Most SaaS founders don’t spend a lot of time learning how to sell a businesses.
Which is completely understandable. As an operator myself, I never thought of it (until I started acquiring them myself). So when that day comes, most owners just do a little research, look at the listing fees and figure “This broker says he can get me this price, for this fee, let’s list here…”.
Unfortunately, jumping too quickly at the most convenient listing service can be the first step in the wrong direction.
As a founder, when you want to sell, you’re competing against all other SaaS companies in the world for the same limited business buyer dollars.
Those buyers are looking for the best businesses their money and talents can acquire. And each of them looks to different marketplaces or brokers to find those companies.
Fortunately, there’s not a ton of variables that go into where to list your company, so this doesn’t need to be a long, drawn out essay.
Here's what I'm going to Cover
- Marketplaces vs. Brokers
- Advantages of One vs. the Other
- Seller Prep and Business Prep
- Buyer Vetting
- Signaling Professionalism
- Brokers…on Marketplaces?
- My Hope with Businesses for Sale
Martekplaces Vs. Brokers
At the highest level, when a first time seller lists on a marketplace (Flippa, Acquire.com etc…), you’re telling a buyer that you have likely not been professionally coached on the sale process.
Listing on a marketplace signals to buyers that they will need to handhold you through the process, especially if it’s your first business sale.
Any seller that has a business that might be worth more than a half million dollars listed on a marketplace is putting themselves at a significant disadvantage. They’re going against professional acquirers that have a lot of experience.
It’s the same reason amateurs do not box professionals, it’s a sure way to end their boxing career.
High value businesses listed on marketplaces – without any prior sales experience – are potentially looking at a worse deal with worse terms than if they had gone with a broker.
Advantages of Brokers Over Marketplaces
When you list with a broker, that broker is going to review your business to see if it’s ready to sell and if they’re interested in selling it for you. The broker is going to do due diligence on the business, just like a buyer will. They review and validate who you are as a seller, whether your revenues appear legitimate, whether your expenses appear reasonable for your business type. They will coach you on add-backs (to increase the valuation of your business) that you can either immediately take or plan out to fix over the next 6 months.
Seller Preperation and Business Prep
The next thing a broker will do is create a prospectus or confidential information memorandum (CIM) for your company. They give these documents only to qualified buyers, not just anybody that shows interest. The CIM/Prospectus allows those buyers to make a quick decision whether the business is a good fit for them or not.
Which leads me to buyer vetting…
Buyer Vetting
If you’re looking to sell a business in the seven to eight figure range you need to be dealing with professional buyers.
Working with a Broker Screens Out
Unqualified Buyers.
Anyone that’s ever listed on a marketplace knows exactly why this is important.
Brokers are only going to let qualified buyers with verified funds bother you with questions, thereby saving you a lot of time in a heartache with tire kickers that are out there wasting your time. Selling through a marketplace leaves many sellers at the end of an LOI phase finding out the “buyer” didn’t have the funds necessary to close on the business.
Brokers help eliminate this (and other) buyer risks.
Where Do Sub-Par Businesses List?
There’s a marketplace for online/offline businesses called BizBuySell.com That’s where most of the worst businesses for sale end up. Serious buyers don’t linger on BizBuySell.com listings very long.
Why?
That’s not usually where really good businesses go. Now…that doesn’t mean putting your business for sale in a marketplace isn’t going to work, buyers like myself are there looking. I have acquired businesses off Flippa, Acquire.com
But, listing with a reputable broker signals to buyers that an actual business professional has already determined that your business is worth representing.
Brokers typically refuse about 80-90% of the businesses that try to list with them.
Most of those rejected businesses end up on marketplaces, which is another reason why putting something on a marketplace is a potential signal to a buyer that brokers really aren’t interested in listing the business.
Signaling Professionalism
The best message you want to signal to a buyer is “I’ve been educated on the process we’re about to go through…”
When you list with a marketplace, my expectation is you have no idea what you’re doing, your valuation is likely going to be way too high, you’re going to be hesitant to share pertinent information, etc.
Now let me add a caveat here. There are some brokers that I’m a little suspicious of, but that’s okay. There’s a different level of quality across all broker charges as well as marketplaces. However, with even the most sketchy broker, I’m still going to trust a bit more than the best marketplace.Because I know the broker did something to validate the business.
A broker doesn’t want the reputation stain of selling something that turned out to be a phantom business or wasn’t a good acquisition for the buyer. Those bad sales always burn the broker in the end and nobody wants that on their record.
Brokers...On Marketplaces?
There’s one new trend I’ve seen that’s confused me a tad bit.
The trend where a business will be listed with a broker and then the broker lists the business on a marketplace. I’m not quite sure why that’s happening.
And the interesting thing is every time I see it, it’s usually a broker that I’ve never heard of that doesn’t work in the online business space and the businesses are almost always massively overvalued.
When I reach out and ask questions about the business, the broker seems more interested in getting me to look at their other listings instead of the one they put on the marketplace. Listening to some podcasts, it seems those brokers claim listing on marketplaces “opens the business to more buyers”.
Maybe they’re right…I’m not really sure, but it’s a trend I wanted to highlight and I’ll keep my eyes on it…
My Hope With Businesses For Sale
If you’re looking at selling a seven/eight figure business, I’m really hoping it’s coming through a broker, because now I know we have three parties involved, a buyer, a seller, and a professional broker, all of us working together to try and get to the finish line where everyone is happy.
And some of reaching that finish line is a result of brokers educating sellers and giving them guidance on how to move forward with selling their business properly.
In my personal opinion, I’m sure there are absolutely fantastic businesses that are put on marketplaces, sell for top dollar, and there are no issues with the sale.
But a majority of the time that is just not true. Most of my failed negotiations, DD period, etc, have been with marketplace-listed companies.
Final Adive
I hope this summarizes a bit of why where you list your business really does matter.
I always encourage people to consider brokers because it’s a strong signal to buyers that you’re serious, you have a valid business, and you’re prepared to sell.
If you’re putting it on a marketplace, my first question is, “why didn’t you try and sell this with professionals? What is the problem with your business that you need to put it on a marketplace?”
Again, that’s my personal opinion. I hope it helps.
If you are a Founder and may look to sell your SaaS business in the future – or know someone who may – make sure you’re signed up for this Newsletter and my Youtube Channel.
