Startup Acquisition Stories w/ Kevin McArdle – CEO of SureSwift Capital

This is a mini-series within SaaS Acquisitions Stories where we profile the top Private Equity firms and firms acquiring online businesses at scale.

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Transcription:

Andrew Gazdecki:
All right. I am super excited for this one. I’m here with the man, the myth, the legend, Kevin McArdle, the founder of SureSwift Capital. I don’t really think he needs an introduction, but by far one of my favorite private equity firms in the space or holding company, whatever you, how would you describe SureSwift, Kevin?

Kevin McArdle:
Yeah, so we prefer the term holding company and I like to steal from one of my friends, Brent Beshore, put in his annual letter something that resonates with us too. He says, “calling us a private equity firm is like calling an ostrich a bird, while factually correct, it doesn’t really fit the spirit of the word.” So technically we’re a private equity firm but most of what people know about PE, which is buy, load with debt, strip out expenses, and then flip to the next highest buyer. We don’t do any of that. We don’t plan to liquidate our funds. So yeah, I just prefer software holding company.

Andrew Gazdecki:
Nice. So how many companies have you Acquired up to this point?

Kevin McArdle:
46, over the last seven years.

Andrew Gazdecki:
How are you-

Kevin McArdle:
As I was recording.

Andrew Gazdecki:
How are you holding up? That’s insane.

Kevin McArdle:
So I’ve got a great team. There’ve been points where the wheels felt like they were coming off the car because we either Acquired too fast or we didn’t hire fast enough or made some mistakes in acquiring and then that doesn’t feel good. And, actually, so we started very small. Our size of check has risen over the last seven years and we’re currently operating, I think, 30 businesses. So we’ve sold some of the smaller ones. We’ve sold some ones that didn’t work out and, most importantly, we started to divest. Right now, we’re squarely focused on bootstrapped B2B SaaS. In early days we Acquired some things that didn’t fit that before we decided to focus on that niche. So we have divested some businesses to provide more focus, but 30 is still a lot to be operating and the secret is just, I’ve got a wonderful team who manages the day to day of each portfolio company.

Andrew Gazdecki:
Nice. And I guess, how did you get into all this? What made you wake, did you just wake up one day and say, hey, I want to Acquire 50+ companies? How did this happen?

Kevin McArdle:
I wish I was that insightful. No, I had spent 15 years in corporate America at a company called Cerner, which is a software company but gigantic. When I started, it was 3000 people, 300 million in revenue, so already quite big. And then 15 years later when I left, it was 20,000 people and I think 5 billion in annual revenue. So night and day different from what I’m doing now. But I share that with you to give some context to, all I know about business is the software industry and I got to do sales and leadership and management and run development teams and customer success teams, and got to do just about everything in a software company except for write code, because I’m not a developer.

Kevin McArdle:
And that was a great long-run of a career. I was super happy, it’s a great company to work for and I was just ready to do something else. Along the way I went and got an MBA and realized that entrepreneurs, yourself excluded, are not necessarily geniuses or the hardest working people in the world or have some heroic talent. They just, maybe, see the world a little differently than other people, a little bit higher risk tolerance, little bit harder worker and I just realized I could do that. And so I had always dreamed of owning my own business but never had the right idea. And so I was getting a little burned out in my career, even though I loved the company. I had always dreamed about owning my own business and then met and got to know somebody, who later became my business partner, who had this idea of let’s Acquire profitable internet-based businesses.

Kevin McArdle:
And that’s really as sophisticated as the idea was seven years ago. Since then, as I’ve said, we’ve refined it. But it was the type of idea that fit a lot that I needed, which was independence, bet on myself, chance to make money. But also I have, actually, a pretty low financial risk tolerance, so when we started to refine the idea and say, okay, we’re just going to buy things that are already profitable, so we’re not burning cash, as long as we run it as well or better than the founder did everything should be fine. And so that was a less risky thing for me because leaving a 15 year career already carries with it some personal and financial risk. So just a lot of things colliding all at the right time and place.

Andrew Gazdecki:
Nice. Well, I can guarantee you, you were much smarter than me. I graduated Chico State. We call it Harvard of the West. I don’t know if you’ve heard of it?

Kevin McArdle:
Yeah. Oh yeah. Everybody talks about Chico state as the Harvard of the West.

Andrew Gazdecki:
Yeah. It’s a total party school and I graduated with a 2.07 GPA and I believe that’s the lowest recorded graduating GPA. We’ll save this-

Kevin McArdle:
He’s get degrees, man. I’ve heard, I know a lot of your story, but did you get right at, you jumped right in entrepreneurship, am I right?

Andrew Gazdecki:
Yeah. So I’ve been an entrepreneur my whole life. I did the cliche eBay store stuff. I sold, this is embarrassing, but Beanie Babies, World of Warcraft characters. I’d go on eBay and I’d look for misspellings, I’d buy it and resell it at a higher price margin. And then I moved into web design for local bands at my high school and then I started a company in college. I knew I wanted to be an entrepreneur just from the get-go. I was really fortunate to really find my passion early. I just love businesses. I get nervous when I meet a founder of a really successful company but if it’s like an athlete, I’m like, whatever.

Kevin McArdle:
Yeah. So you weren’t at Chico State for the education, you were there because it’s like whatever grade you were getting in your US history class was even less relevant than for most people because you were already on the right path, right. Did you ever consider just dropping out completely because what’s the point? Or then you don’t get invited to the party?

Andrew Gazdecki:
No, because I needed the financial aid to pay rent. So that was my whole plan going in was like, all right, I got five years to figure this out. Or, actually, it started with four years but then I started a company called Bizness Apps. It was a do-it-yourself, no code mobile app builder. And that started to really take off in my senior year and so I went a fifth year and the irony is I took a minor in entrepreneurship. Didn’t go to any of the classes. And I remember I would show up to some of the classes just to play around with the teachers and be like, hey guys, I just want to let you know again, I’m not going to be able to attend. I have a business that I am currently working on but have fun learning how to run a business. And the teacher-

Kevin McArdle:
[crosstalk 00:07:45] professor.

Andrew Gazdecki:
The teacher loved it. He was like, that’s what. So Chico State does have a pretty good entrepreneurial department and I’m forever grateful for them but, anyway, story for another time. But my next question would just be, you look at, how many deals do you look at, a month?

Kevin McArdle:
Yeah, we actually, you must not be, well, let me back up. Hundreds and we actually document it for our investors. I think they like the notion of like, okay, and it’s by month. So we’re recording in February, we just put out a letter for everyone that says in January we looked at X number of deals and it was probably 153 or something like that. The only ones that made it through the first filter were these 30 and we’re down to actual investigation on these five and two may have a chance of going to a letter of intent. So we actually publish all that for our investors.

Andrew Gazdecki:
So how do you evaluate those startups? What’s your sweet spot in terms of what gets it over the finish line?

Kevin McArdle:
Yeah. So from top of funnel down, it’s got to be SaaS, it’s got to be profitable. We like writing checks between 1 and $10 million. So those are three pretty quick filters. If you’re too small or too big, we still get inbound interest from people trying to sell digital marketing agencies. And I love that you can see a super healthy business, there’s nothing wrong with running an awesome digital marketing agency, it’s just not something we would buy. And so then you start looking at more of the details of like, okay, what niche is it in? Is it something we understand? We’re pretty tech stack agnostic. Which other people have criticized me is like, oh no, you should niche into just one thing so you can hire all the developers for that thing and, while I understand that strategy, that would’ve limited the number of things we could buy and then you’re tied to a stack, which I don’t really want to be tied to a stack.

Kevin McArdle:
We’re industry-agnostic. Then you just get into the business fundamentals. Like, is it a market we like and that we can understand? And is it something that we think can continue to grow? Is there a team that’s there? And that’s not a yes or no criteria. It’s just like, what value do we place on this thing? If it’s a solo founder with no team and no plan and if they’re gone, the business’ hose, well, that’s a problem. But if it’s somebody, a founder who’s built-up a team and they’re ready to step out, then that adds value to the business. Yeah. And just the usual, I mean, beyond that, there’s not a lot of secrets or special sauce, Andrew, it’s just like, is it a healthy business that we want to own forever? And that’s the typical questions that Acquire guides people on.

Andrew Gazdecki:
Yeah. That’s usually like, I hate the question of, my SaaS business is making 50k a month, what is it worth? And there’s so much variability into that, like what are your customer count? Quality of customers churn, market, quality of team, quality code.

Kevin McArdle:
Yeah. My answer to that would be it’s somewhere between zero and $5 million.

Andrew Gazdecki:
I always say, my answer to that is that’s like asking how much does a car cost? Is it a Ferrari? Is it a Mercedes?

Kevin McArdle:
Or is it on blocks in the front yard?

Andrew Gazdecki:
Yeah. There’s so much variability, so that’s a great answer. I guess, moving to another question I’d love to ask you is what’s your favorite acquisition that you’ve done at SureSwift? And then I want to know, also, your favorite Acquire acquisition, if you’re willing to share that as well?

Kevin McArdle:
Yeah. Well, I’ll share both, but I don’t like the word favorite and it’s…

Andrew Gazdecki:
You got a lot of kids, so you can’t pick a favorite.

Kevin McArdle:
Yeah, I was trying to think of a different example because I actually have children and I don’t like comparing businesses that I own to my children because I love my children way more than any of our businesses. But yeah, it’s hard to pick a favorite because there’s things to like about all of them. Two that are cool stories, let me put it that way. We own two sister companies. One is called Mailparser. One is called Docparser. And they were created by the same founder, his name’s Moritz Dausinger. And we tell the full story on our blog if people to learn more about it, but part of what I love about those businesses is it’s been a really successful acquisition. It’s hard to love a business where you’re losing money or it’s a failure and we’ve had some of those too.

Kevin McArdle:
So it’s been a big success story. We bought them separately. So we bought Mailparser first and Docparser existed and Moritz was working on that. And I tried to wrap both into the same deal and Moritz was like, no, I’m not selling Docparser because it’s going to be worth more someday. And so we worked into the contract a first right of first refusal agreement, where if he’d wanted to sell Docparser, he was obligated to at least let us know. But the cool part of the story is we became friends, we stayed in touch. We had been operating Mailparser for, I think, a year and a half and Moritz and I were just talking on the phone and it was, he said, Kevin, I think we both know how this ends, you’re going to want to Acquire Docparser because it’s going to be just as successful as Mailparser. And he’s like, I’m going to want to sell it to you because the first transaction was a home run for everybody. But he’s like, the longer I held onto it, the more valuable it’s going to get and so, what do we do?

Kevin McArdle:
And I’ll skip to the end of the story. We worked out a deal that was really good for both parties. He left really happy. He’s onto now his third, actually, his third project that I know about, he’s got other startups that predated Mailparser. We’re super happy. We’ve been able to create jobs for, now, 15 people and it started with two and a half. And so just a home run all around. And my favorite part, I just saw Moritz in October in Mexico City, we were just laughing and sharing a beer and he’s become a friend. And so from every angle, it’s just a wonderful deal. Do you know what I mean? Especially the personal connection. And just about every other business that we have, there’s something missing from the story that I just told you, we’ve done a lot of really good deals where we’re tight with the founders and everybody’s happy, but not quite to that degree of awesomeness stacking on top of itself.

Andrew Gazdecki:
Nice.

Kevin McArdle:
And so that was long before Acquire ever existed, except for maybe in your head.

Andrew Gazdecki:
I’ve heard that, I’ve actually read that story, and when I read it, I was like, that is badass.

Kevin McArdle:
Have you? Yeah. Cool. I’m glad you saw it.

Andrew Gazdecki:
Because I follow him on Twitter, as well.

Kevin McArdle:
Yeah. Well, and you missed out on Founder Summit. You would’ve been sitting at a table with us having a beer, but you had to bail at the last minute. Remember?

Andrew Gazdecki:
Yeah, because I would’ve give-

Kevin McArdle:
That was why we were together.

Andrew Gazdecki:
Yeah, I would’ve given you COVID.

Kevin McArdle:
Yeah. Okay. I forgot why. I figured it was something like that.

Andrew Gazdecki:
Yeah. I was exposed and I didn’t want to risk being in quarantine in a week for, I think it’s two weeks or something like that.

Kevin McArdle:
Well, there’s a risk. You would’ve flown down there. We tested everybody and you were positive, you couldn’t get into the event. So next time, you and me and Moritz can all sit down and have a beer together and tell business stories. But back to your question. Again, not my favorite, there’s three deals, that have at least been listed on Acquire, that we have Acquired. And I say three that have been listed because one of them we actually felt pretty good that we were going to get a deal done. And I’ll just tell you, this one’s MeetEdgar. So I don’t know if you know, Laura wrote or we just announced that we Acquired MeetEdgar a few weeks ago and I’ve known Laura for four years and we were in discussion, she reached out to me directly when she was thinking about selling the business.

Kevin McArdle:
We were talking, doing our diligence, et cetera. And she’s like, look, Kevin, I think this has a good chance of us doing a deal but I have to list it on Acquire just to see if somebody will come out of the woodwork and overpay, give me a strategic multiple whatever. And I was like, I totally understand that, good luck, and we’ll continue talking. And it ended up, I know she had interest and offers from Acquire because who doesn’t when you list a healthy business, but we ended up doing the deal together. And that’s another one that I’m super excited about and really think very highly of Laura.

Kevin McArdle:
But I don’t count that as, we didn’t find it on Acquire, so I’m going to set that one aside. The one that we found on Acquire that is my favorite, is LeadDyno, and I don’t know if you ever talked to those guys. But the reason why I like that business, not just because it’s a super healthy business and the founders are great people, they went through two processes that fell apart. And I think this is when you and I talked in the early days of Acquire I love that it was focused on founders and helping founders find exits. And these three guys, Brett, Mike and Carson were business partners for, I think, seven years. They decided to sell the business, for their own reasons that I won’t get into, and they had two prospective buyers that had written them letters of intent and the deal went sour.

Kevin McArdle:
And I can’t remember the details or the reasons why, we talk about this again a little bit in the blog, but it’s their business, not ours. And they found us, well, we found the business through Acquire. We start having a conversation and you could just feel the stress come out of their shoulders, once we got out a little bit into the process. And Mike, who was leading for the three of them, he’s a CEO. Once we got to a level of trust where we’d had enough conversations, he believed what we were telling him, we liked the business and broke through that surfacey layer stuff. We’re just talking about the real details. He told us that he had been burned twice and it wasn’t through their fault. It’s not like the buyers found something in diligence that spooked them.

Kevin McArdle:
It was just bad buyers, is the easy way me to say it. And he’s just like, I feel so much more comfortable. We’ve been bitten twice and everybody’s spooked that this is going to be a third strike and I don’t know if we can handle that as a founding team. So what I like about it is, yes, we’ve got a great business, we’ve got a great team that came with it, the founders are happy, but the fact that they went through that turmoil and we provided a safe landing spot for their business. And it’s a stressful deal to sell a business, there’s no stress-free event where you’re selling a business, but minimize the stress as much as possible and just let them know, look, we got you. We’re not those other people. This is going to be a simple, straightforward, honest transaction. Let’s get down to business and that’s why that’s are my favorite from Acquire so far.

Andrew Gazdecki:
Nice. And compliments to you. Also, nice shirt, I’m wearing your swag as well.

Kevin McArdle:
Yeah.

Andrew Gazdecki:
How do I pull it up? There we go.

Kevin McArdle:
[crosstalk 00:19:26] T-shirt.

Andrew Gazdecki:
I mean, I’ve heard so much just good feedback from buyers in terms of SureSwift and that’s genuine feedback in terms of, Chris on your team, I’ve interfaced Selena. Everyone is just fantastic over there, so that doesn’t surprise me at all.

Kevin McArdle:
Yeah. And I got one of the nicest emails ever was somebody telling us he’s not going to sell his business to us. And he was like, this has been the greatest experience, I’ve learned a lot, you’ve been really good to me and my partner. We’ve decided, I think they decided not to sell, but they may be selling to somebody else. But it was just such a, it was not about me, is a compliment to the team and they were, because that’s what we care about. That’s what we tried for. You know what I mean?

Kevin McArdle:
It’s like you getting a email from somebody’s like, the Acquire experience was perfect and at the end I sold my business. I care about the founder experience and I know, I just told you, we look at 150 deals and we might close one. So 149 people are going to have some sort of a SureSwift experience that doesn’t result in selling their business to us. And I care about all those 149 people too. I want them to have a good experience with us. I’m happy to hear you get that feedback too because we work hard at it and we think a lot about it.

Andrew Gazdecki:
Nice. I guess, moving on to ways to help founders. Any helpful tips for founders looking to sell their business this year? Like yellow flags or just things to prepare for if they were looking to go to market. If you had to just give, I’m sure you could give 20 tips, but if you had to pick, maybe, the top three. What would you tell a founder? Aside from having a great business, we all know that one.

Kevin McArdle:
Yeah. Have a great business is the easiest one to sell a business. So the simple answer is, be honest and straightforward and what that means depends on what stage you are. So I tell founders all the time, it’s okay to initiate a conversation or talk to somebody, like me, who buys businesses. Even if you don’t intend to sell your business for two years or even if you think you may never sell your business, right. Then at the end of the day, every business gets sold or every founder leaves their business, whether they sell it or they get put in the ground. So it’s okay to have a plan, even if you don’t want to exercise that plan for five years. Because I see people at conferences or online or whatever, and it’s always this like, well I’m not ready to sell my business, but how does it work?

Kevin McArdle:
Explain to me this or that or what happens to the team? We get a lot of the same common questions and I’m just like, that’s fine. But you don’t need the preamble of we’re not ready to sell, but it’s okay to just ask the question, explore. And so in that stage being open and honest and forthright is just like, look, I don’t have a whole bunch of diligence stuff, we’re not getting into a conversation about what’s my MRR and my churn or whatever. Just set expectations. I just want to understand how your process works and I’m not looking to sell right now, but I want to be more informed for a year from now. And then if you are a little bit more serious to where you might want to list on Acquire, you got to be honest and straightforward. Have your stuff in a pile, have yourself organized. Your website, Andrew, tells everybody the questions that they should expect from buyers. It’s not a secret. And if you don’t have the answers to those questions, just wait or get those answers written down.

Kevin McArdle:
The transactions, where the founder is ready, make everything so much easier and it makes me more confident that if they know how to come into this conversation, they probably are doing a good job of planning and organizing their business. So that’s that middle stage where you, maybe you’re just testing the water, just looking for valuation, but, like you said, I can’t you a valuation without some sort of information. And me giving you a valuation is not a commitment to buy and you’re not committing to sell. It’s just a phase in your journey as an entrepreneur, but then when you are ready to sell, be prepared for the full inspection of your business and don’t hide anything because we’re probably going to find it.

Kevin McArdle:
And at some point you’re going to have to let somebody else look at the code to make sure it’s not crumbling. And you just got to be prepared for that and hiding things or misleading, just erodes trust and it might just mean we walk away from the deal. So my advice would be, be honest and transparent but understand what stage of the process you’re at to know what level of transparency is important.

Andrew Gazdecki:
Yeah. I like that. I think, I did a lot of those things correctly when I sold Bizness Apps, the company we were previously talking about, and then incorrectly before I sold it. One weird thing that, I think, a lot of founders do and I did it too, is where you do this dance of we’re not for sale at all, but.

Kevin McArdle:
But I’m curious, yeah.

Andrew Gazdecki:
But it’s so much easier and then once I started building relationships with people in advance, like you just mentioned, and saying, look, I’m going to sell this business at one point in time, I want to keep you updated. And I would update buyers almost like you would update investors. Like, hey, we were just featured in this blog or we just announced this new product launch or here’s how the business is trending, and I would do it quarterly. And then when the time came to sell, it just cut out a lot of the, are you serious? Are you wasting my time? So I think a lot of founders don’t understand, it’s okay to just say, I’m looking to sell my business, do you want to have a conversation around that? Rather than doing this weird dance, hoping to get some crazy multiple.

Kevin McArdle:
And I also want to make clear, it’s also okay to say, I want to understand the process so that when I am ready to sell my business, I understand it better because I’m not ready right now. I’m happy to talk to founders all the time just about, where are you? What’s working? What’s not working? Can we help? Do I know somebody else who can help? I’m not saying I only want to talk to people when they’re ready to sell, but just know which stage you’re at and be honest with the person on the other side of the conversation about where you’re at and then that just sets the tone for, okay, now I know what conversation we’re having.

Andrew Gazdecki:
Yeah. I agree with you. I was referring more towards like, we would get inbound requests from strategics. And when I think back I’m like, I should have handled that like, yeah, we’re open to a conversation but it was always a guarded, if you say that you’re open to selling, it devalues you and it really does the opposite sometimes.

Kevin McArdle:
That’s a good point. I like to think of it as everything’s for sale and we’re on the other end of this, Andrew. So we get inbound interest for our portfolio companies, right. Really frequently. And my answer is always, well, we’re not planning to sell it but everything has a price. So that’s me coming into the conversation, I love this business, I’m not looking to sell it. Sometimes we’ll just tell people outright, here’s our current revenue, if it’s less than a 10x multiple on the revenue, then we’re not interested. And that makes a, you know my number and I know you got to due-diligence, can you get to that number or not? But I’m saying if that’s out of the ballpark for what we’re talking about, then let’s just not waste each other’s time. There’s a way to handle it with, and I’m being super direct in this conversation, I might massage it a little bit with the actual conversation, but it’s totally okay to say, let’s have a conversation.

Andrew Gazdecki:
Yeah. I agree with that. And, I guess, a follow on to the point I was making was just the lack of education in terms of how to position your business to be attractive because you look at a lot of businesses and when you’re talking to a core-dev team or something like that, they are also looking at a lot of businesses and getting inbound requests. And so if you do this weird dance where you’re really held off, at least this is just my experience, it tends to push off the buyer because they can’t tell if you’re serious or if you’re just wasting their time. So I always just, going back to your first point of just being honest, where are you at your stage? What are you looking for? Is it advice? Are you looking to sell your business? Are you looking to just test the waters? Where is my valuation at? So that’s really good advice and, I guess, anything else you’d add to that?

Kevin McArdle:
Yeah, a part of what I love about Acquire, it’s intended for founders to help them be successful. And I think at some point of growth or stage of a business, it’s part of your obligation as the founder, CEO, whatever title you want to give, to start thinking about these things. Whether you have investors, you’ve got a co-founder, you’ve got a team or what, even just for yourself personally, this is part of the evolution of being an entrepreneur.

Kevin McArdle:
You need to understand what it’s like to sell a business, even if you’re not in the market right now. So it’s going beyond what you’re saying, Andrew, what I wanted to add is, it’s good to educate yourself and I’m almost like you’re obligated to educate yourself so that you’re ready for that evolution of the business because, unfortunately, sometimes it comes quicker than we’re ready. And we’ve seen a lot of situations where people are forced to sell a business for one reason or another and if you haven’t at least thought about these things, haven’t had a couple of conversations, haven’t documented the things you’re going to document, you’re going to sell at a discount.

Andrew Gazdecki:
Yeah. I think back of my younger days and I used to just think getting Acquired was like, GoDaddy, showing up with a check being like, hey, welcome to GoDaddy. We’re going to Acquire you. But just understanding, just the more you know about an acquisition process, the higher your chances of successfully closing a deal. So I totally agree with you on that. So moving on to the final questions. So we’ve had it crazier in terms of M&A activity 2022, it’s hard to predict the future. Any thoughts on, maybe, what’s next for SureSwift? What’s next for the industry? Upcoming industry trends. What’s something that, maybe, you’d make a bet on? Could be a growth goal for SureSwift. It could be the market. Just any unique industry insight that you might expect to play out this year.

Kevin McArdle:
Yeah. That’s a tough question. I’m not a gambler, so I don’t like making bets. So the simplest question to answer, because I know the most about it, is what’s in store for SureSwift and it’s been seven years and we’ve done a whole lot of things wrong and there’s a whole lot of things we can instill improve upon. That said, I’m so confident in our team, our process, where we sit in the market, we are just going to not be distracted. I feel like we are one of the best, if not the best company, in the world to Acquire bootstrapped B2B SaaS businesses between 1 and $10 million in value. Full stop. Let’s just do more of that and be even better at that, and by more, it doesn’t necessarily have to be more deals but there’s more of the right deals, is all I want to think about.

Kevin McArdle:
And every, like I said, every once in a while something comes in, that looks shiny and different and cool and would be a wonderful business to own and I’m like, nope, no distractions. So I think that’s what you’ll see from us, is nothing super different or, other people might say, not that interesting. We’re just going to keep being awesome at what we’re already really good at. As far as the market, I mean, you’re better to answer that question than me because you just have a different lens and you see it from so many different angles like founders and buyers and investment vehicles and things like that. I’ll tell you something I worry about and I would like to get your perspective, I could turn the questions around is, part of the greatness of Acquire is it’s made the process easier for founders. It’s made deal flow easier for prospective buyers. And that creates a super healthy marketplace.

Kevin McArdle:
My concern is that I know there are bad actors in this, well just in the world, but in the buying and selling of businesses. And I worry, not for the health of Acquire, but I don’t know how to phrase it, Andrew, but I worry that there’s going to be bumps in the road here as our industry continues to evolve. And I’m super bullish long-term, but I worry about short-term that not everybody knows that there’s bad actors and not everybody has felt the sting of doing a bad deal. I was listening to somebody talking about just investing in general and we’ve been on the longest bull run of your and my lifetimes, and literally have heard investors say, I don’t really know what a downturn looks like because I haven’t lived through one. And we’ve had 08 and all this, but in general, everything’s up into the right.

Kevin McArdle:
And I worry that in our space, nobody’s seen a big failure or not enough people have seen failure, that everybody thinks this is easy. Maybe that’s the simple way to put it. Your marketplace, people like us, others documenting. Here’s how I did it. Here’s the success. You buy a great business, you do the right things, that business should continue to grow and there’s not enough, it almost makes it look easy. And I worry that too many people are going to step into this with either their own money or other people’s money thinking it’s easy and get hit by a train. Is that something that you see or worry about or am I just making things up here?

Andrew Gazdecki:
I mean, you could also say anyone who starts a startup is an idiot because the success rate is 10%. If anything, I would say, I’d go back to some of your previous points where you Acquired companies and it didn’t work out. Sometimes, if you’re worried about people buying a company and not working out, that’s part of the process. I’ve failed so many times to be successful at stuff that I do and I think that’s a part of the reason that you’re successful. I mean, I think people are, again, a little fast and loose but I don’t think it’s a concerning problem to the point where it’s like, hey, just buy Bitcoin. You can make that sort of argument against any sort of investment, whether it’s starting a new business, whether it’s buying cryptocurrencies, whether it’s buying an NFT or something like that, angel investing.

Andrew Gazdecki:
I mean, I think just the more education that we create, where we educate both buyers and sellers on how to properly do an acquisition, what is your plan post-acquisition? I think that’s how the market will mature and then will grow and bring more opportunities to founders looking. Because what I think’s going to happen is, for the past two years we’ve just had, let’s call it a hundred PE firms that would be willing to buy, let’s call it, 20 million businesses. And I think with the right tooling and the right guidance and even through advisory services that we provide within Acquire. So you can hire an M&A advisor, you can hire a due-diligence expert, you can hire someone for valuations, you can hire an attorney.

Andrew Gazdecki:
And I think the more that we equip people to, essentially, create their own private equity firms with all the tools that people, like yourself, had to put together over a period of seven years. I think we can reduce that risk. I mean, there’s always a bad angel investment. There’s always a startup that fails. There’s always an acquisition that goes south. There’s, I think it was a founder of Cisco that said one out of three acquisitions that they would do, would fail. So even at the top. So just a disclaimer for people listening to this, acquisitions are hard, they’re not easy.

Andrew Gazdecki:
Number one, you need the capital. Two, you need to know what you’re doing in terms of, if you don’t have any experience in SaaS and you’re acquiring a bunch of SaaS companies, it’s going to be a big learning curve but you are skipping over the product-market fit stage. So I always recommend start small. Hopefully, if someone Acquires a company, it doesn’t work out, it’s on the smaller end. But candid opinion, no, I don’t see it being an issue. I think the bigger issue is probably just founders selling their companies for too cheap and using advisory services that charge too much. What’s your take on that?

Kevin McArdle:
That was one of the, when you first told me about Acquire, that was the killer feature for me. After you laid out the vision of what you’re trying to build, I was like, I don’t want to be a broker in five years because, especially, in our space with SaaS and online businesses, they charge hefty fees and I’m not sure they deliver. And I know lots of brokers in this space, have done business with lots of brokers. They’re good people, it’s a reasonable business model, but your business model puts so much power and control in the hands of founders at a way lower price, which can’t be free, right? Is it true? You can still list and sell a business on Acquire for free? Versus paying a huge percentage to.

Andrew Gazdecki:
Yeah. Charging the fees.

Kevin McArdle:
Yeah. So I do think that is a big, will continue to be a big trend that we see. And back to your earlier point, I guess, there’s inherently risk in business. We all know this. I just hate seeing people lose money and fail when they weren’t going into it, eyes wide open but that’s not my problem to solve. And I think you’re right. If you’re educating people and trying to help people along the path of, here’s the things to do to lower your chances of failure or at least understand the risk that you’re seeing, that’s all you can do. And all I can do is tell people, here’s my experience, here’s some things to look out for. Here’s some ways I’ve failed, try not to do those things. Go invent all new ways to fail, but know that failure’s part of the deal when you’re running a business. So yeah. I like your lens on it. It’s just like, that’s the deal with startups. You can’t…

Andrew Gazdecki:
Just a high-risk.

Kevin McArdle:
It’s a high-risk deal.

Andrew Gazdecki:
Yeah. There’s no, I mean, this would be a funner, longer conversation of just how to de-risk acquisitions or how to de-risk even launching a startup. There’s so much education out there and I think that’s where it really starts is learning from other people’s failures and mistakes. And I think the more that people share those publicly, the more they can help other people not make those same mistakes. Because a lot of the mistakes that I see with startups or acquisitions, I haven’t really heard too many in terms of acquisitions, aside from code being awful, had to rebuild the code base, stuff like that. But that stuff being shared, the common pitfalls of an acquisition, people can learn from that and then avoid those mistakes. But with any sort of investment or any sort of entrepreneurial endeavor, there’s a very high-risk failure. It’s literally, you have a 10% chance of success starting a business.

Andrew Gazdecki:
I would argue your chances of success when acquiring a business is probably higher because you’re skipping over some of the hardest parts, like finding customers and product-market fit, and then you might budget 50k. And I have friends who go up to 150k and they still aren’t there. So we could probably talk about that for a while, but I get what you’re saying in terms of as the buyer pool increases, not all of them are going to be as sophisticated and as experienced as yourself. And so at Acquire, what we’re trying to do is build tools that help with things like you have a due-diligence team. Other people don’t. What if there was tools for due-diligence or what if there was tools that basically automated the legal document creation or allowed you to find an advisor to help with the whole process, when you need it, just to point out any yellow flags you might not be catching, so.

Kevin McArdle:
Awesome. I think it’s a huge service to the whole, the industry and you’re right. If the chances of failure for startup are 90%, the chances of failure for an acquisition should be way lower or chances of success be way higher depending on, but it’s never going to be zero. The thing about an acquisition is you still have the, just life and businesses are unpredictable and there’s inherent risk, but in terms of wrong price, tech blowing up on you, team issues that you didn’t know about, legal issues, that contract things. There’s a relatively, it’s not a short list, but there’s a list. It’s a countable list of things that are the predictable things that go wrong in a business of a certain size.

Kevin McArdle:
And people like you, people like me can share to the world and others, here’s our take on that list of things and here’s what we look at in our diligence. And here’s what we care about and try terms of the transition process. And here’s the things that we’ve done wrong, so you can learn from them. And it is a more, versus a startup is the universe is so big for things that you could start. You don’t even know where to consider the risks, right? Because it depends on the market and the pricing and the customers. And it’s just infinite, the number of risks that you’re facing, starting a company, any company, but an acquisition is a more straightforward thing to consider and people can get educated if they take the time and energy to do it, to lower those risks.

Andrew Gazdecki:
Yeah. No, I completely agree. And I think it’ll be interesting to see how the next, this is probably way, I don’t even want to talk about this because it’ll take us down a rabbit hole, but are we in a bubble? If we see an economic downturn, how is that going to affect acquisitions? So that’ll be interesting but maybe we’ll save that one for, I don’t want to put an opinion on air where I think we’re at, but.

Kevin McArdle:
I will tell, I will give you a prediction here. Yes, we will see a downturn. We may be in the middle of it, right now, middle of February 2022 and inherently, that means other people, people have less cash than they thought they did 45 days ago. And that may slow acquisitions or reduce prices people are willing to pay, but it is not going to, your activity, your market, Andrew, you’re never immune to the macroeconomic trends but I think you’re pretty well isolated. And my market, I don’t really care what the worldwide economy does. There’s hundreds of thousands of startups out there who want to eventually be Acquired. There’s still way more than enough money in the system to go Acquire those businesses. I wouldn’t sweat it if I’m you or if I’m me or if I’m a startup looking to get Acquired in the next one to two years.

Andrew Gazdecki:
Yeah. I have one data point that I’ll share. It is when I launched Acquire, it was two months before the pandemic started, and then when the pandemic started, that’s when we really started to like, and I couldn’t figure it out. I was like, what’s going on? And I think it was because people were trying to buy alternative assets rather than, the stock market was cratering. Even Bitcoin was cratering, which was weird because the whole point of Bitcoin was when the world-

Kevin McArdle:
[crosstalk 00:46:04] correlated.

Andrew Gazdecki:
Yeah. So we’ll just, maybe we’ll revisit this on another podcast and say-

Kevin McArdle:
Well, it’d be interesting because the timing, you were relatively new, some of that takeoff that you’re describing might have just been the world figuring out that Acquire’s out there. So it’ll be interesting to see with a longer lens, over a period of, now what it’s been two years, in five years, 10 years, you’re going to see multiple cycles, big and small. And I think that same thing is all always true. When the stocks tank people want alternative assets, but it was also such a dramatic event in the economy and so new in Acquire’s existence. It’s hard to directly predict like, okay, this means that. You know what I mean?

Andrew Gazdecki:
Yeah. I wouldn’t bet on it. I was just saying, what’s the term, correlation does not mean causation.

Kevin McArdle:
Causation. Yeah.

Andrew Gazdecki:
Yeah. It was just something interesting. It could have been just, I don’t know, March was the month or whatever maybe, but I just, I do remember it and I do think about it sometimes. Like, huh, if the market goes down, obviously startup valuations go down and then there’s buyers with dry powder. Does that increase acquisitions, decrease acquisitions? I’m sure I could, probably, do an analogy with homes or something like that, but we’ll just have to wait and see. But I got three more questions for you and then I’ll let you go. Does that sound cool?

Kevin McArdle:
Yeah. Let it rip.

Andrew Gazdecki:
All right. Favorite book?

Kevin McArdle:
Favorite book. So the two that came to mind, I feel like, I don’t know if they’re actually my favorites, but the two that came to mind are The Alchemist by Paulo Coelho and it’s not a business book, it’s more of a life book and one that you can read over and over again and you learn something each time. And then as a founder and CEO, one of my favorite, most memorable books is Let My People Go Surfing by, I don’t know the right way to pronounce his name. He’s the founder of Patagonia and that’s a company that just thinks a little bit differently, does things differently and it’s the history of the company and a view inside their culture and a view inside the mind of a really interesting, cool founder who you could tell from the beginning, it was like, yeah, we sell clothes and gear but it’s about our people and the culture that this guy, Yvon Chouinard, I think is how you pronounce it, but I’m not sure. So those are the first two books that came to mind.

Andrew Gazdecki:
Nice. Who is an entrepreneur that you admire and respect? And it can’t be Elon Musk because everyone says Elon Musk.

Kevin McArdle:
I never would. You could ask me to list 20 and I wouldn’t get to Elon Musk. Not that he’s not a super smart and super successful guy. He’s just not, wouldn’t be on my top 20 list. Maybe that’s controversial but yeah.

Andrew Gazdecki:
That’s definitely.

Kevin McArdle:
Let’s call it nonconformist thing.

Andrew Gazdecki:
You’re a contrarian.

Kevin McArdle:
I’m a contrarian. Thank you. That’s hard. I feel like I admire, almost, all entrepreneurs. Not that all are good humans or nice people, but just the guts to try to do something and invent something out of nothing and create jobs for other people. Man, that’s really, I feel like I should have a Mount Rushmore of the four people that I admire most.

Andrew Gazdecki:
Michael Jordan, Tom Brady, Babe Ruth.

Kevin McArdle:
Think you’re all sports Mount Rushmore. I don’t know. Sorry. I wish I had a better answer for that, man. I just.

Andrew Gazdecki:
There’s room for everybody. That’s a good answer, man.

Kevin McArdle:
There’s room. Yeah. There’s room for everybody and on…

Andrew Gazdecki:
I’m not going to lie. That’s my answer. I’m like.

Kevin McArdle:
And there’s a woman who is in my hometown of Minneapolis, she runs a really amazing, let me, I’ll give you her name. Her name’s Heather Manley. Nobody outside of Minneapolis has probably ever heard of her. She has an amazing IT firm. I got to meet her and hear her story. She’s built an amazing business. She’s a good human. Everybody loves her. She’s just started a liquor brand called the Crooked Water and that is also amazing. And she’s got a third business that she’s starting, that is in a completely different vertical. I think it’s a restaurant. Yeah. I think she and her family started a restaurant and that is also amazing. And so she’s a repeat entrepreneur. She’s a good human. I don’t think we celebrate female entrepreneurs enough in this country.

Andrew Gazdecki:
I would agree.

Kevin McArdle:
And the reason why that sparked a thought in my brain is that you don’t have to be rich and famous to be a successful, admirable entrepreneur. I think she’s pretty well off. People around here knows who she is, but I would never expect you to know who she is. I love people like that. She’s doing it, building great business, not doing it for fame or glory, just doing it for the love of the work and to create jobs for people and to put something awesome out into the world. There’s a 100,000 of those people right now just slugging it out, and those are the people that I, and that’s part of why I like glorifying Elon Musk. I’m just over it. Great company like Tesla. Cool. I wish I had one, but can we talk about other people for a little bit. That’s my beef with Elon.

Andrew Gazdecki:
Yeah. Well, he’ll put you on Mars one day.

Kevin McArdle:
I don’t want to go. That’s another thing. Cool science project, bro, but I’m not interested. I’m perfectly happy.

Andrew Gazdecki:
I’m not going either.

Kevin McArdle:
On planet where you can be outside. I just don’t get it.

Andrew Gazdecki:
I like earth. I’m good. Everyone in my neighborhood drives a Tesla. It feels like every house came with a Tesla and I don’t have a Tesla. But this has been a wonderful conversation, Kevin, and again, I’m the huge supporter of everything that you do for founders and all the education you put out to founders and it literally, I think I’ve told you this, but when I launched Acquire, you were one of the first to publicly support it on Twitter and it meant a lot to me.

Kevin McArdle:
Oh, well, it was just authentic, man. I love what you’re doing.

Andrew Gazdecki:
That was two years ago.

Kevin McArdle:
Yeah. I can’t, it feels like five to me, honestly. The progress that you and your team have made.

Andrew Gazdecki:
It feels like 10 to me, man.

Kevin McArdle:
It’s amazing. I love those tweets. We put a couple in our newsletters to our, just our newsletter list and to our investors. It’s once a month, you’re like, oh, hey, we’ve listed this many businesses, this many exits for this much dollars, happy Tuesday. I love that. And every month it’s like bang, getting bigger and bigger and I think you and I know, the numbers are mind-blowing and it’s still just the tip of the iceberg. There’s so much room for you all to grow, for us to grow, for startups to exist and be Acquired. It’s just an exciting time, man. And I love what you all are doing, and it’s an honor to be here and talk with you and chat about it. It’s really fun.

Andrew Gazdecki:
Yeah, likewise. Well, Kevin, I appreciate you and, definitely, please tell the whole team at SureSwift, they’re awesome and I appreciate all of them. And, I guess, final question. If people want to get ahold of you for advice, maybe they’re looking to sell their business. What’s the best way to get in contact with you?

Kevin McArdle:
Yeah. Two ways. So I love chatting with people on Twitter, you know that. So it’s Kevin_McArdle and McArdle only has one A, not two, or sorry, one C, not two.

Andrew Gazdecki:
We’ll put that in the show notes.

Kevin McArdle:
Yeah. Or sign up for our newsletter, it’s called the Founder’s Squad. Hit our website, you’ll get a popup. And we put stuff out to anybody on our list, once a month and it’s usually tips, links, things we’re learning from others and things we want to teach people. And that’s the best conduit to just get a steady, slow drip of this is SureSwift. So either of those ways.

Andrew Gazdecki:
Right on. Well, Kevin, thank you so much for your time. Appreciate you hopping on this podcast with me and I’m rooting for you, man. I think it’s going to be a big year for you.

Kevin McArdle:
Likewise, I’m excited for both of us.

Andrew Gazdecki:
All right, cheers dude.