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Colin Keeley: [00:00:00] Hello and welcome back. This is Colin Keeley.

Brent Sanders: [00:00:02] And I'm Brent Sanders.

Colin Keeley: [00:00:03] We are two guys buying and building wonderful internet company,

Brent Sanders: [00:00:07] Yes, indeed. And we're getting feedback. We're getting feedback. Colin is part of the Twitter verse I've been, I actually tweeted, I think for the first time last weekend, I'm trying to get better at the Twitter, but,

Colin Keeley: [00:00:19] a Twitter thread. It was not just one tweet.

Brent Sanders: [00:00:21] that's ,  that's actually, I think the format that I can actually get into ,  getting into that, I had , discovered ,  I don't know how this happened, but I got targeted by some random candle company.

So I side business that I've run for a it's a candle business. And so I got targeted by a niche of a niche. That's a theme park candles. Which is apparently a whole space. So that was, I don't know, I just took some joy in, I also had a child-free weekend, which was the first time I realized I've been alone since August.

And it is April just for, in case somebody's listening. But yeah, you get a fair amount of feedback and I we've been talking about this one question that you get that it's a little funny to me, but it's a very valid question. It's like, why niche? B2B, SAS? What. What about this space is interesting.

And, I have some thoughts, I'm sure you have some thoughts, but like what was your, what are you guys thinking about this space and what makes it attractive?

Colin Keeley: [00:01:15] Yeah, so there's a lot, there basically it's a very high quality business model. So if you think of what B2B SAS is recurring revenue, so you don't have to find new customers every month. It's sticky. So how did this like mission critical businesses, which we touched on last episode? They have a high switching costs and they make up a small share of customer wallet.

So typically like 1% is what constellation software says. So switching is just. Like it's so core to your business. It's not really worth the hassle. Like even it's a tiny cost savings to go check out some other platform that's maybe like 10%, 20% better or whatever. It's asset light. So that basically equals resilience.

So there's no capital, no major capital investment requirements. It companies can downsize if they want to, if like business slows down ,  and they're high margin and so high margins big ,  it basically lets you do. High margin creates margin, I guess it'd be the saying goes so to contrast this, my experience   with bad business models.

So I started a company sold jeans online. I started bevy, which ,  was like a equipment rental company. And so those are both low margin businesses and that is like equals endless stress and bullshit for me. Low markup. You're not making much per sale. It is high complexity. So you got ordering employees, inventory, sales tax, cashflow to deal with Thai risk.

So you risk your money, ordering something, and you like hope people buy it in the future. And then it's just, high stress. And people steal stuff. There's theft, investing in capital is things that break. And then it's all that equals like long hours and low pay. So highly recommend high margin businesses.

I know you have some experience with lower margin businesses in the past.

Brent Sanders: [00:02:54] Yeah. I wouldn't say, yeah. Low margin is I started ran an agency for a long time and that was high margin as long as you're busy. So it's it turns into a game and what ends up being the stressor is more so the people you're in a people business. And again, it's high margin. You, when you build that consulting pyramid, where you have juniors and mid-level and senior people that, there's a good ratio.

And then when you're busy, it's a great business. It's awesome. But when you're slowing down or, Feeding the beast, so to speak there, there's quite the beast to cover it. And it's a people business. So it's, that is, what's the most tricky about those. You have personalities, temperamental people. These were software engineers, so that was particularly hard to keep staffed and happy and everybody working well together.

But yeah, I would never, want to get back into that business just from the mental impact that working with so many people have. So in this, these are not. We plan on hiring people. Sure. But it's not as people intensive where they're doing the thing, that's generating the revenue.

This is the business. They're adding support, they're doing things ,  to keep the business ,  running and keep the customers happy. Geez, what else? Looking at more recent business, that candle business is like, The opposite. It is not as high margin because you're slinging some product that ,  breaks when you ship it to a certain people that doesn't show up that, as you said, with the jeans thing, they get stolen out of people's mailboxes.

And ,  it's a good business from like a  side. Hustle type thing of it's easy to do and maintain and run, but it's not the thing that you're going to get rich doing. Or if you do ,  you got to put everything you got into it to essentially end up in like target. That's the only way to win that game in my mind is to  maybe even pivot into a lifestyle style brand of some sort where you can expand beyond just the candle into a home goods.

But ,  yeah, you can't really beat in my mind the B2B SAS, but I don't mean to so sticky. And yeah, it's just the fact is that, in looking at constellation, I think it was reading something they were talking about. They get into Marina management software. It's like such a great niche because, no, one's really paying a lot of mind to how a Marina needs to run.

And if you're going to open a Marina, this could be the way. That you do it in another space that I'd love to look at next is around like self storage software, something to run self storage units. And in that can be a little tricky because there are integrations with hardware controls, but just like these businesses can be very prescriptive on like here's the way to run the business.

And it's almost like the operating system in a box and you can come into, you. You got into the business ,  you had a way to run it, perhaps, but ,  from a digital transformation perspective, how are you going to run it online? How are we going to, do things like communicating with customers?

We know how to do these things. And so we can introduce best practices into weird niches that just nobody has really cared about yet. But the, what do I say? The riches and the niches.

Colin Keeley: [00:05:40] Yeah, that's argument for vertical market software instead of horizontal. So horizontal would be something like Excel or like some monster market cap opportunity that Google and Facebook are going to go after Google and Facebook and all the other major hitters. Aren't going to go into a Marina software  self storage management software.

So that's opportunity and that's why you're competing with much smaller folks. One of the note on the people front it's when I was running the apparel business, I, the quality you interact with going to school or like working with tech companies and you got like a quirky developer.

They're not just openly lying to you. They're not showing up to work drunk. Like the issues you deal with in these like more physical businesses. I just very different and I much prefer to deal with these. I don't know, developers are like bootstrap founders who would be buying companies from that is just more enjoyable to me.

And it makes her a higher quality of life.

Brent Sanders: [00:06:34] sure. Yeah. That does make a big impact.  It's funny though, when you start business. So I have to mention this about almost any business, but it is funny about the agency that I did build that I was. In love with, like I put it together. I modeled it after what I thought would be the best business.

And then you're just miserable in it because you don't know. I was in my twenties. I didn't know what I was doing really. I just, it was making money. That was cool. But then you ended up creating some beast. And so I do think with people involved, it gets sticky where  it's the alignment of incentives starts to shift ,  where you're like, Hey, I just want to keep these people busy, so they're happy, it's tough.

It's ,  it definitely will drive you from wanting to start up a ,  an agency or a service-based business. That's for sure not to say that those are bad businesses. I shouldn't, we should differentiate. They are, they can't be high margin. They just come with a lot of grief.

Colin Keeley: [00:07:27] And I think we do niche down slightly. Like I guess my ideal person to buy from would be like a bootstrap founder. So the alternative is like buying these. And not successful and not super successful, like venture capital backed companies. And that would look like, their cost structure is wildly inflated.

So you have to restructure, you'd have to fire a bunch of people. And bootstrap founders is Hey, this is one employee. And you're giving them like an awesome payday, like making their dreams come true effectively and they get to walk away with a bunch of money and you. Yeah, scale it up from there.

Maybe they just have a couple employees and you keep them on. And so I think there's just a ton of opportunity there. I think it's easier than ever to start these SAS companies. And we'll do a few this year in all likelihood in constellation has acquired like 500 of these. So there's just so many of them out there and we have a lot of room to run.

And I think it would be fun to pivot this podcast to interviewing is in showcasing these bootstrap founders going forward. I think that would just, that'd be good content and enjoyable for us.

Brent Sanders: [00:08:22] I would love to. Yeah. I think behind each of these, there's generally a good story and it's we've bootstrapped businesses and, there, Aren't seeing huge. That's the one thing I want to mention about like this model versus starting a business. This is in my mind, just such a different conversation we had when you're not trying to find product market fit.

If you remove that and it's okay, there's product market fit. And you found that I do feel like there's something about a bootstrap founder that has found product market fit, but maybe it didn't meet. Some expectation model, whatever they set out to do, there is value in that. And yeah, I think that's like the call finding people that have found product market fit.

However, whoever distorted it might be, even if it, as long as you find it and I get it,  we've, I've worked on tons of startups where, you just couldn't. Get there and it's slippery and it's in your hands. And then it leaves and it's fickle and it's you're starting to build that fit.

And it's just, it takes up all your energy and then once it starts clicking you, hopefully you're in a spot where you can capitalize on it. But I think that's ,  I think that's a story for a lot of bootstrap founders. It's five, six years in. They've got a second job there. This thing starts to work and it's sticky and their customers have stayed with them, but it's just, hasn't been what maybe they intended to get into initially.

Colin Keeley: [00:09:39] Yeah, I think it's just the case of what got you here. Won't get you there. It's you just are taking it to the next stage of growth and that is different. You're putting processes in place. You're putting people in place and when people are just very good at zero to one and maybe not so good at, seven to 15 or something like that.

So there is a question of do SAS by itself is pretty big. Do you want to niche down further? Just some examples. I thought of I think we want to stay a little more general, but there are a lot of options. So constellation about half of what they do is government is their clients. So you could be like, just buy up SAS companies targeting the government.

You could focus on just API APIs. You could focus on just SAS for the future of work or developer tools or logistics or finance ,  I don't know. Did you ever think of niching even further down and acquiring just very specific businesses?

Brent Sanders: [00:10:25] The automation front, we initially got started on that, thinking about developer tools. That's really what, and who knows if we end up there, but we just believe that there's the automation space is blowing up. It's going to be. Similar to Excel in the future in my mind is people are going to be using Excel.

And they're all going to be using things like power automate or UI path. And it's just going to become as like the kids that are getting out of high school now. Start moving into jobs. Like they're going to go to college. And so moving jobs, I think they're just so used to automation and ,  it's going to become more and more prevalent and that like it's in my mind, that's where the web was in like two thousands and that's been a vague thesis that we've had.

We haven't really been able to execute on it because we need to build up a. A base of automation, but I do think that there's going to be some great developer tool businesses around some of these burgeoning industries, which are just going to be how people work. And so I, there are a bunch of companies that are software platforms and that's just gonna be a race to the bottom of my mind is it starts out at a hundred thousand dollars for license.

Now it's down to 20 soon. It'll be free. And they're going to give away that product in order to sell these ad-ons and whatever, API APIs and whatever else. So I think that's where the business is headed in and yeah, definitely. I'm hoping to play into that space soon.

Colin Keeley: [00:11:43] Yeah, I think we may just naturally gravitate toward gravitate towards what we know best. And so I wouldn't be shocked if a year from now we specialize a little bit into one of those things and then, expand up from there, but ever list of just other interesting ones that I just think there's so much.

No opportunity. This micro P world and people are reaching out that are doing it for like direct to consumer companies or e-commerce companies. And they're like ,  why are you doing B2B SAS? Should I be doing B2B SAS? And my answer is basically do what you know. So there's folks like late checkout is acquiring online communities in the content space.

I think you could roll up content sites, online courses, sub stack publications. In e-commerce there's three Casio is buying up FBA businesses. It's like the fastest growing company ever. Keith or boy just announced he's doing open store, which is acquiring Shopify companies. I've seen people that are acquiring marketplaces or like network check, network effect, driven ,  businesses.

I think those are going to be more expensive or this barnacle on a whale approach that we've talked about a few times before. So that's ,  like buying apps ,  that. Sell or sell to customers of other big companies. So it's like we commerce ,  Andrew Wilkinson's things doing that for Shopify. A lot of people buying up Shopify apps.

I think there's opportunities in Stripe, Figma, web flow. I really like, and I haven't seen anyone doing that. And then iPhone apps, Chrome extensions, that kind of thing. Any of that is.

Brent Sanders: [00:13:02] yeah. Call with somebody I'm supposed to connect with, who is trying to do that in the web flow space. I love web flow. You have converted me. As a web developer, I never want to build another website. Again, it's such a great tool. I really do see that as the future. Although it is a crowded space, I try to evangelize it as much as you have.

And people are like, eh, like Squarespace or like WordPress or whatever. So it's a tougher thing. I wonder about the. The CRMs of the world. And I think this is a smaller space, but I've been tinkering with ,  like HubSpot, they have ,  I think they're trying to work on an app marketplace or have one already.

But again, going into these niche, taking that B2B SAS approach, looking at some of these ,  services that are the whales, I don't know if HubSpot's necessarily or them, they might be more of a dolphin. And she used that analogy. I don't know if they're that big. I know they're. Big revenue. But in terms of w I think the potential on the Shopify side is so much greater, the dollar size, the amount of stores, the amount of ,  but again that you have so many mom and pops in that space that are happy to give Shopify a hundred bucks a month to keep their store running.

That's ma maybe only making a thousand a month, but  again, that the beats, your 1% analogy. But I think that there's just a much bigger space there. And again, niching down is, maybe you are a barnacle on a dolphin versus a whale. It's still a pretty good life.

Colin Keeley: [00:14:19] Yeah, the right one, because it has to be growing. And then your distribution is like on the platform. So everyone is doing Shopify. I feel like that is getting a little saturated. So of these, like I haven't seen anyone doing Figma or web flow. Those are probably be my most appealing ones there.  Yeah, that's all I got anything else. I know you gotta run here.

Brent Sanders: [00:14:38] no, just ,  just fired up about, yeah. What we have going on and excited to see, I do think let's start to get some people to come on and talk to us. I think it'd be fun to just have a couple of guests to see. I really think the bootstrap founder. Think of like how you got here is always interesting.

I think that's a perspective that we have a lot of assumptions from our own experiences, but ,  you could get it straight from the source.

Colin Keeley: [00:15:00] Yeah. Be fun to build a brand in that community, which is what we have to start doing to be like the purchaser of choice for folks.

Brent Sanders: [00:15:07] Sure.

Colin Keeley: [00:15:09] Okay. We'll end it here. Take care, everyone.

Brent Sanders: [00:15:11] Thanks. Thanks for listening.

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