[HN Gopher] Lessons from my first exit
___________________________________________________________________
Lessons from my first exit
Author : saeedesmaili
Score : 321 points
Date : 2024-11-14 07:32 UTC (15 hours ago)
(HTM) web link (mtlynch.io)
(TXT) w3m dump (mtlynch.io)
| akoboldfrying wrote:
| Absolute gold for any founder or would-be founder, as are all his
| posts on TinyPilot and his other web businesses. Raw numbers and
| transparency abound, and the overall tone is that of a well-
| organised, fair-minded person.
| optymizer wrote:
| Agreed. I saved it in case it goes offline, for when I'll need
| to sell my future business, if I ever start one.
| garyclarke27 wrote:
| Nice writeup - Wow your broker fee was crazy high 15%. I paid 3%
| when I sold a $5M business in the UK.
| vdvsvwvwvwvwv wrote:
| So your fee was higher
| adwn wrote:
| > _I had a dedicated TinyPilot GCP project, but it was within my
| personal Google account._
|
| This sounds crazy to me. Never ever mix your business and
| personal accounts _for anything_! The point of an LLC (in any
| jurisdiction) is to keep your personal and business concerns
| separate, so why would you break that rule for Google? Which is
| why my reaction to these lines:
|
| > _I always sent emails related to the business from my
| @tinypilotkvm.com email address._
|
| > _I always used @tinypilotkvm.com email addresses whenever
| signing up for services on behalf of TinyPilot._
|
| was along the lines of "Well, DUH!" Of course, that's the first
| thing you do with a new business: dedicated bank account,
| dedicated email address.
| anonzzzies wrote:
| I don't know which project is going to make it and which is
| not; will be very painful opening companies for all of these.
| So I open one once something is doing $5k+/mo only.
| adwn wrote:
| That doesn't really contradict my point. Create separate
| accounts _as soon as you open a business_ , not as as soon as
| you create a new directory under _~ /projects/_.
| anonzzzies wrote:
| Yeah, so my entries under ~/projects are 'new' until
| $5k/mo, so that works.
| eadmund wrote:
| The pain and cost very much depend on one's jurisdiction
| (hey, once upon a time it literally required an act of
| Parliament!). And there are levels to it, too. Absolutely,
| the first time one sets up a company one needs to hire a
| lawyer. But after that it's more of a judgment call.
|
| $5k/month is $60k/year -- I am not myself comfortable with
| the unlimited personal liability risk that brings without a
| company.
| anonzzzies wrote:
| > $5k/month is $60k/year -- I am not myself comfortable
| with the unlimited personal liability risk that brings
| without a company.
|
| Yeah, here that's not such a problem; I wouldn't do a LLC
| at all if it would not really help with selling it.
| croisillon wrote:
| if you have a couple projects making a couple thousands a
| months, you could still open one company to manage those
| projects
| gizzlon wrote:
| Regarding GCP migration: I would just add the new account(s) as
| Owner to every relevant project. Then they can remove you after
| the 30 days or whenever they're comfortable.
| mtlynch wrote:
| Author here. Thanks for reading.
|
| > _This sounds crazy to me. Never ever mix your business and
| personal accounts for anything! The point of an LLC (in any
| jurisdiction) is to keep your personal and business concerns
| separate, so why would you break that rule for Google?_
|
| The finances were always separate. The company GCP project was
| on a dedicated billing account within GCP, so I don't think it
| violated any rules about business/personal separation of an
| LLC.
|
| > _was along the lines of "Well, DUH!" Of course, that's the
| first thing you do with a new business: dedicated bank account,
| dedicated email address._
|
| Dedicated email address: yes.
|
| Dedicated bank account: no, not from the start.
|
| What bank do you use that will give you a dedicated account for
| every business idea you have before you even know if it will
| materialize into something?
|
| I have a business checking account under my sole proprietorship
| before I know if the business will turn into anything. A few
| months into TinyPilot, I registered an LLC and created
| dedicated bank accounts at that point.
|
| But there's so much work and friction in opening a business
| bank account in the US that I couldn't possibly do it as soon
| as I have the idea for the business. I had ~10 other businesses
| that flopped before TinyPilot. It's impractical to have
| dedicated bank accounts for each one ready to go on day one.
| And registering an LLC is ~$600 all-in plus a few hundred in
| yearly renewals, plus $200 to shut it down.
| anonzzzies wrote:
| People use a broker for these amounts? I did a bunch of sales
| around 1m$ just with escrow myself. But that was a while ago; is
| it the norm or?
| rodrigobellusci wrote:
| He explains that the broker found a buyer he couldn't have
| found by himself. If I recall correctly he had looked for
| buyers but none had met his criteria.
| maxresdefault wrote:
| For what line of business? Were there multiple smaller sales
| totaling 1m$ or multiple 1m$ sales?
| ffjffsfr wrote:
| great write up.
|
| > $920k over four years
|
| so this gives an average yearly salary of 230k. Very close to
| FAANG senior salary with much more risk, effort and (probably)
| worse life-work balance. OP quit from google in 2018 and ran some
| other business, and this is his biggest sale so far. I think it
| shows how hard it is to make better money outside FAANG even when
| extremely talented and lucky like OP. But it's probably more
| about lifestyle choices.
| ragnot wrote:
| Kinda sobering when you think about it.
| deadbabe wrote:
| It's not worth it. Neither is freelancing. One of the appeals
| of freelancing was being able to work from anywhere in the
| world and still make money, but with wider availability of
| remote jobs that advantage evaporates.
|
| Working for a good company is still the best most consistent
| way to make good money and have a good life.
| fragmede wrote:
| How many companies let you work 3 days a week? Not from home,
| just three days a week aka5 day weekends every week?
| deadbabe wrote:
| Depends. Are we talking hours? Because if so, then most
| companies barely give 2 days worth of work per week. And in
| many cases, people probably work half of that, maybe 4 or 5
| hours of actual focused work per day.
|
| A freelancer spending very little time working probably
| isn't making much money. But an employee who spends little
| time working, is still bringing in those same paychecks,
| week after week.
| tempworkac wrote:
| interesting to reconcile this with calls to tax the rich. maybe
| we should be rewarding such effort after all? think about the
| tens of thousands of jobs created from people working at Google
| who'd make L3 or less at Google working twice as much...
| dkdbejwi383 wrote:
| I'm not sure I follow what you're saying. People who work at
| Google should pay more/less tax? Or that people who start
| companies should get more tax breaks (or pay more?)
|
| I'm European so I don't really click with the obsession some
| places have with avoiding tax, so you may have to explain it
| like I'm 5 :-)
| thrw42A8N wrote:
| Lol, Europe is the home and crown palace of tax evasion,
| look to the Netherlands, Ireland, Switzerland,
| Liechtenstein, Andorra, Gibraltar, Isle of Man, Jersey...
| qzw wrote:
| Speaking as a small business owner/entrepreneur myself, there
| are lots of tax deductions available to people like me that
| aren't to some collecting a salary. And that's without doing
| any of the borderline or outright illegal stuff that I see
| many other business owners do, such as taking fancy
| vacations, leasing luxury cars, or buying real estate for
| personal use but writing them off as business expenses. The
| IRS basically now lacks the resources to go after most such
| cases, and even if they're caught, the penalty often just
| amounts to paying back the avoided taxes. There's really very
| little incentive to play by the rules. I've had CPAs tell me
| outright that I'm leaving money on the table by not using
| some of these so-called tax minimization strategies. Anyway,
| it's all kind of beside the point because "tax the rich" as
| policy covers so much ground that it's impossible to discuss
| the pros and cons without specifying what specific proposal
| we're talking about. My point is simply that business
| ownership and entrepreneurial activity are already quite well
| incentivized/rewarded by the current tax code.
| hartator wrote:
| What are these miraculous tax deductions you are talking
| about?
|
| Writing personal expenses as business expenses is tax
| fraud, not tax optimization. CPA suggesting this should be
| fired.
| hash872 wrote:
| 1. The Trump era automatic 20% deduction for LLC or
| corporate income. Totally unjustifiable, it's 20% off
| your revenue for everyone with a company for no public
| policy reason that I know of 2. You can mostly avoid
| paying into SS/Medicare by taking the large majority of
| your compensation via distributions, not salaried income
|
| Just off the top of my head
| hartator wrote:
| You mean QBI? To apply, it needs to be matched with W-2
| wages so you won't escape SS/Medicare, and it's not
| against revenue but profit.
| qzw wrote:
| It encourages paying more wages, but it's still a 20%
| giveaway to the business owners for _paying themselves_.
| I know that my own effective tax rate went down a couple
| percent when QBI took effect. If the idea behind the
| requirement to pay reasonable wages is to get more SS
| /Medicare tax revenue, then QBI more than offsets any
| gains. Plus the business owner can tweak their own
| numbers to determine what's the most advantageous mix of
| W-2 vs K-1 income. It's another advantage not available
| to regular wage earners.
| schmidtleonard wrote:
| Should be but won't be.
|
| I can also attest that in my local small business
| community I have been met with puzzlement and suspicion
| for not engaging in expense fraud and PPP fraud.
| Deviation is almost completely normalized.
| qzw wrote:
| Of course it's against the law, and so is not obeying the
| speed limit. And both are being done every day widely and
| more or less blatantly with little to no chance for
| consequence. In fact you're probably more likely to get a
| speeding ticket than to be audited. Hence the CPAs who
| would recommend some of these "strategies" as long as
| there's even the slightest plausible justification,
| because in their experience there's very little risk for
| pushing the envelope.
| stanford_labrat wrote:
| my very first exposure to this was paying for parking. i
| worked at a large private university which had a
| beautiful but very big campus. ofc for some reason the
| institution decided that employee's had to pay for their
| own parking, which i disagreed with on moral grounds and
| the fact that parking was so far away it was like a 20
| minute walk just to get to my work space...so i did an
| experiment where i basically never paid for parking in my
| entire 4 years there.
|
| it would have cost me about 2 grand to diligently pay for
| parking. the actual expense from tickets? about 100 bucks
| maybe 200. and some of them got automatically thrown out
| just by challenging them. now towards the end of my time
| there i did see a guy get towed as he was walking up to
| his car. i started paying for parking then.
| rurp wrote:
| Interesting, I had the exact opposite experience as a
| student at a public university in California. There were
| meter maids patrolling the parking lots _constantly_ ,
| and it was common for people to be ticketed within
| minutes. It must have been a huge revenue driver for the
| school. The enforcers were so zealous I received multiple
| tickets despite having a valid annual pass displayed
| clearly in my window, which I then had to burn time
| fighting to get dismissed.
| Eridrus wrote:
| There is already a very big tax break for entrepreneurs:
| QSBS.
|
| You have to stick it out for 5 years (the rollover provisions
| are not well aligned with SAFEs), but all your capital gains
| are tax free up to $10m.
|
| Reforming the rollover provisions or making it not a hard cut
| off would certainly be helpful though.
| sharemywin wrote:
| we go into debt 2T every year without the extra money I would
| argue a lot of the nice to haves get cut from people's
| budgets.
|
| where do you think Netflix and google ads fit in Maslow's
| hierarchy of needs?
|
| Also, big tech had a huge amount of jobs cuts recently.
| antupis wrote:
| A big part is that you are not working for man but yourself.
| pfarrell wrote:
| Don't forget your investors and your board.
| kfrane wrote:
| It's a bootstrapped business, no investors/board.
| yen223 wrote:
| It's not quite apples-to-oranges, because he started a hardware
| company, which historically has much smaller margins than
| software.
|
| The difference isn't just working for FAANG vs running a
| business, the difference is also working in software vs working
| in hardware.
| lokimedes wrote:
| The difference is working for yourself. It's the business
| version of achieving adulthood (for some).
| rco8786 wrote:
| > Very close to FAANG senior salary
|
| Base salary maybe. But more like ~40% of FAANG TC. (Which only
| furthers your point)
| ericjmorey wrote:
| High risk activities are never going to be accurately
| represented by a single data point.
| sharemywin wrote:
| good point it's the 99 out of 100 cases that fail miserably
| that more accurately reflects expected value.
| riku_iki wrote:
| Sure, its educated gambling, but it is not fair to exclude
| high value exits too.
| toomuchtodo wrote:
| It is when they're effectively lottery tickets.
| optymizer wrote:
| Senior devs are closer to 400K-500K total comp. Very senior
| devs are above that.
|
| Still, the value of working on your own project full-time
| (rather than someone else's thing) can easily justify accepting
| the difference.
| yen223 wrote:
| I'm surprised no one here has factored in the very real risk
| of getting laid off.
| negus wrote:
| Do you think that this risk is bigger than you business
| being hit by the market?
| yen223 wrote:
| Probably not, but it's still not 0
| throwaway23453 wrote:
| It's not clear to me if the $920k is including his salary. If
| he paid himself a good salary, the numbers will look different.
| baxtr wrote:
| It seems like the $920k include all profits. The sale alone
| yielded $490k in profit.
| mtlynch wrote:
| Correct, I did not draw a salary.
| nakovet wrote:
| If you are maximizing income, go work for the company that pays
| you the most. If you consider other things then it's not that
| simple: * control on which project you work on * choose your
| cooworkers * choose your office location * return to office
| policies * choose process and bureaucracies It's about how many
| degrees of freedom you want.
| fuzzythinker wrote:
| Money wise, FAANGs are more like 2x of $920k with comps. If the
| output is guaranteed, and stress is kept at 2x FAANG, it's like
| trading stress and the thrill and difference in experience for
| money. I would choose this.
| vdvsvwvwvwvwv wrote:
| Meh. He could have made 10M or 0.
|
| Google founders themselves could have got a nice job at IBM.
|
| Op is free as in bird too.
| fsckboy wrote:
| > _so this gives an average yearly salary of 230k. Very close
| to FAANG senior salary with much more risk_
|
| this is just bad analysis, and as part of that you don't
| understand risk.
|
| Financial risk is _the variance of the expected outcomes_ , it
| is not a component of the expected value. The risk that you
| will fall short is always balanced by the risk that you will
| strike it rich; otherwise, you have calculated your expected
| value wrong. Expected value does not include variance, it's the
| missing factor.
|
| your faang salary is your upper bound on income, is the cost
| you bear eliminating the risk; the risk the entrepreneur takes
| is rewarded by the option on vast riches.
|
| You are looking backward as if you could have guessed a priori
| what would happen. If you could guess looking-backward-in-
| advance that you'd wind up with a faang salary running your own
| gig, definitely worth "the risk".
| navane wrote:
| I don't understand this. Afaik the parent argues that the
| 230k/yr is a lucky outcome of starting a business, far more
| people end up with less or nothing. And this "winning"
| situation of gaining 230k/yr is barely in range of a "sure"
| outcome of being employed at Google. Concluding that if even
| a successful entrepreneur is set to gain less then an
| employee at faang, entrepreneurship is not a sound decision
| for fang employees. How is risk portrayed wrong here?
| fsckboy wrote:
| > _How is risk portrayed wrong here?_
|
| because he portrayed risk as "the risk of losing money",
| but that is not a proper definition of risk.
|
| it's easier to understand the concept with the stock market
| because there is a market price (there is not a market
| price for startups). If a stock in the market has a price,
| what does it mean to say that it's a risky stock? that it
| might drop? No, not if you say that to the exclusion of the
| risk that it might also go up.
|
| If a company has a price in the market, and you are an
| omniscient who can definitively say that there are a bunch
| unaccounted for factors that increase the probability that
| that stock will go down, what you would conclude (because
| you are an omniscient who also understands risk) is that
| the price of the stock is wrong, not that the riskiness has
| been mis-assessed.
|
| This is an important area of finance, it's the basis, or
| rather the inescapable conclusion, of option pricing, the
| famous Black-Scholes model. It turns out the option price
| calculation does not contain any of the probabilities of
| what might happen to the stock/company in the future, the
| option price is only based on the _variance_ of the
| outcomes. How can that be? Turns out the probabilities (the
| expected value) have already been accounted for in the
| market price of the underlying security. If a market is
| fairly pricing stocks, riskyness means degree of variation
| in outcomes.
|
| There is a probability in variance, the probability "that
| you will wind up away from the mean". the FAANG salary is
| the mean, with no risk, meaning you aren't going to fall
| below or go above. He called out the other option as
| "risky" and somehow decided that the outcome this founder
| experienced was the upper limit, had no chance of being
| higher. He had no basis to think that, and his analysis is
| basically Monday night quarterbacking. "Since you didn't
| make the field goal, you shouldn't have tried, should have
| tried for a touchdown instead", ignoring that on average
| it's easier to get a field goal.
| dbacar wrote:
| Thanks for sharing with such clear concise information. I believe
| this is very valuable insight for some of us.
| mtlynch wrote:
| Author here.
|
| Happy to answer take any feedback and answer any questions about
| this post.
| simultsop wrote:
| how many businesses you run?
| mtlynch wrote:
| Right now, I just have one business that makes money. It's an
| ingredient parsing API that I wrote in 2018.[0] It was not a
| good idea, but it still makes $100-200/mo without me doing
| anything. Until a few months ago, I also had a website about
| the keto diet that made about $100/mo, but I sold it because
| I wasn't doing anything with it.[1]
|
| I'm currently working on a book about writing as a developer,
| and that's my main focus for the next few months,, but I
| don't know if I' call it a business because I haven't sold
| anything yet.[2]
|
| [0] https://zestfuldata.com/
|
| [1] https://mtlynch.io/notes/buy-is-it-keto/
|
| [2] https://refactoringenglish.com
| akomtu wrote:
| Imo, you can make good money, and do some good, guiding the
| numerous laid off developers on the business pastures, if
| only you figure out how to scale beyond the usual personal
| couch model. Perhaps some sort of QA platform with paid
| access: free-tier for read-only users, basic-tier allows
| asking questions, and premium users get occasional 1-1
| guidance? Just a random idea. This might work because they
| can relate to you and thus trust you, unlike yet another
| MBA suit.
| hellohelu wrote:
| Thanks for the article. Great read. Can I ask how you sold
| the website making $100 month?
| fragmede wrote:
| Given the numbers, the stress, the freedom, the self-
| actualization, would you still quit Google and take this
| journey, knowing then what you know now? Do you feel richer or
| poorer for the experience? What's next for you?
| mtlynch wrote:
| Re-posting from a similar answer I gave in another thread:
|
| Yep, still happy with the decision. A lot of my comp at
| Google was stock, so I would have made a lot from the stock
| price movement over the last six years, and I'm a bit envious
| of that, but still yes.
|
| I do still love the independence of working for myself, so
| I'm happy to have had the last six years of that rather than
| feeling unfulfilled at Google.
|
| With everything shifting around AI, and big tech could be
| doing massive dev layoffs in the next five years. Given that
| risk, I'm happy to have experience as a founder rather than a
| dev who could be laid off immediately in a down market.
|
| https://news.ycombinator.com/item?id=42126800
|
| > _Do you feel richer or poorer for the experience?_
|
| Definitely richer. I'm glad I did it, and it was so much more
| meaningful than the work I did at Google or any previous job.
|
| > _What 's next for you?_
|
| My wife and I just had our first child over the summer, so
| I'm mostly on paternity leave to enjoy time with my family,
| but I'm slowly easing back into work. My next project is a
| book about what I've learned about writing effectively as a
| software developer.[0] Eventually, I'd like to try building a
| SaaS, but working on a book is much friendlier to an
| unpredictable work schedule at the moment.
|
| [0] https://refactoringenglish.com/
| fragmede wrote:
| Congratulations on the kid!
| mtlynch wrote:
| Thanks! It's been really fun. Of course, challenging at
| times, but overall I'm really glad I've had this time off
| to enjoy with my family.
| MattSayar wrote:
| Have you had any consulting or speaking opportunities come
| up from these blog posts?
| mtlynch wrote:
| No, nobody's ever really reached out about
| consulting/speaking. I haven't pursued it either, as I
| prefer to have products rather than making money from
| one-off jobs.
| optymizer wrote:
| Thanks for the article and for including so many specific
| numbers in it for our benefit (details that I imagine many
| others might have decided to omit).
|
| Now that you've been through this process, how would you go
| about finding a buyer yourself?
|
| Also, are there any resources you found valuable for starting
| your business? How did you go about hiring your first employee
| and setting everything up for them as employees?
|
| Again, thanks for the writeup and congrats on the sale!
| mtlynch wrote:
| Thanks for reading!
|
| > _Now that you 've been through this process, how would you
| go about finding a buyer yourself?_
|
| It would have been tough to find a buyer. Before I met Quiet
| Light, I was worried a broker wouldn't take me, and I'd have
| to find a buyer myself. So my plan was to (in order) start
| more loudly telling other founders that I'm looking for a
| buyer, reach out to more adjacent companies pitching them on
| a strategic acquisition, discuss on my blog that I'm looking
| for a buyer, and if all else fails, put up a banner on the
| store website saying the company is for sale. The problem was
| that the more loudly I advertise the company is for sale, the
| more obvious it is to buyers that I'm desperate to sell. It
| also risks spooking customers who might not want to buy
| hardware from a company whose ownership is about to change.
|
| > _Also, are there any resources you found valuable for
| starting your business?_
|
| Minute for minute, the best resource I've found is Jason
| Cohen's talk, "Designing the Ideal Bootstrapped Business."[0,
| 1] The key insight for me is that bootstrapped businesses
| have very different strengths and weaknesses than a VC-backed
| startup, so you should pick a business that plays to those
| strengths.
|
| I also enjoyed _Start Small, Stay Small_ by Rob Walling [2]
| and _The Mom Test_ by Rob Fitzpatrick[3]. The tl; dr from
| those is that you need to avoid the trap of building
| something for months and then looking around for customers
| once it 's done. You instead should flip it and talk to
| customers before you even start and find out what they need.
|
| It's not a book or resource, but one of the most valuable
| things I did and wish I did it earlier was create a course.
| It's a very condensed version of the experience of
| bootstrapping a business because you need to identify a need,
| create a product that fills the need, then market it to
| customers. And you don't have to be the world expert on
| anything, you just need to know enough to get someone who's
| at level N to level N + 1 and who likes the way you explain
| things. And you can pick a small topic and create a course
| with 30-100 hours of work.
|
| I spent 60 hours on my first course, and it made $10k, so
| it's not like a smash hit, but it's the highest ROI thing
| financially I've done since quitting Google.
|
| > _How did you go about hiring your first employee and
| setting everything up for them as employees?_
|
| In the first few months, I was assembling all the devices,
| packing boxes, and printing out instruction sheets myself. It
| wasn't sustainable because I was also trying to write code
| and do customer support. It was during COVID and my wife and
| I were quarantining strictly, but she also was looking for a
| job since she was in grad school, so she was employee #1.
|
| We started with just Google Docs. I'd write things and share
| them with her, and she'd ask questions or make updates.
|
| My next hires were developers, which was a pretty dumb
| decision because it's the most expensive role, and it's the
| job I like doing most myself. I was finding that I didn't
| have time to advance the product because customer support was
| taking too much time, so I should have hired a customer
| support person. But I hired devs because I'd hired devs
| before and worked with a lot of devs, so it was a role I felt
| comfortable hiring. For that, I tried to add lots of
| automated checks on Github and document things there. I also
| wrote guidelines on my blog that became official guidelines
| for devs within the company.[4]
|
| We moved into an office in early 2021, and at that point, I
| had to hire real W-2 employees rather than contractors. For
| that I used JustWorks, which I hated. I switched to Gusto,
| and they were poor but not terrible. In the future, I'm going
| to avoid creating a business that needs W-2 employees because
| in the US, it's just set up so badly for small businesses to
| manage the paperwork around it.
|
| As we were moving into the office, we also switched from
| Google Docs to Notion, and I had a good experience with
| Notion. It's set up well for internal documentation, and it's
| user friendly, so it's easy for everyone to do basic
| searching and editing.
|
| I could go on and on about hiring, but those are the biggest
| things that come to mind.
|
| [0] https://www.youtube.com/watch?v=otbnC2zE2rw
|
| [1] https://mtlynch.io/notes/designing-the-ideal-
| bootstrapped-bu...
|
| [2] https://mtlynch.io/book-reports/start-small-stay-small/
|
| [3] https://mtlynch.io/book-reports/the-mom-test/
|
| [4] https://mtlynch.io/freelancer-guidelines/
| alberth wrote:
| (been an avid reader of your posts over the years. thanks so
| much for sharing!)
|
| Q: personal guarantee loans/contracts
|
| I know it's common practice for lenders & commercial real
| estate to make small business owners personally guarantee the
| loan/contract.
|
| Did you have any of this? And if so, how did you unwind those
| contract?
| mtlynch wrote:
| Thanks for reading!
|
| No, the only place where I was personally on the hook was
| credit cards, but that was fine because I just paid the
| balance and closed the accounts.
|
| I maybe had to give a personal guarantee to rent our office,
| but it was $600/mo and the landlord was extremely laid back
| and agreed to month-to-month after our lease was up.
|
| I didn't take out any small business loans to start the
| business, as I started it with my own cash, and then it
| generated enough revenue to sustain itself.
|
| The buyer may have had more complicated agreements with his
| lenders to purchase the business, but I wouldn't be exposed
| to any of that.
| gwbas1c wrote:
| Just wanted you to know that I've been looking at a lot of your
| blog entries for Tiny Pilot over the last few years. This is
| the first one I've skimmed to the end.
|
| Great writeup!
| depr wrote:
| >I didn't want a bad outcome for anyone, but the worst case for
| me was significantly worse than the worst case for any other
| member of the team.
|
| Your worst case is you lose the deal and the time and money you
| spent on it, and their worst case is they are fired and lose
| their healthcare (that is how it works in America right?), is
| that correct?
| mtlynch wrote:
| Thanks for reading!
|
| > _Your worst case is you lose the deal and the time and
| money you spent on it, and their worst case is they are fired
| and lose their healthcare (that is how it works in America
| right?), is that correct?_
|
| Yeah, I get that perspective.
|
| As I said, I don't think there's any good solution here. I
| don't think it's fair for me to hand the company over to
| someone who might just fire the employees, but I also can't
| promise to keep everyone in their role forever regardless of
| a sale.
|
| For added context, everyone at the company worked part-time,
| generally a max of 20 hours per week. Some were contractors
| who had multiple clients, others were founders with their own
| side projects, and others worked part time because they
| wanted to focus on other things in their personal life.
| Nobody had healthcare insurance through the company.
|
| So, in the worst case of an owner coming in and firing
| everyone, it would suck, but it's also not like anyone would
| be like, "Oh no! I just bought a new house on the expectation
| that I'd be at the company for the next 20 years!"
|
| The worst case for me isn't just that I lose some time and
| money. I was terrified of not being able to sell the company
| by the time my son was born. I was the sole founder and
| manager, so I can't exactly say, "Okay, I'm going to take a
| few months of paternity leave. Pay yourselves and our vendors
| while I'm gone." So I'd be probably in a position of letting
| down both the team and my family trying to keep the company
| afloat while becoming a new father.
| depr wrote:
| Alright, thanks for answering my question!
| LouisSayers wrote:
| One thing that wasn't really covered was: why did you sell?
|
| Especially at a 2.4 multiple... It seems like you could have
| just let it keep running mostly on autopilot (assuming the team
| could keep working on improvements)?
| mtlynch wrote:
| Thanks for reading!
|
| I wrote about that in a previous post:
| https://mtlynch.io/i-sold-tinypilot/#why-sell
| astonvilla wrote:
| Great writeup. The writing was clear and engaging that it made
| me want to read it, even though I'm not in the industry. I have
| a question that is adjacent to your experience, but not
| specifically about the post. But hopefully your experience of
| founding a company for four years could shed some insight. Some
| background: I'm an incoming medical school student, and
| sometimes I wish I went into tech rather than medicine. My
| question: would it be worthwhile for a medical student to
| invest time to learn programming in order to potentially found
| a software company (I know you founded a hardware company, but
| previously worked as a software engineer)?
|
| Now I know this is such a broad question, with many factors
| that could influence whether this pursuit is worthwhile, but
| maybe your experience could point out whether this is even
| something to consider. For example, would I even gain the
| necessary skillsets required to found a company whilst pursuing
| medicine? Would knowledge of tech compliment a medical-related
| company, or would I better spend my time working on the non-
| tech side of a company?
|
| Your writing is great to highlight the complexities in the
| world of indie businesses. Thanks.
| mtlynch wrote:
| Thanks for reading and for the kind words!
|
| First, a meta comment is that I've found that you should
| weigh advice based on how similar the advisor is and how
| closely their success matches what you want. So, given that I
| came in with a background in software already, my advice
| might not be a good match for you.
|
| I feel like I went down a lot of misguided paths as a founder
| following advice of people who were successful but were very
| different from me (e.g., their goal was to reach $1B in
| valuation, they love pitching to customers).
|
| That said, the thing I recommend to a lot of people curious
| about starting out with an indie business is to create a
| course or a book. People call these "info products" and that
| term has kind of a stench to it, but I think they're a great
| way to learn. I prefer the term "educational product" because
| there's less of a stigma. I created a video course in year
| three of going off on my own, but I wish I'd done it sooner.
|
| I think people feel reluctant to create an educational
| product because they feel like they're not an expert at
| anything, but you don't have to be the world expert on
| something to make a course. You just have to know enough that
| you can get your students from level N to level N + 1. You
| can take something that you recently learned and make a
| course that you wish that you'd had that would have let you
| learn the same information in 5 hours rather than 50 hours.
| And you don't have to be the world's greatest teacher as long
| as you can find some people who enjoy the way you explain
| things.
|
| Creating an educational product is like a microcosm of the
| full experience of launching a business. It forces you to
| think about what customers want, build something that fills
| the need, and then market it to find customers who want it.
| And all that stuff is hard, but it's much easier to do with a
| course. If you spent 50 hours making a course and find out
| you can't sell it, you lost 50 hours. You can learn from the
| failure and try a new course or product the next month. If
| you spent 2 years learning to code and building a tech
| product and find that nobody wants it, you'll feel very tied
| to that idea and have a hard time pivoting to another idea.
|
| I have my issues with Pieter Levels, but I think he's a great
| case study in trying businesses rapidly and then doubling
| down on the ones that work. When he started, he didn't know
| how to code well, so his early products would just be like a
| Google Sheets spreadsheet that he sold access to.
| negus wrote:
| Thank you for the hint about the business phone registered in a
| call redirect service.
| hartator wrote:
| 2.4x annual profit seems like a pretty bad deal.
| toasterlovin wrote:
| Low multiples are pretty normal for a small business. There's a
| lot of risk for the buyer. IMO it makes selling an ongoing
| concern not worth it if you can significantly reduce the time
| required to just keep running the business.
| ekanes wrote:
| These are very insightful, thank you for sharing this @mtlynch
| antoniuschan99 wrote:
| Congrats on the sale! Wondering what your thoughts are of these
| extremely low cost kvm's from Sipeed (NanoKVM)?
|
| Do you think that allows you to expand your market since the
| hardware is cheaper as you maintain great user experience? Or
| does that force you to go upmarket as hobbyists need only the
| minimal feature set?
|
| A lot of very cheap risc-v boards like milk-v duo sbc are
| available now
| mtlynch wrote:
| Thanks!
|
| > _Wondering what your thoughts are of these extremely low cost
| kvm's from Sipeed (NanoKVM)?_
|
| > _Do you think that allows you to expand your market since the
| hardware is cheaper as you maintain great user experience? Or
| does that force you to go upmarket as hobbyists need only the
| minimal feature set?_
|
| To be clear, I'm totally gone from the company at this point,
| so I'm not thinking about strategy for TinyPilot at all
| anymore.
|
| But I will say that every year, I'd see a new KVM over IP pop
| up that claimed that they were going to undercut TinyPilot by
| 60%. And then they fizzle out, and I never hear from them
| again.
|
| My suspicion is that people see TinyPilot and say, "Wow, that
| looks like $100 worth of hardware being sold for $400!I could
| do what they're doing and sell for $200 and eat their lunch and
| still make $100 on every unit!" But then as you get into it,
| there are all these more subtle costs like compliance testing,
| tariffs, customer returns, insurance, etc.
|
| And that's before you even get to customer support. For a KVM
| over IP, you can't just give customers a "have you tried
| turning it off and on again?" support response because the
| issues are more technical and deal with things like NATs and
| proxies. So if you're making $20 per sale on a low-cost device,
| and then the customer has one conversation with a support
| engineer, you lost your profit and probably would have been
| better off not selling to them at all.
|
| So, I think there's room to reduce prices as hardware prices
| come down, but I'll be surprised if other vendors can slash
| prices to below $100 and still run profitably in the long-term.
| restalis wrote:
| Can't those "more subtle costs" be pulled out of the product
| cost itself and offered or at least expressed separately? Say
| customer support, if it'd be offered as a paid service
| instead of "free" as in baked-in-product-cost, thus giving
| the customer a choice to either go for that easy-pick fruit
| of available paid support, or the alternative of investing
| more of their own effort into figuring out and solving the
| encountered problems by using the docs available to them, or
| maybe giving up on the problematic use-cases in the first
| place? Or tariffs - is it bad to let the customers know that
| there are cost differences in the product offered to them due
| to their request coming from different tariff-impacted
| markets?
| aimazon wrote:
| "My lawyer warned me that when I sell my business, I lose limited
| liability protection. If the purchase agreement didn't limit my
| liability to the buyer, the buyer could later sue me for any
| amount, even if it exceeds what they paid in the acquisition."
|
| "Sales below $1M are usually asset sales, meaning that the buyer
| is purchasing assets from the business but not the business
| itself. So, I technically still own a company called TinyPilot,
| but I transferred all of its physical and intellectual property
| to the new owner."
|
| Aren't these contradictory? If it's an asset sale, the deal is
| between TinyPilot LLC and the buyer for the assets.
| mtlynch wrote:
| Author here.
|
| Yeah, that seemed strange to me, too, but that was how my
| lawyer told me it worked. And the buyer's lawyer cared enough
| to fight about the exact amount of liability, so I assumed the
| buyer's lawyer felt that way as well.
|
| In practice, it seems like liability protection would have to
| change in some way otherwise the seller could abuse the system.
| Like imagine that I sell the new owner $200k worth of inventory
| and then the new owner discovers that, unbeknownst to either of
| us, the inventory has some kind of defect and is unsellable. If
| the buyer comes back and says, "Hey, I want my $200k back," it
| would be strange if I'm allowed to say, "Oh, too bad for you.
| I've shut down the LLC that sold you that inventory and moved
| all the money to my personal accounts, so there's no money for
| you now."
| aimazon wrote:
| A typical acquisition of the legal entity from the
| shareholders provides protection because there's no limited
| liability in the deal (as it's a sale by the shareholders (as
| individuals)). An asset sale has higher risk for the buyer
| (because the sale is, essentially, looting the corpse of a
| legal entity) with the benefit of not having any liability
| for the legal entity's past deeds. Purchasing assets from the
| company while also expecting the former owner to be on the
| hook for the value of assets is trying to eat their cake and
| keep you on the hook to make them another cake.
|
| That said, U.S. LLCs are not normal limited liability
| companies (like they are in the rest of the world). A U.S.
| LLC is a weird amalgamation of tax and law. Perhaps what
| you're describing (as described to you buy your lawyer) is
| just one more weird aspect of U.S. LLCs.
|
| (Outside of the U.S., a limited liability company is nothing
| like a U.S. LLC. The closest the U.S. has to a typical
| limited liability company is an Inc.)
| mtlynch wrote:
| Thanks! That's helpful context.
| amccollum wrote:
| I don't know about the author's case, but often asset purchase
| agreements will make the principals / shareholders party to the
| agreement personally with specific liability provisions. If
| there are no assets left in the company, the buyer has no
| recourse against it, since it is essentially an empty shell (in
| certain cases, insurance could be an exception to this). As a
| buyer, you will want to have some protection against issues you
| don't know about at the time of sale (perhaps because you
| weren't told about them, or the seller was negligent).
| neilv wrote:
| > _If I do this again, I'd wait to tell my team about the sale
| until it's a done deal, but I'd also make sure the team knows
| that an acquisition is always a possibility. I'd explain before I
| even start looking for a buyer that an acquisition might happen,
| and that the team won't necessarily know it's happening. If it
| did, I'd prioritize a buyer whose vision aligns with the team's
| interests, as I did with TinyPilot._
|
| > _This strategy is not ideal or fair to everyone, but it feels
| like the least bad of many flawed options._
|
| That's better than the norm, but I agree it's not entirely
| satisfying.
|
| For sales larger than the one the author wrote about, I wonder
| whether the possible problems that the author mentioned could be
| averted by making the sale a win for the employees.
|
| Ideally, the employees already would have enough vested equity,
| for the sale to be positively life-changing. But if not, maybe,
| as the sale is planned, everyone gets issued RSUs that vest
| immediately if and when a deal closes? Or bonuses? Or maybe the
| sale terms include retaining everyone for at least a year at
| double compensation?
|
| (More generally, I believe in cutting in early startup employees
| on equity in a more significant way than is conventional. And
| maybe the imminent-sale alignment risks are another instance in
| which significant pieces of the pie would help and be
| appropriate.)
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