How (and when) to buy a product instead of building it

We're all interested in building businesses, and I feel like there's a bias toward building it from the ground up. So this might be an unpopular opinion, but IMO sometimes buying a business is the best way to go. You can still be scrappy and you can still build it. But you're starting with a leg up.

I've been thinking about doing this for a while now, so I've been digging into it and learning from indie hackers who have done it. Here's what I've found.

Why (and why not) to buy

The main benefit is obviously the time and energy that you'll save. You're fresh and ready to go after you buy it, but you're already months or years into the product's lifecycle. That's time that you've saved, so you're ahead of the game.

And if you do it right, you'll be purchasing an established customer base, along with an instant influx of MRR. These are beautiful things.

Plus, if you aren't technical, this allows you to have a software product (and either learn piece by piece or outsource)

Of course, there are risks involved, but these days, it's pretty safe (when using a marketplace — see below). So really, the downsides are that it costs money, and it's tough to find a product that you really love.

When to buy vs build

As long as you have some money in your pocket that you're willing to burn, I think it's always worth a shot. But I'll add that buying might be the best option in the following situations:

• You don't have any ideas that you want to move forward with
• You have an idea and you happen to find a product for sale that could be tweaked into your idea.
• You'd like to try your hand at growth quickly without having to spend time building
• You don't know how to code but you're eager to learn (or outsource)
• You're short on time (but flush with cash)

How to buy

The first step, of course, is to set your budget. How much can you spend on the purchase? Remember that you may also need money for marketing, etc. afterward. It's possible to get an SBA loan (in the US) when buying a company, but I wouldn't recommend it. Going into debt for this is a risk — better to save up or build your own.

As far as how much it will cost you, most valuations are between 2x and 4x ARR, with 3x being the go-to.

With budget (and money) in hand, the easiest option is to head to a marketplace (see below) and use their search filters to find the right opportunity for you. You can also jump on their email lists to be notified about recent listings. Make sure to create a solid profile because the seller needs to have confidence in you just as surely as you need confidence in them. Then reach out with an introduction, why you're interested, and any questions you might have. Marketplaces usually allow sellers to set some info to private, so at this point, they should give you access to that.

There are a lot of things that should be considered, which I'll outline below, but if everything looks good and you've agreed on a price, you'll usually send a letter of intent (LOI). Most marketplaces will make this easy for you.

Now, you continue your due diligence. And if they accept your LOI, then you each sign an asset purchase agreement where you finalize terms. And finally, you transfer the funds to escrow (if your marketplace doesn't have a solution for this, use something like escrow.com, from which it will be released upon transfer of all the promised assets. Now, all you've gotta do is grow the thing (and keep building).

One other thing to note here: Make sure your contract includes a "hold harmless and indemnify" clause in the contract to mitigate the risk of business liabilities that you're unaware of.

Key metrics to check

The idea here is to find something solid that needs some help — help that lines up with your particular expertise. So the product doesn't need to be perfect. It needs to be within your budget and capable of growing. When you first start looking at an opportunity, I'd suggest putting together a plan of how you would grow it. This will help you to get your head around how good the opportunity is, while also helping you to hit the ground running if you move forward.

Here are some things you'll need to look into before you make any decisions. The seller should be able to answer all of these questions pretty easily, but it can also be a good idea to do your own research to ensure accuracy.

• What is their MRR? Get the income tax return for every year of operation, along with the current profit and loss statement. If they don't have those, get their Stripe revenue or whatever they do have. Understand their revenue and the trajectory it is on.
• What is their retention/churn? This might be the most important question you ask.
• What is their conversion rate from free to paid?
• How much traffic does the site get, and how many monthly average users?
• What are their operating costs? This will help you to determine their margin.
• Do they have any debt? You can conduct a commercial code search by contacting the department of public records (in the US).
• What is the business model? If subscription (which would be a good thing), figure out how many customers are monthly vs yearly. If everyone is yearly and the seller already took that to the bank, then you'll be waiting a year for your next payment, even if the business has a healthy MRR.
• What is the lifetime value (LTV) of customers?
• What is the Customer Acquisition Cost (CAC)?
• What is the LTV:CAC ratio? Make sure it's 3:1 at a minimum.
• Take a look at the market. Is there room to expand?
• Are they niched down? The more they are, the better.
• If growth is stalling (and it probably is if they're selling it), find out why.
• What is the competition like? Do a competitive analysis.
• Do a code review. Is it in a good state? What is the architecture? What is the uptime? What is the choke point? And is it in a language you are familiar with?
• Take a look at their customer support tickets. What are customers saying?
• Take a look at their reviews and testimonials.
• Take a look at the roadmap and noted bugs.
• What else comes with the purchase? Look into other assets like blog, email list, Twitter account, etc.
• How solid is the brand? Check out their socials and see what type of engagement they get. Set up Google alerts so you know if/when they're mentioned.
• How many hours a week do they currently work on it?
• Get a list of leads and opportunities. This could be customers, growth ideas, etc.

If it's a B2B company, it can also be worthwhile to speak with one of its clients.

Best business marketplaces for indie hackers

There are lots of marketplaces out there where you can buy businesses, but these are the next for indie hackers IMO:

• Microacquire by Andrew Gazdecki (@MicroAcquire)
• Flippa
• SideProjectors
• Tiny Acquisitions by Stephen Campbell (@stepocampbell)
• GetAcquired
• Motion Invest
• IndieMaker (formerly 1kprojects) by Othmane (@EO)

If you want a completely free, DIY solution, SideProjectors is the one for you. But to me, that would be too scary, as they don't do much of the heavy lifting for you — no due diligence, etc. Microacquire and Flippa are the big dogs in the space and they're both solid. Tiny Acquisitions is more targeted to what most indie hackers will be hoping to buy (<$10,000).

Another option is a broker like FEInternational or Empire Flippers.

Going it alone

I know of a couple of indie hackers who successfully sold to other indie hackers without going through an intermediary. Just a few emails, funds sent, and code exchanged. Risky, but doable. Particularly if you already have a relationship with them, or you have mutual acquaintances, or (at a minimum) you're able to get a feel for them from their online presence.

I personally wouldn't recommend this. If you do it, it's best to have a lawyer and escrow service handy… and at that point, you may as well pay to use a marketplace.

Resources

• Valuation calculator
• 14 free ebooks on SaaS acquisition

What did I miss?

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