# Micro ISV to Micro Acquisition: Selling My 11 Year Solo Software Business –Jacob Thurman Channel: Rob Walling Video: https://www.youtube.com/watch?v=TPxlpEzo0tw Duration: 12 min Language: English Words: 2364 Transcript page: https://viewrankai.com/tools/youtube-transcript/TPxlpEzo0tw --- [0:00] [Music] [Music] [0:15] okay my name is Jacob and for the last 11 and a half years I wrote and sold plug-ins for a programming tool called Delphi who's heard of Delphi or Delfy in Europe alright awesome so I'm the the Delfy guy on December 24th not 24th December 31st of 2014 I sold my Delphi tools business to the best possible buyer and I'm here to tell you this story of how that sale happened but that's a lie because nobody here or very few people here actually looking to sell a business right now so while I am gonna tell you the story what this talk is really about is some [0:49] principles that I learned about making big important life-changing decisions like how to sell a business so I've been to five Micah comps I love this conference two or three years ago Patrick McKenzie gave a talk in which he admonished all of us to instrument our products so that we could find out how our users actually use the software I thought this was a great idea I went home and I built a an application usage analytics platform specifically for my Delphi products and Patrick you were right having that data was awesome I launched that product about three days before micro comp last year and it was it was great about the same time product [1:27] managers at Embarcadero technologies which is the company that makes Delfy are thinking this same idea are thinking we should do an application usage analytics product so they're thinking this I launched one serendipity intervenes and they decide to reach out and contact me and then I did something really really stupid um in response to a potential security issue I decided to change a setting on my web server and I thought this would go really easily no big deal I changed the setting I did not realize the unintended side effect of changing that setting was that the contact me form that we all have on our website got disabled for two days so I [2:04] didn't get any any information to begin the emails or messages through that contact two days which normally we don't know maybe three or four email is not a huge deal but it was during that 48 hours that Embarcadero first reached out to me to start the conversations that could lead to an acquisition lesson learned first don't do stupid things but second when we have to make big decisions like selling a business or changing settings on a server we need to have a plan in place and I don't just mean a plan for how we're going to execute on a decision that we made but a plan for how we're [2:33] actually going to make that important decision thankfully Embarcadero reached out again we were able to connect had some conversations and they asked me a question they popped big question they said would you be interested in selling your business and coming maybe coming to work for us and I said no because remember all that stuff patrick talked about about signs that you should exit none of those things were true for me I loved what I was doing it was not the right time but at the same time I acknowledge that everybody has their price think of a really really big number if somebody offered you that for [3:07] your business you would sell it ridiculously high number somebody give you a really low number you wouldn't sell it there's a middle somewhere in there so they asked me the question what's your price and I didn't know and this vexed to me for weeks I had to come up with some sort of framework for figuring out where that number was so that if they did decide to make an offer I would know how to accept or reject that those of you there are solo entrepreneurs or single founders you realize that it's more than just your business it's your life it's more than just a job it's more than just the way [3:39] you make money your whole lifestyle revolves around this business that you run and I realized that to me the lifestyle was more important than the money as long as I had sufficient money for my needs it was more important to me to have the freedom and flexibility of an entrepreneur lifestyle than it was to have a whole lot of money in the bank at the same time I acknowledge that you can buy an awful lot of lifestyle with the right amount of money so I had to come up with with some way to put a value on the lifestyle now it's really really easy to do the balance sheet figuring of [4:11] what your business is worth assets and and liabilities and things like that but it's really hard to put a numeric value on your freedom and your autonomy and your happiness and your stress and your risk and figure out what those kind of things are worth to you so how do you put a value on those things that are invaluable I had to come up with a formula that I would use to determine my price what would i sell the business for nothing to do with what their value was what they would purchase it for what would I sell for so I came up with kind of a 4-step formula step 1 I have a [4:42] rough idea I think about how long it would take me to build a new business in scratch starting today that would make the same amount of money I was making before yeah so the first thing any sale would have to do is replace my income so that I can feed my family and pay the bills for however long would take me to get that and come back the second is cash to use right away this might be for us this was some investments that we really wanted to make we wanted to pay off debt I think it's perfectly fine to have a mortgage for a home it's fine to [5:10] have to take out loans for education at mortgage I had student loans left over from grad school I wanted all of that stuff gone that was gonna be a could not sell if I couldn't get rid of all those things finally I was gonna have to come up with some value to attach to those intangibles and I realized and recognized that was going to be completely arbitrary and the number that I chose was simply what I felt kind of in my gut was appropriate multiple of my annual profits that's fine but then it had to make sure that this amount of money those things added together [5:39] was the cash that I would have in the bank after I paid the taxes on the sale so I did what any self-respecting data nerd would do and I made a spreadsheet okay these are not the real numbers don't squint too hard probably not worth it but I came up with a spreadsheet an awful lot like this I came up with musical magic numbers number one so so sorry on the left side is possible values they could have offered her the sale middle is a bunch of tax stuff not that interesting and on the right side it's the amount of cash I would have had when after paying access to do so that I [6:10] can share it that's where my magic I'm currently the magic number one was basically those first two ideas income replacement and the cash I wanted to use right away that was the bare minimum for which I would consider selling the business and that's the line between the red and the yellow in the spreadsheet so an offer below that magic number is a simple no an offer above that magic number I'll think about it depending on the terms and conditions of the sale magic number two was all of that stuff added together right this was the magic number above which I would definitely sell the business and that's the line [6:40] between the yellow and the green so lesson learned whenever we need to make really big decisions we should base that on as much objective data as we possibly can I think it's really important that we study these things out in our minds and that we have objective data centered ways to make decisions before we trust our gut or our heart where the universe or whatever to tell us what to do embarcadero did eventually make an offer and that offer was really interesting in light of this spreadsheet because they offer was two parts let's talk for just a second about how they came to evaluation they did not use a multiple [7:15] of annual revenue as part of the validation validation so we often talk about this 3x annual revenue as the way to to to evaluate a company it's a value a company not the only way to do it they asked two questions they said what would it cost them to build the same product in a time frame that made sense for them and two what would it cost them to train people that they already had on staff with the expertise that I had that they wanted access to and so they offered they gave a two-part offer the first part was to purchase the intellectual property of my to Delphi [7:46] Delphi sintered products and that number was in the yellow in the top box of the yellow just barely out of the red barely in the I'll think about it category the second part of the offer was a consulting offer to come on board with them as a consultant and work on integrating my intellectual property with with their products and and their business and building a couple things related to my particular technical expertise and that number basically crossed most of the yellow in to about the you know probably the last or second-to-last yellow box so we're really close to the green I thought about it I thought about the product the [8:24] technology I'd be working with the people I'd be working with and the possibilities of future income and I decided to ultimately accept their offer and to sell to sell the intellectual property and to go back to consulting for at least for a little while and then we did five months of all of that stuff that Patrick talked about about due diligence and and all of the the technical stuff that goes into a sale not that interesting but during this whole time there was another interesting thing that was happening to me which is that I was having a weird health issue I was having these frequent almost debilitating [8:56] stomachaches some of you were thinking you've already solved it thank you that obviously right there selling a business got a family you got a lot of stress you've got a bleeding ulcer and that's your problem okay that seems to make a lot of sense it's not the case it actually turned out as we're not totally sure yet turned out to be as far as new a weird food allergy still working that out point being there were times when I had to cancel a scheduled phone call or delay responding to an email or something not because I was so sick I couldn't talk on the phone but because I felt so physically badly [9:26] that I couldn't make good decisions my stomach was in such a bad place that my head couldn't be in the right place to make big decisions I learned that psychologists have an acronym for this and the acronym is halt and the idea is that your decision making facilities of your brain are significantly impaired when you are hungry angry lonely or tired and from my experience I would add to this sick that we should try to avoid making big important life-changing decisions if at all possible if we feel physically psychologically or emotionally badly we're hungry angry lonely tired or sick so fast forward after five months of due [10:12] diligence everybody's happy we've negotiated two contracts one for the acquisition of IP and one for one for the the contracting consulting I was going to do for them and it's December 31st of 2014 I've got it all in hand I've got my pen out I'm ready to sign the papers and I went back through these lessons that I've learned and I thought number one am I making any dumb mistakes I've double-checked the formulas in that spreadsheet so many times to make sure that I wasn't making any stupid mistakes I made sure I was basing this on good rational data right did I do my tax calculations correctly was I really [10:48] thinking accurately about about that future projection of how much income I would need in order to support my family especially if that consulting thing like fell apart the day after the sale and I had to start a new business immediately was I making good rational decisions I felt good about all of these things so I actually put the pen down bringing it right to the moment here put the pen down I kind of sat I said how do I feel am i hungry am i angry about anything am i lonely am I tired do I feel sick and I'll be completely honest I said a little prayer [11:21] and I felt really great about the whole thing I signed the papers I sent them off about two hours later I got the countersigned copies back and I had sold my business and I packed up my family remember it's New Years Eve packed up my family we got in the minivan and we headed off to a party and ring in a very very New Year thank you [Applause] --- About this transcript Read from YouTube's own caption track and laid out by ViewRank AI (https://viewrankai.com). 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