Host: Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs. And on this podcast I talk to the people who do it. Today I talked to Casey Allen, who has acquired his first two businesses in the last year and a half, both of them online businesses. It was a great conversation with Kasey. We jump all over the place, touch on a bunch of different topics, which is the hallmark of a good conversation. I think we talk about the two businesses he's acquired, of course, but also the state of the market for digital businesses, how much things have changed for digital business acquisition in just the last two years, why content businesses can be so much more powerful than e commerce businesses, what he would recommend to new acquisition entrepreneurs, and much more. Casey's path reminds me of my own path, although he's further along. He started a few businesses himself with some success. And gradually over a few years, it dawned on him that buying a business is a lot better than starting from scratch. And so far that has proven correct with his two acquisitions. Anyway, here he is, Casey Allen. Casey Allen, thank you for joining me today on Acquiring Minds.

Guest: Thank you for having me. I really appreciate the opportunity to chat.

Host: You've acquired two digital businesses, an e commerce business of specialty brewing equipment for specialty coffee brewing equipment and a content business. But not a content business in the way we understand the phrase today, where it's product reviews based on an affiliate business model. This is a 24 year old website site, a math teacher who helps kind of high school level math students solve math problems. Do I have that right?

Guest: Yeah, and it's, it's really, I would say it even starts in kind of late middle school up through, you know, intermediate and middle college from a course and kind of category perspective.

Host: Okay, well this, I'm so intrigued by that business because it's a 24 year old business. So 1997, we're talking web 1.0 or even 0.5. I mean it just reminds me of high school. It's really cool this website's survived this long and you are the, you are the proud new owner. So we're going to get into that, but why don't we start before diving into the businesses on you give us one or two minutes on, you know, your, your professional bio and what led you to be on this path of acquisition? Entrepreneurship.

Guest: Yeah, sure. And I'll, I'll try to be brief because it is kind of a long and winding road as I'm sure most have kind of a similar path. But yeah, So I started out in management consulting, focused in healthcare, in the healthcare industry and mostly on the tech side, so kind of supporting the consulting side with software and kind of went through several companies and ended up at a startup that as an early employee that was then acquired and then acquired again by pe. So I got to see kind of from the inside, the acquisition process of private equity coming in and then their playbook being delivered and kind of being formed and being a part of all of that, which was really interesting and kind of got my mind going initially about this is an interesting concept. I had started a lot of businesses, gone through that process of really going from 0 to 1 and realized that is just a real grind. And at the same time, my wife was going to school at Northwestern to get her mba and one of the part of her curriculum was an entrepreneurship through acquisition course. And so she was seeing me spend countless nights through the evening fulfilling E commerce orders and was like, why are you. This seems really hard. Why don't you just buy a business since you like entrepreneurship? And at the time in the curriculum it was really oriented around hard industries, or I should say traditional industries like car washes, laundromats, like everything you kind of hear of as an acquisition target.

[4:24] Host: Non digital stuff.

Guest: Exactly. And so I just kind of shrugged it off, like, well, that's not really for me. I don't know. I don't know what I would do in one of those businesses or how to run one even. So fast forward four years down the road, another acquisition at the company I was working at kind of then gave me this window to say, like, okay, what's next for me as a career? And that's how I started to go down the rabbit hole. And I don't know what really triggered it or kind of what, you know, what, what was the point in time where I was like, oh, maybe I should explore this more, but. But I just started kind of leaning more and more towards the direction of acquisition as a better avenue for running a business and growing a business than having to, you know, go back into the startup mode of, you know, grind it out. And I think it was more just. I didn't want to feel that pain again and have to go through that process. I'd rather.

Host: Even though you had, you had been, you had had some successes, yeah, you sold the subscription box for less than you should have, according to. According to you, but it was still. You did take something from 0 to 1. And then it sounds like the product, the community. Product manager. Manager. Community, yeah. Was kind of A smaller success. So you weren't. I mean, I've talked to people who tried and tried and tried for years to start something and nothing went anywhere. And your track record was certainly better than that. But you still felt a little disillusioned by starting from absolute scratch.

Guest: Yeah, not disillusioned necessarily, just exhausted. I hate anything. And then, you know, having worked at a startup, which also is just, you know, a big grind for everybody in the organization as you kind of march towards and really push to that exit. So that combined with doing my own thing, I just, you know, I was ready to step into something that had existing revenue and profit and I could, through using my expertise, be able to just grow it in a reasonable and responsible manner using the cash flow that it turned off. So that appealed to me more than trying to get to that critical mass point where it was throwing off enough cash to sustain itself and the growth that needed to come.

[6:34] Host: So you saw the merits of what your wife had told you about four years ago, but in your mind, you applied that to digital businesses rather than a car wash or a plumbing business. All right, great. So you arrive at the interest in or the decision to acquire a business. And so your first acquisition was baristawarrior.com correct. So tell us that story quickly.

Guest: Yeah, so that's also an interesting and long story because we acquired it. We went under LOI pre Covid and then we went under LOI in November of 2019 after having kind of looked at a lot of businesses and realizing prior to that, you know, I think I started my search for a business mid to earlier Q2 in 2019 and then finally found Barista Warrior late 2019. Put it under LOI.

Host: Where were you looking, Kasey? Like on Micro Acquire and Empire Flippers and the usual. The usual ones, yep.

Guest: And honestly, I don't think Microquire existed then, or if it did, it was very small and so it was like quiet light, which I ended up finding the barista ware on and then Empire Flippers and kind of the standard set of online marketplaces. Biz by sell, just looking for digital stuff there. So put it under Loi. We were supposed to close the first week of March, but our lender had been dragging their feet. We slipped by a week and in that week timeframe, the US Went under lockdown. Covid hit the US and the credit markets and everybody else just froze. And we're like, oh crap, what's going to happen now? Nobody knew what was on the other side of that fence. So that elongated the Timeline a lot. Ended up switching lenders to get it moving again. And.

Host: But you yourself weren't spooked by the world turning upside down. You still wanted to plow ahead with this acquisition.

Guest: Yeah. So at first, that was definitely like, oh, crap, did we walk away from this? And so it was really a return to the fundamentals of what we liked about the business and what we thought the dynamics would be. Kind of post Covid, that's always looking into a crystal ball, but. And we had the luxury of the credit market still being frozen and the bank still not knowing what's going to happen because they're waiting on the government to tell them what's going to happen. Because we were using sba, we had some time between March and when we closed to see how some of it would play out. It was clear a month into the pandemic in the US that everybody was at home. And so for us, selling coffee equipment that you use to brew coffee at home, that was a boon.

[9:27] Host: And so, I mean, you went from thinking, like, man, should I pull out of this? To like, a few weeks later being like, wow, I might have just happened into the most Covid friendly business possible.

Guest: Yeah, yeah, exactly. And so in that timeframe. And the seller was really scared as well. Right. Like, he was like, oh, crap. Like, we were just about to close, and now the buyer is going to walk away. And so he and I were in constant communication. But in the meantime, the business was starting to ramp up pretty significantly. And then he was faced with a different kind of dilemma, which was like, well, it's worth more now than it was when I listed it. So he walked away. We pulled him back in.

Host: How can you tell us what the premium was from pre Covid to during COVID where that he wanted to see the price move?

Guest: Yeah. It essentially doubled the business. Wow.

Host: It doubled the revenue.

Guest: The trailing twelve and the trailing SD gap.

Host: And so did he want double the price?

Guest: Yeah, essentially. And so we talked it through and essentially came to an agreement that, like, okay, this is, you know, you have three months of kind of post pandemic. This is great. But again, you know, getting a little longer tail. People aren't going to work. You know, people are, you know, are. Are staying home. Who knows, from a macro perspective, what's that, what that's going to have to just the buying power of, you know, consumers, you know, another three months from now or even six months or nine months. And so we talked through that and ended up putting that premium in a seller note that was tied to Performance. So it was almost structured as an earn out, but was not an earn out on paper, if that makes sense.

Host: So the seller can benefit in the upside. If these really super strong sales continue, they'll benefit. And if not, your risk is covered because you capped how much you're going to actually have to pay over the. Over the term.

Guest: Yep, exactly.

Host: Nice.

Guest: That's what brought it back to the table. That's what brought us back to the table. And we ended up closing on the business in the end of June and then operated it. I've been operating it since. It was a boon. 2020 was incredible. We saw incredible revenue numbers, incredible margin expansion and ended up, you know, he ended up. And so I think it was a win win. He ended up getting his premium very quick, fairly quickly due to the. Just the gains we saw towards Q4. And you know, we saw a tremendous boom in the business.

[12:14] Host: And how has it been so far this year as things have E Commerce has cooled a little bit.

Guest: Yeah. So we definitely felt that cooling. You know, we sell more durable equipment. So you know, people go to purchase a pour over kettle and a filter or a French press once every few years. And so what happened was in was all of that demand for those products got pulled forward by five years or whatever into 2020. And since then things have cooled off. And so we knew going into it that could definitely be a reality. And so the play and the way to mitigate that on paper was to spin up other product lines like coffee, where we have more recurrent revenue and we have something that's more consumable and repeatable from a buying perspective. And so that's what we launched earlier this year and are spinning that up. So I think that'll help a lot once we get that kind of at full speed.

Host: Cool. Well, I want to just. We need to be aware of the time and I want to. We have a lot to cover. But before we move off of Barista Warrior, tell me quickly about like the process of getting an SBA loan for digital business. Can you actually. And also any numbers you're willing to share, like if you can get specific on revenue and profit and what you acquired it for, please.

Guest: Yeah, yeah, definitely. So the process of getting SBA is just. It was just a matter of talking to a lot of lenders. And in late 2019 there were. I talked to a lot of lenders who were. Wouldn't touch digital and specifically wouldn't touch like SaaS or FBA. Yeah. And E Commerce.

Host: So they were FBA.

Guest: Yes, correct. Yep. And so the real worry there was just the lack of hard assets backing the liability on the business. As in, you go to buy an E commerce business and the only hard asset you have is the inventory in the business. The rest all goes to goodwill. And so that on paper for them is a hard pill to swallow. Come turn the year in 2020, that all changed and perspectives and mindsets around lending changed. Part of that was more macro in that the government was backing a lot more of SBA loans. The CARES act gave out a lot of incentives for sba. And so, yeah, so that message changed a lot and a lot of lenders got on board. And so, yeah, that process, it takes a little while. So you have to kind of buckle down. You have to have all your ducks in a row, financially, personally, and from a business perspective. So you have to make sure you're moving with speed and getting them what they need quickly. Otherwise it's going to drag on and then every, every delay or in the business. And the longer it takes to close the business, the more likelihood there's of it kind of falling apart and you're not closing. So making sure you're moving with speed when you go through the SBA process.

[15:04] Host: And how much of that purchase price? Well, tell us, if you can, what some numbers about that is, then I'm going to circle back to the SBA to how you financed it.

Guest: Yeah, so we financed it, and I'm going to try and recall the numbers. So the final purchase price was 970.

Host: 970, yep.

Guest: And like I said, we put a good amount of that premium that came from the early Covid bump. We put that in a seller note. So we put 240,000 of that in a seller note, and then the rest was financed by SBA, I believe we put in 20%, and then SBA footed the rest.

Host: Sorry, how much was it for the seller note? 240. Did you say?

Guest: Yeah.

Host: Okay, so about, let's call it 25% to the seller. And then you said you brought 25%.

Guest: 20%.

Host: 20%. And so that leaves 55% from SBA.

Guest: Yep.

Host: Okay. And so you, you. So, so if I'm somebody on Microacquire or Empire Flippers or Quiet Light, and I see a million dollar business, and I can, I either have, say, $200,000 in cash or I can somehow find it maybe from private investors or friends and family, that that could be within my target. And a million dollar business.

Guest: Yep.

Host: You know, I think this is, I think this is what blows a Lot of people's minds about acquisition entrepreneurship is that that is possible. People, I think most people see a million dollar price tag and they say to themselves, I can, I don't have a million dollars now a lot. Most people also don't have $200,000 in cash, but many more people have that than have a million dollars in cash. And so. But it also sounds like a year and a half ago it wouldn't have been financeable or it would have been much more difficult to finance. Finance it. So in fact, now here we are middle of 2021 and the world is quite different than it was a year and a half ago in terms of financing a digital business.

Guest: Yep, yeah, absolutely. I definitely believe that.

Host: And how much. What can you tell us what the sales were? Well, I guess it changed a lot. But when you first negotiated and then after Covid, what did sales become and then what were the margins at the business?

Guest: Yeah, so pre Covid, the margins sat around like 17%, which were pretty good for FBAs, if I remember right when we were looking at those businesses, you know, for that time, 17 was fairly healthy. And then, and the in 2019, I think we finished the business, finished 2019 at just below a million dollars in revenue. And then, you know, through the start of 2020, you know, the first half of 2020, I think revenue jumped to like almost 650,000 for the first half. And then, you know, it just got better and better from there. And I think we finished 2020 with 1.7 in revenue and 35% on average margin. So margin expansion was very dramatic in 2020, which was very healthy in great for us because we were able to reserve a lot of cash during that time. Cool.

[18:14] Host: Well, thank you for sharing that. Okay, so then you finance it with SBA. About 55% is SBA than the seller. Note. So are you finding that this business is in fact you are paying yourself a salary out of it, like a pretty healthy six figure salary and you're paying down the debt and you've got a little money left over to invest in the business or, or more than a little leftover to invest in the business, is that.

Guest: Yeah, definitely. Yeah, absolutely. And I didn't quit my job until the end of 2019. And so really, you know, I was able to operate it on the side, continue through a full time career and then finally be like, okay, you know, it's doing fairly well, now's the time to quit and kind of go full steam, take a salary out of the business and still be able to pay off, you know, half that monthly SBA payment rollout. And so, yeah, there's definitely enough reserve in the business to continue our investment in growth and weather any rainy days we have from a cyclical perspective in the business.

Host: And are you paying yourself equivalent to what you were earning at your 9 to 5?

Guest: Yes, in that if I take out, I'm paying the minimum. I can't remember what. From an IRS perspective, there's a way to, in our, our fractional CFO is the one who really masters this. But there's a minimum salary threshold for entrepreneurs. And so there's a way to kind of minimize your tax bill at the end of the year by minimizing your monthly payment but taking the rest of the distribution at the end of the year. So any cash left in business, I supplement my previous years or my future years salary that way.

Host: So just as a, as a different classification, but you're, you know, the money into your Casey's wallet at the end of the year is roughly equivalent to what you were earning. I'm, I'm just trying to figure out if you know, like how you feel about acquisition entrepreneurship, like now you've done it. And, and it wasn't, I'm not saying it was easy to go through that whole negotiation and take ownership of the business, but you didn't, you did get to avoid the grind of starting something from scratch. And now here you are, entrepreneur, business owner, thriving e commerce business and already paying within the first year or basically immediately once you took ownership, paying yourself a salary equivalent to what you'd otherwise be earning. Not as an entrepreneur.

Guest: Yep, exactly. Pretty sweet. What's more. Yep, exactly. Yeah.

Host: Cool. Okay, well, let's pivot because we Again, time. So let's hear about intmath.com yeah, so

Guest: int Math, which is short for interactive mathematics, is like you mentioned at the beginning of the interview, it's a really old website and property. And it was started by a lifelong educator and professor out of Australia who has been teaching math pretty much his whole life and had been kind of an early adopter of the Internet and programming, taught himself all of that and stood up what essentially was he digitized his math lessons that he was teaching in the classroom. And so that in itself just became this kind of content and audience generating machine that has snowballed over time. And it's different than a content site in that he never played any of the keyword stuffing games or linking backlinking games that used to be prevalent in content before Google would kind of comb that out of their algorithm. His was more just about putting out content that he thought was valuable and simplifying his lessons in a consumable way. And I think that really resonated and ended up generating a ton of backlink and domain authority from really credible sources like NASA and governments and tons of really high quality pages linking to his site. And it helped him and the site whether those, you know, those kind of very scary SEO updates that Google pushes out and tend to either hurt or benefit, you know, a traditional content affiliate business model.

[22:32] Host: I mean this is a vintage of site that's like when people used to make sites when the whole Internet and the whole Internet, every single page wasn't commercialized in some way. Hobbyists or people who just wanted to help with stand up sites and you know, it'd be their weekend project. I mean of course you still have people on the Internet who aren't trying to make a buck, but the Internet is a much, much more commercial place it was than it was when this guy launched his thing. And I just, I mean hearing you talk about it and seeing it and people got to definitely go check it out because it looks like it hasn't been updated since this era. As I said at the top, it just reminds me of when I first got on the Internet, what the Internet was like. It's really cool.

Guest: Yeah, yeah, definitely. It's, I mean even the images in some of the old lessons, you know, like are just, they even those have like pictures of cars or something and it's from that area, you know, in the late 90s that it just brings you back like oh wow, that's old school. And like I said, it's. But it's been able to weather all of the algo updates and kind of the growing up that Google did in that timeframe and has, you know, just continued to climb and snowball and compound in audience. So it's been, it's been great to see.

Host: And he monetized it very simply and passively. He just put some Google AdSense on there. So it's just, there's a banner spot and it generates a trick, a trickle of revenue.

[24:00] Guest: Yep, exactly. And so that's the thesis behind this one and why I'm so excited about this business is the, the audience is huge, it's 12 million a year and yeah, and it's monetized in probably the most inefficient way via ads and so which are annoying and just destroy user experience. And so you know, you kind of comb out some of that 12 million because a lot of probably bouncing when they see, you know, when they're just barraged by all these ads. And so the plan is to really dig in, get a census from the audience and do some real customer discovery around what are the problems and needs that these 12 million users have that are all probably common, that fit the math niche that we could probably solve for them. So I've already started digging in and have found some signal through the noise which I think is really interesting. And then just utilizing the founder is still a part of the business as a consultant. And so, um, just picking his brain and using his, his experience and expertise as a sounding board has been really valuable because, you know, he's obviously thought about it a lot as well.

Host: So he did, he did think about monetization some.

Guest: Yeah. And he, and, and you gotta remember he's a, you know, he's a lifelong educator. So he comes at every problem from the academic perspective. And so, you know, his answer has always been like, well, let's just, let's put more higher quality content out there. Let's make this really complex math problem, let's solve it really simply. And he's always had a full time career in academia, so he's never had to pull the plug on that to support himself full time with the business and with the website. And so he's never really committed a bunch to testing out some of the things that he thought or hasn't thought would work. So, so that's where we're kind of using that list of items, plus marrying that with what I think is possible and figuring out what can be tested and what's an MVP of some simple solution to see if there's any demand there.

Host: Yeah, well, I don't know much about the education space, but we all know that education is more virtual by the year, again, especially with COVID So another kind of COVID tailwind there. And I know, I think we talked about this in a previous conversation, that there's some giant YouTube channels that people solve math problems. So there's eyeballs. I mean clearly 12 million users a year, a million a month, that's a lot of people. This is a classic case of you just see the value in an audience, in a long standing audience 24 years behind it. You don't know how you're going to monetize it, but you're confident that with that critical mass of traffic, you'll figure something out that's kind of your, you're taking a bit of a risk. But it's like it Feels like not that big of a risk because, you know that there's money in education and the size of the audience is just so vast.

[27:08] Guest: Yeah, exactly. And I bought it based on trailing twelve of what I know it's going to earn and what it earned in probably a down year for the business from a traffic perspective, if I look even. Because it has the longevity to look back even further. And in 2020 there was definitely a decrease in, in traffic because, you know, kids weren't as, they weren't in class, they schools were canceled. There were big gaps in education across the board and internationally. And so this year there's definitely a bigger push to get back in the classroom. And so I'm hoping this year will be, you know, will be better for us because it just definitely has seasonality in that, you know, the traffic definitely, you know, mirrors the school year kind of globally. So.

Host: Yeah, yeah. And so you bought it for 12, 12 months trailing revenue and a down year. And it's AdSense that he was monetizing with

Guest: the original owner, the professor was monetizing with AdSense and I should have mentioned it was acquired by a kind of boutique private equity firm who manages educational content sites. They simply swapped out AdSense and went to Ad Thrive, which is kind of just. That alone had a dramatic improvement in terms of RPMs and all the metrics that go along with how efficiently you're capturing ad revenue per eyeball. And then they just sat on it, focusing on other things. And so I came along, they listed the owner, the sole owner listed on Microacquire. And that's how I found it.

Host: Now is that competitive? Because it seems like a great buy. And so were you up against other buyers?

Guest: Yeah, that's interesting. So for other deals that I was looking at on Microacquire, I think we talked about this before. It feels a little bit like the Wild West. It's an unmanaged marketplace and it's an unmanaged marketplace for very high ticket things. And so it is a bit of a wild west. And everybody who starts a business, you know, they see their, they see their business as, you know, the next, you know, or they want it to be that next Facebook or whatever. You know, that thing that is getting a ton of VC attention and getting incredible. You know, they're reading about multiples and business valuations for startups all the time in TechCrunch. And so, you know, they're saying, oh, well, that's 10x of revenue. I'm going to apply that to my business. And the reality is, you know, in small business acquisition and even micro business acquisition, like, the, you know, the economies of scale just don't apply. You know, they're just. They. They size down, of course, at the lower end of the market. And so, you know, expectation setting was always something I was fighting against. And, you know, I talked to founders and who were selling their business, and a lot of them were like, oh, yeah, I've already got on a valuation I think would be crazy. And someone would be like, oh, yeah, I've already got, like, three offers above that. I'm like, wow, okay. I'm either, you know, looking at this completely wrong or. Or there are people out there that are just completely crazy. This one, I ended up talking to Nick, who had owned it, and then ended up getting distracted by other deals, didn't pursue any of those eventually, and then circle back was like, hey, are you still. What's the deal with NetMath? And he was like, well, I was just about to list it with a broker, and so that's where we kind of picked it back up. And I ended up picking it up from him.

[30:37] Host: So, Kasey, why. Why did you acquire a second business when, you know, you had Barista Warrior and it was going gangbusters and you'd also just not just, but, you know, relatively recently quit your job to go full time as an entrepreneur, Acquisition entrepreneur. Why another business and not take those same resources and put them into Barista Warrior?

Guest: Yeah, I think it kind of goes back to just portfolio theory and all of the things I've taken note of in terms of the dynamics of running a private equity portfolio of companies, it's really just diversifying revenue and diversifying cash flow. And so the E commerce and content models, from a business perspective are very different in their unit economics. And when you have a business like Barista Warrior that's growing very aggressively, it can be a cash monster. Because every year you're trying to keep pace with inventory that's flying out the door by making big inventory purchases that you're then sucking in, sitting and putting an ear tag on in working capital that just ties up that cash. We're working with the bottom end, 30 to 17% margins. On the flip side of that, in a different model, in the content model and in it math, the margins were like 95% net. And so it's just a very, very different dynamic. And it's just a business that has a lot more free cash flow that allows for a bunch of different interesting things. And so having those two kind of Diversify each other, I think, was what interests me the most. And we looked at content businesses. We almost acquired a content business in the coffee space at the beginning of the year. That deal ended up falling through, regrettably, but that would have been kind of, I think, one of the cedar sauce e comm plays that you hear about more and more now with all of the media businesses kind of turning into e commerce businesses and vice versa.

Host: Yeah, yeah, sure. So are you still on the hunt for a content business around espresso and coffee and coffee equipment?

Guest: No, not anymore. Yeah, exactly. Inmath has put it at us at a capital and mental capacity for now. So really just going to focus on those two and see what we can do there and then take it day by day.

[33:13] Host: Cool. Well, I want to. Now, so you're relatively recent to the acquisition game, but you've done two acquisitions, gotten a lot of experience under your belt in a short amount of time. So I want to kind of throw some hypotheticals at you. Say you're talking to somebody who wants to buy a digital business. Any of the kind, the two that you've acquired, either content or e commerce or SaaS or what have you. And let's take it through three different levels of how much money they have to spend and maybe what you might advise them to do. Not, not like the whole playbook, but just like what. How should they start thinking about their. Their. How they should approach this? So I have, say I have 10,000 bucks in cash and I want to buy a business.

Guest: What would you.

Host: A digital business. What would you tell that person?

Guest: Yeah, I think. Well, and just preface all of that with no matter what, I think you should start by starting something from scratch and just learning from experience of what in the business model you ultimately either want to acquire or you're interested in. And I think that alone will give you a ton of expertise around whether you have the skill set and the confidence to then ultimately go and acquire. And so like I said, it can be exhausting for sure, but it's an incredible education in doing and then, yeah, kind of laddering up.

Host: So the $10,000 person, you might say, start something.

Guest: Yeah, maybe invest in yourself a little bit at that level.

Host: Okay, so now let's take a $50,000. Somebody who's got 50k in cash.

Guest: Yeah, that's where you start to feel a little bit more lever at that point. And with that amount of equity, you can start to find partners, investment partners, and kind of go through that what's now called the search fund. Model, which is I'm either a seasoned entrepreneur or I'm a seasoned whatever management consultant. I want to get into entrepreneurship through acquisition. You can use 50 grand and I know a bunch of searchers who are doing that to, that's their investment into a multimillion dollar business that they're ultimately going to operate. And so they brought on investors who will essentially provide the gap equity that's necessary to then go to SBA or a mezzanine lender or somebody, some lender to then provide the rest and the bulk of the acquisition.

Host: So I have $50,000. I am going to finance a big, so you're suggesting buy a business of some size, you know, a million dollar business or multi hundreds of thousands of dollars or even, or even north of a million. And but to get the finance that with SBA, but I'm still going to need 2010 or 20ish percent for that. So that's 200, $250,000 in cash I'm going to need. So I take my 50 and I find investors to get me to 250 in cash and then I, and then the remainder is going to come from the sba. And so you think that somebody with that amount of money should go that path as opposed to say buying a $50,000 business they see on microacquire in cash?

[36:20] Guest: I mean, it just depends, right? There's certainly a founder or operator and business fit that needs to happen. And so if you spent your career in healthcare finance and you see a healthcare finance micro SaaS business that you think has a ton of potential on microacquire, that for less than 50 grand or 50 grand, that might be an opportunity, you may see just levers that you can pull immediately based on the experience you have in that business. What I'll say though is, and one statistic that really stuck with me as I made the shift from entrepreneur to acquirer is I don't know where I read it, but the statistic is something like 90% of startups fail, which we all hear, but 80% of acquired businesses are successful and continue to grow and have a much, much higher success rate.

Host: Wow, that's powerful. I'd not heard that.

Guest: Exactly. And so I think that's the 80% comes from the SBA. And so because they only invest in businesses that have the longevity of revenue to show and the history of revenue to show it it's been successful and it's going to continue its success more likely than not. And so I think it's, I think it's important to keep that in mind. And I think there's some sort of threshold and asymptote around a business reaching critical mass post that startup phase where it starts to have a higher and higher chance of success. And I think it's around that million dollar revenue mark. I think once a business surpasses that, the statistics in favor of that business continuing and growing and not going back to zero are much, much higher than below that threshold. And so once you get to the $250,000 mark in terms of your investment again, you can apply leverage to really invest in something that's higher quality. And that means just more ebitda, more cash flow, higher revenue. And as you decrease your investment, you just introduce there's just more risk of it potentially reverting back to zero. Unless you're that person that is going to step in and make it go to 100.

Host: It's counterintuitive because it's like you think the smaller the investment, the less risky it is. But as you said, the higher the purchase price or the more revenue there is in a business that you're acquiring, the more expensive the business is. Often very crude rule of thumb here, but often the higher quality actually the business is. I remember one of my guests from a few weeks ago who acquired a translation agency and then has subsequently done another 10 or 11 acquisitions. His first acquisition, he bought a million dollar translation agency and he didn't have a lot of money. He actually had about €50,000 in his bank accounts in Germany. And he was really intimidated by buying a million dollar business like a million dollars. And I understand that. I'm not trying to downplay that I haven't acquired a business of a million dollars. But one of his pieces of advice to people was really try to push through that. Don't be reckless. We're not saying go out here and take a loan for a million dollars or buy a million dollar business that you can't handle. But these numbers are going to be big for most normal people. And he just recognized that that kind of fear factor slowed him down a little bit. And once he got comfortable and acquired this high quality business that had been around for decades now, he just accelerated through multiple acquisitions subsequently because he became comfortable, he knew what quality was and he was will for it and take a loan for it. So it's just an interesting psychological development that one needs to go through.

[40:11] Guest: Yeah, yeah, I would totally agree. Cool.

Host: Now you're somebody who has $250,000 in the bank, which probably the advice is similar to the $50,000 person. Or would you say maybe don't get the investors. Just go with that amount of money in your own pocket, you can finance a business yourself. And it's just you and the sba.

Guest: Yeah, I mean that's. And now that's certainly more of a reality than it was when, when I was, you know, searching for our first one. Now you can in some cases legitimately apply, you know, a 10x lever to that and buy 250, you know, pay 250 million to 2.5 million. Excuse me, for a business, and put down 250,000. I've seen offering memos come out where they're saying it's SBA pre qualified and the down payment is 10%. And those are ecom businesses that have been around a long time. And SBA now with the handcuffs off from a governance perspective, are saying they're more. And the SBA preferred lenders being more open for an appetite of risk in those transactions, in digital transactions, they're willing to lend more.

Host: And so this is. Prices are going to. I mean, we're all talking about how prices have already been going up. And so as lending becomes looser, that that phenomenon will just only accelerate in e commerce and SaaS and digital businesses. Yeah, Kasey, What. What when you were getting started on your path or now or whatever, like what, what resources, two or three resources would you recommend to a beginner who wants to buy a digital business? Can be anything, but it's something to learn with. What would you recommend?

Guest: Yeah, I'm a big reader, so I love just finding high quality evergreen books that have always been around, around entrepreneurship and acquisition. And so the two I'd recommend there would be Walker Deibel's Buy Then Build. I read that and finished it. And then we found Bruce Dwyer and it turns out he was actually the broker on the deal. And so I got to know Walker very well and he and I are friends now. Great guy. And then the other one I would recommend is Entrepreneurial Finance by Steven Rogers. This was actually a required reading. It, it's a textbook for the ETA class at Northwestern. Steven Rogers used to teach that class. I think he moved to Harvard. But anyway, it's a great book on just foundational finance for acquiring and running a small business. And so that's a great resource.

[42:47] Host: Is that like a traditional textbook? Because Buy Then Build, Walker Dibel's book is like a book book that they use as a textbook, but it's Entrepreneurial Finance like a traditional textbook with like a hardcover and I'm not going to find it. It's going to be a little harder to find or more expensive.

Guest: Yeah, definitely. And you'll find it on like Chegg or, you know, one of the.

Host: Right.

Guest: One of those sites there. But yeah, it's. It's out there. And yeah, it is a little more expensive, but it is honestly an amazing resource.

Host: Okay, cool.

Guest: Which I really love. And I, I have it bookmarked and I have it on my desk open all the time, so that's great. But other than that, I, you know, I think, I think your podcast, I think just listening to podcasts and listening to other stories I think is great. I'm a big believer in reaching out and talking to people who've done it and learning from their experience. And you guys do a great podcast. Quiet Light, I think, does a great podcast around bringing in all of the different service providers around a digital acquisition transaction. So you get to understand during the search phase what that's like during the transaction, what that's like, legal, financial, all of that. And then kind of post, what are some activities to grow a business? I think they do a good job of putting that info out there.

Host: Okay.

Guest: And then, yeah, anything. And all things just related to microprivate equity and searchfunder.com I think has been a great community for me, just connecting with people like yourself.

Host: That's how we met searchfunder.com for sure. Hey, Kasey. So I'm curious, you took that ETA class at Northwestern, so that has a particular, I'm sure that has a particular flavor. As you said, a lot of those businesses that were featured were sweaty businesses, offline businesses, services businesses. So I'm curious though, like, now that you've become an acquisition entrepreneur in the digital space, do you think that a lot, any. A lot or anything from what you learned in that class is applicable to the digital world, or is it too. Are all the principles the same or is it in fact quite different?

Guest: No, I think all the principles are the same. The multiples are different because the scale of a digital business is different from the scale of, you know, a physical business with a physical location in a geo. Outside of that, the unit economics between the two are the same. And the financial principles you have to apply and rigor you have to apply to both, either is exactly the same foundationally. I think they're identical. And you need. Those principles will certainly help you in the digital world because at the end of the day, you're just running a business that you're selling product to or services to or something to a consumer. And you just, you know, you have to, you have to be a good, a good business operator, like as if you were running, you know, the corner store down the block from where you live. Same thing.

[45:35] Host: Cool. Well, let's leave it there. Casey, this was a great conversation. Thanks for sharing.

Guest: Yeah.

Host: Thanks for having me.

Guest: Well, I really appreciate it.

Host: Let's circle back around and I'm really eager to, to discover what you do with these 12 million eyeballs who are, who are looking up math problems on, on a 24 year old site. That's going to be fun to watch.

Guest: Yeah, it's exciting to dig into.

Host: Cool. Good deal, man. Thank you. Bye. Bye.

Guest: All right. See.