pencer Scott wasn’t actively looking to buy a business.
But when he heard about cobrowsing software Median, he couldn’t pass up the opportunity. He believed he was looking at a technology that every business will be using in the next five years.
Spencer was working a 50/50 time split, consulting as a director of sales for a managed service provider (MSP) and also growing a small software company he founded. One day while scrolling through Indie Hackers, he came across a post by someone who had sold their business on MicroAcquire.
He started looking around the marketplace, and a company listed as a call center platform popped up.
"I ran the numbers like a real estate deal... OK, the numbers work out. How do I buy this company? So I googled, How to buy a company
The software company that Spencer owns does customer relationship management (CRM) integration for Voice over Internet Protocol (VoIP) providers, so he thought it might be something he could add to his product. He requested more information, and that was when he connected directly with the founders of Median.
He loved the product and sent a letter of intent (LOI), which he compiled based on basic Google research. After some heartbreak and roadblocks (which could have been avoided with a stronger LOI), Spencer acquired the company for $280,000, with a mix of his own money and a private loan.
In this episode, he explains why he was so interested in Median even though he wasn’t looking to acquire a business, and how he was able to line up funding like a real estate deal. He also shares his plans for growing Median.
👍 Episode highlights with timestamps
Acquisition Entrepreneur: Spencer Scott
💵 What he acquired: Spencer worked his way up from Target employee to director of sales at an MSP company. While perusing MicroAcquire, Spencer found out about cobrowse screenshare software Median. He believed in the technology, and ultimately acquired Median in December 2020 for $280,000, with cash and backing from a private lender.
💡 Key quote: “I looked at it and was like, This is amazing: Now what do we do here? How is it not bigger? Why is it not bigger? Those were the questions I was trying to answer, as well as, How do I win this race? There's gonna be a race over the next five years for market share in this.”
Acquisition Tips From the Episode
Top takeaways from this conversation
🏡 If you can convince someone to back you on a real estate deal, you can convince them to back you on other types of acquisitions.
When Spencer submitted his offer to buy Median, he didn’t have the financing lined up. But he believed in the product so much he knew he’d be able to get it. After being turned away from some big banks, he decided to treat it like a real estate deal, which he had experience with.
Spencer took the idea to some people he’d previously done real estate deals with for similar numbers, and pitched it like a property investment. One of the first people he called immediately jumped on board, and offered him a high-interest loan.
⛏️ The deeper you dig, the more secure you can feel in your acquisition decision.
When Median was posted on MicroAcquire, there wasn’t much information. Spencer had the subscription numbers and expenses, but no revenue numbers. But he saw it was cash flow positive.
At the time, Median’s asking price was 4X revenue, which was $280,000. During the due diligence period, Spencer saw the business had had some big customers. The company also generated $1.5 million in revenue in the 12 months prior to listing the business for sale, but a lot of that was from a one-time purchase (not recurring revenue).
Since it was for a lump sum payment, it didn’t boost the value of the company. But it was validating to see that publicly-traded companies had spent a significant amount on the product.
🖥️ When it comes to LOIs, Google can only get you so far.
Spencer believed in Median as a product, and couldn’t understand why the deal wasn’t bigger. When his LOI was accepted, he was over the moon. Especially since he’d based it on a template he found on Google. But when he got the call that the sellers were going a different way, he was confused.
It turned out that the LOI template he’d used had no noncompete clause, and some bigger companies were offering two times what Spencer was. The sellers changed course away from Spencer and pursued those offers instead.
After a few months, the sellers ended up getting frustrated with the bigger companies’ drawn-out due diligence process, and brought the offer back to Spencer. It all turned out well in the end, but Spencer advises learning from his mistake: bring in a professional or use a vetted LOI template (MicroAcquire has one) when you’re out of your depth.
Inflection points from the show
[2:28] From Target manager to SaaS entrepreneur: Spencer started out as a Target manager, which he loved, but he didn’t like working weekends. He found success selling software, and eventually started his own software company. That led to working as a director of sales for an MSP, while also growing his company.
[4:35] Finding the deal on MicroAcquire: While browsing Indie Hackers, Spencer came across a post by someone who had sold their business on MicroAcquire. He was checking out the site when a posting caught his eye.
[10:56] The power of cobrowsing: Spencer describes Median as “a combination of Zoom, Hotjar and Google Analytics” that shows you how users interact with your website.
[13:56] Figuring out the business model: Median’s founders had been doing partnership deals, offering the software to companies that could use it with existing customers, which meant Median didn’t have to acquire new customers itself. Since the founders hadn’t focused on marketing, no one knew it existed. Spencer wanted to take the company directly to the consumer.
[17:59] Groundbreaking technology: Originally, Spencer couldn’t figure out why he wasn’t looking at a $10- or $20-million business. He believes this will be standard technology in the next five years, and it will be a race for market share.
[20:40] Acquisition bumps: Having no idea how to acquire a business, Spencer did what anybody would do: he Googled How to write an LOI. He wrote one, it was accepted, and he was fired up. But his LOI was missing a few key elements that didn’t prevent the sellers from pursuing other offers -- which they did.
[24:12] A second chance: Months after losing the deal, the sellers reconnected with Spencer and asked if he was still interested. Spencer said he could close in 30 days at their asking price. The deal was done.
[25:28] Acquiring Median: Spencer bought Median for $280,000, paying 75% upfront and 25% after the transition period of three months. He put up some of his own money, and got the rest through a private loan. There was also a six-month retaining contract with the sellers in the event of problems, or if Spencer needed help with onboarding.
[30:05] Growing pains and development hell: Going all-in on the company and immediately investing in new features has been more challenging than Spencer thought it would be. There have been infrastructure issues, and Spencer has had to spend an additional $25,000 of his own money developing a product to take Median to the next level.
[31:32] Aspirations for a game-changing product: Spencer talks about how he intends to grow the company, and the new product he’s excited about. Spencer believes it will change the way sales and support are done online.
Links & Mentions