E145: Dirk Sahlmer Discusses SaaS Group's Acquisition Strategy And Growth Plans

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit podcast. Today I'm here with Dirk Sahlmer. He is the head of origination for SaaS group, and I'm looking forward to learning from you today, Dirk. And let's just, let's just get started, man. 

[00:00:13] Dirk Sahlmer: Yeah, sounds good. So thanks a lot for inviting me. There are lots of familiar faces. So really looking forward to this session today. 

[00:00:20] Ronald Skelton: That's cool. for everybody that don't know, we've tried this a couple of times. The last few times we had some technical difficulties. So I'm kind of, excited to have this cause we've, I think we've had two other shots at this and one of us or the other one we're having difficulties.

[00:00:32] So today's a good day. Let's just jump right in and do the same thing we started everybody asks, kind of the origin story. I noticed you have an interesting background as kind of a mechanical engineer. Now you're in SaaS. How did you end up from, that world into this world?

[00:00:45] Dirk Sahlmer: Yeah, I would say to, to keep it short. It was a chain of lucky coincidences. I was always passionate about cars and I wanted to work in the automotive industry. I'm coming from the southwest of Germany where there are lots of, automotive companies, automotive manufacturers. And I thought, okay, I want to do my career in the automotive sector.

[00:01:04] I first did an apprenticeship, and then started to study mechanical engineering. During the, or like having all these jobs, I figured out that the corporate environment is not really where I'm feeling comfortable. I think that's what a lot of people say that left the corporate environment in the meantime.

[00:01:22] I started a master study and, during that time I met two student colleagues who were keen to start their own business. And we had a seminar at our university about entrepreneurship and how it is to validate ideas and to get first traction. That's how I came into that whole entrepreneurship, SaaS space.

[00:01:41] We went further with that idea. It was, in a smart parking space and we want to start up competitions and thought, okay, we are the next unicorn. But, turns out, we didn't get a lot of traction at the end. We had discussions in the team.

[00:01:56] So several reasons why we decided, okay, let's just close it down, move on, do something else. And that was, basically just scrolling up and down on LinkedIn, looking for the next opportunity. At the same time, I wanted to move to Cologne because my partner lives here. Then I came across, a LinkedIn post from the SaaS group founder, and he was looking for an analyst back then.

[00:02:17] And it sounded interesting, because he's a proven entrepreneur and investor. Well known in, in Germany and Europe. And yeah, I wrote him a message and that's how I actually landed here. 

[00:02:29] Ronald Skelton: He originally had SEDO, right? S E D O, dot com.

[00:02:32] Dirk Sahlmer: Yes, correct. So he had that, he founded that domain marking, marketplace.

[00:02:35] Ronald Skelton: I used to be a domainer, so I'm very familiar with that particular one. Okay. Yeah. Yeah. There was a time in my life where I had a personal concierge at,GoDaddy, if that tells you anything. Like I could call him 24 7 and wake him up in the middle of the night and he had to do something. But when you're paying, when you have 3, 000 domains and you're paying renewal fees every year, they tend to bend over backwards to keep you.

[00:02:54] I'm down to probably, I think I have about 80 now. But over the years,

[00:02:58] Dirk Sahlmer: I also have a few one that, I always forget about the renewal thing. And sometimes I pay twice and then cancel it because I don't use it anymore. So yeah, it's an interesting space. But most of the founders I talked to, if I mentioned SEDO, they don't even know it because they are way too young.

[00:03:13] And I think Tim, the founder sold the company in 2011 and has been involved in, in other things in the meantime. And so that's how I actually landed here. In the beginning I only worked for his holding company, so he's also doing engine investing on the side.

[00:03:26] And, I was reviewing lots of pitch decks talking to, early stage founders. And, SaaS group was very young at the time. So they only acquired three companies. It was a very small team and, just a few hours a week. He asked me to do deal origination. So reach out to a few founders that, have nice looking SaaS companies that could be a fit.

[00:03:47] And that's how it all started. Then I slowly transitioned over to, to SaaS Group. And now I'm working full time. 

[00:03:53] Ronald Skelton: So I was talking to one of my previous guests here recently. And they play a little bit in this space. They play in the software space, but they only go for family owned, self funded.

[00:04:04] They don't do anything that's got a cap table, basically. Do you guys go buy both, VC funded and privately funded SaaS companies? Or what are you guys specialize? Does that matter to you? 

[00:04:16] Dirk Sahlmer: We became a bit more flexible in the meantime. I would say, when we started, our focus was on like indie hacker type businesses. So self funded, small team, very capital efficient, often started as a side project. Then grown to a decent business, with revenues, one to 3 million.

[00:04:35] And in the meantime, since we've grown, we now own, I think, 16 brands. We became a bit more flexible also due to changing market environments. And now we are also looking at VC funded companies. As you mentioned, companies with a cap table and maybe also companies where you require a bit more complex deal structure.

[00:04:59] We have more stakeholders. So it's not like 100 percent founder owned. Still focus on, on bootstrap self funded indie hacker type businesses, but still open to other cases as well. 

[00:05:11] Ronald Skelton: So how long have you guys been doing this? 

[00:05:13] Dirk Sahlmer: I think the company was set up in 2017, and then they did the first acquisitions, but back then they only did, I think, one acquisition per year.

[00:05:23] So in 2020, when I joined, there were only three companies. And in the last three years, we added 13. Yeah, we increased the pace a bit. 

[00:05:32] Ronald Skelton: Yeah, that's a big jump. Are you still on that pace? You guys still looking actively and making offers?

[00:05:38] Dirk Sahlmer: Yeah, definitely. The plan is to acquire around five companies per year. If it's four, it's also fine. If it's six or seven, even better. I think this year seems to become a good year. So we've already done, I think four or five acquisitions. And still some time, this year to, to do some more.

[00:05:56] But yeah, this is around the number of acquisitions. We can do also from an integration perspective because buying is always easy, right? But, you also have to make sure they are connected to the rest and, get properly integrated. 

[00:06:09] Ronald Skelton: So we'll, we'll talk about integration here in a little bit. Just cause I'm curious to have, cause you're so active in acquisition integration. 

[00:06:15] Is gotta be a, a bear that you have to have already tackled. I'm looking at the, man, you guys got a good variety of stuff here. I'm looking at the different types of companies. A lot of people, they say, yeah, we buy SaaS, but they only buy, CRM type of tools or customer relations.

[00:06:29] They stick in a thing. I see everything from SEO, to got a cool little web scraper here that people can use. Content, SEO, I see CRMs, of course. I actually know your pipeline, Serum. I used it until, until it became feature rich. I used it when it was one of the, in its infancy, when it was simplistic, I really like simplistic CRMs. But, when it became feature rich, I think I faded away. And that's okay. 

[00:06:54] Dirk Sahlmer: I think in the meantime it became more like a salesforce competitor. If you're looking for, easy to use CRMs, for simple use cases, you may look for other solutions. 

[00:07:04] Ronald Skelton: Yeah. I mean, all of them did Zoho, HubSpot. All these guys, they started off fairly simple. And then, over time, people kept asking for features and asking for it. I'm sure I would too, if I really grew, I grew from, just a few people on our team. If I had a hundred employees and we're trying to manage, a $400 million or not even that, a $10 million company, I probably want all the features and stuff.

[00:07:25] Cause somebody needs every feature that those tools have. But, at my level and what I'm doing, I usually have less than 10 employees. They're just, it's overly complex. And somebody always wants to put stuff in areas. I would just say, and I know some of your tools here, but I liked it.

[00:07:40] It's a full variety of stuff. So it's not just, I see SEO, tech. I don't see anything that's like industry specific either. So like there's some CRM tools that only cater to like the, I have a guy, a friend of mine, Travis, he built one that's just for the insurance industry.

[00:07:57] Dirk Sahlmer: Yeah, we are mainly focusing on horizontal businesses. So you may see that on our website. All of the products we have are not active in niche industries. So we're looking for, products with a large potential user base, or target group. And you may also see that most of the companies we own have a low touch sales model.

[00:08:17] So in the beginning, the focus was also on the self service, products where customers can just sign up, provide their credit card information and start using the product. And in the meantime, we also became a bit more flexible in this regard. So as you said, pipeline, CRM is a bit more high touch, and also products like SendLoop or CrossTalent, they're also more active in the enterprise segment. 

[00:08:42] Ronald Skelton: In your search there, you have a search criteria you're looking for. You're looking for software, SaaS companies, software as a service companies that meet a certain criteria. What's the size, like, range you're looking for? 

[00:08:55] Dirk Sahlmer: So the revenue range is, from 1 to 10 million. And, we require profitability, or at least a break even status. So we're not VCs, that are looking to put more money into money or cash burning businesses. And, what else can I say? As I said, horizontal businesses. And, from a team size perspective, we're looking for teams up to 50 full time employees.

[00:09:19] As you said, we have a mix of different, products in different segments. So we're still quite opportunistic. But, over time we will become increasingly, strategic. Not like a strategic acquirer, but our goal is to build internal clusters with synergies. For example, products in the martech sector or, products in the data analytics sector, productivity tools and so on.

[00:09:45] So we can really leverage these synergies that help us grow to the next level. 

[00:09:51] Ronald Skelton: Do you guys do any cross promotions on these? Do you guys have like newsletters and stuff in this space? And, do you promote, like, do you look through your pipeline CRM tool and go, okay, these guys have web properties.

[00:10:02] They probably need SEO. And then, show them an ad for SEO ability. Or, I mean, do you do any cross selling up selling that type of stuff across these platforms yet? 

[00:10:11] Dirk Sahlmer: Not yet, to be honest. We are also not, considering it when we are evaluating businesses, because we see it as an icing on the cake.

[00:10:19] If they're really strong synergies, we can do some cross promotion, but it's not something we're currently doing, or enforcing that may come as we, are starting to build these clusters. But, yeah, I think the founders also have the opinion that it's like, it never turns out to be as good as you model it in an Excel sheet.

[00:10:40] And so, yeah. That may come at a later point, but I think there are better growth levers. 

[00:10:45] Ronald Skelton: I get that. Yeah. I believe a lot of merger and acquisition guys think that that's a, like the magic sauce. I'm going to get all this, I'm going to double the income because everybody at this customer is going to buy this product.

[00:10:57] And like, yeah, it's icing on the cake. I don't think it's the, it's not a second cake, right? It's a lot of people.

[00:11:02] Dirk Sahlmer: It's also interesting, sorry to interrupt you. It's also interesting if you talk to founders, and they say, yeah, we need to, to sell to a strategic acquirer because they have existing sales channels and they can just, sell our product together with their, with their product.

[00:11:18] In most of the cases, it doesn't really work out as expected. And I think that's not a strong argument to sell to a strategic acquirer. There are other advantages, but I think the sales cross promo argument is not really valid. 

[00:11:34] Ronald Skelton: and a lot of that has to do with the fact that those sales guys are trained to sell x and now you've got a Y or a Z coming in that totally, may be a market fit, but the no sales guys, I've worked in a lot of organizations and ran, I was the director of operation for some of them. Sometimes in weird situations, the sales department would fall underneath me. Especially when the CEOs figured out I had an MBA in marketing. 

[00:11:57] Like to get, to cross sell and to get, I don't know, in my mind, sales guys are a weird breed that you give them something to do, they get it done really well. And once they hit a salary cap, but mentally that that's where they're supposed to be. You can almost know exactly where a sales guy is going to get.

[00:12:10] In most cases, if you ask him what he's done in his last three sales job, 150 K every year. It's like, cool. You're going to sell your butt off until you hit 150 K and then you're going to taper off and you'll never do 200 cause you're comfortable there. And it happens that, I mean, was sure to bring in so many in to break that psychological barrier.

[00:12:26] I get it when somebody says, yeah, I want to sell strategically to these guys because it'll sell my product. Not unless they bring in more sales guys, because their sales guys have hit their comfort zone. They worked their butt off to get there. And you're just maintaining, maintaining most of the time. And that's just the nature. 

[00:12:40] Dirk Sahlmer: Yeah. I think they, they even struggle to properly integrate these products. Before even starting to cross promote or sell their products together with the acquired one. It may work for some cases. I've never heard of a really successful case where this has happened, but yeah, I don't think that's an argument.

[00:12:59] Ronald Skelton: So you guys must be scattered all over the place to all over the world. You guys all virtual right now? Like everybody can work from wherever?

[00:13:05] Dirk Sahlmer: Yeah. Most of the people are still in Europe, but we also acquired some U. S. companies, some Canadian companies. So we are spread across the globe.

[00:13:13] I think someone did a LinkedIn post recently. It should be around about 30 countries. And we crossed the 200 employee mark recently. So now it should be like 220 something. 

[00:13:27] Ronald Skelton: 220 employees across 30 countries. 

[00:13:33] Dirk Sahlmer: Yes.

[00:13:34] Ronald Skelton: Zoom or a similar tool? I think you even have a tool in here. That's kind of like that, right? You got a, is it B fast? Collaborative platform for better medians? 

[00:13:41] Dirk Sahlmer: Yeah, because, it's a French company we acquired this year. We're trying to also, dog feed our own products. We're trying to use, use them internally and then it's of course Slack, Asana, all these asynchronous, communication tools and it works quite well.

[00:13:58] So it, it gives the individual employee more responsibility. And you need to be accountable for certain things. But we also have flexible working hours, all that stuff. And, for example, in Berlin, we have a few people and in, I think in Seattle. And so they are small hubs where they are sitting small teams, working together, but most of the people are like alone.

[00:14:25] Ronald Skelton: So as head of the, I keep on saying organization. As head of Origination, do you go out and source things? Or does your team say, Hey, here's some people that reached out to us and they want to sell. And then you have the first conversation or is it a combo of both? 

[00:14:38] Dirk Sahlmer: It's a combo of both. I tend to say it's comparable to a sales role. A bit like a sales rep. So you're getting inbound leads you have to work on. And on the other hand, you also have to do outbound stuff. So leads are coming through different channels. As you may have seen, I've started doing a lot of stuff on LinkedIn recently.

[00:14:55] Just generates some leads. Then we are sending out a newsletter, which generates leads. And then, I'm also doing a lot of research. For example, if we acquire an SEO company, we may go a bit, a bit deeper into the SEO space and reach out to some companies that tick our boxes. And yeah, it's a mix off different strategies and, and channels. 

[00:15:18] Ronald Skelton: Do you ever have your, SEO guys take a look at your newsletters and all your other stuff and go, Hey, tweak this, twist that, or I mean. 

[00:15:25] Dirk Sahlmer: Not yet. 

[00:15:26] Ronald Skelton: I think it'd be really cool to have an SEO company. Like, there's a few things that I build up my media holding company, I'm building out.

[00:15:32] It's like eventually, I don't like doing accounting. Eventually I'll probably right now I don't, I can still do it myself. At some point I'll outsource it to maybe my sponsor here. My main sponsor is an outsourced, is, Reconciled, which is an outsourced spot,accounting company.

[00:15:46] But at some point, like you might have that in house or just leave it outsourced when I need it. But the other thing was like SEO. There's a few things out there like they would be a good tool box to have in there. Then you got to figure out how to do, you call it, where you're internal invoicing, right? Because you're using their time and you got to pay them something.

[00:16:05] So there's this, the internal invoicing you have to figure out. But now I just seen all different tools you're here. Like if everybody work together, you'd have feedback every time you send out a newsletter from your SEO guys going, Hey. 

[00:16:17] Dirk Sahlmer: Yeah. But while I personally didn't reach out to the SEO people to look at my newsletter, of course we're trying to learn from each other.

[00:16:24] There's a lot of communication happening between the brands. And we're also trying to foster that, because of course that's one of the big advantages of being part of such a group. We have a lot of subject matter experts in the brands, but in addition, we also build up a central team, kind of a SWOT team.

[00:16:42] I think in private equity, you also call it a value creation team, which now consists of more than 40 people. I think marketing and product are the biggest ones. And so our brands can always request support from these internal team. And this can be consulting, but they can also get resources for certain periods.

[00:17:04] And this, this is something where our brands benefit a lot from. 

[00:17:09] Ronald Skelton: It looks like you could, I mean, with that many brands too, you could be sitting at, I don't know, like the CRM. You can be sitting in a pipeline and look at one of these other tools and go, man, if we just added that feature to ours, we'd actually. Now you have a resource to go, Hey, SaaS group, you bought this other thing over here.

[00:17:24] This deploy bot. We really could use that in house. Could you have somebody come and show us how to use this thing? I see the synergies that could naturally occur, if all the people in your portfolio looked at who else is in the portfolio and go, how could I use that to, to make our product better?

[00:17:41] Dirk Sahlmer: Yeah. Yeah, and it's also, our Slack channel is very active. People are asking, Hey, did you ever work with engineering freelancers, any recommendations or, any WordPress hosting provider you're using and can recommend. So a lot of questions are being asked and there's always someone to help. So people are very proactive.

[00:18:01] And that's really nice to see. If I would have a question related to SEO for my newsletter, I could just go to the people and ask and they would get involved and help me. So, yeah. It's really nice and supportive environment. 

[00:18:13] Ronald Skelton: You guys playing anything with all this new stuff in AI? You guys playing anything on the AI space? Or is that, on the radar?

[00:18:20] Dirk Sahlmer: Yes. Not so much in terms of acquisitions, I would say. I would say we tend to wait until the dust has settled, before we consider acquisitions in the space. We have seen a few opportunities and it's interesting how fast they can get traction.

[00:18:37] I think I did a post on LinkedIn recently. A few companies reached 1, 2, 3 million AR in less than six months, which is awesome. Yeah, it's insane. How to value such a business? I don't know. I think it would not fit into our framework. However, as I was talking about our central team, we are trying to, build up a central team related to AI machine learning and all that stuff, to help our brands because they are asking the same questions.

[00:19:03] Do we need it? What kind of features make sense? Because they all want to work with it, of course. But not just for the sake of having an AI feature. So it should make sense. And yeah, that's what we're currently working on. 

[00:19:17] Ronald Skelton: I think the big ones would be things like the CRM tool, right?

[00:19:21] There's just so much that the AI could do. Especially the, your bigger customers that have a vast database of customers and history in there. It's unbelievable what could happen to the possibilities that could happen inside of that, right?

[00:19:34] Dirk Sahlmer: I mean, it could even help me in deal sourcing. I tried to do a few experiments with AI, just very simple ones. For example, we are mainly looking for low touch businesses. And, if you analyze website content, you can just ask question. Is this a self service SaaS or is this an enterprise SaaS and gives you, in most cases, the right answers.

[00:19:54] It may also remove some manual research tasks for me. And all of the brands could benefit. For example, a lot of engineers are already using copilot, from GitHub to increase their productivity there. So it's not just adding new features to the existing brands, but also how can you automate processes and make the brands more or the teams more efficient.

[00:20:17] Ronald Skelton: It helps a lot that a lot of these tools actually have, maybe you just copy and paste code in there and go, that's throwing an error. And paste it in there and go, help me figure this out and it just fixes it. Like, I was a software test engineer for Lockheed Martin for awhile and debugging software would take us days sometimes.

[00:20:32] And, I was messing with a piece of, and I don't code anymore, I really don't. But I was messing with something the other day and it just failed. I just copied and pasted the source in the, in one of the tools. And it's like, It changed three lines in there. This is somebody else's software, but basically it's open source.

[00:20:47] It changed three lines in there and my error went away. Now it might've been a use case, like I was using it in a weird way. So they didn't even see them. But like, what do they call that a race condition. I was using it in a way it wasn't intended on being used. So I caused a problem they don't ever see.

[00:21:00] ChatGPT, and their code thing that that little plug in this for the code, it fixed it in less than 10 seconds. 

[00:21:06] Dirk Sahlmer: Yeah. It basically replaced stack overflow. Also for me, I know some basic Python coding, but not more. And even allows me to, to write small programs or, automate some stuff.

[00:21:19] Yeah. Just by, asking ChatGPT and if it generates any issues, I just copy paste the error message and then it gives me like a, a solution to the, to the error.

[00:21:33] Ronald Skelton: I actually typed in the other day, cause I haven't written anything in Python ever. And I was like, teach me Python, is all I said. And it's like, I had to face my next one was slow, slow down.

[00:21:41] Cause it just chunked out the huge amount of stuff for me to like, okay, here you go. And it just like, it used the whole buffer space. And, but I thought, for some reason in my head, I was like, okay, Python is probably like any other scripting language. Is probably, no harder than JavaScript or something.

[00:21:56] And it started dumping off stuff and I was like, okay, this is way above that. It's more of a, a C like language that it is. I don't know why in my head, it was more like, PHP or something. Oh, it's a replacement to PHP, I'll be able to figure out in just a few minutes. Cause I used to write all kinds of stuff in PHP. But, yeah. I was like, okay, I'll continue to pay for programmers cause I ain't doing this. 

[00:22:14] I learned enough within about 10 seconds. I realized that it's cheaper for me and for my time, just to reach out and have somebody else do it. But it's still fun to debug things. When you're messing with something and you're just like, Why is it throwing that error? And my guys are over in the Philippines and stuff. So a lot of times I'm off cycle from them as far as time wise.

[00:22:32] So if I want something, somebody to look at something, I put it in Asana and put it in as a task, but then I have to wait for them to come on shift to fix it. 

[00:22:42] Dirk Sahlmer: Yeah, for me, I mean, I could always ask someone from the central team or, from the brands to help me out. But we also acquired a scraping company, scrape API, I think about two years ago. And I use that a lot to scrape listings of software companies, like G2, Capterra, and so on. And, sometimes I'm running into issues.

[00:23:02] And back then I always had to ask the brand manager of scrape API to help me out. And now it's just, okay, ChatGPT, can you help me? There are some issues and then I get a solution without bothering someone. 

[00:23:15] Ronald Skelton: Will it go one or two pages deep? Like I, right now I want to crawl through, I'll just give you an example.

[00:23:20] I want to crawl through the, one of the big databases out there for brokerages, business brokers. if you click on the stay and then they have a list of everybody, but you click on them, you can actually get their contact information, but you got to go down two pages down. 

[00:23:33] So on every single listing, I got to go two pages down. So I've been playing with, phantom and a few other tools out there trying to just like, just give me a spreadsheet of this stuff. I want to be able to, to create a database of brokers around. And then I want to watch what listing, there's a tool I was trying to play with. Is basically you create a database of listings around and then watch where they pop up. How many times that they pop up in certain areas.

[00:23:53] Dirk Sahlmer: Sometimes I also tend to work together with freelancers if I can't figure it out myself. Instead of letting someone from the central team, spend his, her time on it, I just ask them freelancers to spend an hour and fix it.

[00:24:07] Ronald Skelton: That makes a lot of sense because a lot of times the guys on your central team, they've got projects they're supposed to be working on. And what you're doing is there's an opportunity cost for what you're doing, right?

[00:24:14] You're giving up time from some other project that they're, tasked to do. So now they have to either prioritize or reprioritize something that they may have been scheduled to do. So that's cool. So, tell me the different ways, like, are you cold outreaching?

[00:24:28] Is that like, you're using your tools to scrape and stuff? Like, here's a list of SaaS software. I'm just gonna cold outreach to them and say, Hey, are you guys interested in looking for an exit or?

[00:24:36] Dirk Sahlmer: Yeah, it's basically, scraping large, large amounts of SaaS companies and then going through them.

[00:24:43] So we have a few enrichment strategies and then we can filter out the ones that tick our main boxes, I would say. We are not looking for companies that are heavily VC funded. Say 20 million raised or something. So they will be removed. Then we are not looking for companies that recently raised funding, so they would get removed.

[00:25:04] And then also in terms of team size and stuff. What would be left over, I, or a freelancer go through it and, add ones to, to email campaigns that are a fit or potential fit.

[00:25:15] Ronald Skelton: So in Europe, you guys have companies houses. Does that data show up in there? Are you guys using like what we have to use when you pay for Crunchbase and those type of databases that track all the investments and stuff? 

[00:25:26] Dirk Sahlmer: I think we are not subscribed to any of the real expensive ones. So we're trying to get as much information as possible for free or for cheap. So we, of course we have a Crunchbase subscription and a few other ones. But yeah, I think we haven't touched PitchBook.

[00:25:41] Ronald Skelton: I was going to say PitchBook's up there in the prices, right? I was wondering if PitchBook was on your radar. They're pretty proud of PitchBook.

[00:25:48] Dirk Sahlmer: Yeah. And I think also ZoomInfo and stuff. When it comes to five, six figure, subscriptions, we haven't touched them yet because our deal flow is good. We don't have any problems to see the right targets. So we're not willing to pay for it yet. That may change, but, I think based on the data we already get right now, we have a good hit rate. So it's fine for now.

[00:26:13] Ronald Skelton: Do you guys do a lot of LinkedIn outreach? 

[00:26:15] Dirk Sahlmer: Well, I personally used to do a lot of LinkedIn outreach. But for whatever reason, I got blocked a few times recently. And now I stopped using third party tools, at least for now, to see if this was the reason. But usually it's a combination of LinkedIn outreach, email, then sometimes also Twitter.

[00:26:36] So we're using, we're trying to, catch people on different platforms and to have multiple touch points. And this combined with personal meetings, sometimes, short zoom calls. Yeah, leads to the expected outcome. 

[00:26:51] Ronald Skelton: That's cool. I was just curious cause I had for some industries it's really well. In some industries, not so much. If you're looking to buy marketing agencies and you're not farming LinkedIn, you're making a mistake cause they're on there.

[00:27:01] They're active and you can reach them. Software as a service companies, B2B ones, definitely. I think they're probably on there cause that's where they're farming for their customers and they're active. B2C, maybe not so much, maybe a little less active on LinkedIn, if they're doing, consumer or direct to consumer type of tools.

[00:27:20] Dirk Sahlmer: But, to be honest, my personal opinion is that the real jams are not on LinkedIn.

[00:27:26] I think once a company is on LinkedIn, they've been approached by multiple acquirers in the past. Everyone knows about them, some tools or some data platforms, maybe tracking them already. And so I think from my experience, the best companies I've seen are not on LinkedIn at all. They are not really active.

[00:27:47] The founders are flying under the radar. So look at pre render, a company we acquired, just a few weeks after I started my job. The website was not very good. The founder was not active on LinkedIn. I think he had a profile, but still pulling north of 2 million AR. Highly profitable business, one man show.

[00:28:10] So these are like the real gems I wanted to find rather than the ones everyone is looking at.

[00:28:16] Ronald Skelton: I think if I was in your shoes, I'd make friends with the owners of AppSumo. Like who's been around, and just really good friends with them. I'd be on zoom calls with them anytime they let me. And the reason I would do that on AppZumo is because, like you can say, Hey, who's growing, who's not. Like not their current deals.

[00:28:34] A lot of times those are really new. That might've been where I, when I seen your price line. I picked it up from something similar where he had a one time, like in the very beginning of the stages, you had to like, Hey, you pay one time fee, you get access. But, I don't know if he still does it or not. But that's how I found it.

[00:28:47] But, AppSumo and those type of places would be a great resource because you could go back to them later and go, who was on here last year that's just killing it still, right? who was on here six months ago, who has really got traction and now they need a little help? Cause a lot of times these are early stage type of things for, in my opinion, I think.

[00:29:03] Dirk Sahlmer: Sometimes it's not ideal because, depending on how good their AppSumo campaign is or was. They may have a lot of legacy customers that paid for a lifetime license and as an acquirer, you have to pay for them as well.

[00:29:17] It's not the ideal target, but, I agree to you that it could be a great resource for.

[00:29:21] Ronald Skelton: Don't you adjust your acquisition price for that? Like, you're based on off of monthly recurring revenue and that's not recurring anymore, aren't you? I mean that caught me off guard when you said that you're paying for those customers as well. You are to some extent but is it the same level as the MRR?

[00:29:37] Dirk Sahlmer: Yeah, so you would discount for lifetime licenses. You would also discount for service revenue and auto revenue that is non recurring. Or not related to product revenue. 

[00:29:48] Ronald Skelton: I asked because this market changes so fast. We were talking before the show that two years ago, this were a year and a half ago, this was a seller's market, right?

[00:29:56] People are expected. We were looking at someone in the marketing space when we're doing marketing rollup, we were looking at some marketing CRMs. And these guys are like, yeah, I've been offered 30 X. So like, you're what? 30X my revenue, I was like, no, you haven't. We started doing the research and it's not unheard of.

[00:30:09] It was crazy. It was insane. We just kind of like, okay, we're just marked that off the list. We're not even interested in software as a service marketing agencies. But now I think it's shifted. And like you were saying earlier, the vcs are calling you and, do you get many divestitures or like a big company bought a smaller company and they get this side project over there, that might fit you guys?

[00:30:28] Because that's another, like google buys things all the time. Google is probably a bad example, but these bigger companies buy smaller companies all the time. And a lot of times there's a side project going on, a CRM tool that maybe they're making a million dollars a year, but it's a distraction to the big guy, the strategic buyer.

[00:30:42] Dirk Sahlmer: Yeah. What I think about half a year ago or so. We thought about reaching out to strategic acquirers and ask if they have any opportunities they are looking to or any assets they are looking to sell, because they didn't manage to properly integrate them or they want to get rid of it because there was a change in, in strategy or something.

[00:31:03] However, I think a lot of these don't want to confess that they did a mistake, and bought the wrong assets. So this didn't lead to a very high conversion rate or any promising conversations. We focused on other strategies in the meantime, but I agree. We've also seen a couple of opportunities where the strategic acquirer wasn't really happy with the acquisition and wanted to get rid of it.

[00:31:27] Usually you can have these assets for a reasonable price. Because for them it's more important to get rid of it rather than negotiating the best possible outcome. But yeah, it doesn't happen that often. 

[00:31:42] Ronald Skelton: Yeah, I've interviewed a couple of people that that's what they specialize in. I was looking through my database here trying to figure out.

[00:31:47] I remember the name of the guy, there he is, I think it's him. Gary Gustavo, basically owns realdefense. se. This guy's buying 25, $50 million cyber security companies and it's all divestitures. In the interview with him, I really dug in because I was like, well, how are you doing this?

[00:32:03] He has relationships with all these big guys. He knows who buys these companies. That's why I was asking if you're getting any traction with that because that's, from everybody I've interviewed because I was interested in it a little bit. Everybody i've interviewed so far that is definitely a relationships game. You got to know who's buying things in your realm or buying companies that might have a side project in your realm and then reach out to the product.

[00:32:27] It's not the CEO. Either CEO don't know anything, the big companies they buy, they don't know anything about that little $5 million project. It's a side project. It's the product managers. So you, you've got to reach out to these big companies product managers and say, do you have any products you guys are going to end a life because it doesn't fit with you guys?

[00:32:43] Cause they'll end the life of $5 million revenue company in a heartbeat. For him, he's talking to billion dollar companies. They're in the life in $25 million software security projects. Just because they don't fit and he's, he's picking them up and, he's acquired quite a few of them. It's out there. 

[00:32:58] Dirk Sahlmer: I mean, maybe also something that could be a disadvantage for us is, and we haven't touched this yet, is that we want to have short and lean processes. Usually a process with us takes six to eight weeks from signing an NDA to closing the deal. And with strategic acquisitions, and you're talking about divestitures, It's always a hassle, or from my experience, very often it's a hassle because, sometimes they took the team out and move them to other departments and all that stuff.

[00:33:28] Ronald Skelton: I think it's an acquired skill. You're right. After thinking about the interview with him, it's definitely acquired skill because you may not get the team and you may not get a lot of cross dependencies inside of the tool. Like you get the tool, you get your customer base, but that tool might be dependent upon something.

[00:33:44] They've already took the accounting out of it because they've already integrated accounting. Now you got to plug their, your accounting into something that was re-engineered to plug into theirs. Like I, I was talking to him and he's like, we got really good at it.

[00:33:56] It's one of the things he was really good at, but I think it's an acquired skill. So I can see why you're not playing in that realm yet. It was just my curiosity of like, if you're originating the deals, what is the process, right? If somebody wanted to buy one or two SaaS companies right now, they're getting started.

[00:34:13] Where would you tell somebody to go get, get focused on as far as finding the right deal? Like through brokers or you'd say? 

[00:34:19] Dirk Sahlmer: You mean like someone who is, for example, raising a search fund and?

[00:34:23] Ronald Skelton: Yeah, there's search fund and they're not doing what you guys do.

[00:34:26] They don't have 16 brands under title and they're not looking for five a year. They're looking for their first one. They're looking for one that becomes their job. Like I know at least three people right now that hang out in my networking meetings twice a month.

[00:34:37] We're having one tomorrow. One of the guys will be there tomorrow. He's looking for a 500k software as a service company as his first acquisition. He's got a software background. He's ran some teams before and that's what he's wanting to acquire. But where do they start looking? 

[00:34:50] Dirk Sahlmer: It's an interesting question and I recently tried to answer it in some of my newsletters.

[00:34:55] I was writing about search funds in SaaS because SaaS is a highly competitive market, right? And I think, most searchers are, relying on a broker network or looking at M& A marketplaces like Acquire. com, Flippa, and so on. Where sellers are getting lots of inbound requests or having lots of conversations.

[00:35:17] And especially for a searcher, you have to be quite disciplined when it comes to evaluating a target and putting an offer and so on. I think you should try to build up a proper origination machine to build direct relationships with founders. And we also prefer direct deals with founders, because with broker processes, you're always in a competitive process.

[00:35:42] And brokers are trying to get the max out of a potential buyer. So this is not ideal on marketplaces. Also, lots of buyers are looking for these opportunities. And so I think you can really benefit from reaching out to founders that may not have talked to many buyers yet. But it's also a matter of timing.

[00:36:02] That's also, from my experience you can send follow ups every three months and you're doing this for two years and they say, no, an exit is far off. An exit is far off. And the week after someone else signs a deal with them. You really have to find an automatic approach, but still kind of personalized, to catch the founder directly at the right time.

[00:36:27] Ronald Skelton: Yeah. It's like, I think it was a real estate space, when I used to be in real estate, used to say everything changes with time and circumstances, right? They can tell you no today. And then tomorrow, like I just don't want this thing. And, I haven't been in real estate in what, three or four years now. About six months ago, I actually got a call on one of my lines.

[00:36:45] He goes, Hey, are you still buying houses? I got this postcard from you. And it was like, I haven't sent a postcard in four years. That guy put that on his refrigerator knowing that he was going to move at some point. He goes, yeah, I kept your postcard cause when I knew when this job ended, I wanted to move back to where my family's from, blah, blah, blah.

[00:37:01] And it's like, I'm ready to sell this house. My job ended last month and I'd already moved away. So I gave it to a friend that was there. It wasn't a great deal, but it would be a good rental. If it was a great deal I would have figured it out. But, it was a decent rental. So I forwarded it to somebody I knew that was collecting rentals. 

[00:37:15] But, that happens, right? If you stay in contact with these business owners or, say, Hey, I'm still here. If you're interested, if you can get them on your newsletter, then you build rapport with them. Same way if I think you guys have a podcast too, right?

[00:37:27] If you get somebody listening to you on a regular basis, I have people that reach out to me and they we're chatting and they're like, I feel like I've known you for years. I was like, I just met you. And they're like, well, I've listened to 171 guys. Like he's told me, he listened to every episode and I'm like, I've got 170 hours worth of content out there.

[00:37:45] It's 160, hours of content. Like you, you listen to everything. He goes, yeah. I'm in college and I listened to everything you got. And I was like, okay. That's good. It's like, well, I feel like I know you. I feel like we're brothers and I'm like, okay, well, who are you? Cause I want to get to know you.

[00:38:00] I mean, you know me this well, I really want to get. So I spent some time inviting him to meetings and stuff, but, there's stuff to be said for that. 

[00:38:06] Dirk Sahlmer: It's also a relationship game actually. You need to stay on top of founders minds. So if they are thinking about an exit, you're like on top of the list and they reach out to you. And that doesn't happen if you just sent them an email once saying, Hey, we acquire SaaS companies.

[00:38:23] So you have to follow up. You have to meet them. But not in a bad way. So we're not pushy. So I like my job, otherwise I wouldn't do it. So I really enjoy these conversations and building up relationships because, I always learn something from the founders I talk to. It's also interesting for me.

[00:38:41] And, yeah. That's how you convert conversations into deals in the end.

[00:38:46] Ronald Skelton: You guys are building something where you could have a strategic advantage in the marketplace. If you took SaaS group and actually kind of became a leader and helping all these small SaaS companies. Like think of all their major challenges along the growth of, from Product integration to product, not reintegration, but sorry, product introduction to the market.

[00:39:05] Product market fit, all the different things, scaling. If your newsletter and the stuff, the content you put out actually helped them challenge, hit those challenges along the path and constantly reminded them if it ever gets too much, we'll buy it. Or if you're ever ready to do something else, we'll buy it.

[00:39:19] There's a huge strategic advantage in the fact that you have all these different companies. You can learn this industry from multiple angles now. And if you can just figure, figure out a way to tap all the collective intelligence you have across these different brands and stuff.

[00:39:33] Dirk Sahlmer: Yeah. And I think if you look at, websites of a lot of acquirers, it says, yeah, we create value and we bring your company to the next level. But I think, in not a lot of cases, there's a really like a proof or a testimonials or something else where people can just read about, successful cases.

[00:39:53] And what happens in this like black box post acquisition. And so instead of just focusing on the companies we acquired and providing value to them, we are also trying to let people look behind the curtain. So what happens, how do we improve businesses? How do we try to optimize businesses? How we are supporting them?

[00:40:13] And with like the podcast we're doing, with the newsletter, with the content we're producing, we're also trying to show that we are, we know what we're doing. It's not just some ex McKinsey guys that thought, Hey, let's just acquire businesses. so it's very hands on. It's very entrepreneurial.

[00:40:31] And yeah, that's what we're trying to show to others as well.

[00:40:35] Ronald Skelton: I think if I was sitting in your shoes, one of the things I would do is you have, multiple brands, more than a dozen brands, right? You got more than 200 employees out there. Many of them been through all the trials and tribulations that SaaS companies are going through that you'll eventually acquire. Like the companies you'll eventually acquire are going through stuff that your team has already been through.

[00:40:55] I would list 15, 20 topics and do what I call a call for information and send it out there and say, Hey, if you've been through this, give me some input. Write a paragraph or two and send it over to me. Give me your input on this. And then you can collect it and go, and just share that stuff for free.

[00:41:09] It's like, look, I know if you're creating something out there and you're a small, sub 1 million MRR SaaS company, you're either going through this or you'll go through this soon. I put this question to our 220 employees, meaning, 16 brands, I forgot what the number of brands, 15, 16 brands.

[00:41:23] And here's how, here's what correlated that everybody said that worked, right? I correlated the best three approaches to this. And, that you would be able to add. You've got a collective knowledge here that most people wouldn't be able to achieve. And the trust you could build in these guys that when they were ready to sell, they definitely want to work with you.

[00:41:42] There's a huge potential in that. 

[00:41:45] Dirk Sahlmer: Yeah. And I think, all of our deals are kind of tailor made. So we're never just using that one playbook and apply it to all companies we acquire. But on the other hand, they are often the similar growth levers, right? So pricing is a big topic. Marketing is a big topic.

[00:42:01] So many brands we've acquired have never done any marketing or maybe just a few bucks into Google ads, which never really worked out. These are always like the main growth levers, but then it's lots of details you have to look into. It's different. What helps one brand doesn't really help the other.

[00:42:19] But the more brands you acquire, the more experience you have, the more proof points. You really see, okay, how do I do a proper price increase, from beginning to end. Which marketing channels are the best for PLG SaaS companies and so on. So, this really helps the more acquisitions we do, the better we become at it.

[00:42:41] Ronald Skelton: I just thought of something. As you're buying these SaaS companies, if you ever come across ones that have side projects of their own? That are like, they're running a side newsletter. That's big newsletter has nothing to do with their SaaS tool. Cause that happens all the time. And the same way, or a big blog, they write a blog on a regular basis.

[00:42:55] That's B2B, but it has nothing to do with their brand. And you guys acquire them. If you want to divest to those reach out to me. 'Cause that's what I'm looking for. I'm looking for B2B, newsletters, blogs, things that are either already monetized, but, or it could be monetized fairly quickly. But I can imagine a lot of these guys, they have that on the side or they've done that for a while or whatever.

[00:43:14] And now you've acquired it. You're like, why do I want to manage a, a 25, 000 subscriber newsletter that has nothing to do with the software they built. It's about business operations or something else. Either you create an arm for that or, and manage those. Or if you don't want them, there's guys like us that want them.

[00:43:31] Dirk Sahlmer: Yeah. I think that's also something founders should consider more. So while we are doing quite large acquisitions, I mean, it's still small to mid cap, but quite small acquisitions, there are even smaller ones. I would also encourage founders to look for, lead generation channels, like the ones you just mentioned.

[00:43:50] So, you can just basically buy a newsletter, which has 25, 000, subscribers and you're starting to promote your product in every second, issue or something. Or yeah, whatever it is, the content website where you're trying to promote your product. So it's not only big PE firms acquiring businesses. You can also, as a small SaaS company, acquire a valuable assets you'll find on M& A marketplaces around the corner. 

[00:44:20] Ronald Skelton: I don't want to call out who's doing this because, it's a hell of a strategy and I don't want to call them out for doing it. But, I know people right now buying newsletters. Listing them, buying a newsletter as a side project, improving upon it.

[00:44:32] They're growing it. But they list themselves as the number one sponsor for six or seven months. And they cipher off anybody that, that would cross sell into their business. They grow it, then they sell the newsletter at a profit because they grew it, did some other stuff to it, they were better at marketing it.

[00:44:47] And then they buy another one and they're the number one sponsor. And they're basically buying these newsletter, 25, 30, 000, 50, 000 member newsletters. Improving upon them getting better writers, doing some stuff that they know to do, right? Using better tools, using better analytics, tracking things a little bit better. They improve upon the newsletter now.

[00:45:05] They can sell it for a profit later on but in the meantime, they had a 50,000 subscriber newsletter. They pulled, 6 000 subscribers to or, subscribers to their main product and then sold it off. And, I know people do and I won't say who it is, but they've never told anybody that they own, the main company they own is the main sponsor. That they're doing this. But it's a strategy that works. 

[00:45:29] Dirk Sahlmer: And for example, I think you also had Michael Fink. He's also from Germany on your podcast and they are just buying up content websites. It's a similar model to the one of, of SaaS group. Just that they are focusing on content websites and can also work. So you can also leverage lots of synergies and yeah. 

[00:45:48] Ronald Skelton: That's why I interviewed him. I'm doing that, he's in the anything like, they have camping sites and all kinds of stuff. I'm primarily B2B. I'm looking at, I've got two in the works right now that we're work, we're doing in negotiations on.

[00:45:59] And they're having to migrate one of them all proprietary software. I don't think he realized that was serious. So now he's like, I got to figure out if I really want to sell this. Cause he, he was one of those conversations. He's like, Oh, by the way, I own this too. I was like, cool.

[00:46:09] Would you like to sell it? And he's jokingly like, I'll sell anything for the right price. And so I scheduled a call with him and started talking about it and now he's like, Oh no. And it's nothing more than, is it a critical part of his business or a distraction to his business, is all it really comes down to the conversation of. But, cause he owns it on the side.

[00:46:25] Yeah, that's what we're looking for is B2B content sites, software review sites, newsletters, blogs that write about, marketing blogs that write around business growth, strategies, that type of stuff. I want to say in the B2B space, just because, at least in the beginning, it's easier to write writers that can write cross platforms. 

[00:46:45] If I don't have a camping website and a hunting website and a fishing website, and then a B2B website. Then I have to get writers that, you can get a writer that can write really good B2B content that writes horrible, hiking content, right? It's a different vibe.

[00:47:00] Dirk Sahlmer: Yeah, I think nowadays you can easily use AI to write content, that is kind of mediocre. And may also rank good in, in Google results, but it's not really valuable to readers. 

[00:47:14] Ronald Skelton: I'll tell you, I actually have one newsletter. That's a hundred percent AI. It's disclosed to. And it was my project to learn AI.

[00:47:23] It's called Love Rest if anybody wants to check it out. But Love Rest is a hundred percent AI. The writer is actually, her name is Ima. I-M-A, Ima. And her last name is Ia. Im an ia. If you read her bio, it'll say in her bio that she's, but it's a spiritual guide. 

[00:47:37] Basic meditation breath work. It covers like sleep, things like, how to get better night's sleep. Gratitude affirmations and stuff. But I thought what would be the most difficult to get people to follow? It's like, would people follow a spiritual meditation guy that was a hundred percent AI.

[00:47:51] And it's actually really good. You can not, it scares me sometimes.

[00:47:55] Dirk Sahlmer: It's interesting. I once had the idea to, to create a second LinkedIn profile with random name, random AI generated picture. And just starting to post every day, but only AI generated content because, we had a lot of discussions internally. How to create unique content, how to stand out and if it makes a difference, whether you write with AI or without. And so I really wanted to do that experiment to see what happens.

[00:48:21] Ronald Skelton: So in Love Rust, I am a VA to the AI. Meaning I'm a virtual assistant to it. All I do is, okay, I'll jump in and go, we need to write today's newsletter. And I've created this bot and trained it so well. It's a bot, inside of, one of the tools, but it'll say, it'll just start spitting one out. And we have a standard format, there's certain things that I program, I started with, but once I got it built my job is to, okay, That's a great newsletter.

[00:48:46] What about, how should we promote it? And it'll tell me, send off these tweets and put this on Instagram. And sometimes it tells me to do things that we can't do yet. Like, we'll create an audio file that does this and stuff. It's like, great. Can you do that? Well, no, you have to like, okay, this, I have to remind it.

[00:49:00] If this is an AI, you have to do a hundred percent of it. I can't do the voiceover for you. But, it's incredible what's out there and what's capable in the space. What are some other sourcing tips you could have for people before we go? 

[00:49:14] Dirk Sahlmer: I think that lots of bigger PE firms are relying on big business development teams.

[00:49:19] And, in my opinion, you have a lot of tools out there you can use to automate lots of these processes when it comes to, simple things like email campaigns, but also, email address lookups. Then also some AI machine learning functionalities. You have data platforms to enrich companies. So I think before you start hiring people and really build up a big team to generate M& A opportunities, I think there's a big opportunity by staying really lean and building a proper origination machine with the software tools that are out there for a quite reasonable price. If you sum up the subscription costs. 

[00:50:02] Ronald Skelton: Yeah, that's cool. How would people reach out to you if they've got something they want to work with you or, or a SaaS that they want to show you. I guess what is your, I don't know if we even covered this today. What is your acquisition target?

[00:50:13] Is it a certain MRR to a certain MRR? Like, a monthly recurring revenue? Like, what's too small and what's too big? Somebody has a SaaS that they might want to exit. 

[00:50:22] Dirk Sahlmer: Yeah. So unless the company is growing significantly, we would focus on targets pulling north of 1 million AR.

[00:50:29] It should be close to profitability or profitable already. Horizontal, preferably product like growth, but we're also open to, to more enterprising products. And as I said, we are still quite opportunistic. Not focusing on certain, segments, certain industries. If people think they have a valuable asset they are looking to sell, they should just reach out.

[00:50:49] And if it's not a fit, I can still tell them once I got their mail. 

[00:50:53] Ronald Skelton: Okay. How do you want them to reach out to you? 

[00:50:56] Dirk Sahlmer: So, I'm a big fan of my email inbox. So they can just reach out via dirk@saas.Group. Alternatively, they can also reach out via LinkedIn. Where I'm pretty active or use our website form. So these are the main channels. 

[00:51:11] Ronald Skelton: And you put out some great content. I see some spreadsheets and stuff go out there. So on LinkedIn and, some things that are challenging. Like, you tracking MRR across in a spreadsheet, right? It's been challenging things that you put out there for people that you make it simpler on them.

[00:51:23] If you're out there, you're building a SaaS or something, definitely follow Dirk on LinkedIn. There's some cool stuff he's putting out. And if you decide you want to sell or something, reach out to him via that or to his email address. I want to thank you for being on the show today.

[00:51:35] I do appreciate you for being here. And I think we can call that a show. Any final comments or anything you want to add? 

[00:51:40] Dirk Sahlmer: Yeah, no, thanks. Thanks again for having me. We finally managed to record a proper session without any connection issues. It was a lot of fun and, if there are any founders out there that listen to the podcast, I'm happy to have a chat.

[00:51:53] So feel free to, to reach out. 

[00:51:55] Ronald Skelton: Awesome. We'll call that a show.