Hello, it's Andrew from XO capital. And this week I thought it might be useful to go and to go through. Our acquisition of growth bar and do kind of a tear down based on the information that we had at the time. And it's just kind of a fun, useful exercise for us to in the future. Look back and say, why did we buy this business? What were the metrics at that time? And see if we can over time, get better. Of course, at buying the right types of companies. So growth bar, it doesn't really matter what the tool does, but it's sort of a combination of like a keyword research tool and an AI content writing tool. So. Something like surfer, SEO. Plus, you know, any kind of AI writer, there's a ton of them now, but all in one tool, which is quite nice that you can do the keyword research and then actually do the articles based on the keyword research, right in the same tool. That is why I fell in love with this product that, and of course the time to value, but. Starting from the top XL by SAS company. So we bought 10 and this was our 10th acquisition and our biggest one so far. And so this is not necessarily a hundred percent of the data that we had when we bought it. We had a little bit more, but you know, for the blog posts sake, you can take a look and get a pretty good sense of, of why we bought it. And these numbers are real. So it's actually helpful to, to look at. You know, exact numbers for what the MRR was, what the asking price was, et cetera. Growth rates. So at a high level, here's what we liked about the business. It was doing about 25,000 of MRR. The asking price was reasonable. The product had a really fast time to value for customers. So I really enjoy when you can almost have a stopwatch from when you enter your email address in a, in a signup form to when you actually get value from the product. The lower that number, the better. Some of our fastest growing products, just have the shortest time to value for customers. And, you know, to be honest, a lot of these products, there are pros, they're all B2B, but they're kind of pro-sumer ish. And I think it's really important to have a very fast almost consumer ask experiencing, even though they are technically B2B products.
Growth bias has mostly direct organic traffic. That's always awesome. Low customer concentration. And a reasonable growth rate year over year. Of course these businesses are quite young. So you can take the kind of year-over-year growth work rate with. A grain of salt, but having some kind of growth rate like this over a hundred percent is a good sign for us. The also a big deal of the original contractor who built the thing was willing to continue helping us on an hourly basis. And that just makes it so much easier for us to operate the business because we have shared services. So we have somebody that does customer support across the entire portfolio.
We have a few engineers that bounce between different products, but we have more products than we do engineers. And so there was always somebody or some product getting neglected, and it was really nice on this one that the original contractor who built the thing can immediately. Start helping us build new features on, at a reasonable, hourly rate. And that is just a huge weight off of the shoulders of our shared services team. And we can focus on Danny and I can focus on just execution, product ideas, growth, et cetera. So taking a look at the financial as 219,000 trailing 12 month gross revenue. 24,000 net profit you know, net profit. When you're looking at these companies, doesn't really matter that much. It's if you're buying a SAS and you're trying to grow it at any reasonable rate, it's not going to be very attached. Right. Last month, gross revenue, 25,000 healthy number. Last month net profit, 16,000. They took off ad span. Didn't have much engineering costs. And so what's nice about that number. Sit around 16, take home. Is it's enough for us to put a little bit of debt on it. So we did do some seller financing on this deal, and that was really helpful. Number of customers a hundred to a thousand. So there were several hundred customers and annual recurring revenue. 2 99, a little bit of a stretch. I'd say 2 75 is more realistic, but again, these were the numbers we knew at the time. And then had to dig into the P and L to say, like, actually this 2 99 numbers that a little bit high, that, that. That doesn't make sense. With any of these small acquisitions. So this is an under a million dollar purchase price. What are we really buying? We're buying some tech. There's probably no moat. I would consider all of it. A commodity. And there's maybe some old code, depending on how old the thing is. There's some customers, so hundreds in this case, we want low customer concentration. We liked product lip. We like product led growth stuff. And we don't want to see five customers that represent, you know, 20% of the business. Each we lose one of those. It's it's huge, meaningful. Loss. Now on the flip side, though, there is a, some something to be said for those types of companies where you might be able to acquire five more customers and double the business. That's a really. A reasonable number and it's very different in terms of how we might structure EXOS shared services to attack those kinds of opportunities. But we're looking at that for our flip fund as one way to try and double a business in 12 to 24 months or a relatively short time horizon. What's the third thing that we're buying, it's at least one channel. So. For us, I don't really care if it's paid. Or in this case, it's all direct. I just want to see one channel working because I don't want to have to go spend the dollars to figure out the channel that works. I can and should be able to look at hard numbers on the work that the previous owners have already done and say, either that works for us or that doesn't work for us, but I always want to buy at least one channel that's working. So again, in this case, healthy, direct traffic we'll get into this in a second, but you know, people don't really think about direct traffic as platform risk, but it totally is. All of that is coming from Google and particularly with, in with growth bar. Or with respect to growth bar. AI content generation and Google search are changing. And growth bar is sort of in the intersection of that. This is quite a risky bet, actually, with so much influx, so much competition, a lot of venture dollars flowing into the space. But I think it's exciting. And I think the opportunity is large and there are plenty of competitors that are doing 10 million plus AR.
And I really love seeing that when there really is no clear winner, this is not a winner. Take all market. You can differentiate on UX, customer support, all the kind of usual suspects. And frankly, some people are just going to prefer one tool to another, even if they have feature parody. And so I don't mind getting out there and going and competing, even if there's a really solid competition. So price. Price is basically the biggest lever you can pull to reduce risk. Right? So if, if we buy something for one X ARR and we don't royally, screw it up, it's going to be fine. Right. The worst case scenario is that, I mean, not the absolute worst case scenario, but if we maintain business as usual, we'll start making money in year two. That's awesome. So in a case where we're buying at a slightly higher multiple, because it's a slightly bigger business, you have to be a little bit more patient, but without growth, I can still turn this from a kind of lousy investment to a decent investment, to a great investment if I'm able to be patient. And yes, of course, there's all kinds of opportunity costs with that. With that capital, could we. Put it somewhere else where it could be more productive or grow faster potentially. Right. But we can evaluate that on a case by case basis, but on the margin. You can turn a bad deal into a good deal. If you are a patient.
Let's talk about channel again. I kind of went into the Platform risk that is inherent. Whenever you have direct search traffic, right? Search rankings change. And the thing that you are ranking for one day, it may not be the thing that you ranked for tomorrow. Just ask anybody that used to own a content site. Any time there was like a, you know, the, the, the great Panda update or all those different serve updates that really screw people's businesses and tank them in some cases and any business that has a lot of direct traffic, which again, again, is free and amazing. Is also platform risk, huge platform risk. So a part of our story here in our journey will be venturing out. Outside of Google's direct traffic. Other social media channels, et cetera, just to get some kind of hedge and of course try and grow. But also as a hedge against any of the rankings or the pages that we're currently ranking really highly for and bringing a lot of traffic just to hedge, to kind of spread out the. Source of, of our customers across different social channels, in addition to reinvesting in content, of course, et cetera. Our main conviction around growth bar was mostly that a Google is going to be around for awhile. Be generative. AI has some place in content creation. And people will need some these tools to play around in this space and play this SERP game. And I think growth bar can be that tool for a lot of people. Many of our happiest customers are ones that have we're using like a writing tool and some kind of keyword research tool. And they were able to buy growth bar and cancel both of those. And so it's like, it was just a sort of straight B2B value prop where it's like same tool, but it's two tools in one. So you can decrease your costs and get the same products by going with growth bar instead of piecing two tools together. The P and L this was the P and L at the time we purchased the business. So up to may 20, 23, there's some healthy, gross profit in here. The biggest expense on surprise and they engineering, they were doing some marketing stuff to. Some paid marketing experiments that yielded, you know, not very meaningful results, but it was it was okay. Like they, they did sort of work. And those got turned off in may. So that was kind of why that last month there was that healthy net profit. But there is enough room here, I think, to be able to. Layer on some debt, which is, which is what we did in the form of seller financing. So we did 18 months of seller financing, which means we're really not going to see any profit from this for 18 months. This is always a very tough period because every month where like plus, or minus a few thousand, sometimes we have to write little checks to our GP to cover. And sometimes there's a little bit of profit leftover, but it's, it's really a tough 18 months to work on this product with while trying to grow it without spending any cash. So the current risks, Google search is changing and under threat. And I constant generation is getting a lot of eyeballs. So it's possibly saturated, lots of competition, lots of venture dollars coming in. This is, this is normally not something that worries me, but I. For XO, this is a slightly funky purchase in that we are looking at something relatively cutting edge or using something relatively cutting edge, right. With, with open AI and chat. GBT is it's, it's a commodity now in some ways, right? It's very easy to. Incorporate that technology into any product. Now, our building built new products on top of it. And growth bar got a huge kind of initial gust of wind. When they got early access to open AI and we're able to be one of the first. SEO tools that combined AI writing all in one and that gave them a really nice tailwind. And that's what we're continuing to draft off of. So the real question is, would you buy it? This was enough information for us. Of course, we went into and verified all the bank information, did some more customer diligence and talk to customers and all that stuff. But it is scary moving up stack and doing larger deals. And it is a little disheartening to see our first material change, where we didn't require credit cards to have this long of a lag, right.
We went from, when you sign up, you have to sign up with a credit card. Otherwise you can't get in to more of a freemium, like just come in. Here's a 14 day free trial. And of course we're combating spam. Pam and people with multiple accounts, et cetera, et cetera. But this is where we are today. And it's been really painful to see these striped numbers, which I'll get into in a second were really terribly, terribly incorrect. They stayed if I log in now that there was 38,000 of MRR and that is wildly wildly untrue. So in some ways this terrible looking chart is actually just stripes data, starting to reflect the reality of the business. So if you look at chart mobile or sorry, profit, well the current MRR 25.4 K down 4% from July.
So this is a much more realistic view of the actual business. Then 38 K that's just taking a nose dive down to 27. So if all goes, well, this should start to tick up. We should start to see more of these 14 day free trial people start to convert and pay. And then of course, if that's not true, I think our next move is we'll try and make it a seven day free trial. And then if that doesn't work, either we will put back the credit card forcing the credit card to be able to sign up.
It just tends to be the case that those people that we're paying with their credit card upfront. I tended to be people from real companies, right. They would put in their business address. It was just like a very kind of clean. Type of customer where all of these people tend to be like, you know,
[email protected] people are trying to. Save like 39 cents by creating eight different accounts and piecing together a blog post. And that way it's it's very strange to see that kind of behavior, but. Dealing with bad data, particularly with the Stripe dashboard, depending on how you have everything set up Frankly, it's just useless to log in and get any real sense of the progress you're making on the business. You really have to look at. Your amount of real subscribers. So even this active subscriber numbers, a little funky because when a user is on a free trial Stripe may calculate that as recurring revenue. And even if they cancel, they all the Dunning emails for you know, several weeks they'll have to go out before Stripe will consider that customer like churned or not converted. And so all of the numbers in our strike dashboard around conversion and active subscribers and growth and MRR just totally, totally wrong.
you just got to go straight to the bank accounts and take a look at cash collections. And of course, guests, there's going to be some lumpiness. Did the annual subscriptions, et cetera. But that is much, much better than taking a look at really awful Stripe data. And that's it have a great weekend. If you have any suggestions on what I should write about next about. MNA or acquiring small SAS businesses just a minute.
