This was part of an internal discussion about advice to give a SaaS company that I felt worth sharing.
There is a limited lifespan for microservices built with an outside platform dependency.
The fragility of these businesses cannot be overstated. They need 1) market mechanics that favor the need for the tool and 2) deficiency in the underlying platform necessitating an overlay tool. Those are for the business.
For a company contemplating an exit, you also need a liquid buyer which is either 1) the underlying platform seeking to correct its deficiency (e.g. snapchat bitmoji, twitter twitpic), 2) a roll up buyer that also sits on top of the platform and seeks to increase its service offering or 3) a sass rollup person who doesn’t care what the tool is but is just good at driving long-term cash flow and will buy it.
So when considering what guidance to give, consider whether you feel that all of the above business concerns are stable enough in medium term to ignore an exit overture which, considering the relatively small size of the acquirer base, is a tough set of conditions align repeatedly.
In other words, be careful not to mistake strong cash flow today as a sign that the business is stable. Sometimes opportunities come at the perfect time. For fragile businesses, don’t be overconfident and pass up an exit opportunity that likely will never come again.
First published on December 1, 2016