🏴☠️ ⚡️ Issue #7: Education SaaS Doing $20k MRR & Value Ladders
Back again, with a more traditional issue analyzing a compelling SaaS acquisition opportunity in the Education space. There are some very interesting macro tailwinds happening in this vertical, where the pandemic forced rapid digital transformation, though the majority of the market is in the public sector with notoriously challenging buyers.
On the operating front, we look at the ‘value ladder’ framework made famous during the click funnel era, as a way to acquire users and intentionally grow ARPU. Giddy up!
🎯 ACQUIRE — A collaborative instruction & presentation SaaS in the education niche generating $20k MRR
⚙️ OPERATE — ‘Value Ladders’ as an acquisition and ARPU growth framework
🤔 MUSINGS — “I never saved anything for the swim back”
🎯 ACQUIRE
// DEAL TEAR DOWN
FIRM PROFILE (Public Listing)
“Profitable SaaS with $250,000 in TTM revenue and $36,000 in TTM profit that is a collaborative instruction and presentation tool for the classroom. For all age groups, it is the perfect partner for Social Studies, English, Language, Arts, STEM, and PBL multimedia assignments. It's a means to organize, plan and center instruction, while the collaborative nature and ease of use make the perfect companion for student and class presentations”
ASKING PRICE: $1M
TTM REVENUE: $250k
FOUNDED: 2014
REVENUE MULTIPLE: 4x
TTM PROFIT: $36k
TEAM SIZE: 3 FTEs
PRODUCT STACK: Ember.js; Ruby
GROWTH: Unknown
SV SCORECARD AVERAGE
💥 2.7 / 4
STRENGTHS
DIGITAL TRANSFORMATION / TECH MATURITY - see below for a description of the digital transformation that occurred in education as a response to pandemic conditions (courtesy of chatGPT 🤖). Needless to say, this lends well to Micro SaaS plays, as the new tech-forward orientation is here to stay…
The COVID-19 pandemic forced a massive shift in the way education is delivered worldwide. In response to the pandemic, many educational institutions rapidly adopted digital technologies and moved their classes online to ensure the continuity of learning while maintaining social distancing measures. This digital transformation in education was essential to mitigate the impact of the pandemic on the education sector.
Online Learning: Schools, colleges, and universities worldwide have adopted online learning platforms such as Google Classroom, Zoom, and Microsoft Teams to deliver education to their students. This has allowed students to continue their education despite the pandemic restrictions.
Hybrid Learning: With hybrid learning, students can attend some classes online while attending others in-person. This has allowed educational institutions to implement social distancing measures while still maintaining some face-to-face interaction.
Collaborative Tools: Collaborative tools like Google Drive and Microsoft OneDrive have enabled students to work together on projects remotely. This has made it possible for students to collaborate with each other regardless of their location.
PLG GROWTH MOTION - per the listing, this firm currently sells to individuals, businesses, and schools. At first blush, we could interpret this as a lack of GTM discipline, where laser focus on a specific segment translates to acquisition efficiency. Once a segment is penetrated to a certain point, you fine-tune the machine (messaging, channels, etc.) for the next segment, and on and on, until you own an interesting chunk of the TAM. Regardless, users are onboarding themselves, which keeps acquisition costs low (e.g. no sales teams providing live demos). We like this.
RISK FACTORS
PROFIT MARGIN - In our scorecard, we discount the weight of the listed profit margin, as sellers often pay themselves and their core team above market rates, or distribute the vast majority of income, etc. This said, understanding the operating costs to then infer a future state profit margin would be the #☝️ diligence priority .
COMPETITOR CONCENTRATION - We look for fragmented competitive landscapes; meaning, there is no obvious player who owns a large concentration of the market. Said another way, we’d rather fight a bunch of lightweights than step into the ring with one super heavyweight. The screenshot below from Capterra demonstrates there may be a super heavyweight in the mix, though strangely, they are not winning the feature battle. Furthermore, though there is no platform risk at play, we must not ignore that the true tech titans are very well-positioned to package their product portfolios for school environments and quickly squash whoever is in the market (e.g. Google meet + slides + drive).
QUICK WINS & OPPORTUNITIES
INTRODUCE USAGE-BASED PRICING - As noted above, the GTM strategy is broad and at risk of ‘seeking to boil the ocean.’ Additionally, there are clear assumptions regarding pricing, which may be flawed. In SaaS pricing, and perhaps pricing across industries, the holy grail is to directly attach your product to the value a user receives. A lot of conventional SaaS pricing models are based on a per-user or per-seat model, though as is often the case, certain users receive more value than others or organizations will share the same seat to reduce spend, etc. Associating price with the precise value a user receives is a much more compelling mechanism (e.g. the number of words a chatbot generates). In the context of the deal at hand, there seems to be an opportunity to price based on the number of classrooms, the number of courses, etc. This also helps overcome user objections to spending on a tool before they’ve achieved the ‘aha moment’ and perceived real value.
FIXATE ON SMALL SUBSEGMENTS OF TAM - Most educational organizations are part of the public sector, which means tight budgets, sharp-toothed procurement departments, proof of concept requirements, which sets up for sales-led growth and DRAWN OUT sales cycles. In light of this dynamic, targeting smaller, private educational institutions and acquiring those accounts as a function of acquiring their teachers in a bottoms-up fashion should be a path of much less resistance to revenue growth.
MARKET COMPS
Micro SaaS with ARR: $200k to $300k
Asking Price: $1.25M — ⬆️
Revenue Multiple: 5.3x — ⬆️ ⬆️
TTM Profit Margin: 64% — ⬆️ ⬆️ ⬆️
Growth Rate: 121% — ❓🤷♂️
RETURN SCENARIOS
ASSUMPTIONS —
RETURNS -
⚙️ OPERATE
RESOURCE -
APPLICATION(S) -
The example above models a dentist's office, thoughtfully progressing a customer from a free teeth cleaning to a cosmetic surgery, the dentist’s most lucrative offering. The intention of this model is to offer a no-brainer / mousetrap service to establish a relationship with the customer, demonstrate value, and set the foundation for future dealings. From there, and this is critical to note, the next offer is a simple step up from what came before it, leveraging the established trust to remove friction from the ‘next up’ offer (in terms of cost and commitment), as opposed to prematurely forcing the most costly service, where there is still likely a ton of friction (hesitation, concern, etc.). Big picture: A thoughtful value ladder removes friction from the broader customer lifecycle, improving the likelihood of repeat transactions that grow in value over time, though it’s certainly a ‘slow down to go faster’ situation, where patience is rewarded with larger customer lifetime values.
🧐 Musings
“You wanna know how I did it? This is how I did it, Anton. I never saved anything for the swim back”
Here’s to never saving anything for the swim back, or looking back a second longer than is needed to extract the important learning for the future. 🙏