My sixth year as a bootstrapped founder

I think people (and the founder) are focusing on yearly profits as their remuneration and comparing it to a salary... but the reality is you're creating a company that should be valued (and eventually sell) for 7-15X Earnings - and you really should be looking at that increase in value vs your increase in profits. In reality your net worth went up by over $1.5 million in the last year, in addition to earning 236k - that is the actual value you created for yourself in the last year and not the 236k you cashflowed.

I find it redeeming that despite having a gift for development - software and hardware - the biggest factors affecting profitability and growth here are things that most MBAs would do in a business quite regularly (outsourcing design/packaging/fulfillment, streamlining costs, doing price elasticity experiments, polling customers and markets for product improvement).

I enjoyed seeing the inverted perspective that product/engineering is straightforward and low risk but things like optimizing fulfillment and operating costs is a new exciting endeavor.

One tip I suggest doing is leveraging google ads to figure out features that customers are willing to pay for before you build them... if they're clicking the ad they are searching for it and interested in buying it. Start a few very low cap campaigns calling out features you are thinking of building into the product, and see which one get's the most impressions and clicks per marketing dollar and focus on that. The added advantage is you know it will be easier to buy advertising for it once the feature is done.

You're missing something. From the post:

> I don’t draw a salary, so the total amount I earned from TinyPilot in 2023 was $236k.

and

> Result: I worked 35-40 hours per week, a reduction from previous years, and traveled more than any previous year.

This is a person who is effectively full-time CEO of this business and whose market salary is likely at least $236k. If they sold the business, the new owners would have to pay someone else to put in those 35 hours.

Maybe the new owner could employ a less-skilled manager and pay them less, or maybe there's still lots of potential growth or room to cut costs, but that's all quite speculative: right now the business has a profit, and therefore a valuation, closer to zero.

> right now the business has a profit, and therefore a valuation, closer to zero

You’re thinking of this like an engineer rather than a business person.

1. When selling a business like this, the $236k would be called SDI or SDE (seller discretionary income/earnings).

2. The buyer determines what, if any, of that SDE will need to go to paying someone to do what the seller does. These duties could be assumed by the buyer, they could be assumed by existing people the buyer employees, the tasks could be reduced or eliminated, etc.

3. Based on 2, the buyer will typically adjust the earnings multiple that they are willing to buy at.

4. For complex businesses that need someone doing one or more specific roles, the listing agency for the business, if good, will encourage the seller to fill certain roles to improve the overall salability of the business and multiple of earnings that it will be sold at.

5. Without really looking into the business, I’m almost certain that it can be sold for much closer to $1m (or more!) than to your suggestion of (edit) closer to $0.

He's thinking about it like a business person who is looking at buying a business. It's worth close to zero. In it's current state this business is not an asset, it's a organization doing stuff.

Breaking it out into SDE + adjustment is what the comment already does, albeit without using that terminology.

One cannot hire a person who can do all the things this owner does. The person is a smart former google engineer. These people don't grow on trees. It would take a few people to do a bad approximation of what he does. The adjustment to SDE is going to be 100's of k and you get to 0 cash thrown off.

> It's worth close to zero.

Serious question… have you bought a business before?

It’s what I do.

This business is not worth close to zero, and the stuff that the current owner does (even if he’s some miracle worker, which xooglers aren’t guaranteed to be) can be handled any number of ways that cost less than $236k by some buyer. This may not mean you or the person that I replied to, but you two most likely aren’t a part (and certainly not a significant part) of the market of buyers for businesses like this.

I can’t tell if you’re circle jerking the owner, xooglers, or the (limiting) engineering way of thinking about businesses.

You should write something about what you do too. Buying businesses sounds interesting, can you expand on this?

> You should write something about what you do too.

I think most of what one needs to know is already out there. The key is being adaptable to the current environment and being aware of one’s value add (skill set, network, etc.).

The problem with writing specifics about what I do is that it invites competitors and/or haters (e.g., review bombers or DDoSers). Some parts of my businesses have enough moat such that I don’t care, but other parts definitely do not. It’s not something I want to spend additional brain cycles on.

> Buying businesses sounds interesting, can you expand on this?

It’s largely not. It’s financially comfortable, and it’s nice being your own boss / leading your own team if that’s what you’re into (I am), but I’ve done more interesting work while working for “The Man”. A lot of what I do is just streamline a system that was inefficiently run/managed.

What I do is very similar to what Andrew Wilkinson of TinyCo has done, except I am about 10 years back on his timeline, and I’m not sure I will end up going public. I recommend looking for interviews and podcasts with Andrew — I have found them to be super interesting.

In relatively vague terms, I started a web dev agency, and then used that cash flow to start buying businesses that generate additional cash flow. Rinse and repeat. This is exactly what Andrew did. Note that I didn’t learn about Andrew until last year, so I was happy to see someone taking a similar path and scaling to a holding co worth over half a billion.

Some things that I think folks don’t do well when buying and/or valuing businesses (both buyers and sellers):

- Keep an active deal flow pipeline, ideally one that is not widely tapped. This usually entails talking to people… lots of people. For example, finding solid businesses on FEI is possible, but they will be very competitively priced, and it will be prudent to have some sort of pocket growth “hack” in mind if you want to make it pay off handsomely. On the other hand, targeting some “mom and pops” that have little or no idea about SEO and SEM can present some soft deals.

- Figure out ways that one party can scale that others can’t. This is the type of “growth hack” that I mentioned above. I know one guy who has one main move. He looks for businesses in which he already buys some of their inputs at a huge volume discount that smaller businesses can’t access (supplements are an example of this… I don’t recommend getting into supplements unless you are already eyeballs deep in that world). Another example is having access to markets or distribution that the businesses you are targeting to buy don’t have. One area I target (when relevant) that many others don’t is East Asian markets. Another area I target is just increasing prices (usually via segmentation). So many businesses charge way less than the market will bear.

- Learn how to negotiate, including how to say no. Many people just lay down and leave a ton of money on the table. You don’t have to be an asshole about it, but it’s prudent to be aware of what the value is for both the buyer and the seller, and it’s not uncommon for the buyer to have significant upside potential.

- As someone else said, you’re basically turning over a lot of rocks. There are a lot of people trying to bamboozle you, and there are a lot of solid businesses that don’t really offer a growth opportunity that you can efficiently maximize. When you find something that fits, it’s often a no-brainer.

Let me know if you have any other questions. I will be happy to answer.

I will add as a caveat that I can only give you perspective from my limited experiences — there are myriad ways to buy and sell businesses profitably, and my path is only one of them.

I have a feeling a lot of the lessons you learned could also apply to developers who want to be better at freelancing (my case). But I don't know if there is a way to pass down that knowledge while you also get something out of it.

For what is worth, I appreciated your comments in this thread.

For freelancers who want to improve (it was my case years ago), the best book is "The Secrets of Consulting", by Gerald Weinberg.

https://www.goodreads.com/book/show/566213.The_Secrets_of_Co...