🏴☠️ ⚡️ Issue #18 - $41k MRR Digital Credential Management SaaS (Deal Tear Down)
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!
TABLE OF CONTENTS:
Part 1 — 🎯 DEAL TEARDOWN - Digital Credential Management SaaS doing $41k MRR
Part 2 — ⚙️ OPERATING CONCEPT - An homage to 2x OG Strategy Frameworks
Part 3 — 🛠️ OKR TEARDOWN - Full Refresh of Pricing and Monetization
Part 4 — 🤔 MUSINGS - TBD
🎯 DEAL TEAR DOWN
📺 WATCH:
📻 LISTEN:
FIRM PROFILE
Digital Credential Management SaaS doing $41k MRR
“Profitable SaaS with $896,000 in TTM revenue and $576,000 in TTM profit that features a superior alternative to leading players in the digital credentialing space. This solution is recognized as the most comprehensive digital credential management tool on the market, offering a seamless experience for institutions and learners alike.”
ASKING PRICE: $5M
TTM REVENUE: $915k
REVENUE MULTIPLE: 5.5x
TTM PROFIT: $609k
TEAM SIZE: 14
PRODUCT STACK: Azure, .NET Core, C#, vue.js, Phython, Node.js, golang, React.js
ANNUAL GROWTH RATE: 81%
FOUNDED: Jun 2020
SV SCORECARD AVERAGE
💥 3.1 / 4
INDUSTRY OUTLOOK
Market Size and Growth:
The digital credential (certificates that are given by a party to prove someone's qualification, claim, or achievement) management industry is on a significant growth trajectory, fueled by the increasing demand for verified skills and competencies in the job market. While specific market size figures are not readily available, key indicators such as the number of credentials earned and shared monthly suggest a robust and expanding market. For instance, Credly claims over 70M credentials earned / managed with 650k credentials shared each month. The industry is characterized by high engagement rates, with millions of digital credentials being managed and shared across various platforms.
Trends and Industry Drivers:
Skills-Based Hiring: The global economy is moving towards a more skills-based approach to recruitment, allowing employers to evaluate candidates based on verified competencies rather than just degrees or resumes.
Seamless Integration: The ability to integrate with existing Learning Management Systems (LMS) is becoming a standard feature, facilitating the issuance and management of digital credentials across educational institutions.
Data-Driven Insights: Advanced analytics are being incorporated into platforms, offering organizations valuable insights into the skillsets/gaps among their workforce.
Social Media and Networking: The industry is leveraging social media to increase the visibility and shareability of digital credentials, turning them into powerful referral sources.
Future Outlook:
Educational Adoption: The industry is anticipated to gain broader acceptance within higher education as these institutions increasingly offer certification programs. This shift comes amid a declining enrollment in traditional programs like MBAs. The trend signifies a larger transformation in higher education towards learning options that are more specialized, flexible, and aligned with current job market needs.
Global Expansion: With a growing network of certification, assessment, and training providers, the industry has significant potential for global reach and influence.
Advanced Analytics: As technology evolves, expect more sophisticated analytics features that provide deeper insights into skills and competencies.
Personalization: Customization and personalization are likely to become more prevalent, offering users a more tailored credentialing experience.
PRODUCT TECH STACK ANALYSIS & SWOT
This is a new / first-time section of a deal teardown. I’m assuming a healthy chunk of you are non-technical operators, which is a knowledge gap / blindspot we must all aggressively resolve. In that spirit, I’ll spend a bit of time moving forward providing analysis of the product tech stack.
[PLEASE LET US KNOW IN THE COMMENTS IF YOU LIKE / DISLIKE]
Here is a quick run down of the most likely applications of the disclosed stack:
Azure (Cloud Infrastructure): Azure is the cloud infrastructure provider, so its role is to host and manage the servers, databases, and networking components that the SaaS product relies on. It provides scalability, reliability, and various cloud services.
.NET Core and C#:
Backend Logic: .NET Core and C# are often used for building the backend of the SaaS product. They handle core application logic, data processing, and communication with databases.
API Development: They are used to create APIs (Application Programming Interfaces) that allow different parts of the application to communicate with each other and with external systems.
Vue.js and React.js:
Frontend Development: Both Vue.js and React.js are frontend JavaScript frameworks. They are responsible for creating the user interface (UI) of the SaaS product, handling user interactions, and presenting data to users.
Python:
Data Processing: Python is known for its data processing capabilities. It might be used for data analysis, machine learning, or other data-related tasks within the SaaS product.
Scripting: Python can also be used for scripting tasks, automation, and data manipulation.
Node.js:
Server-Side Logic: Node.js is often used for server-side scripting and handling real-time features, such as chat functionality or notifications.
API Development: It can also be used to develop APIs and backend services that complement the .NET Core and C# components.
Go (Golang):
Performance-Critical Components: Go is known for its performance and efficiency. It might be used for building performance-critical components of the SaaS product, such as high-throughput microservices.
And here is a SWOT:
STRENGTHS — The tech stack boasts a versatile range of technologies, enabling adaptability for specific tasks and requirements. The presence of strong ecosystems around .NET Core, C#, and React.js provides extensive developer support and resources. With the backing of Azure, the stack offers scalability, ensuring it can gracefully accommodate expanding user bases. Furthermore, Golang's inclusion enhances the product's performance in critical components, augmenting speed and efficiency.
WEAKNESSES — The diversity within the stack introduces complexity during development and maintenance, necessitating a wide array of skill sets. Integration challenges may arise when combining multiple technologies, potentially leading to compatibility issues. Additionally, there's a dependency on the availability of resources, with the challenge of finding and retaining skilled developers for each technology, which can be resource-intensive.
OPPORTUNITIES — The stack's diversity opens doors for innovation and product differentiation, enabling unique features and solutions. Leveraging popular frontend technologies like Vue.js and React.js has the potential to broaden the market reach and attract a wider user base. Moreover, Golang's presence provides an opportunity for performance optimization in critical areas, ultimately enhancing the user experience.
THREATS — The potential for competitive pressure exists, as rival SaaS products may opt for simpler tech stacks, possibly expediting their development and deployment processes. There's also the consideration of resource costs, with licensing fees for technologies like Azure and .NET Core that could impact the budget. Lastly, ensuring consistent coding standards and maintaining the stack over time may present challenges for long-term sustainability.
STRENGTHS
CATEGORY TAILWINDS — From my business school days (~2018), I remember being impressed when a text book was published within the last two years. Obviously higher education curriculum struggles to keep up with the velocity of the real world. There’s a lot of discussion right now around the ‘unbundling of jobs’ into specific tasks and skills, which fits in the same vein. Harvard has gone super hard at an online school and Scott Galloway (a legendary brand strategy professor at NYU) has teamed up with others to start an online school to solve for the shortcomings of traditional, elite academic institutions (stale courses, synthetic scarcity). All to say, we are very likely moving toward an increasingly skill-based, learning on demand in focused bursts kinda world and credentials will be critical to substantiate that knowledge. After all, humans need heuristics and we’ll need to replace MBA with something on a resume…
FOUNDATIONAL SEGMENTS / MONETIZATION — Every day, my appreciation for elegant and thoughtful pricing and monetization grows larger. In Micro SaaS, we carry a base assumption that most boot-strapped Founders are technical and product oriented. This presents great opportunity for those with a GTM skillset, which is often associated with new user acquisition. I’d like us to broaden our thinking of GTM to encompass pricing models and please ensure this is an active part of every value creation discussion during diligence. This firm has established a model for both SMB and Enterprise, which is hard. Furthermore, they’ve employed a 2-part tariff pricing model (think: $500 / mth + $2 per use) with ‘credentials issued’ (almost like ‘minted’) as the value / usage-based metric. In their context, next up further segmenting the Enterprise into private vs public, given educational institutions make up a HUGE part of this firm’s theoretical TAM.
UNIT ECONOMICS — This group is throwing up a very impressive ~60% profit margin on close to $1M in revenues. This implies really strong unit economics (Customer Lifetime Value - Customer Acquisition Cost), which implies product-led-growth (PLG). We’ll dig into seller motivation further below, but one thing we could maybe assume is revenue has hit a plateau (as a function of this PLG motion). Put simply, they likely need to layer in sales-led-growth (aka hire sales people) to knock down more enterprise accounts to complement PLG in the SMB market and keep revenue growing. I’d encourage everyone to avoid thinking of PLG and SLG as distinct growth motions and instead consider them complementary. When / how they complement each other is the challenge…
RISK FACTORS
THEY WANT A STRATEGIC ACQUIRER — This is the first time I’ve observed such an explicit interest in a strategic acquirer (aka a company that buys another company to exploit synergy), though it makes a ton of sense in context (more on this below). In terms of hypothetical next steps, the first order of business here is to ask the 5 whys and learn more about the underlying motivation of the exit and if you can provide this scenario / outcome despite being a financial sponsor. As an example, pitching a roll-up strategy might do the trick…
WINNER TAKE ALL CATEGORY — Network effects occur when a product or service becomes more valuable as more people use it. Needless to say, network effects are highly relevant in the digital credential management category (think: the more you see a brand of certification and build associations, the more you trust it). The holy grail here is becoming the de-facto global standard trusted by all hiring managers, CEOs, investors, grandmas, and so on. The risk to highlight is if another vendor reaches the required critical mass to tip over the market, the remaining players are walking dead
PUBLIC SECTOR ENTRY — As it relates to traditional education formats, the US Department of Education is in charge of credentialing institutions (aka validating institutions meet quality standards). You guessed it…this is a bureaucratic and analog process. This is when us private-sector folks lick our chops, though it would be a bummer if this department embraced digital at a meteoric pace and became the de-facto standard noted above (or condemned private credentials as unsubstantiated or faulty, etc.).
QUICK WINS & OPPORTUNITIES
ROLL UP TO ESTABLISH GLOBAL STANDARD — Building on the commentary re ‘winner take all,’ there is of course an opportunity to synthetically force this outcome via a roll up. The issue here is the capital requirements, given a handful of players are ventured backed (think: we need a big exit to satisfy our LPs). Furthermore, executing rollups is notoriously difficult (think: if word gets out to a single target firm, they’ll know they have leverage in the transaction, which will translate to much higher purchase prices). To put it simply, you’d need $X00M to get this done…
SALES-LED GROWTH (SLG) — We’ve touched on this so I’ll keep it brief. Real-time, skill based learning is how the world works. This changes how we perceive and place value on the quality of knowledge. Corporates and educational institutions are the bullseye on the dart board and acquiring those accounts requires sales process and humans.
VERTICAL INTEGRATION — 42% of Fortune 500 companies use LMS’ (learning management systems) and, according to Zippia, companies with comprehensive training programs have 24% higher profit margins. Firms are closing the skill gaps among their workforces by developing their own certification programs or bringing in partners (vs waiting for academia), all of which is delivered via an LMS. Integrating with the usual suspects in this industry (CornerStone, SAP Litmos, Docebo) would juice distribution, provide crazy data and benchmarking opportunities, etc.
MARKET COMPS
Micro SaaS with ARR: $800k to $950k
