🏴☠️ ⚡️ Issue #16 - Deal Tear Down: Workflow Management SaaS for Print-on-Demand Facilities at $437k ARR
Welcome! This newsletter is dedicated to acquiring and operating Micro SaaS firms. Join us every Saturday morning for Deal Tear Downs, Operating Concepts and more!
We’re back with Issue #16!
Here’s what to expect this month:
Part 1 — 🎯 DEAL TEAR DOWN - Workflow Management SaaS for Print-on-Demand Facilities at $437 ARR
Part 2 — ⚙️ OPERATING CONCEPT - Mapping the buyer journey to inform content gaps and beyond
Part 3 — 🛠️ OKR TEAR DOWN - Decision-making framework for strategic investments
Part 4 — 🏆 PORTFOLIO PERFORMANCE WRAP - Update on Sprint #4
🎯 DEAL TEAR DOWN
📺 WATCH:
📻 LISTEN:
FIRM PROFILE
Workflow Management SaaS for Print on Demand Facilities at $437k ARR
“SaaS with $437,000 in TTM revenue and $25,000 in TTM profit that specializes in print-on-demand order fulfillment and management. This SaaS helps production facilities, particularly those with multiple locations, have more efficient and streamlined workflow when fulfilling orders for Print on Demand (and personalized print on demand) online merchants.”
ASKING PRICE: $325k
TTM REVENUE: $437k
FOUNDED: 2022
REVENUE MULTIPLE: .7x
TTM PROFIT: $96k
TEAM SIZE: 3
PRODUCT STACK: React, Next.js, Code Ignitor, MySQL, AWS
YoY GROWTH: Unknown
SV SCORECARD AVERAGE
💥 2.88 / 4
STRENGTHS
REVENUE MULTIPLE — When evaluating an investment via a structured and objective scorecard, a low scoring attribute is punitive but it can also represent transformation opportunity. This same dynamic exists when an attractive attribute can also signal a yellow flag. A revenue multiple of .7x is of course attractive from an acquisition perspective, though it certainly raises concerns. SaaS businesses, as a function of enduring and recurring revenues ALWAYS command a multiple that is >1x of ARR. This multiple is a strength but falls firmly in the ‘something must be wrong’ bucket…
USAGE BASED PRICING — As it relates to pricing, this business utilizes a “monthly subscription + take rate on spread of cost of goods.” There is certainly room for interpretation here, and this would be a core item for further diligence, but my initial take is they take a percentage of the reduction in COGS (aka improved gross margin). A pricing model that aligns long-term incentives for the vendor and user is the holy grail. “If you make more money, we do too.” This also translates beautifully into quantifiable ROI and compelling case studies.
INDUSTRY OUTLOOK — The print-on-demand industry is experiencing significant growth and is projected to continue on this upward trajectory. The ability to offer personalized products without the need for inventory storage, coupled with the rising demand for unique and custom items, makes this a promising industry for the future. Here are some key points:
Market Size and Growth: The global print-on-demand market was valued at $5.397 billion in 2022 and is projected to reach $39.035 billion by 2031, representing a compound annual growth rate (CAGR) of 26.1%. Another report projects the market to exceed $43.07 billion by 2032
Product Trends: Apparel remains a dominant product category in the print-on-demand market. However, the home décor segment is expected to register the highest growth, driven by the rise in remote working and people's desire to improve their home spaces. Other trending product categories include pet print-on-demand products, jewelry, fashion accessories, and tech accessories
Industry Drivers: The growth of e-commerce, low startup costs, customization and personalization options, technological advancements, and a focus on sustainable and ethical production are some of the key factors driving the growth of the print-on-demand industry.
Future Outlook: The industry shows no signs of slowing down, with ongoing demand for unique products and personalization options. The expansion of the market into new sectors such as home décor and fashion is expected to fuel further growth.
RISK FACTORS
PROFIT MARGIN / OPEX — A 21% profit margin leaves much to be desired, as this is well below base rates for comparable SaaS. That said, we interpret net margin with a grain of salt, as we’d employ our own operating model and do away with the status quo cost structure, via transitioning fixed costs to variable, pivoting to global labor markets, and so on. This is also a likely culprit for what is motivating the sale at such a low multiple. Put simply, they haven’t been able to achieve the margins that make SaaS desirable.
IMPLEMENTATION REQUIREMENTS — On the good side of the coin, this SaaS provides pain medication (which is preferred to vitamins), as a function of the impact to core / critical workflow. On the not great side of the coin, workflows are rarely consistent across entities and there’s a wide range of data / users at play, which typically translates to a need for human support in the implementation process. This does not fit a PLG growth motion, which disrupts our target unit economics and growth tactics. I suspect that human-involved implementation is crushing the margin and they’ve been unable to automate their way out of these circumstances.
QUICK WINS & OPPORTUNITIES
NEW DISTRIBUTION CHANNEL / PLATFORM — I’ll start by acknowledging this would be a first for our team so there’s not a ton of confidence / evidence we can execute the tactic. That said, at it’s root, this is an eCommerce application, where Shopify reigns supreme. Listing the SaaS on Shopify provides a VERY interesting growth channel, given all growth and revenues to-date are a function of direct sales via their proprietary digital surface area (aka website). Adding Shopify to the mix would be like flipping a switch to drive exposure to tens of thousands of merchants and vendors (aka prospective users and accounts). We need to think more about plays like this, though it’s a step away from vertical B2B…
NEW ICP FOR DEMAND GEN — In a similar, though very separate vein, all revenue and growth today has relied on direct sales to the Production Facilities themselves. In terms of the value chain, there is another key player: The Merchants (aka the Production Facilities’ customers). This would require a ton of work, but there is a play here to sell into the Merchants first and create demand on both sides of the transaction, which lends well to organic growth loops (think: Merchants and Production Facilities expose each other to their tools as part of the transaction so their is embedded product exposure).
MARKET COMPS
Micro SaaS with ARR: $400k to $500k
RETURN SCENARIOS
Disclaimer: The below factors some RISKY assumptions re improvements to cost structure (a ~30% reduction), though we did factor a light-weight, fractional implementation team. Lastly, this is a great example of private equity fundamentals, where a very low entry price is the greatest contributor to a compelling return.
ASSUMPTIONS -
RETURNS -
