Buy an agency, build a SaaS empire

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These 6 founders bootstrapped 3 boring web design businesses into $1.25 BILLION in ARR. They proved that you could turn a sleepy agency business into a SaaS empire. Let's break down this underrated strategy:

There are 2 popular SaaS-building strategies: 1. Bootstrap - eat ramen & build software. Hope that one day you get a customer. 2. Raise VC $$$ - hire a team & build software. Hope that one day you get acquired. But there may be a better way.

The hybrid model is using an agency biz to bootstrap a software service. It works. Here's your proof: @jasonfried & @dhh - 37signals, 100k+ customers @benchestnut & Dan Kurzius - Mailchimp, sold for $12B @davegreiner & Ben Richardson - Campaign Monitor, $154mm rev in 2019

To start: -buy an existing agency that serves your target customers -build from scratch Buying saves time. Building comes with more flexibility. The agency becomes your platform business.

Here are the advantages of having a platform business: -No VC required -Product/market fit is almost guaranteed -Acquiring the skills you need to run a successful agency will give you an edge in the SaaS world

/No VC required • A successful agency has steady profits • Those profits can be reinvested into developing software • This lets you build at your own pace & control your destiny The SaaS products in all 3 examples started as side projects & took time to develop.

/All 3 companies were scratching their own itch: •MailChimp → customers didn’t have a good way to send emails •Basecamp → had trouble managing multiple projects by email •Campaign Monitor → didn't like existing email marketing tools

Building something your company or customers need guarantees a product/market fit.

/Acquiring the skills you need to run a successful agency will give you an edge in the SaaS world Most successful agency founders are good at: 1. sales & marketing 2. managing people 3. capital allocation Here's why that matters:

Sales & marketing: Most agencies sell a commoditized service. To stand out they: • position themselves well • charge a premium price • find good customers VC-backed startups spend 30-50% of their funds on marketing. It takes resourcefulness to compete against that.

Manage people: • Agency salaries are low • Fighting turnover is hard • Need to use incentives other than money to keep talent Software dev salaries are high. If you’re competing against FB & Google for top talent, you will probably not outspend them.

Capital allocation • Agency cashflows can be lumpy • Need to get the most out of every $1 to survive This skill is helpful when your VC-backed competitor has $10 in the bank for every $1 you have.

These companies inspired us when we started Kilo. We acquired a website co. that served gym owners. Once we hit $100k MRR, we started making software to help our customers more. Things took off from there. It was way less risky & stressful than building from scratch.

TLDR Buy or build a profitable agency, then build SaaS. Why? -Agency profits can be reinvested -You're guaranteed product/market fit -Your skills will give you an edge in the SaaS world This model has been proven by some of the most successful SaaS founders.

I hope you've found this thread helpful. Follow me @JohnIsBuilding for more tweets on all things growth.