🏴‍☠️ ⚡️ Issue #20 - Seafood Supply Chain SaaS Doing $750k ARR (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 - Seafood Supply Chain SaaS Doing $750k ARR

Part 2 — ⚙️ OPERATING CONCEPT - Buyer / Acquirer Profiles in Micro SaaS

Part 3 — 🛠️ OKR TEARDOWN - Product Release Playbook

Part 4 — 🤔 MUSINGS - TBD

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🙏 PRETTY PLEASE ROCK THE SURVEY BELOW 👇

(…so we can fine-tune our efforts accordingly)

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👇🎯 DEAL TEAR DOWN

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📺 WATCH:

📻 LISTEN:

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FIRM PROFILE

Seafood Supply Chain SaaS Doing $750k ARR

Profitable SaaS with $750k in TTM revenue and $320k in TTM profit, which provides ERP-based software solutions for the seafood industry (likely inventory, sales, traceability, back office, and dockside operations management, along with quality control and sensor integration).

• ASKING PRICE: $1.8M

• TTM REVENUE: $750k

• REVENUE MULTIPLE: 2.5

• TTM PROFIT: $375k

• TEAM SIZE: 8

• PRODUCT STACK: Open ERP

• ANNUAL GROWTH RATE: 30%

• FOUNDED: 2018

SV SCORECARD AVERAGE

💥 2.4 / 4

INDUSTRY OUTLOOK

I’ve included the numbers below, but obviously seafood is a MASSIVE and truly global market. I was shocked by the growth rate; however, though I personally appreciate seafood-based animal protein is the preferred alternative to poultry and beef as society generally indexes toward wellness-conscious nutrition. Out of the gate, your spider sense should be signaling 😬 ‘this is not a niche micro SaaS play’ 😳, but more on that in subsequent sections…

MARKET SIZE & GROWTH: The global seafood market was valued at $310B in 2021. It is projected to grow from $333B in 2022 to $605B by 2029, exhibiting a CAGR of 8.92% (Source).

TRENDS & INDUSTRY DRIVERS (Source):

• Sustainable Aquaculture & Fishing Technology: There's a significant trend towards sustainable aquaculture and innovation in fishing technology, forcing adoption of solutions that support (and can prove!) these practices.

• Climate Change Adaptation: The industry is adapting to the impacts of climate change, which increases the need for real-time visibility and scenario forecasting / predictive analytics.

• Traceability and Transparency (Consumer Preferences): Increasing consumer interest in the origin and production methods of seafood emphasizes the need for robust traceability and transparency in the supply chain.

• Growth in Online Sales / Direct-to-Consumer (D2C): The rise of e-commerce in seafood sales, especially accelerated by the COVID-19 pandemic, underscores the need for integrated digital solutions.

FUTURE OUTLOOK:

• Technology Integration: Continued integration of advanced technology in seafood processing and supply chain management should be expected.

• Expansion in Services: Given the growth trends and the increasing complexity of operations in the seafood industry, there will likely be more opportunities for platform-based software solutions that manage multiple aspects of the business.

STRENGTHS

• Profitability: With $750,000 in TTM Revenues and a claimed 50% profit margin, the status quo business is healthy and efficient. We would of course still scrutinize cost structure and opportunities for margin improvement but this is a phenomenal base and lends well to servicing the debt used to finance the acquisition. This also removes doubt re installing a steady-state GM or CEO down the road.

• Growth Rate: 30% YoY growth is considered top quartile in SaaS at this level of ARR, indicating a healthy and expanding business. Momentum is a VERY difficult thing to create and a beautiful thing to inherit, though we need to build conviction around the seller’s motivation to move on from the business.

• Team and Technology: 8 FTEs and the use of Open ERP technology indicate a lean operational model with potentially scalable technology infrastructure, though the ERP-based dimension creates concerning platform risk (think: salesforce or Shopify app…).

RISK FACTORS

• Competitive Landscape: As noted in the industry overview, the global seafood market is not a niche by any stretch of the imagination. With a market (aka TAM) of this size, you can expect the OG tech titans and venture backed players are in the mix. In this case, there are competitive pressures from every side of the table. You have multiple OG Tech Titans (SAP, Oracle, etc.) that build horizontally applicable solutions mainly catered to enterprise accounts. In addition, there are numerous players attacking food processing across animal protein markets more generally. Lastly, you have a few direct competitors going after seafood, specifically. We’ve long preached the belief that small niche players can thrive by accommodating super nuanced verticals to acquire market share from the horizontal players. This scenario is unique; however, given the size of the niche. We’re not talking dog groomer SaaS here…

• Platform Risk / Open ERP as a Core Technology: The ‘Open ERP’ technology is vague and raises a yellow flag. The starting assumption here is this SaaS is a simple UI overlay or pre-built configuration of a tool like SAP, Netsuite or Oracle. In this scenario, the SaaS is exposed to platform risk, like the cost structure or uncertainty of product roadmap pertaining to the platform it’s built upon. If the company has built unique applications or modules on top of an open-source ERP system, then the risk is lower (think: flexibility, predictability, and independence).

• Buyer Tendencies / Tech Maturity: The best possible scenario is entering this market just as widespread tech adoption / digital transformation is normalized (Read Crossing the Chasm for more on this…). Entering the market early requires significant investments in educating buyers, building case studies to demonstrate outcomes, etc. There’s big upside potential, but few Micro players can afford the cost nor the time. We’re not advocating timing markets, but convincing buyers to consolidate point solutions is a lot easier than transitioning from spreadsheets.

QUICK WINS & OPPORTUNITIES

• Fixate on SMB / Mid-market — The more you move upmarket to the enterprise, the more you’ll see players you don’t want to compete with so it follows SMB is the segment to attack. On the other side of the coin, this segment is almost always lagging re tech adoption, which presents an acute tradeoff. The trick here is finding a quantifiable attribute that signals ‘early adopter’ (aka most likely / motivated to adopt SaaS) to then prioritize these accounts for acquisition and build a foothold from there. As a simple example, does the account have a polished website?

• Establish Sales Function — Anything ERP related involves numerous and likely cross-functional workflows, in addition to multiple / varied data sources. This all translates to consultative sales and time intense implementations. Simply put, this is SLG to the bone, which is fine, but not our favorite growth lever.

• Prioritize Expansion Revenue — It’s apparent this SaaS is modular and there is a portfolio of products to sell. Expansion revenue is your best friend here, where you determine an ‘account penetration’ score for each respective account to then run targeted campaigns aimed at selling the highest probability new products into existing accounts. These sales processes have high win rates and short cycle times due to established rapport / trust. In addition, best case scenario, the products they do use provide unique insight into behavior, which you can use to time expansion campaigns (think: we noticed you are doing X, which makes you an ideal candidate for new product Y…).

• Pricing & Monetization — We have WAY too little information to speculate here but supply chains are a function of inputs and outputs so there’s just gotta be a usage based pricing mechanism to be had here :)

MARKET COMPS

Micro SaaS with ARR: $650k to $850K —

CONCLUDING THOUGHTS

The revenues and profit margin provide a LOT of room to work here (ie invest in product, utilize specialized talent, etc.), which is a glorious thing in the world of Micro, where these factors tend to be the most prominent limiting factors / constraints. The asking price and multiple are also reasonable.

Unfortunately, it’s simply not niche enough. Indeed, part of the secret sauce in our world is finding the goldilocks / just right niches that are large enough to sustain stable and interesting revenues / net income, while being small enough such that they are neglected by the horizontal players and established titans.

In addition, there is really zero PLG to be had here. No one has been able to build growth loops that are product-led in ERP-based domains for reasons elaborated on above. With this in mind, remember the revenues and profit margin we like? It all goes to sales compensation, if you’re going to generate any growth.

All things considered, this deal doesn’t fit our target profile, however it has challenged us to think bigger / bolder when it comes to targeting niches.

…And fortune favors the bold. Please keep us accountable here 🏴‍☠️ ⚡️

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