Success in business and life is knowing what to do and not do. Do you know exactly what to do when it comes to growing your business, and later, exiting it? For most business owners the answer is a resounding “no.” After all, the skills to start a business and different than the ones to grow and later sell a business. Most business owners make the fatal mistake of thinking of themselves instead of mastering the art and science of thinking like a buyer.
The host of The Deep Wealth Podcast and post-exit entrepreneur Jeffrey Feldberg speaks with Michael Frew to learn what buyers look for when buying a business. Michael is the proud owner of several seven-figure companies, and his knowledge has been featured in major media outlets like FE International, IndieHackers, and Empire Flippers.
Michael Frew's journey is nothing short of inspirational. He's not just a business owner; he's a mentor, consultant, and author who loves to help fellow engineers break free from the monotony of corporate life. Michael’s passion is evident when he says, “I am probably a very typical engineer that worked in corporate America. I always say I was a very average engineer, like a C kind of engineer, nothing special.”
Michael initially managed multi-million dollar consulting engagements for major corporations like IBM, Microsoft, Amazon, Salesforce, and Mandiant. He holds degrees in Business and Economics from universities in China, Hong Kong, and the Netherlands and has several postgraduate information security certifications.
Tired of the daily grind and what's known as the "golden handcuffs" of corporate life, Michael sought something more fulfilling. “I continued to have what I always call like the quarter-life crisis,” Michael shares. This crisis pushed him to pivot his career dramatically. He realized he wanted to be his own boss and work on projects he truly enjoyed without the unnecessary corporate meetings.
Michael Frew isn't your ordinary businessman. Over the past decade, he has been featured in many media outlets like FE International, IndieHackers, and Empire Flippers. He specializes in guiding software developers and engineers through the complexities of online acquisitions.
Before diving into his own businesses, Michael was a top-performing software architect and cybersecurity consultant. He managed big consulting engagements with major corporations such as IBM, Microsoft, Amazon, Salesforce, and Mandiant. Michael holds a B.S. and an MBA in Business and Economics from universities in China, Hong Kong, and the Netherlands. He has also earned several postgraduate information security certifications.
On one of his sabbaticals, Michael discovered the exciting but risky world of digital acquisitions. He bought a small affiliate business that generated cash from day one. This immediate cash flow was a game-changer for him. “I had cash in my bank account day one. And for those of us that have tried to start a business, that doesn’t happen,” he recalls.
Little Known Insights About Acquisitions
For those new to the concept of acquiring businesses, Michael provides invaluable insight. “If you don’t understand how corporate politics works, if you don’t understand how budgeting works inside of small and large corporate teams, it's really hard to sell into those groups,” he explains. Corporate experience can be incredibly beneficial for understanding how to run a successful business.
Michael emphasized the evolving nature of the business acquisition market. Earlier, it was somewhat chaotic, but today, it is more professional. He highlights the importance of brokers, financing options such as SBA loans, and the growing respectability of online business acquisitions.
Michael spoke about the advantages of buying a business rather than starting one from scratch. He said, "For many of us, starting a business is a gamble. But buying a business that's already generating revenue reduces that risk significantly."
Jeffrey asked Michael to elaborate on the benefits of buying a business. Michael highlighted three main points:
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Immediate Cash Flow: "I had cash in my bank account on day one. For those of us that have tried to start a business, that doesn't happen," Michael explained.
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Established Market Fit: Buying an existing business means the product already has a market fit. Michael said, "There was marketing to it. And by just exchanging a little bit of money, I already had that cash flow."
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Reduction in Risk: The risk associated with starting a business from scratch is high. Michael emphasized, "When you're buying a business, you are reducing that risk significantly."
Michael shared some valuable insights about business subscriptions. He pointed out that monthly subscriptions are generally more preferable than annual ones, especially for software-as-a-service (SaaS) businesses. He said, "When you have a monthly subscriber, you can tell with 98 percent confidence what you're going to make next month."
On the other hand, annual subscriptions carry more risk. Michael explained, "With annual subscriptions, you may attract customers who never actually use the product, leading to a high churn rate."
Michael advised looking for businesses with slow and steady growth. He said, "A company that's been growing slowly, predictably, without any spikes, doesn't have hockey stick growth, and isn't trendy, is a good buy."
Synergy in Business
One key to Michael’s success is finding synergy in his portfolio. “Once you start doing two, three, and four, you do have to… plan out that portfolio so that hopefully there’s some synergy with all of the businesses,” he says. For instance, Michael owns multiple businesses that run on the same tech stack, which allows him to leverage his resources effectively.
Michael gave some practical tips for entrepreneurs who are interested in buying businesses. Here are a few highlights:
Look for Slow and Steady Growth
Michael advised looking for businesses with slow and steady growth. He said, "A company that's been growing slowly, predictably, without any spikes, doesn't have hockey stick growth, and isn't trendy, is a good buy."
Understand the Value of Brokers
Michael emphasized the role of brokers in business acquisitions. He mentioned that brokers can help sellers prepare their businesses for sale, making the process smoother for buyers. "The broker walks the seller through, helps solve problems, and educates them on what they need to do," Michael explained.
Know the Red Flags
Michael outlined some red flags to watch out for when buying a business. These include unrealistic valuations, poor financial management, and inadequate documentation. He emphasized, "If the valuation is crazy, it's a sign that the seller hasn't spoken to a broker or doesn't understand the market."
Knowing What to Acquire
Michael advises looking for stable, growing businesses rather than trendy ones. He warns against SaaS businesses that rely heavily on annual or lifetime subscriptions, saying, “As a buyer, I'm looking at monthly subscriptions as a 99 percent chance it’s going to be here the day it closes.”
Michael points out red flags in potential acquisitions, such as poorly kept books or overly optimistic valuations that don't align with industry standards. He stresses the importance of picking businesses that are fun and fulfilling. Yes, fun! “Is this something I would wake up every day and want to do?”
Jeffrey and Michael also touched on the impact of artificial intelligence (AI) on businesses. Michael noted that AI has both positive and negative implications. He said, "Content sites have been severely impacted by AI, but service providers have leveraged AI intelligently and are growing."
He advised entrepreneurs to stay educated about AI and its impact on their industry. "You need to constantly educate yourself to stay relevant," Michael remarked.
With the rise of AI, Michael discussed its varying impact on different niches. Content sites have suffered, but other sectors like service providers have thrived using AI.
“I see businesses for sale where I think AI is a threat to continue that cash flow for five years and sell it in five years,” Michael notes. For future projections, he imagines AI will continue to evolve, posing both opportunities and challenges.
Advice for Aspiring Entrepreneurs
Michael encourages engineers and other professionals to consider acquisitions as a viable path to entrepreneurship. His words carry weight: “Just recognize there's people that are excited to take it from that spot because that's what they like to do.” It’s about finding your niche in the business lifecycle and flourishing there.
He offers advice to enjoy the journey. “I was always really excited about moving forward…But maybe enjoy a little bit of the places that you've been and take your time because you're gonna reach there anyway,” he reflects.
Michael Frew's journey teaches us that the path to success is rarely straightforward. Whether it’s leveraging your corporate experience or diving into the world of online business acquisitions, the key is to find what you love and stick with it.
If you found Michael’s insights valuable, make sure to subscribe to the Deep Wealth Podcast. Your next big breakthrough could be just one episode away. Thank you for joining us, and as we always say at Deep Wealth, may you continue to thrive and prosper while you remain healthy and safe!
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