What's New: The road to a successful exit

(from the latest issue of the Indie Hackers newsletter)

The road to an exit can be a bumpy one:

• What should founders hone in on when looking to sell? Discovering the valuation drivers of potential acquisition partners is one major key to closing the deal. Here's how.
• Open source projects give creators and companies flexibility, and lower platform risks. Monetization makes these efforts sustainable, and Dru Riley has tips on getting in the game.
• Founder Joe Xu Yi has served over 600 customers with ACT Helper, a tool that makes standardized test prep easier. His biggest challenge? Indie hacking with infant twins. Below, he shares how he balances it all!

Want to share something with nearly 90,000 indie hackers? Submit a section for us to include in a future newsletter. —Channing

🛣 The Road to a Successful Exit

by Brandon Strellis

Who out there has built and sold a business? Prestigious comrades, please tell us something you learned along the way!

Following the system

Marty Bickford says that most companies who sell for a good price follow a system. This involves identifying target acquirers based on aligned customer base and acquisition history of the acquirer.

You can target an acquisition the same way you sell to an enterprise customer. One of the secrets is that large acquirers run acquisition pipelines, meaning that they want to talk to you early, and will tell you what matters to them (valuation drivers). Here's a summary of what to look for:

1. Ecosystem: Document all of the players who touch your customers. During this process, identify which companies could be partners, and which of those have the means to acquire.

2. Identify and understand acquisition partners: Why would they acquire your company? Remember that your company is now the product. Do they want to acquire new customers or save them money? Does it increase their lifetime value? Do they have a history of acquisitions (see Crunchbase to find out), and is there a pattern to these acquisitions? Do they buy on top-line revenue or profit (depends on what they are after)?

3. Call your targets: Find the person responsible for acquisitions. Some will be happy to talk with you, regardless of your stage. It is their job to find great acquisitions. Ask them about partnership, and if this led to acquisition in the past. If so, what would they be looking for? This will tell you what is important to them (customer types, tech stacks, validation metrics, etc).

4. Plan: Once you understand how much you want to make, you can back into decisions along the way. Does that new hire add to your valuation in the eyes of an acquisition partner? Does that new feature fill a gap in their product? Many acquisitions are for a lower price than you want because the acquirer doesn't value parts of what you built.

5. Stay in touch: Acquisitions don't happen overnight. Keep your partners updated on your progress.

The above is just a summary. If you'd like to go deeper, our courses lay out a methodical framework for planning your exit. We are firm believers in starting with the end in mind. Indie hackers can use code "BCP123" for free access!

SLC > MVP

Courtland Allen offers this advice:

Make yourself easy and attractive to acquire. Keep your team very small, your product quality very high, and build something that has a unique impact.

While MVPs are fine, I like the idea of SLC's even better. An SLC is:

• Simple,
• Lovable, and
• Complete.

If you build a simple enough product, you can make it really polished without wasting too much time.

Know your suitor

Daniel Jakaitis has been through two exits with a total of $200M+ in deal value, as an executive and advisor:

The two businesses were wildly different, but one consistency was that both founders had relationships of some variety with the eventual buyer. It makes the deal process smoother if you know your suitor. You don't need to be best friends with them, but seeking out acquaintances in your space that may acquire you will pay dividends long-term.

Koen Witters agrees, honing in on the importance of providing value to your buyer:

I once worked at a company that got acquired. In my opinion, they were doing all the wrong things. That is, until I realized (after the acquisition) that they were selling the company, not actually selling the product. At that point, it all made sense.

We were selling a crappy product to a lot of European customers. Our help desk was overloaded by complaining customers.

We were acquired by a Canadian company that wanted to buy its way into the European market. Of course, it migrated everyone to its own product, so the product that we built was a throwaway anyway.

If you want to sell a company, make sure you focus mainly on providing value to the potential buyer.

Remember to be patient, adds Ben Tossell:

It takes a lot longer than you think. All of the hard parts that people mention will happen. Try to keep one eye on the business while the acquisition distracts (read: consumes) you.

What's your best advice for a successful exit? Share below!

Discuss this story.

📰 In the News

from the Volv newsletter by Priyanka Vazirani

🛠 YouTube is bringing more creator tools to its platform.

🚫 A French regulator has ruled Google Analytics illegal.

🏢 Gen Z wants to go back to the office, but not full-time.

🎮 Sony and Microsoft's gaming acquisitions could be just the beginning.

🏈 Drake has bet $1.26M in Bitcoin on tomorrow's Super Bowl game.

Check out Volv for more 9-second news digests.

💰 Trend Alert: Monetized Open Source

from the Trends.vc newsletter by Dru Riley

Why it matters

Open source projects give creators and companies flexibility, and lower platform risk.

Monetization makes these efforts sustainable.

Problem

Platform risk puts you at the mercy of closed source companies. You are subject to vendor lock-in and rent-seeking behavior.

Using an Oracle database? Were prices raised? No one is listening to request features? Too bad. You can't touch the code. And switching costs are high.

Solution

Monetized open source projects give some, or all, of the code away for free, with the ability to change it. Projects are monetized via services, premium features, hosting, and more.

Players

Projects:

• WordPress: The most popular website builder.
• Plausible: Google Analytics alternative.
• Elastic: Search, analyze, and visualize data.
• Medusa: Shopify alternative.
• Posthog: Alternative to Mixpanel and Amplitude.
• Supabase: Firebase alternative.
• Semgrep: Static analysis tool.
• AnonAddy: Anonymous email forwarding.
• Penpot: Figma alternative.

Predictions

• Monetized open source projects will become more ambitious. NocoDB and Baserow are Airtable alternatives. n8n is an alternative to Zapier and Integromat. Medusa is a Shopify alternative.

• Networks will become public goods. Centralized networks have been one of the most effective ways to generate wealth...for a few. As NFX states:

70% of value in tech is driven by network effects.

See Facebook and Amazon. Value from user-owned networks accrues to network principals and participants. LooksRare is an OpenSea alternative. Network effects will remain powerful, whereas value accrued will change.

Opportunities

• Counter position to compete with incumbents. Make it hard for them to mimic your strategy. Copying should lead to cannibalizing their existing business. Medusa is a Shopify alternative. It's unlikely that Shopify will open source, even if Medusa becomes a formidable competitor.
• Contribute to open source projects without permission. Use open source contributions to build a portfolio and find jobs. Laszlo Block, former VP of People Operations at Google, says that the number of Google employees without a college education is rising.
• Use open source alternatives to avoid platform risk, vendor lock-in, and rent-seeking behavior. Use code that you can fork and self-host. Oracle can raise prices without providing more value because switching costs are high.
• Turn complaints into contributions. Accept pull requests along with feature requests. Augment your dev team with open source contributions.

Risks

• Consulting: Services are less scalable than hosting and dual-license models. Consider marginal costs before you choose this strategy.
• Community backlash: Moving free features to paid tiers may lead to backlash.

Key lessons

• Users are the real winners of monetized open source. Public goods have less lock-in.
• Value creation does not automatically lead to value capture. Two-way rating systems, proof of stake protocols, and airdrops are "uncornered" innovations.

Hot takes

• IP rights will be hard to enforce in the new world. CryptoPunks creators are under fire for an inconsistent approach to derivatives. Bored Apes are slightly more lenient. NFTs gave us digital scarcity. Legitimacy and social consensus will rule the day.
• Wealthy benefactors will use open source projects to prop up closed ecosystems and attract talent. See Apple with Swift and Meta with React.

Haters

"Monetization pollutes intrinsic motivation of developers."

Why do open source projects seek donations and sponsors? Great software requires resources. Sustainable public goods matter. This is why Gitcoin is gaining traction.

"This sounds idealistic. Very few people actually contribute to these projects."

Contributions are one side of the equation. The other is the ability to fork and customize code. This leads to less lock-in and less rent-seeking. The ability to fork a project, paradoxically, makes it less likely that you'll need to. Forkability forces fairness.

"I can make more money with a closed source model."

Monetized open source is not a hammer. Think from first principles. What's the best way to achieve your mission? Do that.

Links

• Who should I talk to about monetized open source? The tweet behind this report.
• Building a $1M Business Solo with Mike Perham of Sidekiq: Mike reached $80K MRR without hiring.
• Eight Ways to Make Money from Open Source: Includes donations, paid support, dual licensing, and more.

More reports

Go here to get the Trends Pro report. It contains 200% more insights. You also get access to the entire back catalog and the next 52 Pro Reports.

Discuss this story, or subscribe to Trends.vc for more.

🌐 Best Around the Web: Posts Submitted to Indie Hackers This Week

🤝 When to outsource as a solo founder. Posted by Ronen Sabag.

💻 Is Ruby better than JavaScript for building MVPs? Posted by MakingThingsWorks.

💼 Building for enterprise customers. Posted by Devan Sabaratnam.

📚 Which skills are most important for founders to develop? Posted by Zaesar.

😬 How to avoid perfectionism. Posted by Axel Vaindal.

🔥 Warm yourselves by the flaming wreckage of my micro-SaaS. Posted by Chris McCormick.

Want a shout-out in next week's Best of Indie Hackers? Submit an article or link post on Indie Hackers whenever you come across something you think other indie hackers will enjoy.

🍼 Joe Xu Yi on Indie Hacking With Twins

by Joe Xu Yi

Hi indie hackers! I'm Joe Xu Yi, founder of ACT Helper, a tool that makes studying for standardized tests as efficient and easy as possible. The site has some traction, but hasn’t totally taken off yet. So far, it has served over 600 customers.

I was unemployable

More than a decade ago, as a newly arrived Chinese mainland student in Hong Kong, I was told that accounting was a good profession to get into if I wanted to keep my belly full. I wasn’t particularly fond of numbers, but I had to eat. So, I earned a degree in accounting.

But, as fate would have it, I was fired from every accounting job I held after graduation. My knee-jerk reaction to my professional predicament was doubling down to gain more credentials so that I could hopefully hold onto the next job longer.

I thought that things might change if I passed that arcane tax exam, or that maybe I could get into investment banking if I became a chartered financial analyst (CFA). While financing my exam-studying career, my bank balance dwindled to literally zero. I had to use my credit card just for food.

What I didn’t know was that my credit card often charged more than the money I withdrew, and that would snowball me into a mountain of debt.

I hit rock bottom, both financially and emotionally.

Starting my indie hacking journey

I realized that I was unemployable, and I couldn’t follow instructions well. I didn’t necessarily go down the indie hacking route by choice; life forced me to hack it.

Meanwhile, Chinese demand for American education grew stronger. For Chinese students to study in America, they need to take standardized tests such as the TOEFL, GRE, or GMAT for grad schools, or the SAT or ACT for college.

I found myself naturally scoring high on those tests, despite the fact that math has always been my worst subject and English isn’t my first language. The English isn’t too hard, and the math is at around the middle school level by Chinese standards.

After my parents bailed me out, I reached out to a Chinese test prep company, proposing that they hire me as an independent contract researcher. My job was collating test questions and writing test preparation materials in Chinese. As an independent contractor, I also sold my services to companies in China. Little by little, I pulled myself out of the financial quagmire, and paid back my parents.

If a non-math person like me can score perfectly in math on those standardized tests, so can others. I created ACT Helper to make studying for standardized tests as painless as possible.

Twinning

I met my wife before the pandemic hit, and two years later, we had twins: A boy and a girl.

The first six months of a baby’s life are the toughest, and we had two. Due to the pandemic, we had no assistance from my parents (or my wife’s parents) in caring for the babies.

Feeding our babies every three hours, and waking up to their hysterical screams and cries several times a night was tough. I had no energy left for my projects.

Now that our babies are approaching nine months, I have finally arranged my baby-raising system in a way that allows me to still continue indie hacking. Here's our system:

• My wife stays home, and is the primary caregiver.
• We have daytime and nighttime nannies taking shifts to care for the babies.
• We also have tutors and adult playmates who, in addition to giving English lessons, inadvertently function like caregivers. I plan to raise my children to be bilingual, and I'll be documenting this journey over on my page, Bilingual Twins.

Like any founder who has learned to delegate, I have outsourced certain aspects of caring for my babies to hired hands. In theory, my babies could be taken care of even if I put in zero effort.

In reality, though, I enjoy spending time with my babies. After dinner, it’s exclusively family time. I read and sing songs to them daily, and I change a lot of diapers!

Advice for indie hackers

Here's my advice if you've just had, or plan to have, children:

• Work to achieve solid financial footing before you have kids.
• Delegate some aspects of childcare to trusted hands in order to free yourself from unnecessary hardships. This is especially relevant for the first six months after a child’s birth.

Discuss this story.

🐦 The Tweetmaster's Pick

by Tweetmaster Flex

I post the tweets indie hackers share the most. Here's today's pick:

🏁 Enjoy This Newsletter?

Forward it to a friend, and let them know they can subscribe here.

Also, you can submit a section for us to include in a future newsletter.

Special thanks to Jay Avery for editing this issue, to Gabriella Federico for the illustrations, and to Brandon Strellis, Priyanka Vazirani, Dru Riley, and Joe Xu Yi for contributing posts. —Channing