Welcome back to another edition of Micro-Saas Monthly. After publishing the first issue with all the details of the initial acquisition of Kanban for WordPress, some of you wrote in with follow up questions. Let’s get to it!
How did you come to an agreement on equity splits?
There was definitely lots of back and forth about this. We created a 3 member LLC, so we wanted to have the equity set up in a way that prevented dead lock voting if it really came down to it. That said, we also wanted to keep it relatively simple. In the end, we split equity along the lines of how much each party contributed in cash for the acquisition. In addition, we have provisions in the operating agreement for adjusting this over time if necessary.
How are you quantifying and managing each party’s contributions over time?
In our operating agreement, we identified the areas where each of us were strong and thus, the things we’d be responsible for in the business. For Yvonne, that’s design and branding, so she’ll be largely be focused on the marketing site and overall design of things. For me, it’s writing code, so I’ll be largely in charge of building new features on the main plugin as well as handling the more technical support questions. And for Jay, it’s the operations side of things, so he’s largely going to be focused on keeping things running on the business side.
We’ll all be sharing the support tasks as well as looking for marketing opportunities as those are tasks that don’t fall exclusively into any of our skill sets.
Have you agreed, either via the operating agreement or in principle, how the money part works?
I’m assuming this question is asking about how we’re going to handle distributions and profit sharing. We actually laid this out pretty explicitly in the operating agreement. Every quarter, we’re going to take 50% of the revenue from the previous quarter as a distribution and divide that among the partners on the basis of equity. We thought this would be a good balance of keeping revenue in the business to continue to fund growth while at the same time being able to see some return on investment in the form of cash flow.
We also have a provision for being able to adjust this by mutual agreement if we feel the business is in a spot where it needs more cash or if we had a particularly good quarter and can afford to take a larger piece of revenue as a distribution without negatively impacting the business.
Is this part of an overall strategy to move away from service and into product or just diversification?
As some of you may know, Jay and I run Alpha Particle and Yvonne runs Flowspoke, consultancies that are largely custom-project-driven. While the revenue from Kanban for WordPress isn’t enough to rival the income from either of those other businesses, one of the reasons we wanted to acquire a product business was to diversify income a bit away from the consulting side of things. Long story short, we’re not making a full on transition from consultancy to product studio yet and neither Alpha Particle or Flowspoke is getting out of the custom projects business any time soon.
How did you think about filtering / narrowing your search? Was it tech focused, customer focused, or through some other lens?
This could likely be an entire post in and of itself, but we largely focused our search around technology. The three of us are the most experienced in the WordPress space so we started our search there. After looking at a few potential deals, we started filtering our criteria down even further. We decided we didn’t want to work with page builders or page builder tools and because of our deep technical experience, felt comfortable looking at plugins that are a bit more technical. Once we had a pretty strong idea of what we were looking for, I laid out an “investment thesis” of sorts in a short Twitter thread that I was able to easily share.
This was easily one of the best things we did as part of the search process, as it allowed people who were potentially interested in selling their business to see if they would be a good fit before even reaching out to us. It kicked off a lot of interesting conversations, one of which would lead to the acquisition of Kanban for WordPress.
That’s it for this issue! If you’ve got any more questions or anything specific that you want to hear about, just hit reply and let me know! I read every response to these emails and just might do another mailbag issue soon. Until then, be on the lookout for the May wrap up, where I will detail some of the things we’ve learned from our first full month of running the business.
Until next time,