We are in the early stages of a radical transformation in retail,” as the secondhand market is projected to double in the next five years, reaching $77 billion.

“I think the projections are underestimated by a factor of 2-4x in terms of what the market will be worth in two to three years,” says CEO and co-founder of Upright Labs, David Engle.

“We have an inside look into secondhand retailers and how much value they’re pushing through. You can look at it in five or ten years, and Upright Labs will be a massive player, and people will know the company. We’re seeing our customers grow their gross merchandise value (GMV) month over month, year over year,” he says.

Together with his co-founder Jackson Geller he built Upright Labs, a SaaS company offering leading multichannel inventory management software within the secondhand retail market, powering Goodwill, Salvation Army, Habitat for Humanity and more.

Its premier multichannel listing and inventory management software, Upright Lister, allows for product tracking at stores, inventory management, real-time shipping and reporting built out in a streamlined manner to reduce touchpoints and time.

Upright Labs has north of 70 enterprise clients and helps these retailers make $150 million a year in e-commerce sales. Their software is in over 3,000 secondhand retail stores across the US, and clients are growing their business between 40 and 60 percent with Upright’s help. And Upright isn’t just good at making their clients successful; the company itself made seven figures in ARR in 2021 from their software alone. 

Their customers include secondhand retailers like Goodwill, Salvation Army salvation and Habitat for Humanity. A market that, despite global supply chain issues, is thriving. “Since we deal with secondhand, we’re seeing the opposite of the supply chain crunch: our customers are selling more and more than ever because their customers need an item and they’re willing to buy used.”

So, how did David Engle and his co-founder bootstrap this wildly successful SaaS business? And why did they ultimately decide to sell it?

Building Upright Labs: How it All Started

Engle started his entrepreneurial journey with a lemonade stand. At 14, he launched a non-profit – bringing free carnivals to underprivileged children with physical and mental disabilities.

“I just wanted to bring smiles to people’s faces, but when I had this idea, everyone told me it wouldn’t work. It lit a fire in me, and I wanted to prove them wrong.” Indeed, Engle proved the nay-sayers wrong and brought his free carnival across the New York City metro area.

His tenacious attitude from a young age has served him well. Upright now helps secondhand e-commerce merchants earn $150 million a year in sales.

Before starting Upright, Engle would buy and sell clothes from clothing recyclers. He’d take the inventory and sell it for 6-8x online. “I’d buy hundreds of pounds of Patagonia clothing and eventually started to expand into more categories and more brands like Birkenstocks and Uggs,” he says.

When reselling the clothing, Engle realized every item had a Goodwill sticker. That sparked the idea that would become Upright Labs.

“I started researching and realized Goodwill was selling on their sales floor. When the inventory wasn’t selling, it was being purged and going to a recycler that was then sorting it again. I was buying it from them, and I was flipping it online for more. So, we decided to sell that business and start helping Goodwill optimize the value of the products they had on hand.”

With Upright Services, the company leads the development, stabilization, and growth of e-commerce departments and facilitates the groundwork for an efficient and exponentially growing e-commerce operation. Its services also bring to the table innovative sustainability practices for supply chains, operations, and recycling. This enables clients to focus on the immediate bottom line and the long-term net gain from client retention, company growth, and supporting the environment.

The Turning Point with Upright Labs

“We were just trying to drive value for our clients. And that was our focus: how do we keep driving more and more value for our customers? It was our north star metrics – drive more value and help them generate more revenue. And if we can do that, that is how we will know we’re successful,” Engle says.

He realized Upright was getting close to product-market fit when customers referred new clients simply because they loved the product and wanted to share it.

“An existing client would email a potential client and say, ‘Hey, you have to use Upright Labs. Don’t even demo their product.’ I didn’t feel like we had product-market fit yet because we weren’t scaling as fast as we are now, but that was when we started to see that people liked the product.”

As the company scaled, Engle wanted to explore how they were doing in terms of the market. He decided the best way to do that was to get a free valuation of the business, a “pulse check.”

Selling Upright Labs – Why He Decided to Divest

“We weren’t in a position where we had to sell. It was more of a conversation where we reached out to FE International for a free valuation to get a pulse on the market and understand if we were to sell, what would the valuation be, what would the opportunity be?”

For Engle, it was crucial to find the right partner if they were going to sell the business. “We wanted to make sure we understood every little nuance about the buyer to ensure it was the right long-term fit for Upright,” Engle says.

FE Leading the Charge with Bootstrapped Businesses

Before deciding to sell, Engle reached out to dozens of brokers and potential buyers. In the end, he chose FE.

“We wanted an organization that does this day in and day out, with thousands of sales and a data-led approach.”

Engle believes many different brokers use data to guide them, “but they’re not leading the effort in marketing and not staying up with the times. FE focuses specifically on SaaS, e-commerce and content and is leading the charge when it comes to bootstrapped businesses.”

He goes on to say, “When anyone hears they’re going to sell a business, they’ll say, ‘Oh, did you sell with FE?’ So, we wanted to make sure we went with the market leader, and we spoke with a handful of potential people who have used FE in the past. It just seemed like the perfect fit.”

Engle was impressed with the FE team and how they guided them through the entire process. “When we spoke with the Vice President of M&A, he guided us through the process no matter what and at certain stages, I felt like FE knew my business better than me. If I go to build another business or sell a business, they will be the first call I make.”

“When I’ve talked to other entrepreneurs who sold their businesses, the amount of work they had to put into due diligence was significantly higher than what we had to put in. The main difference was FE. We had FE, and they did not. I don’t know if that is a true correlation, but I can say that it was definitely an easier process than other entrepreneurs I’ve spoken to.”

Upright Labs received strong interest and 11 offers were made. Below is an overview of the acquisition timeline.

Curious about how FE International value SaaS Businesses? Check out SaaS Valuations: How to Value a SaaS Business in 2022.

The Most Important Step in The Exit Process and Scaling Upright

For Engle, it was crucial to protect his customers and employees throughout the entire process. “Everything else was far down the list for me,” he says.

“Many people when they sell their business don’t care about the customers; they don’t care about the employees. That’s not how I and my co-founder work. We build a business in partnership with our customers and in partnership with our employees. And those two things are the most important things to us.”

When scaling Upright, Engle stayed meticulously focused on the metrics. His advice for other SaaS founders who are just starting out is to stay heads down the first few years and try to grow specific metrics. “Focus on one metric at a time and keep growing that revenue. Revenue solves all problems. The more revenue you have, the better. If other issues occur, you can pay to deal with them.”

He believes it’s wise to get a “pulse check” on your business a year or two in. “When you’re starting to see your ARR grow, I would talk to a broker and understand what are the key metrics that you need to hit to get the revenue, or the earnout, that you’re looking for,” he says.

What’s Next?

Engle will focus on running Upright with their new partner, Cordance, a North Carolina-based holding company, formed by Aquiline. Their aim is to throw more fuel to the fire to grow Upright.

“My focus is helping grow the business, get it to where we can drive more value to our clients, release new products and be the name in the secondhand communities,” Engle says.

Curious about how much your SaaS business could be worth? Get started with a free business valuation.