Things I Wish I Had Known Before Selling My SaaS with Jon Hainstock

Long time entrepreneur Jon Hainstock is a trusted advisor at Quiet Light specializing in SaaS businesses. Prior to joining the team, he started several businesses, most notably ZoomShift which he built, grew, and exited for a life-changing amount of money. His mission is to help the next generation of founders build wonderful businesses and exit on their terms. In this webinar, Jon reflects on his experience when selling his SaaS. He discusses everything that went well along with the aspects of the process that could have been optimized. He covers everything from what owners can proactively do today to prepare for an exit regardless of their selling plans, to the final steps it takes to get across the finish line.

Key Takeaways:

• Why you should start planning your exit today even if you don’t want to sell.
• What the step-by-step preparation process looks like for selling a SaaS.
• Why you might want to under optimize some of your business.
• What it feels like to sell and how to navigate finding what’s next for you.
• How to build and maintain trust with multiple buyers.
• How to handle and ultimately minimize the inevitable stress that comes with selling.

TRANSCRIPT

00:00 Intro

Feel free to grab your lunch and hang out with us for the next hour we have our very own Jon Hainstock. If you’re just tuning in, good morning Jon. How are you? Hey, good morning. Thanks for having me. Great to be here. Good afternoon. Again, I know, I’m on the morning time. So, I’m probably going to keep saying morning. That’s fine. All right, we’ll give people like 30 more seconds maybe, and then we’ll kick off again. If you’re just tuning in, welcome, this is Quiet Light’s December AMA, and we’re very excited.

Okay we’ll kick it off, I think. So, once again sorry for those of you tuned in right on time. You’ll be hearing this for the third or fourth time, but good morning, good afternoon. Welcome, you are tuning in to Quiet Light’s December AMA – Things I wish I had known before selling my SaaS with Jon Hainstock. 

So, we’re gonna talk about a ton of stuff this hour. It’s gonna be a great conversation. You’re gonna walk away with things like – why you should start planning your exit even if you had never considered doing that before? What’s that step-by-step process for for selling your SaaS? How do you maintain trust with multiple buyers at once? What does it feel like when you finally sell your SaaS? And so much more. And speaking of more, if you have any questions at any point during this hour there is a Q & A chat box right at the bottom of your zoom screen. You can click on that, type them in at any point. It can be now; it can be in 30 minutes, and we will make sure we get to your question.

Okay, I think that’s all the bookkeeping out of the way. For those of you who are not familiar with Quiet Light, I’ll give you a quick intro on who we are. So, we are entrepreneur led and focused – meaning all of our advisors have bought, built, or sold their own online business at some point in their past, and they help, we help other entrepreneurs buy, build, and sell their online businesses for six, seven, eight figures. A lot of what we do is educational. So, AMAs and webinars just like this. We have podcasts. We have blogs. We have articles. Tons of other content. So, if you’re thirsty for more information after this hour, you can head over to quietlight.com and there is tons of materials for you to go through.

Okay, let’s get to Jon Hainstock, our special guest for today. So, Jon is an entrepreneur and an advisor at Quiet Light. His mission is to help the next generation of founders build amazing businesses, and most importantly, to exit on their terms which is a lot of what we’re going to talk about today. He’s a self-taught designer and developer, and he built, grew, and ultimately exited from Zoom Shift for a life-changing amount of money – which is why we’re all here, I think. So, hopefully, he can tell us the secret behind that. He currently lives in Burlington, Wisconsin with his wife and three children, and when he’s not helping entrepreneurs crush their exit goals, he is hanging out with his family and his kids. He’s making pizza, and he’s playing guitar. So that’s Jon. Do you think I missed anything you also want to share with everyone today? No, that’s a pretty good intro thank you so much.

Okay, amazing, no problem. So, once again for anyone who tuned in late, if you have any questions at any point throughout this hour that Q & A chat box on your Zoom screen is there for you for the next 60 minutes.

03:25 How Jon Got Into SaaS

Okay. So let’s get into it. So Jon maybe to start you can give us a little bit of an intro on how you got into being an entrepreneur and owning a SaaS. What led you to that world. So, I mean it, for me, was kind of by necessity. So, actually I was working for a tech accelerator company in Milwaukee which was called 94 Labs which was the predecessor to the accelerator that exists there today called Generator, and the lead investor there had lost all of his funding, and so the whole thing was getting shut down. So, everybody was let go. I was the last employee standing. I was the last one in the room with my future business partner, Ben. So, him and I started working alongside of each other trying to figure out what’s next, you know. I had just had my oldest daughter, my first child, and so it was kind of out of necessity. It wasn’t something that i was like, “Hey, i’m built for this. I’m dreaming of doing this.” I’ve done a couple small adventures before, you know, photography business and some stuff like that a little bit, but never really anything at the level of of what we were trying to build next – which was a marketing agency, a digital marketing agency, and then, ultimately, Zoom Shift, which my business partner had started as a part of that accelerator program. It was just something that we ended up building together then as we were able to pay the bills with the the agency. 

So, it was not a necessity; it was truly just trying to survive through that period of time where i was trying to figure out what to do, and my options, honestly, at that point were were not, I should say, not limited but they weren’t like expansive either. Like I didn’t have a ton of options at that point, and so it was very much out of necessity. That’s fascinating. I commend you. I feel like if I was in that stage, I would probably just be in a state of panic. Well, for sure. Yeah, that was panic. Yeah yeah. Okay, so you’re human. That’s refreshing. 

05:40 How Jon Thought About Selling His SaaS

So, then as you grew that SaaS, at some point, like I imagine when you started it you weren’t thinking, “Okay, at some point I’ll exit.” Maybe you were. How did that thought process come along? At what point were you like, “Maybe I can sell, and maybe now is the time?”

Yeah. So I think most of the founders that I talked with—myself included—during that time period weren’t really focused on the exit. We were just focused on the day-to-day. What’s it going to take to get the business to the next kind of milestone you’ve set in front of yourself, whether that’s a revenue goal, a feature or product launch, a partnership, or whatever it is?

Our eyes were always focused on, “What’s that next plateau that we’re trying to overcome?” My business partner and I would talk about an exit, but it was always so loosely formed. Those conversations were never really specific. It was like, “Yeah, eventually it’d be something, maybe,” but we never really talked hard numbers. We never really talked about what it could potentially look like.

So I think it was something that was on our minds, but it was never really the focal point of where we were headed. It was never really a destination for us. It was more like, “Yeah, we’ll get to that after we get to all these other things that we want to do,” which usually revolved around increasing revenue and growth.

At certain points during the company’s history—which was over the course of a few years—it was like, “Well, once we get to this next level of MRR, then we’ll start thinking about that,” or, “Once we get through this next launch, then we’ll start thinking about how we could potentially entertain some of these people who have reached out to us.”

So it was kind of an afterthought, if I’m honest. It was something that we were not really thinking about because we were so focused on getting the company to the next level.

07:40 How Jon Approached His Business Strategy

Would you say that’s something that you probably should have started thinking about sooner?

Oh, yeah. For sure.

And how would that have changed how you approached your business strategy?

Yeah, for sure. When I think back, I wish we would have been more specific about what we wanted from the business from the beginning. I think that, in our minds, we were going to build this business and keep it running forever, potentially. It would just be spinning off millions in revenue, and we could live off this thing forever—until we died or something.

I think that was kind of the picture I had in my mind of what it could be like to build a successful internet business. Some of that was inspired by the guys from 37signals, now known as Basecamp—Jason Fried and DHH—and some of the things that I learned from them, which were: build small, build profitable, and build the kind of business that you want to be building and running indefinitely.

They’ve done that really well with their company. They’ve done it for—I don’t even know how many years now—certainly decades at this point.

So I felt like that was probably the route that I would follow.

I think just knowing that you will inevitably exit at some point—whether you want to move on and do something different, or because of outside circumstances—it’s wise to plan ahead for that. I think founders should have those conversations with their co-founders, if they have them, and create some sort of vision for what an exit could look like.

Because if you’re not planning for that, you can get yourself into a bad spot where you’re kind of forced into it. In some ways, I felt like the exit that we had was a little forced.

That’s something I would really hope other people could avoid.

10:00 Tactics of Getting Ahead

So, if I’m hearing you correctly, some of those first steps are to at least have the conversation, especially if there are other people involved, and have a vision of what that looks like. Are there any other specific tactical things people should consider doing, like related to bookkeeping or other factors that, later on, made you think, “Oh, that was a step we definitely should have taken first and foremost?”

Yeah, for sure.

Let’s get into some of the actual tactics for getting ahead if you do want to exit at some point.

Some of the things that came into play with our deal were our books. It actually became an issue during due diligence when they started looking at our accounting. It was something we had done on a regular basis—we would go in and do our bookkeeping because we didn’t think it was a big deal.

But a lot of those things, if you can hire them out and offload them to people who are really good at them, that’s ideal. Staying on top of those tasks is important because, when the time comes to provide reports to potential buyers, you want to have them ready and available.

Also, do a good job documenting not only the software, but your standard operating procedures as well. Those types of things can definitely help. Reducing the amount of time that you, as the owner, are putting into the business—or at least accounting for that in some way—is important. Have a mental model, or even an actual financial model, for what it would look like to hire people to take over your day-to-day responsibilities.

These are kind of common-sense things in some regard, but a lot of times they get pushed to the bottom of the list because you’re not thinking in terms of selling. You’re thinking in terms of growing. You’re thinking about the latest fire you have to put out or the latest campaign you’re running.

So anything you can do to offload the accounting and bookkeeping portions of your business, and make sure those areas are really buttoned up, is helpful. Also, try to get ahead of anything that might come up legally because, in our deal, the biggest thing that slowed us down was legal.

Some of those things you can’t avoid, but if you can address them ahead of time, it makes a huge difference.

In our case, we actually bought shares back from our initial investor, and there was some complexity around that. The way it had originally been handled wasn’t exactly the cleanest, so we had to go back and redo a lot of that work at the point of sale.

It added a ton of stress to the deal because we were already under contract with the buyer.

Getting ahead of that stuff—especially any one-off legal work you know you’ll need to address—is huge. The money you spend on those types of things can often be added back into the value of the business, so there’s real value in doing it proactively.

I’m trying to think of other examples.

There’s a book called The Exitpreneur by Joe Valley, one of the founders of Quiet Light. It highlights four pillars of value that you should think about when building a business for sale. Those pillars are risk, growth, transferability, and documentation, which is closely tied to transferability.

Always be thinking about your business through those lenses. Ask yourself, “What is this going to signal to a buyer in the future?”

Am I mitigating risk for them, or am I adding risk? How am I improving growth? How transferable is this business?

Those are the kinds of things buyers are really looking at when they’re valuing a business, unless you’re talking about a strategic acquisition—which we can talk more about as well.

Yeah, no worries. I’ll buy you some time to have a sip of water.

14:25 Strategic Deals

I think that’s a lot of what you spoke about. I didn’t mean to put you on the spot with bookkeeping, but I’m glad you’re willing to share some of the challenges you went through when selling your SaaS.

Okay, so strategic deals—what makes those different?

Yeah. So I think what’s really interesting is that every SaaS founder I talk to, actually, just about every business owner I talk to, is interested in the idea of a strategic sale because those are the deals where you get the highest multiples.

You can see multiples that are just crazy. You can see 10x, 20x, even 30x.

The thing I wish I would have known about strategic acquisitions, and something to keep in mind as you’re considering whether you want to sell your business, or if you’re waiting for a strategic buyer to come along, is that a lot of it comes down to timing.

And that timing isn’t your timing. It’s their timing.

That’s 100% out of your control. You can try to prepare your business for it, but there’s really nothing you can do to force it. A strategic buyer might come to you, but they may not actually be interested in moving forward for another year or two. You don’t really know, and you can’t control that timeline at all.

It has nothing to do with when you’re ready. It’s about whether they’re available and willing and able to purchase your business at that particular time.

That’s something to keep in mind when you think, “We don’t want to sell for the traditional multiples that we see from brokers or resources out there. We’ve seen these strategic deals happen, and we want to wait for one of those. Maybe one of our competitors will buy us.”

I think that’s a common thought process.

The reality is that those deals don’t happen very often, and when they do, they’re usually outside of your timing and mostly outside of your control.

In a lot of cases, you may not even get the outcome you’re imagining. The multiple might not be what you’re expecting, or the structure of the deal could be completely different.

For example, you might receive stock in the acquiring company. You might not be able to sell those shares for a while. You might get very little cash upfront. You might be required to work there for a couple of years.

There are all these other factors that go into the deal itself—not just the multiple.

I know I got hung up on that. I was constantly asking, “What’s the multiple? What’s the multiple?” Instead of focusing on the actual structure of the deal.

What’s the cash component? What’s the earnout? Is there equity involved? What are the expectations for me after the sale? How long is the deal going to take? Those are all important questions, but they tend to get lost when you’re focused entirely on the multiple. And I think that’s really common.

The conversations I had when we first started thinking about selling were all centered around, “What’s the multiple? I want a good multiple. I don’t want to leave money on the table.” So, that’s something to consider when you’re evaluating strategic buyers. Look at the actual terms of the deal.

Also, another thing to realize is that, with a strategic buyer, you often don’t have competition helping drive value. If you get emotionally invested in one potential buyer and put all your eggs in that basket, you’re exposing yourself to more risk because you don’t have competing offers creating leverage or helping improve the deal.

So when you’re thinking about selling, try not to focus exclusively on the multiple or the idea of having a strategic exit. Instead, think about the deal structure that would make the most sense for your goals.

Maybe a strategic acquisition is exactly what you want. Maybe you want to be acquired by a company like Twitter or Facebook because you want to be part of that organization, see how those companies operate, and potentially own stock in them. That’s a very different goal than saying, “I want to exit because I want to go do something completely different. I still want to be an entrepreneur, but I want to move on.” The key is figuring out what your goals are ahead of time instead of becoming fixated on a valuation multiple or the idea of being acquired by a big strategic company.

19:56 Multiple Buyers

Well, since we’re talking about different types of deals—whether strategic acquisitions or pursuing multiple buyers—what about M&A interest? Is that similar to the strategic process? How do people figure out whether these are good organizations to work with versus situations they should avoid?

Yeah, we got a ton of those emails. As your business grows and stays in business longer, you’ll probably start seeing outreach from venture capital firms, buyer groups, brokers, and other people trying to acquire companies. That’s actually how we were initially contacted. What I would say is that if you’re in that six-month-to-one-year window where you’re open to selling, start taking those calls. Start building a database and figuring out who the major players are. Do your own due diligence on them ahead of time.

Some questions you can ask are:

• What are some of the businesses you’ve acquired recently?
• What did you like about those businesses?
• What types of companies are you actively looking for right now?

You can also be transparent and say, “We’re not looking to sell immediately, but we’re considering it sometime within the next several months or years.”

You could say, “Would it be okay if we had quarterly touchpoints?” or something similar. The goal there is really just to have some warm leads so that, when you do get into conversations and maybe receive a letter of intent, you can actually generate multiple offers. That’s something we didn’t have. Part of that was just the way we were approached, and of course we’d never gone through the process before. But looking back, I wish we had competing offers before we signed a letter of intent with our buyer.

So, if you can keep some of the good prospects warm, and even have some template responses ready for people who are reaching out, I think that’s worthwhile. You can use those conversations to gather information and determine whether buyers are actually serious.

Keep a good list.

That’s essentially what Quiet Light has done over time. We’ve done due diligence on buyers themselves and developed an understanding of what they’re looking for and what kinds of businesses they’ve purchased in the past. If you can do that on your own, that’s great. I wouldn’t consider it a poor use of time because competing offers can significantly increase your valuation.

For example, when we bring a business to market and share it with our buyer network—which, in our case, includes thousands of people—we can end up with 200 or 300 interested buyers. That competition can sometimes drive the valuation two or three times higher than what the seller initially expected. Without that competition, you can get stuck. It’s generally not good for the valuation of your business or for maximizing what you can ultimately get for it.

So my advice would be to stay in touch with those people and keep them loosely informed about your plans and where the business is headed. You can certainly use NDAs if that makes you more comfortable. Even without sharing too much detail, you can provide broad ranges and general updates that help buyers understand the opportunity without giving away sensitive information. I also think it’s worth doing your own research on prospective buyers.

What you’re really trying to do is build your market before you actually go to market. You’re building a list of people you can reach out to when the time comes to sell. That’s probably the biggest thing I’d recommend if you’re trying to identify good buyers and filter out bad actors.

Start having conversations early. Keep a database. Track who you’ve talked to.

Another thing you can do is reach out to other entrepreneurs and ask whether they’ve worked with those buyers before. There are a lot of great online communities—Slack groups, Circle communities, Discord servers, and other founder groups—where you can ask questions like:

“Has anyone worked with these folks before? They reached out to me.” The community can be a great resource for helping you vet buyers and identify bad actors.

24:50 SaaS vs ECommerce 

Yeah, I imagine that would be difficult once you’re already deep in the trenches and trying to figure all of that out. It’s interesting to hear you talk about it because, looking back, it sounds so easy. It’s like, “Yeah, do your homework. Duh.” But obviously, that’s much easier said than done once you’re already in the middle of the process.

We have a question from the chat that I’d love to throw your way.

Is selling a SaaS business different from selling a traditional online business, or is it basically the same process? Can you talk a little bit about that?

Yeah, I think it’s a relatively similar process. Typically, it goes something like this:

You get interest from a buyer. Eventually, you receive a letter of intent, which puts you under an agreement with that buyer. Then you move into due diligence, and after that comes closing, which includes the asset purchase agreement and all of the final paperwork. What I would say is different about SaaS businesses compared to, say, an e-commerce business is that there’s generally much more focus on the technology.

Buyers are going to be interested in your code base. They’re going to want to understand the tools you rely on. They’ll ask whether you’re using anything proprietary, whether there are patents involved, and how the underlying technology works. Beyond that, though, the process is actually pretty similar. People still evaluate your financials in largely the same way, and a lot of the core due diligence process doesn’t really change. I’m trying to think of some other differences.

With e-commerce, for example, you have inventory that gets added to the sale price in addition to the business assets. Deal structures can vary as well.

In our case, we had a holdback. A percentage of the purchase price wasn’t paid immediately. It was held back for a period of time to make sure everything transitioned smoothly and that no legal issues surfaced after closing. That provision was included in the purchase agreement as a way to protect the buyer from potential legal liabilities.

Overall, though, I don’t think there are a ton of differences.

You may see higher valuation multiples with SaaS businesses, but a lot of that depends on factors like:

* Growth

* Stability

* Business age

* Revenue

* Customer count

Those are the things that really drive value. One of the major advantages of SaaS is its recurring revenue model. With an e-commerce business, you have inventory costs and cost-of-goods expenses. With SaaS, the product is digital, so you don’t have many of those same expenses. Because of that, SaaS businesses often generate higher profit margins, which can lead to higher multiples and higher overall valuations. I don’t know if that completely answers the question, but those are some of the main differences.

28:32 Reducing Dependency

Yeah, I think that’s great. To your point, there are a lot of similarities. Ultimately, you’re selling a business to someone else. But it’s definitely helpful to understand some of the differences, such as inventory and some of the technology considerations you mentioned. Thank you for that question.

Speaking of which, we have another question from the chat box. Thank you, everyone. We still have about half an hour left, so if you have any other questions, feel free to continue putting them in the Q&A box. We’ll get to this one:

“If you’re primarily involved with coding or implementing your tech stack, how much does that impact the value of your business?”

I guess that’s specifically referring to the business owner.

Yeah, that’s a good question. It gets back to something I touched on earlier. As much as you can reduce the dependency on you being the one doing the actual coding—Man, my voice just hit another level. It’s never hit before. This is crazy, guys.

If you need a water break, we’re all here for it. Don’t worry.

No, it’s all good. I think I’m alright now. To answer the question as succinctly as possible: try to reduce the need for your brain to be involved in every aspect of the business as the architect of the system. I know that’s really hard. In our case with ZoomShift, probably 90% of the code base was in my co-founder’s head. It wasn’t super well documented because, at the time, it didn’t really need to be. As much as you can do to reduce that dependency, the better.

Add comments throughout your code base. Explain the paradigms you’re using, especially if they’re unique. Document why you’ve chosen certain approaches over others. This isn’t just important for a future sale. It’s important for scaling the business. Hopefully, your goal is to build a team and not be the sole person operating and maintaining the entire code base. Otherwise, you become the single point of failure. What it really comes down to is good documentation and involving other people. When you bring additional developers into the code base, you’ll start to discover where the gaps are. They’ll say things like:

*”This is confusing.”*

*”Why does this work this way?”*

*”I changed one thing and it affected five other things.”*

Those are yellow and red flags that help identify areas for improvement.

Whether you’re planning to scale or preparing to sell, you should be asking yourself:

“How do I prepare this for someone else to take over?”

And also:

“What would it cost to replace me?”

When buyers value a business, they’re usually applying a multiple to Seller’s Discretionary Earnings (SDE), which is generally your net profit plus major add-backs, such as owner salaries, certain one-time expenses, and other discretionary costs. If you’re heavily involved in development, you need to think realistically about what salary should be allocated to that role.

Even if you’re doing the work yourself, research what it would cost to hire someone to replace you. Hopefully, that gives you some ideas. I will say that in our case, we didn’t do the best job with documentation or automated testing.

Do I think it would have dramatically affected the value of the business or what we ultimately walked away with? Probably not. But we also didn’t have competing offers. If you’re bringing your company to market and multiple buyers are evaluating it, those factors can absolutely matter. In our situation, the buyer didn’t care as much. But for many buyers—including me, when I’m looking at software businesses—it matters.

I want to know:

* What tech stack are you using?

* How current is it?

* What versions are you running?

* What dependencies are involved?

* Is the code clean and maintainable?

Those are all questions I would ask when evaluating a software company. So while I can’t tell you exactly how much it impacts value, there are definitely a lot of things you can do ahead of time to make your business more attractive and less dependent on you personally.

33:00 Best Deal Structures

I think that’s super helpful. It sounds like even if you can’t afford to outsource everything, at the very least, documenting your processes and code is incredibly valuable and will help you down the road.

We have another question from the Q&A box, so I’ll throw that one to you now.

“If your SaaS charges via annual subscriptions, what are the best deal structures for revenue that’s already been collected?”

For example, if a client paid me last month for an entire year and I sell the business tomorrow, should my asking price be reduced by the remaining profit per customer?

That’s a very specific question.

Let’s just say… very specific.

Yeah. Traditionally, what people do in that scenario is spread the annual revenue across a schedule. If you’ve collected an annual subscription payment, you would generally only count the portion of that revenue that’s actually been earned during the trailing twelve months.

In other words, you’d convert those annual subscriptions into monthly values because those monthly amounts represent the service you’ve actually delivered. So, if that makes sense, you take your annual subscriptions—your ARR—and calculate what they’re worth on a monthly basis. Then you reflect those amounts in your profit and loss statements as monthly revenue instead of annual revenue. Now, I have seen smaller deals where buyers simply take ARR and apply a multiple directly to it. In fact, that’s what happened with one of the smaller software businesses I sold. Honestly, though, I think the buyer probably overpaid a little bit because some of that annual subscription revenue hadn’t actually been earned yet. The service still had to be delivered. Annual subscriptions can inflate the numbers.

I’ve also heard of people trying to push annual plans, prepaid plans, or even lifetime deals right before a sale in order to increase the apparent value of the business. The problem is that all of that eventually gets unpacked during due diligence. So, I would focus on calculating everything using a trailing twelve-month framework because that’s typically how buyers are evaluating the business anyway.

To answer the question directly:

Take your annual subscriptions, convert them into monthly values, and map them across the trailing twelve months. That will give you a more accurate picture of your true monthly revenue and your Seller’s Discretionary Earnings.

That’s great. We love specific questions and very specific answers. Thank you for that.

36:09 Managing Multiple Buyers

Again, we still have some time left, so if there are additional questions, feel free to continue submitting them. Jon, we’ve talked a lot about buyers and the importance of having multiple buyers interested in your business. This next question is a little less technical.

When you have multiple buyers and you’re trying to maintain trust while keeping them interested, what kinds of things can you do?

You’ve mentioned keeping buyers warm, but when you’re getting closer to a sale and opening multiple discussions at the same time, is that stressful? How do you manage all of those relationships?

Yeah, the whole thing is stressful, for sure. In an ideal scenario, you have a group of potential buyers that you’re emailing or touching base with on a monthly basis while you’re preparing to sell. That way, when you’re actually ready to go to market and start receiving offers—especially if you’re selling on your own—you’ve already built relationships with those people. The goal is to keep them updated, make sure they’re still interested, and, if they’re not, remove them from your list.

If I were selling without a broker and relying primarily on inbound interest, I’d spend six to twelve months keeping those potential buyers warm while preparing the business for sale. I’d give them a general sense of how the business is trending and use those conversations to gauge their level of interest. You can ask questions about financing, how many deals they’re looking to close, what types of businesses they’re interested in, and what they’re looking for in an acquisition. In a lot of ways, you can treat these updates almost like investor reports.

You get to decide how much information you want to disclose, but the goal is to give people a sense of where the business is headed so you can determine whether the timing and interest are likely to align. Hopefully, by the time you’re ready to go to market, you have a handful of serious buyers already engaged.

38:35 Selling Your SaaS

Yeah, that’s great. We’ve talked a lot about the process itself. It happens, you sell your SaaS, and then what? I imagine you celebrate, of course. But if you’re not required to stay on with the business for a long transition period, you’re suddenly free to do whatever you want. What was that process like for you emotionally? How did you navigate what came next?

Yeah. When we sold ZoomShift, COVID happened, so we didn’t really have much time for celebrating. What was really nice about our deal was that we were able to exit pretty cleanly. We didn’t have to stick around very long. I think we stayed on for about a month, and even then it was only part-time, mostly answering questions. The buyer did a really good job taking over, and honestly, that was one of the best parts of the deal. We were able to step back, unwind, and catch our breath a little.

What I’d recommend to people is taking a few months after the exit to decompress. Give yourself time to process everything before jumping into the next thing. For me, that’s hard. I like building. I like creating. I like working. So, I immediately wanted to start new projects and get a bunch of things moving. Looking back, though, even taking two or three months to decompress would have been really valuable.

It would have given me more time to reflect on the entire experience and come to terms with anything that didn’t go exactly the way I wanted. At some point, you have to acknowledge it:

“I can’t control it. I can’t fix it. I can’t change it.” Then you move on. You have to work through both the good and the bad parts of the experience. It’s bittersweet. I know this is getting a little philosophical, but that’s honestly how I’d approach it. Decompress. Take time. Journal. Talk to people. Whatever helps you process it. Then come back and think carefully about what’s next.

Depending on the size of your exit and your financial situation, you may have more freedom to focus on purpose rather than necessity. If you’ve had what you consider a life-changing exit—whether that’s seven figures, eight figures, nine figures, whatever it is—you can start asking a different question:

“What’s the work that’s worth doing?”

That doesn’t mean it has to be a nonprofit. It could absolutely be another business. But the point is to find work that’s meaningful to you. Something I’m only really starting to understand now is that the goal isn’t necessarily another massive exit. It can be. You should still prepare for success. But the deeper goal is staying in the game. The goal is the work itself. For me, that’s become clearer over the last year or so.

The goal is doing good work, doing hard work, working with good people, and continuing to build things that matter. You can spend a lot of time searching for something that scratches the entrepreneurial itch, but ultimately the game itself is the fun part. Whether that’s investing, helping people sell businesses, building more companies, or something else entirely, the important thing is staying involved in work that you care about. That’s the good part. That’s what deserves your attention.

42:38 Decompression

That’s great. I always love asking that question because so much attention gets placed on the exit itself—the process, the transaction, the valuation—but very few people talk about what comes after. And really, that’s the whole point, right? You’re working toward the “after.” What happens next?

Exactly.

Thank you for sharing that. I think the idea of decompression is such good advice. Even when people are simply moving from one job to another, there’s often pressure not to take any time off. Selling a business is an even bigger life event, so taking time to clear your head seems incredibly valuable.

Yeah. I think a lot of people never fully come to terms with both the good and the bad parts of the experience. Sometimes we try to focus only on the positives or overlook the negatives. I think it’s healthier to acknowledge both, process them, and then let them go. Once you’ve done that, don’t be afraid to pursue something for reasons other than maximizing the next exit.

I think entrepreneurs can get caught up in the game of asking:

*”How do I make the most money possible?”*

Instead of asking:

*”How do I do the best work I’m capable of doing during my lifetime?”*

That’s something I’m still learning myself. I’m about two years post-exit now, and it’s only recently started to really sink in. 

44:13 Under Optimizing

Especially at Quiet Light, where we spend all day helping people buy, build, and sell businesses, it’s easy to think of exits as a normal part of life. But for the people actually going through them, it’s often a once-in-a-lifetime event. It’s not something they’re going to do five, six, or seven times. That’s easy for us to forget because, for us, it’s just part of the daily grind.

We talked briefly before this webinar, and I wanted to revisit a topic that I found really interesting. You mentioned that business owners might actually want to *under-optimize* certain aspects of their business. At first, that seems counterintuitive because you’d think the goal is to make everything as good as it can possibly be.

Can you talk a little bit about what you meant by that and what kinds of things people should consider under-optimizing?

Yeah. If I’m being honest, I originally framed that as a slightly clickbaity idea. But thinking about it now, one thing that comes up all the time is this question: “Should I make this major change before I sell, or should I wait until after the sale?”

For example:

* Should I launch this big advertising campaign before selling?

* Should I try to accelerate growth and then sell?

* Should I completely rebuild my website before selling?

There are always questions about what optimizations should happen before an exit.

What I’d say is that if an optimization is likely to have a meaningful impact on revenue, then yes, it’s probably worth considering. If you can demonstrate strong, sustainable year-over-year growth—and it’s not some temporary tactic that’s going to disappear after the sale—that’s valuable. Earlier I mentioned examples like pushing annual subscriptions or lifetime deals simply to inflate numbers before selling. Those are short-term tactics and buyers will usually uncover them during due diligence.

But if you’ve identified a genuine growth opportunity that will improve profitability over the long term, then absolutely pursue it. Where I think under-optimization can make sense is with things that aren’t directly tied to revenue.

For example:

“We’re thinking about redesigning the website. Should we completely reskin it before selling?”

My answer is usually no. If it’s not going to materially impact revenue, profitability, or Seller’s Discretionary Earnings, I probably wouldn’t spend a lot of time worrying about it. Now, there are exceptions. Like most things in business, it’s nuanced.

But generally speaking…Okay, you’re on a platform that’s just so old, and you’ve already invested a decent chunk of time and money into a new web upgrade—let’s say your marketing site. Okay, fine. Pull the trigger.

But I think the whole idea behind under-optimizing is about avoiding work that isn’t actually going to move the needle in terms of valuation. A redesign or reskin of the website, to me, isn’t really going to have much impact on valuation. I’m trying to think of other examples of minor optimizations. Maybe you’re adding a bunch of extra documentation because you feel like, “This is going to be the thing that sells my business.”

Documentation is probably a bad example because it does have value. A better example would be a website redesign, aesthetic changes, or an advertising campaign that exists solely to artificially inflate performance. For example, if you’re going to pour a bunch of money into ads for a short period of time just to boost revenue, even though you know the acquisition costs aren’t sustainable, I wouldn’t do that. That’s the kind of thing that’s going to come out during due diligence. What I really mean is that you should focus on the things that actually matter for your exit and for the valuation of the business.

In hindsight, it probably wasn’t the best way to phrase it. It was a little clickbaity when I originally sent it over.

48:42 Diminishing Returns

No, I still think it’s helpful. We spend so much time talking about making sure everything is in perfect shape—your bookkeeping, your systems, all those things. But the reality is that not everything has to be perfect. When people go to sell, they often want everything to be flawless so they can get the best deal and attract the most buyers. What I’m hearing from you is that there are diminishing returns. Some things simply aren’t worth the time and energy because they won’t actually pay off.

Exactly. And it hurts a little because some of those things represent sunk costs. You’ve already invested time, money, and effort into them. We definitely experienced that. But I think it’s okay to hand those projects to the next owner and say:

“These are some of the things we were working on. These are some of the initiatives we explored.”

Just understand that they may never use them, and that’s okay. The next owner will have their own vision for how they want to grow the business. When someone is buying your company, they’re evaluating growth opportunities. They’re looking at it as an investment. So it’s perfectly fine to point out opportunities that weren’t fully explored.

For example:

“We thought Google Ads might work. We developed a strategy around it, but we never actually ran the campaign.”

That’s valuable information. It’s a great example of under-optimization because it gives the buyer an opportunity to create value themselves.

Someone who knows Google Ads might look at that and think:

*”I know how to execute this. I’ve done it before. I can make this work.”*

Those kinds of opportunities can be attractive to buyers. What you don’t want to do is artificially inflate metrics or manipulate performance in a way that eventually erodes trust. Because that’s exactly what will come back to bite you during due diligence. And that’s where things become stressful. You’re close to the finish line. You’re close to getting the deal done. Then suddenly issues start surfacing and things feel like they’re falling apart. That’s where the stress really kicks in. So focus on building trust.

If there are areas where a future owner could unlock growth, point them out. Just recognize that those opportunities don’t necessarily increase valuation dramatically by themselves. It’s okay to leave some things undone. It’s okay to have a notebook full of ideas, experiments, and half-tested strategies that you hand over to the next owner. Somebody else may be able to execute those ideas far better than you ever could.

Sorry—that was probably a long-winded answer.

51:52 How Long Does It Take to See the Value of Your SaaS

No apologies necessary. The specifics are incredibly helpful. We actually have a follow-up question in the Q&A that’s related to this discussion. If I’ve made a recent change that I believe will improve Seller’s Discretionary Earnings, how long should I wait before I can demonstrate its value concretely?

That’s a really good question. I think at least a few months. When we evaluate businesses at Quiet Light—and many other firms do something similar—we’re looking at the trailing twelve months. Ideally, you’d have a full year of financials that show the impact of the change. Being able to compare month-over-month and year-over-year performance is extremely valuable.

For example, comparing November of last year to November of this year can tell a compelling story. Now, if you’re not willing to wait a full year, I’d say at least three to six months. The key is demonstrating that there’s a real trend and not just a temporary spike. The more history you have, the more confidence a buyer can have that the improvement is sustainable and that the risk is lower.

I understand that many founders want to sell sooner rather than later. Just keep in mind that selling itself can take a long time. In our case, it took more than 60 days from signed agreement through closing, and that’s not unusual. Many deals take months to complete. So, make sure what you’re seeing is actually a trend.

You can’t establish a meaningful trend from a single month of data. Two months is better, but still limited. Three or four months is where patterns start becoming more believable. Once those results begin showing up consistently in your trailing twelve-month numbers, the story becomes much stronger.

So the real answer is: it depends. But generally speaking, it takes a few months before a trend becomes visible and credible.

54:13 When Should YouSell Your SaaS

That makes perfect sense. We only have a couple of minutes left, so let’s wrap up with a question we touched on briefly at the beginning.

When is the right time to sell?

Obviously, that’s subjective. In your case, it sounds like circumstances pushed you toward it. But for those who aren’t in that situation, how should they decide?

It ties back to the previous question. From a purely financial perspective, the best time to sell is usually when you can demonstrate strong year-over-year growth. If revenue is growing, systems are optimized, you’ve reduced risk, and you’ve removed yourself from the day-to-day operations as much as possible, that’s typically the ideal situation. The business is growing, transferable, and de-risked. But that’s only the financial side of the equation.

Personally and psychologically, it’s a different conversation. My advice is to sell before burnout sets in. Don’t wait until you’re exhausted. The process of selling can be long and emotionally demanding. In our case, the first serious conversations about selling happened nearly two years before the actual transaction. That’s not always the case, especially if you’re working with a broker, but it’s common for owners to spend six months to a year preparing for an eventual sale.

A lot of the founders I talk with today are still six to twelve months away from being ready. The important thing is knowing yourself well enough to recognize when it’s time to start taking some chips off the table. One of the hardest things for entrepreneurs is that we always believe the next big breakthrough is right around the corner.

“Once we launch this feature…”

“Once we release this product…”

“Once we improve this process…”

And sometimes that’s true. The challenge is accepting that you may leave some money on the table. And that’s okay. There’s rarely a perfect moment. Most of the time, the opportunity creeps up on you. What I see happen is that founders wait too long. By the time they finally decide to sell, they’re already burned out. And then they just want out as fast as possible.

In some cases, they don’t even have the energy to navigate the sale process properly. That’s a difficult place to be because, for many founders, 50% or more of the total wealth they’ll ever generate from the business comes from the exit itself. You don’t want to mishandle that stage because you’re exhausted. So prepare early. Even if you’re not completely ready. Even if there are still opportunities you want to explore. Give yourself six months or more to get your ducks in a row and prepare. Just don’t wait until you’re burned out.

Totally. That’s advice I hear from a lot of experienced advisors, and I don’t think it can be repeated enough. 

58:05 Outro

Well, that’s exactly one hour. Jon, we’ve never hit the 60-minute mark this precisely, so that’s an impressive milestone.

Thank you so much for joining us. Before we wrap up, do you want to let people know how they can get in touch with you?

Yeah. My website is just JonHainstock.com—Jon with no “H.” You can also email me at [email protected].

I’m on Twitter as well. I’m not very active there anymore, but my DMs are open.

And of course, you can always reach me through Quiet Light. I’ll be around.

Great. Lots of ways to connect. Thank you, everyone, for joining us and for all the great questions. We’ll be back in January with another AMA, and we hope to see you there.

In the meantime, have a wonderful holiday season.