How To Scratch Your Itch

February 27, 2020 |  

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Arvid Kahl and Danielle Simpson were living together in Berlin when Kahl noticed his partner struggling to complete feedback reports about the students to whom she was teaching English as a second language. 

To read a transcript of this episode, click here.

Arvid Kahl and Danielle Simpson were living together in Berlin when Kahl noticed his partner struggling to complete feedback reports about the students to whom she was teaching English as a second language. 

 

Most of Simpson’s report cards were similar, yet she had to waste hours re-typing identical messages about dozens of students every night. Kahl, a software engineer, saw a process ripe for automation and built a little tool that allows a teacher to select from a list of pre-scripted student feedback options and accelerate the process of providing comments about students. 

 

Kahl and Simpson reasoned the tool might help other English teachers and offered it on a subscription basis. 

 

Two years later, the company had crested $50,000 per month in recurring revenue when they decided to accept SureSwift Capital’s offer to buy their business in a life-changing transaction for the couple. 

 

The FeedbackPanda story includes several lessons for aspiring value builders, including:

 

  1. Scratch your itch: the best businesses are ones where the founding team is deeply committed to solving a simple problem in the universe. In Simpson’s case, she spent hours re-typing messages she wanted to automate, which was a frustration so acute that her partner was willing to write a software script to solve. 
  2. Charge upfront: Kahl and Simpson never raised money for their business in part because they charged upfront for a year’s worth of service which gave them the cash to grow (and hang on to their equity)
  3.  Pick a lane: although Kahl’s software could have been re-purposed for teachers of all kinds, the couple stuck with their niche of marketing to English teachers who met online in a handful of high traffic online communities. These tribal gatherings were tight-knit forums which allowed Simpson to post her product solution and reach thousands of teachers instantly. The partners avoided investing in paid advertising because word travelled so quickly in their tiny niche.
  4.  Automate everything possible: Kahl had never hired or managed employees and was terrified at the prospect, which is why the partners avoided hiring a single employee right up until their exit. Instead, they looked to create automated processes and algorithms to deal with recurring tasks. Kahl wrote a software script that generated an email when a customer’s credit card bounced and documented all of their questions in a knowledge center. Whenever they answered a question through support, they took that reply and made it an entry in their knowledge center. 

Learn more about how Kahl and Simpson went from an idea to a life-changing exit in just two years. 

 

During the interview, Kahl admitted the stress of running a company with $50,000 per month in recurring payments was getting to him, and he suffered from debilitating anxiety. Have you considered the emotional toll of running your business? That’s the first of 12 questions you’ll answer when you take your PREScore™, a measure of your readiness to exit your business. Get your PREScore™ here.

Our guest

Arvid Kahl is a software engineer turned entrepreneur from Germany. After having worked for a VC-backed software startup in Silicon Valley, he co-founded several startups and worked as a salaried developer in the IoT space. He has been a consultant for software businesses for over a decade and has been an active member of the Indie Hacker and Maker community for a long time. Danielle Simpson is a trained opera singer from Ontario. She moved to Berlin, Germany, in 2014, and it was there that she began to learn the art of creating your own opportunities. After about six months of performing, she traveled to India, where she studied Yoga and Meditation. Soon after returning, she started her first business, ZenPerform, a mindset coaching program for performers.

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Transcript

John Warrillow:

My next guest Arvid Kahl and Danielle Simpson built a company from scratch up to $50,000 of recurring revenue from home, just the two of them. That’s when they decided that the stress of running the company was not worth it anymore and they decided to sell. And in this episode, you’re going to hear lots of really interesting value building strategies. The first of which is scratching your own itch. The idea of coming up with a product that meets a need that you have is a great way to start a business that you know will at least be appealing to one person and chances are, in this case, you’ll hear lots of others.

John Warrillow:

Charging upfront gives you the cash to build your business without taking on equity and diluting yourself. Automate everything humanly possible. As Arvid talks about in this episode, he went to painstaking detail to automate virtually every element of his business. And what I love about this story is the fact that they picked a lane, they did one thing and avoided the temptation to go much broader with their product offering. Here to tell you all about it, is Danielle Simpson and Arvid Kahl.

John Warrillow:

Arvid and Danielle, welcome to Built to Sell Radio.

Arvid Kahl:

Hey, thanks for joining us.

Danielle Simpson:

Hi, John.

John Warrillow:

Hi. It’s great to have you guys here all the way from Berlin, Germany.

Arvid Kahl:

That’s right.

John Warrillow:

It’s one of the cities that I’ve got on my bucket list but I’ve never been to. I’ve been to Germany but I’ve never been to Berlin. What’s it like?

Danielle Simpson:

You should definitely come to Berlin. There’s a lot of history and a lot of artistic flair that I really appreciate.

Arvid Kahl:

Yeah, definitely. It’s a city of many extremes and every part the city is completely different than the other. And there’s a very interesting tech scene here as well, lots of people. That’s a startups. So sweet and nice.

John Warrillow:

How did you guys start at FeedbackPanda? What was the impetus?

Danielle Simpson:

So, as one does as an artist, you find ways of making money on the side in between gigs? And one of my gigs was teaching English as a second language online. So through teaching English as a second language, I realized that these online teachers kind of had a gap in their workflow. They were going through these long processes to get some really simple tasks done. And I just said to Arvid one day as my in-house software engineer, “Do you think we could build something here? Do you think that you could help me out?”

John Warrillow:

Let me understand that point more. So you’re a teacher, you’re teaching kids and students of all kinds, English as a second language. What sort of workflow things were you struggling with? What did you find sort of burdensome?

Danielle Simpson:

So the way the Chinese… So I was working for mostly Chinese online English teaching companies and the lessons are all one-to-one. So you’re teaching individual children and after about 25 minutes of teaching to get your full pay, you have to write a text feedback for every single child that you teach. And I was teaching about 24 students a day at this time. And yeah, so that became a lot of work.

John Warrillow:

So writing these reports saying, “Yes, Judy’s progressing well, she’s struggling with whatever verbs.”

Danielle Simpson:

And… Just go on.

John Warrillow:

And so how does your software help?

Arvid Kahl:

Well, Danielle had already built some sort of system. And she had all these Excel sheets and word documents with templates that you would use to kind of describe what happened in the lesson because essentially the curriculum was pre defined by these Chinese schools. So she would teach the same lessons over and over again just to different kids and for every lesson you know what the content is so you don’t need to type that out again. So she would have like a template like this and our system pretty much just automated that even more, made templating much easier, made it easier to retrieve information about students.

Arvid Kahl:

That is what I built initially just for Danielle because I kind of wanted her to not spend two hours a day in unpaid overtime to write text that she needs to get paid. So it was just a clear goal for me to get my partner back and spend more time with her. And as I would say, somebody who’s been doing this a couple times before, building software and then the SaaS world, I just built it from the beginning as something we could actually sell to people. I built it as a system that could have other people log in or people just log in using their social kind of media accounts. All these things. I built that from the beginning even though it was just for her.

John Warrillow:

And so where did it go from there? What types of customers or what kind of teachers did you find buying the product?

Danielle Simpson:

So we stayed really specific in this niche. We sold to the teachers who were doing the exact same thing as I was. And these are teachers working for, they’re called Kid English companies, these Chinese English companies hiring American teachers, mostly American teachers from Canada and the US.

John Warrillow:

It sounds like a tiny market.

Danielle Simpson:

Very niche.

John Warrillow:

How big a market did you imagine this to be?

Danielle Simpson:

At the time when we started in 2017, one company alone had about 10,000 teachers and then there were copycats coming up. Every week, I think there would be a new school and by the end of that year that company had already doubled in size. So by December of 2017, there were 20,000 teachers.

John Warrillow:

What’s your business model? How did you guys make money?

Danielle Simpson:

We ran a subscription based model, so it was just a monthly subscription fee. And then I think after a few months we realized it would be smarter to add in a yearly subscription plan and the teachers paid on a monthly basis for access to use our software.

John Warrillow:

Why did you start your yearly plan?

Arvid Kahl:

Well, we noticed that it’s a much smarter choice to offer people to commit in many ways, both financially. And it’s kind of a validation strategy too, right? If people pay you for 12 months of the service, you kind of see that you’re doing something right. And we had a lot of people upgrade. There was also let’s call it a discount of I think a month. That’s what we had 110 for the yearly and 10 bucks for the month fee. And that in a niche of teachers, a kind of profession that is notoriously underpaid was also an incentive for people to stick around.

Danielle Simpson:

The other thing about the yearly plan is… And the reason why we had to implement it was a lot of our American teachers, our American customers were having trouble with their credit cards working on a repeated basis with our European company. So we tried to give them a better option by allowing them to make one payment for the whole year instead of having to call their bank every month and unlock that international payment.

John Warrillow:

And how did you guys go about building your business? How did you find the teachers and pitch them the software?

Danielle Simpson:

So I was a teacher, so I knew exactly where the water cooler was, so to speak. I knew where they were hanging out, where they were exchanging tricks and tools that they were using.

John Warrillow:

And where was that?

Danielle Simpson:

So mostly on social media. We had a few closed groups that were kind of the Hutong actually like the little alleys in China where people would get together, the teachers would get together and share information. So, Facebook was a great starting point for us. Instagram was kind of the next step. There’s a huge amount of information being shared by the teachers and teachers just have it in their bones that they want to share anything that will help another human being.

John Warrillow:

And were you buying? Were you boosting posts in those communities online or was it all organic?

Danielle Simpson:

I think we wasted about 100 dollars or so trying to boost some content in the beginning. But we really realized early on that just that organic content would be enough to spread the word.

Arvid Kahl:

It was quite noticeable that we were actually selling to a tribe. So the whole community, the niche that we were operating in had the internal tribal structure. There was a lot of interconnectivity between the people. They all followed the same kind of people that kind of thought leaders in the fields and that made content marketing much more interesting than paid acquisition because if you put something in front of people that love to share and that have a structure in which they regularly share information, then you really just need to provide good content that it shares itself. Our whole marketing was essentially the offshoot of one comment that we put on a Facebook post that Danielle put there. But people ask, how do you deal with your feedback? She just essentially said, “Well, that’s what I use.” Put the link there. And it really snowballed from there.

Danielle Simpson:

And we really got into the market at a time where there weren’t many other options. So once we could help teachers with this really painful problem that they had, they would immediately go back to the community and share it forward.

John Warrillow:

And tell me about competitors. I’m struggling to imagine this was… I mean, Arvid I think you’re the developer in this equation, was there anything proprietary about what you built or anything so unique that someone couldn’t compete with you?

Arvid Kahl:

Well, I would say from a technical perspective, no, but from the fact, like I just said, it’s a tribe. It’s a community, our customers at least. And we built something into a product that had a built-in network effect. We allowed people to share their database of templates amongst each other.

John Warrillow:

That was smart.

Arvid Kahl:

As a first mover in the field, that was, I would say a very, very helpful thing we built because first off, any new user that people would bring to the platform would immediately perceive and get the value of everybody else’s work and they would then in the future provide more value to the whole community, to the network. So I guess to share ability of using our product was extremely high because it wasn’t a network effect product and people love to share it. So I think, technically it’s not too complicated, right? It’s a templating system, but it’s the timing and the actual feature, the focus on this feature.

John Warrillow:

Really smart. And what’s interesting is your customers didn’t necessarily, I’m assuming Danielle, correct me if I’m wrong, compete with one another in a true sense. So teachers weren’t holding onto their templates like not willing to share them. I’m assuming that most teachers don’t see other teachers as competitors per se. Is that fair to say, Danielle?

Danielle Simpson:

Absolutely and especially with the flood of students that were looking for online English instruction. I mean the companies were really looking to find teachers and there was a shortage of teachers. So the teachers were of course willing to share any resources they could with each other too to help support the students as best as possible. And I think that’s the end goal for all teachers is to make sure the students are being served.

John Warrillow:

It sounds like the perfect, almost self managing business. Did you guys hire a bunch of people to help you build it? I mean you’ve got Arvid building the software, Danielle you’re obviously in on the social sort of footprint spreading the word. I try to think of like what other tasks are there? Probably, did you have employees or were there other people on the team?

Danielle Simpson:

When we started, we mapped out every position that we figured our company should have so that nothing went undone or unnoticed and we ended up with about 50, 45 to 50 different positions that we thought we could fill eventually. But we never hired up to the day that we sold. And when we did notice that there was a position that was starting to take up a little bit of time, Arvid would build automation or something to help us kind of lower our amount of time and that specifically.

John Warrillow:

Such a software engineer thing to do, “Those pesky people get rid of them.”

Arvid Kahl:

If you have to do a thing more than once, you don’t do it manually. You build some sort of automation or at least a process around it. And that’s what we did. Like for everything that was repeatable or repeated in the business, we would build either a very clear standard operating procedure or process around it for ourselves to be more efficient at it. Or we would build automation. There would be things like tax advisors stuff or bookkeeping that we would outsource to professionals, the experts both because we wouldn’t be able to do it too well and because we would hate to do it. Like this kind of stuff is not entrepreneurial work and you don’t want to have check boxes and fill out forms.

Arvid Kahl:

At least I don’t. As an engineer I just want to build things. And as an entrepreneur I want to grow things and I guess taxes are neither of these. So these kinds of things we outsource everything else, we automate it and we try to develop as little as possible ourselves, use a lot of services like I guess for customer service we’ve been using Intercom and for… I don’t know, even our database we wouldn’t manage ourselves like somebody else would manage it for us. That would be money we would have to pay to someone, but it was still better than having to deal with that cognitive overload of that for two people since we didn’t hire would have been way too.

John Warrillow:

Arvid, can you give me an example of something that in a traditional business or a role that you had on the org chart when you build out these 50 employees, can you give me an example of a processor or an algorithm that you built to avoid having to hire a person? Like I’d be curious to know, like a really tactical thing that you guys automated.

Arvid Kahl:

Danielle already hinted at it with the payment problem that we ran into being a German company with a German bank account. We were using Stripe for all our payments, all the subscriptions, and they’re great. They offer a lot of options and people can pay from any kind of country. But on the way to our bank, American banks would often block our charges because they would see, Oh this is going to be an international transaction and we better block it. So it would be declined. And that would be happening on the first attempt on an actual first subscription. And you remember joining the FeedbackPanda community and on every subsequent attempt as well. So we built an automation that would detect us on our back inside from the kind of information that Stripe provided to us about the charge failing.

Arvid Kahl:

We would formulate a message with precise information about what kind of steps they would have to do to talk to their bank, sent the message through Intercom and then pulled us back into our customer service conversations so that we would have with people. So essentially we built our own Dunning system to get rid of this, I guess like five to 10% of charges failing for no other reason than us being German and then being Americans. That would have been the job I would assume for a customer service representative or somebody who’s in accounts receivable, stuff like that. But we kind of automated that away with a little script that was part of the whole kind of system. And we did this with all these kind of small steps or small activities that would need to be done. Just any kind of customer outreach, any kind of communication that would be done by a human, we tried to automate as much as possible.

Arvid Kahl:

And on the other side, any kind of incoming communication, again, I’m kind of stuck with a customer service rep, but that was the most you do, at least in our kind of job. We would have a really in depth knowledge base with articles on every single subject. And Intercom would automatically suggest those to people who would ask a question so they would usually answer their own questions, but just asking questions, it would be automatically suggest that they would solve it. And it wouldn’t ever even come through to us, which having a couple thousands customers near the end of owning the business would have been a lot of work for two people.

John Warrillow:

And how much of your time are you spending dealing with customer service issues and writing these sort of FAQs and assets that go in your Intercom?

Danielle Simpson:

So before Arvid built the Dunning system, I would spend two to three hours writing those messages to our customers, all very customized to each customer. But done alone took me three hours. So when that system was built, suddenly I had three hours in my morning to do something better with my time.

John Warrillow:

Yup. Fascinating.

Arvid Kahl:

We used the opportunities as they came. When people ask a question that came up for the first time, but we would expect to come up again, we would just write the article right there and then I put it in the knowledge base. And if you do this every single time something new happens, eventually you will run out of new things to happen. So the knowledge base just fills up and your surface off new things that comes in just decrease significantly. So I guess over most of the time it would have been maybe 10, 15 extra conversations a day, no matter how many people we had because we would always put these kind of articles into the system.

John Warrillow:

What was your goal in building FeedbackPanda? I guess I’d be curious to know, did you start the business with a view that you’d like to sell it?

Arvid Kahl:

Well, I’ve been reading a lot of books prior to founding the business with Danielle and yours is one of them. So Built to Sell has been fairly instrumental in my understanding of how you can build a business that you don’t need to be in. And I’m a software engineer, you’ve kind of hinted at it. We don’t want to do stuff multiple times. We try to build automations and we try to get ourselves removed from the actual work because we want to solve problems, but we don’t want to solve them all the time. We want to solve them once and for all. And I felt the business should be the same, like the business should run and then we should enjoy it, but we shouldn’t be needed on every single task that comes up. So conceptually we built a company with having it sellable and like self running in mind, but we never really thought about selling it.

Arvid Kahl:

So it was just like this is how you should be building a company. And I think when it comes to goals, I think that the most ambitious goal that I had when we started the business was that one day in the far future we would reach $50000 MRR. That was like the highest number I could think of. And once we reached that, we didn’t really have any goals anymore. That was…

John Warrillow:

MRR stands for Monthly Recurring Revenue for folks who maybe aren’t familiar with the software space. So 50K was your bogey, that was the goal. And what was it about that was inspiring or motivating for you Arvid?

Arvid Kahl:

Well, I’ve been part of the indie hacker and indie maker scene for quite a bit. So I’ve been following people around and just checking out their successes and stuff. And in the indie makers space, these high numbers rarely happen because mostly people are fairly happy in their little niche having their lifestyle business producing 10, 20K of monthly revenue. And that’s it. All right, so seeing that made five, figure six figure monthly recurring revenue numbers is a rare thing. So I thought, well that would be cool to reach. And that was all, like I never thought further than that. Like obviously we could have taken this much further because once you grow you just continue growing and you just might have to change things later on. But growth, if it’s validated, you can continue doing that. So yeah, I think that’s just the kind of scene that I came from, that these numbers were like on the upper end of.

John Warrillow:

And so at 50K what happened?

Arvid Kahl:

Well, we just continued. I think we got an email. I think that happened. People started being interested in the business because not only did we fairly publicly communicate about the business itself, we also had striped verified revenue numbers on indiehackers.com in the community so people could follow along the trajectory of FeedbackPanda and checking out like where we were at that point when it comes to monthly recurring revenue. And there’s a lot of people that are very interested in acquiring sustainable bootstrap SaaS businesses and these people started reaching out. So I think we just hit that goal and at the same time we kind of came up onto the radar of people who were interested in businesses like ours.

John Warrillow:

For some people listening, this is very peculiar, right? That you would publicize your revenue in kind of an open forum. Take me through your thinking as to what was behind that? Why would you do that? What is the thinking behind publicizing your verified revenue?

Arvid Kahl:

That’s a very interesting question. It is a thing I feel that bootstrap founders do, at least at this point, there’s a lot of people who are extremely public about their business. First off because it’s in a niche that usually is small enough not to warrant too much of competition by established players in other niches. It’s like if you’re really super specific and there isn’t too much room in the market, why would anyone build a competitor? That is the argument that people have internally. So they publicize their numbers, they publicize their strategies, they talk about, Oh well, I spent $500 on Facebook ads, didn’t work. And they just are really open because it’s a community of teaching each other as well.

Arvid Kahl:

If I’m looking at the indie hacker and maker community, it’s a lot of information out there. So having it out there is also some sort of encouragement for others. But it also is a prestige building kind of activity. You are a successful founder if your business is verified to be successful. So everybody building their personal brand, I think that’s part of it. Can’t really benefit from having information like this out there. And I think there’s this open data movement where companies like Buffer and the guys that Transistor FM for the longest time had really, really deep insight into their subscription metrics, like actual unit economics kind of levels where you could see like how many people were in which plan and what the turn rates were for these kinds of things that was really detailed. Most companies stopped doing this at some point, but at least general revenue numbers are very likely to be openly available in the bootstrap-SaaS space.

John Warrillow:

And Danielle, I mean by training you’re an opera singer.

Danielle Simpson:

Yes.

John Warrillow:

What’s your sense as you start to evolve this business, it starts to become a thing, a real thing and real revenue and Arvid is posting these numbers to the forums. What are your feelings about this?

Danielle Simpson:

So I never realized how many transferable skills that would be from opera to co-founding a business. For me it was all about community education and really developing that marketing strategy that would resonate with the teachers that we wanted to turn into customers. And yeah, I think for indie hackers, I was one of the first people to say, “Yeah, we need to be on this platform. Of course, we need to show how well the business is doing and start also marketing and other directions not only toward our customers.” And I was confident that our customer base wouldn’t be the same audience in the indie hackers community as our teachers that we were serving.

John Warrillow:

Were you finding it… A lot of people find that when they get to a certain point in business that it becomes harder to acquire customers. Like it’s easy to kind of cream off the initial few customers because they have exactly the same pain point that you have. But as you kind of grow and you guys hit $50,000 of recurring revenue, it becomes less easy. Did you find that Danielle, in your marketing that it was becoming more expensive to acquire each new customer?

Danielle Simpson:

No, we didn’t. And I think that’s more a testament to how rapidly the English companies were growing because they incentivize teachers to actually hire more teachers. They use the referral system within their own companies and incentivize teachers to hire colleagues. And this was working really well for these Chinese English companies to the point, like I said that they doubled their numbers in 2017. And so I think we’ve really benefited from just this hiring rush that all of these Chinese English companies were employing.

Arvid Kahl:

And it did help that they were primed to be using referral systems as well. Because we raised our prices a year into the business by 50%. So from 10 bucks to 15 bucks, which isn’t too much absolutely but in relative terms it’s quite a bit. And for somebody who is under, I would say financial duress when it comes to budgeting like online teachers were, that was a big increase but we kind of softened the blow by adding a referral system that would have some kind of kickback functionality.

Arvid Kahl:

And as these people were already so well aware of a referral system in their online school that they taught for likely even having been recruited through a system like this and getting the benefits of it, our referral system was extremely successful too, was like a dual reward kind of system where both the referring and the referred teacher would get a cheaper plan or some months for free. And that was extremely effective. And if you have a tribal community, a referral system is just going to be very, very helpful because sharing is already built in and sharing a link that both people benefit from, well, that’s a given at that point.

John Warrillow:

Got it. So you guys crest $50,000 of monthly recurring revenue and you’re starting to get some inbound interest from acquirers, it sounds like. What did you think the company was worth at that point?

Danielle Simpson:

Well, I think, in those first calls we really had no idea how to even really value our company at that point. And regretfully I think in a call with a broker in this kind of early stage before we had really chatted about do we want to sell and if we want to sell what for, when that conversation really became real, when I had that conversation with the broker, I think we just pulled a number out of thin air and maybe alienated a few buyers that might’ve been interested in us had we had that conversation a little bit sooner.

John Warrillow:

What number did you pull out of the air? You pulled like a number that was totally unreasonable or what did you say?

Arvid Kahl:

It was a fairly high number.

Danielle Simpson:

At the risk of adding any speculation to what the final number was, I’m reluctant to say what our initial really lofty number was even.

Arvid Kahl:

That was very ambitious and a bit too ambitious, I guess.

Danielle Simpson:

And the kind of only deals that were on the table with that number in mind were something including an earnout to actually get that full value. So I guess it wasn’t so lofty that people weren’t engaging in the conversation with us but still not the kind of deal that we wanted.

John Warrillow:

As you got into it a little bit more and got more educated about it, what did you start to think the company might be worth? Were you able to triangulate around a kind of a standard multiple or any sort of benchmarks that you thought were reasonable? Like a range is fine.

Arvid Kahl:

Yeah, I mean, it was always a seven figure thing in our mind, but we really didn’t know how to value it easily because if you have a multiple and there’s a lot of multiples floating around particularly in SaaS, it really, really depends. Like obviously there, it could start with a sub one multiple, and it could go up to 20, 40, whatever depending on the niche you’re in. And since nobody really knows what the value of your company is and until you start valuing it, it was completely arbitrary for us to pick a number and we never really wrote anything down. I think we never had any actual number in mind.

Arvid Kahl:

We always went with a range. I think we always went with a range and we also took a lot of care to look into the terms of the deal, not just the number. I mean the number is extremely important when it comes to selling a business and then reaching some level of financial security and stability that you didn’t have before, obviously, but you don’t want to be balanced to a five year or on out, you don’t want to be balanced to these weird goals that are unreachable, that are part of the deal or you don’t want… If you had employees, and we had enough employees, but we had contractors working for us on stuff like writing blog posts and stuff. We wanted to know that they would also be part of the team if it were to transition. And these kinds of things were important to us at least as much as the final number.

John Warrillow:

How much are you guys clearing at the end of a month? Because $55000 of MRR, I mean clearly you had some servers, you had these contractors, but I’m guessing a big chunk of that falling to the bottom line.

Arvid Kahl:

Yeah. Well, our salary I guess was like, it always is the most, if you remove that, I think if I can give you a range, like somewhere between five and 15 ish percent of what came in was expenses or was to be expenses. So we had a fairly high margin as is often like that.

Danielle Simpson:

Yeah, very normal in SaaS to have very high margins.

Arvid Kahl:

And only really what we pay to ourselves as a salary instead of dividends because we just wanted to VAD, that was the biggest cost. But once you remove that, it’s looking very interesting. And even before, it looked very interesting obviously and that’s the thing with multiples and with EBITDA and revenue and all these kinds of things, it really depends on what you take and what you don’t take when it comes to this kind of factorization, the factors that go in and out there.

John Warrillow:

But as you had conversations, was it your understanding that buyers were using a multiple of revenue to value your company or more a multiple of an acronym called SDE which floats around among business brokers, seller’s discretionary earnings, which includes your salary. Did you hear multiples of SDE or multiples of revenue? What was more common?

Danielle Simpson:

So they were both there, whichever figure was more interesting to the seller I guess. And what they were more used to dealing with or what, to be honest, I’m not sure what set our company apart for them to then choose one or the other. But I know we definitely, there were a few I mean even SureSwift with two ended up acquiring FeedbackPanda, they have a great blog post on how they personally value companies.

John Warrillow:

How is that?

Danielle Simpson:

And I could direct you to the blog posts definitely.

John Warrillow:

We can put in the show notes for sure.

Danielle Simpson:

Yeah, absolutely. They have some really great content there for sellers, and Effie International as well has some good content around how you can value your sass and I think that they would even give you a free valuation if you’re getting in contact with them.

John Warrillow:

Right. So I mean, I know we can’t disclose the actual sale price. As you started to get into these conversations with potential acquirers, I’m used to seeing for companies that are sort of below three or $4 million of annual recurring revenue multiples in the kind of one to two times revenue. Are we kind of talking in that range or can we…

Arvid Kahl:

I guess it could be to the lower, lower end of the bands like particularly in SaaS that has high margins, is completely automateable and you can run it with two people. You’re looking at different numbers because they’re much higher than that.

John Warrillow:

Much higher.

Arvid Kahl:

Because you don’t really… If you are a company like SureSwift that has a trained team of people that are already running 30 somethings as businesses that are just like this one, adding another one has very little marginal cost for them. And if the business then itself has high margins and low work because everything’s automated, that is a very interesting perspective. Yeah. And this kind of automated low touch-company or low-touch business in a niche that is still growing that there was no plateau in sight on the customer side and in our businesses as well. You have a pretty good outlook.

John Warrillow:

Higher than one to two?

Arvid Kahl:

Yeah.

John Warrillow:

And so where does it go from there? So where you’re sort of fielding these inbound requests, what was your next step?

Arvid Kahl:

I guess we had to decide if we wanted to sell or not because we really didn’t have the conversation before. We built a company to sell, but never with the intent to sell. Maybe we made it sellable, but we’d been never wanted to actually be acquired until we were. And I think that a lot went into that. So I think a lot went into the decision to think about selling. Two people can run a company pretty well, but it kind of drains you at some point. At least that’s my own personal experience, particularly from the technical point of view because the more customers you have in a business, if you’re the only person that can solve their problems, should there be an emergency both on, “Oh, I deleted all my data,” which is the lowest level to “all the database just died,” which is your whole business pretty much crashing to a halt then that puts a lot of pressure on you as an engineer.

Arvid Kahl:

And I developed severe anxieties during the time in FeedbackPanda, which I dealt with and I guess you can deal with stress in many, many ways, and I did, but you kind of think, okay, what do I do? And since hiring for me for some weird reason that I’ve yet to come to understand was out of the question because I thought, I can deal with this, it’s all going to be fine. Which it wasn’t, but you know the mind. I thought, okay, well now that we are at this point, everything’s automated, I only really have to get up for emergencies. Can we hand this to somebody else to take this and receive the value that we’ve created? There was my personal perspective. How about you, at that moment?

Danielle Simpson:

I could see how the stress of the company was affecting Arvid definitely. And I was looking forward to… Yeah, I know I want wanted to support you in that decision for sure.

John Warrillow:

It sounds interesting because on some level it sounds like the perfect business. I mean you’ve got this little protective niche growing like stink. There’s no advertising costs. It’s growing. Arvid, you’ve documented everything so that you don’t have to deal with them, you got the knowledge center. What was so stressful about it?

Arvid Kahl:

Well, if I had to do it again or if I were to do it again, which I likely might, I would just hire. I think the responsibility of dealing with things that come up, these kind of interruptive things that is just an anxiety inducing potential. It doesn’t even have to happen. The fact that we were integrating with a lot of these online schools and we integrate it into their classrooms which were web-based and they had all these things that we would integrate with just to make our customers’ lives easier and then an integration would break, but it wouldn’t break at like 2:00 PM when you just came back from dinner or from lunch, it would break whenever and you would have a couple hundred if not a couple thousand customers yell at you through Intercom.

Arvid Kahl:

That’s just the reality for solo founders, for people that are just a two person team, something happens and everything yells at you and that’s just what it is. Your alarms go off, people reach out and the idea of this happening, was inducing more anxiety in me that the actual thing when it happened is what it does as I guess a trained engineer you just go at it, you solve the problem, you fix it, you apologize and then it is over. But waiting for this to happen one more time, I think that kind of anxiety in me at least, that made me want to find a way to deal with this without it being my own job. And I still don’t really know why I didn’t want to hire because as we sold the company, obviously we needed to replace ourselves.

Arvid Kahl:

We needed to find somebody who would do our job in the new company and so we assisted with finding somebody and train them as you have to do and there I learned that hiring is absolutely not scary at all, but I just have never hired before. That’s one of these things I’ve been going through my life as an engineer, always being hired but never hiring and now that I’ve done this, no problem. Next time I’m just going to hire a guy to take care of this. And so I can sleep. When you wake up and you have 400 Intercom messages on your phone, that is the kind of stuff you don’t want to do every single day. So yeah, I guess that would be our doing.

Danielle Simpson:

Yeah. And I think that we could have… One of the key learnings that I’ve had is along with these goals that we made, that 50K lofty number that we thought, Oh, it’s going to take us so long to reach that number, but we’ll have time to figure out what to do when we get there. But we didn’t make strategic goals along the way to say, “Okay, when we get to this number, this is when we have to bring new people on our team.” We got to 50K MRR so fast that we didn’t have the systems in place to kind of deal with the kind of fear that actually comes with, “Okay, now I actually feel I have something to lose. I’m not making smart business decisions anymore. I’m making decisions based on I have to put out a fire and I don’t want to lose what we’ve built.” So, having those more strategic goals in place along the way I think could have made it the company that we did never want to stop.

John Warrillow:

Absolutely. Yeah. Let’s get into the transaction itself. So you’re fielding these inbound requests. Did you get to like letters of intent from a group of people? Did you hire an advisor to sort of help you sell the company? What was the next step?

Arvid Kahl:

Yeah, we got those and we hired advisors. We had a lot of communication informal at first and then when it came to the more formal parts, the letter of intent, and this is kind of actually looking into the project, like handing out read only invitations to our metrics tools that would show people inside like Biometrics or ProfitWell, these kinds of SaaS metrics analysis tools.

Danielle Simpson:

And we had been so transparent with our metrics beforehand that there wasn’t too much left to really show actually.

Arvid Kahl:

Yeah, I think our P & L was not a surprise. People looked into our business and they saw a thing that they could already kind of see by just looking at the information that was already available.

John Warrillow:

How many letters of intent did you receive?

Arvid Kahl:

A number. A few.

John Warrillow:

Can you pretend to be a little more specific? Like are we talking like dozens? Less than five?

Danielle Simpson:

Yeah, less than five.

Arvid Kahl:

Yeah, it would be less than five.

Danielle Simpson:

But I wanted to get back to your question about advisors. We did talk to a number of brokers who were initially working for potential acquirers and we looked into maybe having one work for us, but in the end I’m a person that likes to get down to the lowest common denominator and I felt like the less people in the room, the more clarity we would have and just go with… We ended up having one lawyer that we worked closely with and he kind of advised us through the acquisition.

John Warrillow:

Again, I know we can’t talk specifically about the acquisition price, but I would love to know you’ve got multiple offers. Could you give me a broad stroke range? What the difference between them were? Were they kind of around the same number or were they wildly different?

Danielle Simpson:

They were around the same number but a few of them really were requiring a lot more different factors.

John Warrillow:

Such as?

Danielle Simpson:

Like when we hit a lot of the final number was an earnout in the most simplest terms, it was an earnout kind of structure, which although I would have loved to continue working with FeedbackPanda, I didn’t want it to be tied to anything of the valuation of what the company was.

Arvid Kahl:

Yeah. Goals that you would have to reach but have less control over compared to what you had before when you had the full company at your disposal. Yeah, it was just about the difference of obligations. I think that that made a big difference for us.

Danielle Simpson:

And it was so wonderful, so comforting actually, and gave us a lot of confidence in SureSwift, when our lawyer looked at theirs, he was saying, “Wow, I can’t believe how straightforward this could be.”

Arvid Kahl:

I think he said he’s never seen such a boring contract, but that was with the letter of intent and the actual agreement that we had, like he was surprised by how little work you had to do because it was really straight forward, which is a thing I guess that SureSwift prides themselves on because they just do the same thing over and over. They acquire sass businesses like ours. So they have built the system that works for them and works for the businesses. So it’s not a big surprise.

John Warrillow:

What were the terms?

Danielle Simpson:

We can’t talk about that unfortunately.

Arvid Kahl:

We can really talk about the terms out.

John Warrillow:

So could you talk briefly broad strokes, like it was a simple thing so it had obviously like the price that they were willing to pay, which is something we can’t necessarily reveal.

Danielle Simpson:

Some transition time. And then essentially transitioning out of the company completely. So we hired our replacements and taught everyone to run the company as we did.

John Warrillow:

And to be clear was that a requirement in order to close the transaction? In other words, did you have to hire your replacement before the deal could go through or was the deal going through and it’s just part of your obligation was to…

Danielle Simpson:

Yes, the latter.

John Warrillow:

It was the latter. Okay.

Arvid Kahl:

Yeah, I guess that’s the kind confidence that they had in their own team to be able to take it up. And obviously having cited our documentation automation protocols and the processes we had, they were quite confident that they could do it. So that’s why it wasn’t like they still like customize I guess that the contracts. But in our case it was mostly all done when we actually signed it.

John Warrillow:

What was that like? Where were you when the deal actually became firm?

Arvid Kahl:

In this very room? Yeah, we were at home, right?

Danielle Simpson:

Yes.

Arvid Kahl:

We were always at home because we were working from home as well. That was one of the great things about FeedbackPanda that we could take the company being a SaaS business to wherever we were, both here in Berlin and whenever we would visit Danielle’s family over in Canada, we would just take our laptops and the company would travel with us. So everything we did when it came to the acquisition was also done from home. And it was a very interesting process, I guess, like just that this signing the documents in a digital form, just sending over emails and just signing on your screen or a track pad or something. It is a weird modern way, I guess to sell, let’s call it a weird modern company.

Arvid Kahl:

It was a great feeling and I guess, both actually signing the contract and then of course, receiving the compensation, that was definitely one of those things you don’t really know how you feel before you actually do. It was great, but it also, in all honesty, it didn’t change our life at that moment, right? Obviously you still have to continue working in the business and you still have to make sure that everything goes through and you kind of are still attached to the business. And I guess we could talk about that, like the change in what you actually have to do once this happens, but the moment itself for me at least was great, but I didn’t feel different.

Danielle Simpson:

Yeah. I kind of in a wonderful way, it was kind of… I mean, I’m an opera singer, of course I’m waiting for the high note or the big explosion at the end that says, “Okay, it’s over” or the timpanies or whatever.” But it was really just a smooth process. There was no explosion thing. Thank goodness it was quite in the best way possible, very anticlimactic.

Arvid Kahl:

That’s right.

John Warrillow:

How has it changed you now that some water’s under the bridge sometimes gone by?

Arvid Kahl:

Well, I think we both had a fairly hard time actually understanding that our work at FeedbackPanda was over at that point because the company we sold to, they were very proficient at taking it over. So we were out almost immediately. Just had to like, again, hire our replacements, train them a bit. But with documents that were already in place, they could essentially train themselves. I think one of the things I did, because I had so much time and I wanted to prepare, I took like an 11 hour video walkthrough through the code base of FeedbackPanda where it would just explain to myself at that point, and I guess the future developer, how everything worked, like every single line of code.

Arvid Kahl:

That was fun. But it also meant that I didn’t have to train them, right? They could just take the developer on and give them access to this document and they could train themselves. So I was in a void. I didn’t know what to do. Here was 24 hours, just every single day trying to help people and fix and build things. And now I was just sitting there. So, first thing I did was started writing down my experiences because I had this head full of stuff that I didn’t know what to do with which I turned into a blog and now a podcast as well because I really want to get it out this kind of experience that I’ve been having over both the two years that we ran FeedbackPanda almost two years and all the startups that failed that I was part of before all these kinds of things, I had time to reflect. So that was great. And I used that time because I had nothing else to do to really pour it on the page. That was at least what I did.

John Warrillow:

Danielle.

Danielle Simpson:

I think I kind of expected a transition to happen overnight, which is just not the case. The transition doesn’t or you don’t become a different person when suddenly there’s a large amount of money in your bank account and it just doesn’t work that way. But what did happen immediately was, I wasn’t always thinking about FeedbackPanda in the back of my mind when I was present with someone, family, with Arvid going to a show, I could be in the theater and not have to worry about are there 50 messages from Intercom that are going to be greeting me when I turned my phone back on. Just this kind of presence that I now have again, where I’m not constantly thinking about FeedbackPanda is something I was really appreciating and enjoying at this point.

John Warrillow:

Is it the kind of serenity that would cause you to second guess the decision to get back into the startup world? Is that sense of freedom enough that you wouldn’t do again?

Danielle Simpson:

No, not at all.

Arvid Kahl:

Not at all.

Danielle Simpson:

I am totally ready to just jump right back in any day. And start something.

John Warrillow:

Why? You’ve got enough money. You could live off the money. You could sing opera and travel Italy. Like why?

Danielle Simpson:

This was one of the major things that we uncovered, I guess when we discussed if we really wanted to sell was noticing this kind of fear that creeped into our decision making. It was about security. We did start the company and I was working these crazy hours to try to pay off my student loan, which we reached that goal and successfully paid off my student loan. That was a great goal. But what we really wanted to reach with this sale is this kind of post economic state of mind where we could throw ourselves into another project and not be making decisions based on what’s financially secure, but what’s making sense, what the world needs, what we want to say, “I’m a creative.” So it has to be something that’s really coming from a need to express it and share it with the world.

John Warrillow:

Beyond paying off the student debt. Did you buy yourself any trophies?

Danielle Simpson:

We had a very nice vacation. We went to South Africa.

John Warrillow:

A lot of fun.

Danielle Simpson:

For 10 days.

Arvid Kahl:

That was really cool.

John Warrillow:

Good for you.

Arvid Kahl:

That’s it. Nothing else. I think the trophy that we both reported us with was actually investing the money until what turns out to be like passive income streams, like turning… It’s a boring answer and I’m quite aware of that but I was only point [crosstalk 00:51:54]. Well, who knows what the future brings.

Danielle Simpson:

But it was a very nice vacation.

Arvid Kahl:

Yeah, it was a really nice vacation. And I think being financially stable is a reward that is eclipsing most material. That’s my perspective.

John Warrillow:

What sort of passive investments did you make?

Arvid Kahl:

Mostly stocks I would say. And then there’s other things that if you are in the SaaS entrepreneur scene that are open to you investment-wise.

Danielle Simpson:

Also, investing in ourselves, taking time to read and bring up of skills and things that I might’ve wished I had skills in before we started FeedbackPanda. And then also just you need some time to… I’ve got other projects already starting. So just having the freedom and the time to start those.

John Warrillow:

Where can people reach if a… It’s amazing story I’m sure there’ll be people that want to check in with you guys. What’s the best place do I send them to a website or…

Danielle Simpson:

Sure. Well, I’m reachable on Twitter and Instagram under the same handle. It’s @simpsondanik, D-A-N-I-K. And it’s the same on both channels.

Arvid Kahl:

Yeah, and you can find me on Twitter at @arvidkahl, A-R-V-I-D-K-A-H-L. And my blog is thebootstrapfounder.com. Where I obviously release, an article every week, and I have a podcast there and a newsletter as well. So if people are interested in the both the technical and the entrepreneurial perspective, that’s where they can find me.

John Warrillow:

Well, that’s awesome. Arvid, Danielle, thanks for doing this.

Danielle Simpson:

Thanks you.

Arvid Kahl:

Thanks so much.

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