Buy or Build / Shutdown or Sell with Michael Frew

Josh (00:00:03) - Good day, everybody. This is the deal, Scout. Seven minutes on the clock. What is your name? And talk to us about the kind of deals you work in. Acquisitions. Go.

Michael (00:00:12) - Hey, my name is Michael Drew. Thanks for having me here. So I am an X developer, X engineer, exit consultant, and a transitioned after about 18 years in my career to acquire in software projects. So basically what I'm doing is I'm working on the same projects that I learned over the last two decades, except I'm now the boss. I get to hire the team that I want. I get to do the things that we enjoy doing. I work with customers that we like, and it's a lot better than having a boss tell me what projects to work on. So once I did that kind of career pivot, I realized that this was a heck of a lot better than trying to start my own business failing, trying to start my own business, failing. Now I'm starting with something already has cashflow.

Michael (00:00:51) - I already has customers proven market fit. All the things that you want, and you have a heck of a lot better chance than that 95% failure rate that most businesses have. So that's kind of me in a nutshell, man.

Josh (00:01:02) - I love this concept because I came from the startup world, venture capital and such, and I failed a ton more than I've succeeded. And that's kind of the nature of startups. It's it's risky. The idea of buy versus build is something that I'm more pivoting towards, is buying something that other people have put the blood, sweat and tears. You talk about acquiring projects, though. Will you look at an individual project to acquire? Maybe not even the full company?

Michael (00:01:32) - We can all think of all the archived projects that we have. Right? And so these are all our little startups that didn't work. When you are speaking with an entrepreneur or possibly a partner group of entrepreneurs, typically what they've built is something that scratches their own itch or something that they saw in the market that they wanted to solve.

Michael (00:01:49) - Sometimes they're projects, sometimes they're really large businesses. I always buy the business. And basically what you're buying is the asset. We're not really buying the LLC or anything. We're buying the assets inside of the business. So sometimes I call them projects just to make it relatable for developers and engineers to understand what we're talking about. But really, in the end, it is a different and a separate business.

Josh (00:02:08) - Got it. Yeah. Super interesting. So give an example of you going in acquiring something. We talk in software, a SaaS business. You going in. Why should the why should the developer or so-and-so even answer your call and and do a deal with you?

Michael (00:02:25) - So I specialize in SaaS software acquisitions. And there's other niches out there that different teams of people work on. And if you think about the business life cycle of a company, it's going to start with an entrepreneur. And they kind of get it from 0 to 1. And then that business starts to do things that entrepreneurs don't really like to do.

Michael (00:02:41) - It has operations problems, it's got marketing. You have to deal with a lot of customers, and something new and shiny comes out. A couple of years ago was NFTs. Now it's AI. So most entrepreneurs, they want to go work on the new shiny project, and they either shut down their projects or they sell the business. That's where I show up. I'm a really good operations person, so I take the business from 0 to 10. I can help scale it. I can get it ready for growth. We put more marketing on the front end. A lot of times developers, you know, we're a lot. A lot of us are introverts. We don't really want marketing. So that's where I kind of make that change. And then I'm looking to sell it to the next group that takes it from 10 to 100. So that's where I fit in the business cycle. I think there's a lot of other operational engineers like myself out here that can find this as a career step. And so that's a little bit why I like to talk about it, for sure.

Josh (00:03:23) - I love this because, you know, I could look at it from the from the investor mindset. I could buy or build, but from the founder mindset I could shut down or sell. I start building something and I build a series of things. One of the things takes off and then I have to divide my attention, my resources, or put a bullet. In this project, you're giving another option shut down or sell. Maybe selling is a better option.

Michael (00:03:50) - That's exactly right. And if I think back to most of my acquisitions, it is because something else in that person's life took off. One of them. He got a job at a really good company that he wanted to go work at. Another one got his venture funding, and they had to divest everything else. So immediately they think, all right, I either have to shut this down or I need to sell it, or a lot of times what you see is it starts to atrophy. So sometimes I find businesses that haven't really been worked on in a few months, and you got a code base that's starting to get a little old, but other times it is some of these quicker moves.

Michael (00:04:18) - And for me, because that exists, I prefer to buy businesses in that scenario instead of something where it's a divorce or because somebody fell behind on their taxes. And then you, you know, that business is going to be a bit messed up. These are people that are working on a business that is either really running really good, or they just haven't paid attention to it. And it was doing great before. Yeah.

Josh (00:04:36) - I this is really cool. So let's say this is me I built I built a few tech things. I'm a serial entrepreneur, right. Which means that I wear many hats and I run multiple companies because I'm trying to find the one that really takes off one's really taken off. One is has potential. Just doesn't have my name on it. I just don't have the resources to build in it. I contact you, how do I even know what this thing is worth?

Michael (00:05:02) - Right? So a bunch of different formulas based on what type of business you're running, whether it's e-commerce or software.

Michael (00:05:08) - And we can walk you through how you do those multiples based on what your cash flow is and what your projections are. And then you can set it up in a bunch of ways. If you feel like, hey, I really like this business, I don't have time for it, but I would like to participate in the upside. Why don't we put something together where I pay you 80% and you get 10% of the cash flow in the future, and you get 10% on when I exit in 3 or 5 years. How about something like that? So you're still participating, but then it's not something you have to work on day to day. I love those kind of relationships because then I still get to speak with the original founder, carried that vision forward, and we kind of start working together.

Josh (00:05:39) - Yeah. So give us an idea of a few different types. You say software, are you looking at e-commerce like, give us, give us a few of what you do look for and maybe a few that you're like, I'm not interested at all in these.

Michael (00:05:51) - So in the online business acquisition space, there are a bunch of niches. I'm a software SaaS person. There's definitely a large e-commerce. There's a large Amazon e-commerce. There's also a large affiliate section of people that are really good at doing affiliates. There's content marketing, there's advertising. So there's a bunch of different niches based on what you might specialize in. So if you do a ten year career where you're on the marketing side of a corporate business, you might really look at, can I find a marketing business or even a SaaS tool that sells to marketers? Because those are people you're used to working with. Yeah. So I think each niche can fit something that you've been doing in your corporate career as well.

Josh (00:06:25) - Yeah. And for you it's SAS. You love it. You want to buy more of these big time goal. How many do you want to buy in the next 20 years?

Michael (00:06:34) - I do about 1 or 2 every year. And so kind of professionalize that as my portfolio. Rolling those up.

Michael (00:06:41) - I'm a buy and hold kind of person. So you know, the answer is I don't really know. But it's kind of increasing each year. 1 or 2 more. Cool.

Josh (00:06:48) - Where can people go to do a deal with you?

Michael (00:06:50) - Super simple. I've got, uh, as an old time tech person, I've got my own domain name of my own name from 25 years ago. It's Michael Frew. Com and my last name spelled free w Michael. Com easy to find me. I'm not selling anything. Just reach out, chat anytime.

Josh (00:07:06) - Cool. All in just about seven minutes. I hope you guys are enjoying this new format of the deal. Scout. If you have a deal that you'd like to talk about here on the show, head over to the deal Scout comm. Fill out a quick form. Maybe you could be on the show next. Till then, we'll talk to you all on the next episode. Bye, everybody.