ARR & profit margin are the foundation of selling your indie product

Please upvote if you find this posted helpful!

This post evolved from my comment on Is it possible to exit without generating revenue?, posted by @marcelcruz

I tried to write this specifically for indie hackers who are...

• looking to sell in the immediate future
• considering a future sale as they build
• not considering a future sale but are keeping the door open as a potential exit strategy

So...I think it's useful for everyone. It's good to know this stuff whether you're thinking about selling tomorrow or in 10 years.

When you see an indie business that makes strong revenue and has a solid profit margin, what positives do you see?

• A founder jet-setting around the world?
• A company that takes great care of its team?
• The ability for that company to focus more on work-life balance and less on 80-hour work weeks?
• The capability to reinvest some of those profits back into the business to fuel growth, give out employee bonuses, improve healthcare coverage, etc?
• A much lower likelihood of the business failing?

Maybe you see one of these. Maybe multiple. Maybe all of them.

Well it's what potential acquiring companies see too.

When you see an indie business that has low revenue and an unknown profit margin, what negatives do you see?

• A lot of hard work ahead figuring out how to monetize the product well?
• Some failure ahead as the team implements, measures, learns and implements again and again and again?
• Having to stick to growth models that aren't cost-prohibitive until serious revenue is being generated?
• A much higher likelihood of the business failing?

Maybe you see one of these. Maybe multiple. Maybe all of them.

Well it's what potential acquiring companies see too.

Most acquirers want to take over a business that's already making money/profits because they can anticipate that continuing. If it's not making money now, it means an acquirer would have to strategize and execute the monetization model and wait for revenue/profit down the line that might never come, so it's a much bigger risk (and much more work).

Plus, bigger businesses want the ability to pay for small problems to go away. Small businesses with no revenue need to get creative to make those problems go away. Once you have a healthy profit margin, you can pay for problems to go away. And acquirers often want fewer problems.

Sure, sometimes strategic acquisitions happen for life-changing amounts of money. This can happen for an indie hacker without the revenue there. But what happens most often is that the offer is based on a multiple of yearly revenue or yearly profits.

This is not to say that your technology doesn't matter or have value. But that's often going to come second to revenue/profits. That's what often drives indie acquisition business.

We always looked at MRR and monthly/yearly profits when acquiring a business. Without any revenue, IMO, you're not going to be able to sell your business for any meaningful amount. Maybe you could pay your rent for a few months if you're lucky but that's it.

And...if you have a product of your own and are thinking about integrating product tours, let's talk! Come livechat with Jacob or I over at driftly.app and we'll get you hooked upppppp.

Onward and upward, IHers!

P.S. What other questions about indie acquisition do you have? Happy to answer any I can in the comments below 👇🏽