Ep. 51 — Thomas Smale: Three Business Models, Three Buyers, and What Online Companies Actually Sell For

6 min read

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Episode Summary

Most owners of online businesses sit on something more valuable than they realize, and they have no clue who would actually buy it or what it’s worth. Revenue is good. Profit is real. The product works. But the question of “what’s this thing worth and who’s the right buyer” gets shoved off until someday. I sat down with Thomas Smale, founder of FE International, who has done over 500 transactions and $100M+ in deal volume in the SaaS, e-commerce, and content-based business space. We dug into the three online business models he sees over and over, the three categories of buyers in the market, and how matching the right business to the right buyer is what actually maximizes value. We got into why IP almost never carries its own value (it’s baked into the cash flow), why subscription and recurring revenue change the buyer pool entirely, why the same systemization that makes your week sane is the same thing that doubles your multiple, and why “exit planning” done wrong cuts the legs out from under the business. Real talk from a guy who has watched hundreds of these deals close.

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## Top 10 Takeaways
  1. Know what your business is worth before you decide what to do next. Every value decision is made in the dark without that number.
  2. Recurring revenue changes the buyer pool entirely. The predictability is what someone is paying a higher multiple for.
  3. Your IP isn’t worth a separate line item. It’s already baked into the cash flow your customers are paying you for.
  4. Systems and process discipline raise the multiple in any business model. Owner-dependent operations cap the value at any size.
  5. You only need one buyer. Building a business 10,000 people would love is the wrong target.
  6. Build for the widest possible buyer pool if certainty of close matters more to you than maximum strategic premium.
  7. Strategic buyers usually want you to stay. Financial buyers usually let you leave in 30 to 90 days. Pick which exit you actually want.
  8. Cutting costs to dress up the P&L for sale is exit planning done wrong. Long-term decisions are what raise the value.
  9. Keep one foot in monthly cash flow and one foot in value creation. The owner who only optimizes one of them loses on the other.
  10. Almost every business model can pivot to recurring revenue, but only if it makes sense for your customer. Don’t force it.

Sound Bites

“100% of the companies on the planet that I’ve ever met, I would say almost everyone, has been underpriced somewhere. There’s no real right or wrong answer. IP is ultimately difficult to value. I usually say to people, it’s baked into what’s there already.” (@TBD) — Thomas Smale

“If you’re doing exit planning wrong, it’s where you’re making decisions that are detrimental to the business or you personally because you feel like it’s going to make the business worth more. Proper exit planning should be increasing the value of your business through growth.” (@TBD) — Thomas Smale

“Ultimately I would say to people, when you’re selling, you only need one buyer. It’s not like you’re trying to build a business that 10,000 people think is great.” (@TBD) — Thomas Smale

“If they take over the business tomorrow, even if they suck at marketing and suck at operations, assuming the business has been fundamentally built right, that business is not going to go to zero. So the risk of losing your money is very low.” (@TBD) — Thomas Smale

“I always talk about having a foot in the monthly annual cash flow bucket, and then a foot in the value creation bucket. The hundred grand for a president might cost them an entire percent on their overall company value because there’s no management team in place.” (@TBD) — Ryan Tansom

About This Episode

Thomas Smale is the co-founder of FE International, a mergers and acquisitions advisory firm specializing in the sale of SaaS, e-commerce, and content-based online businesses. He started in 2010 buying $50 to $100 websites, packaging them, and reselling them at a profit, then accidentally pivoted into M&A when his early students asked him to sell businesses for them. With co-founder Ismail Rikson, FE International has completed 500+ transactions and over $100M in deal volume, and has been recognized by the IBBA as Dealmaker of the Year and Top Producer of the Year in North America. Thomas brings a high-volume, transaction-tested view of what actually drives value in online businesses, which translates cleanly to the same value-creation principles owner-operators use in offline mid-market companies.

Resources Mentioned

  • FE International — Thomas’s M&A firm specializing in SaaS, e-commerce, and content-based businesses. — feinternational.com
  • FE International Blog & eBooks — Buyer guides, seller guides, and the 90-page guide to buying an online business referenced in the conversation.
  • Trello — Referenced as the tool of choice for content calendar and process documentation in content-based businesses.
  • Amazon Affiliate Program / CreateSpace — Referenced as a way for content businesses to test product-market fit before launching their own e-commerce line.
  • Thomas’s Direct Email — thomas@feinternational.com

Connections

Phase + Module:

Milestones:

Concepts referenced:

  • The Four Value Levers — Recurring revenue, systemization, and customer concentration as value drivers
  • Three Lenses of Value — Owner’s value, market value, transaction value as separate questions
  • Value Gap — The space between what you think it’s worth and what the market will pay
  • Revenue Architecture — Subscription, hybrid, and membership models as deliberate choices

Graph View