5 ms·

Author here. I'm happy to answer any questions about this post, the sale process, or my time running TinyPilot.

mik3y 2y ago
Lovely read, and great to see a happy ending - I remember your previous blogs here. As a sometime-bootstrapper and having failed at a previous hardware startup, I can relate to many of the emotions you narrated through. It may be too early, but my biggest curiosity is whether you think you will bootstrap something again? (In my case, after the hardware business and some time off, I found that taking a swing at a “pure software” idea was the right balance for me, after the considerable challenges and occasional joys of building physical things..)
- mtlynch 2y ago
  Thanks for reading! >you think you will bootstrap something again? Yes, definitely. Not hardware again because I think getting to the scale where you can use external vendors is so difficult and risky that it requires more specialized hardware expertise or VC backing. I'm going to start with educational products because I liked my brief experience with that and never had time during TinyPilot, but I'd eventually like to build a SaaS that I can grow in a calm, sustainable way.
scripper 2y ago
Hey there, loved the post. What do you think is next for you? Would you do it all over? Thanks for all of the content!
- mtlynch 2y ago
  Thanks for reading! >What do you think is next for you? Next is either an educational product or a SaaS business I can build either fully solo or with 1-2 teammates in customer support roles. >Would you do it all over? No, not knowing what I know now about how difficult it is to succeed in hardware. I'm grateful that TinyPilot worked, but there's definitely a reason why there are so few bootstrapped hardware companies. In the first few years, there were so many things that could have clobbered the business, like supply shortages, manufacturing errors, lost shipments, design mistakes. I did a lot of things to mitigate these risks, but a lot of it just came down to being lucky enough to avoid random disasters. For example, there were definitely times in the business where a critical part could have been lost in shipping, and we would have been dead in the water for months if it went missing or got delayed. As the business matured, we were able to mitigate those risks better, but I wouldn't want to go through those first two years again unless I had a huge amount of investment or co-founders with more specialized hardware/manufacturing expertise.
  - scripper 2y ago
    Great to know, thanks so much for the info!
kohanz 2y ago
Congratulations on building something of value and successfully selling it. It's quite the achievement and most don't get to this level. I do have to say, I was somewhat surprised by the low multiple on the valuation, but perhaps that's just what the range is for a business of this nature. We're spoiled in the world of software and recurring revenue. What about the tax implications of the sale. Have you figured out how much of the sale you'll be able to put in your pocket?
- mtlynch 2y ago
  Thanks! >I do have to say, I was somewhat surprised by the low multiple on the valuation, but perhaps that's just what the range is for a business of this nature. We're spoiled in the world of software and recurring revenue. Yeah, from what I've heard, SaaS businesses sell for a much higher multiple, often selling as a multiple of revenue rather than earnings. The other thing that's really reduced valuations is interest rates. When interest rates were <1%, private equity was bidding up prices of businesses because it was a decent place to park money, but now that you can get 5.3% from a money market, the additional return from buying a business isn't worth the risk. >What about the tax implications of the sale. Have you figured out how much of the sale you'll be able to put in your pocket? Still working out the exact figure with my accountant. His expectation was that I'll keep a pretty large percentage after taxes because of Section 174. I had a large amount of expenses each year in software development from overseas contractors, and with Section 174 changes that went into effect in 2022, I had to amortize them over 15 years.[0] But with the liquidation of the company, I can count those expenses immediately, and they offset the income from the sale. So Section 174 is still a bad deal for software founders, but at least when you liquidate the company, you don't have to wait out the full 15 years of amortized expenses. [0] https://blog.pragmaticengineer.com/section-174/ https://blog.pragmaticengineer.com/section-174/
  - actionfromafar 2y ago
    I can only assume there must spring up an industry around liquidating software companies in some kind of shell scheme!
  - 2y ago
duckmysick 2y ago
Well done on the sale and congratulations to you and your wife. Best of luck to both of you. I have a question about this part: > I’d also risk TinyPilot’s sales slipping after so many months being distracted from the business. What was the time split between the sale process and running day-to-day operations? I know bigger companies have dedicated teams for that, but I'm curious how does it look like in smaller ones.
- mtlynch 2y ago
  Thanks for reading! >What was the time split between the sale process and running day-to-day operations? I know bigger companies have dedicated teams for that, but I'm curious how does it look like in smaller ones. It varied from week to week, but I was spending 10-25 hours per week on the sale for about five months. But beyond wall time, the time I spent on the sale was often much more stressful than anything else and left me mentally drained for anything else. The sale involved preparing reports that I'd never created before, and it was extremely important for me not to make any mistakes because I didn't want the buyer to think I'd provided fraudulent information. I also had to focus much more on short-term results than normal. Part of this was a lack of time to oversee complex projects, but the other part was that it's to my detriment to invest in something that pays off in six months if I sell the company at month three. But I can't run that way forever, so I knew if I tried to run the company like that indefinitely, I'd pay the penalty for always focusing on the short-term at the expense of long-term.
xiphias2 2y ago
I would be interesting in reading the ,,buying process'' part of the same deal from the buyers. BTW tinypilot.com is down: https://www.isitdownrightnow.com/tinypilot.com.html https://www.isitdownrightnow.com/tinypilot.com.html
- 1-more 2y ago
  https://tinypilotkvm.com/ https://tinypilotkvm.com/
  - jimbobthrowawy 2y ago
    Thank you. The URL near the start of the blogpost is incorrect, and I was wondering if it was hugged to death or if the buyer took it down for some reason.
2c2c 2y ago
did you have a salary?
- mtlynch 2y ago
  No, I didn't pay myself a salary. TinyPilot was a single-member LLC, so all the profits were pass-through income on my personal taxes. I share more about the finances in my annual review posts: https://mtlynch.io/solo-developer-year-6/#tinypilot-became-20x-more-profitable https://mtlynch.io/solo-developer-year-6/#tinypilot-became-2...
  - DougN7 2y ago
    So your personal net income in 2022 was $10,447? That’s not enough to live on so I must be misreading it.
    - mtlynch 2y ago
      My net income from TinyPilot was $10,447 in 2022, but I had other income from investments (mainly just boring index funds). But I live in Western Massachusetts and own my home (no mortgage), so my cost of living is fairly low.
      - nunez 2y ago
        Incredible!
everial 2y ago
Congrats on the upcoming little one! As someone who also had first infant late last year, consider dialing back your productivity expectations with a newborn (both because it's a wonderful time and because oh-heaven it's so much work).
- mtlynch 2y ago
  Thanks so much! Yes, I'm definitely planning to spend less time on work over the coming years.
ativzzz 2y ago
> and we received pre-qualification for an SBA loan What does this mean? How does this work? Shouldn't the buyer take out the loan? Or does it look something like - tinypilot takes out 600k, which you pocket - you transfer ownership - tinypilot is in debt, not the buyer ?
- mtlynch 2y ago
  Thanks for reading! Yes, you're correct. The buyer takes out the loan. This was an asset sale, so assets transferred over but not any debts. The seller (me) can approach a loan broker and show their financials, and the loan broker can say, "I think it's likely that the SBA would approve this loan, and I can connect you with lenders I think would offer the SBA loan for acquiring this business." The SBA pre-qualification isn't binding or official, but I guess the loan broker's prediction is accurate enough that the brokerage will list businesses as SBA pre-qualified based on the loan broker's assessment.
  - ativzzz 2y ago
    Ah I see, it just makes it easier for potential buyers to get a loan. Thanks for the response and the cool blog!
berkanunal 2y ago
Congratulations. I have been following the retrospectives for more than 2 years now. I hope to keep enjoying your monthly posts. My question is, did you change anything on your strategy after you were set on selling? Or the goal was still the same, optimize earnings?
- mtlynch 2y ago
  Thanks for reading! >My question is, did you change anything on your strategy after you were set on selling? Or the goal was still the same, optimize earnings? Once I started the process of preparing the company for sale, it did change a lot of the strategy. For example, one of the things I'd been thinking about was how to allow users to purchase recurring subscriptions to their TinyPilot Pro software licenses rather than having to remember to re-purchase every year. But once I started the sales process, that basically became non-viable because it meant I'd be investing thousands in software development, but it wouldn't pay off for another year or so, so it would weaken our profit and loss statements and result in a lower valuation. There were a lot of things like that, where I had to reject any investment that wouldn't pay off in three months or less. The other thing that was a bummer about preparing to sell was realizing that everything effectively becomes so much more expensive. Normally, if I want to give someone a $5k bonus, it costs me $5k. When I knew I was about to sell and wanted a 3x multiple, the $5k bonus effectively costs me $20k because it's $5k for the bonus itself and then -$15k for the sale price on a 3x multiple. I could try to argue that the $5k is "discretionary" and therefore not part of SDE, but I think the buyer would be in their right to argue that it's not discretionary, as it sets bonus expectations for future years. [0] https://mtlynch.io/retrospectives/2023/08/#what-would-make-recurring-subscriptions-worth-the-effort https://mtlynch.io/retrospectives/2023/08/#what-would-make-r...
  - abtinf 2y ago
    Everything was always that expensive, it was just less obvious. What if you had moved to outsource the office tasks sooner? Could you have better invested that time and stress elsewhere? The $100k per year improving hardware? Was that the best way to spend the money? Maybe it would have been better spent on marketing, or investing in reducing production costs with better tooling. Whatever the differential from what you spent was lost at 3x. Gains often compound over time too. Cost reduction begets cost reduction. Of course, thinking like this results in madness and moral hazard. I’ve seen companies do crazy, catastrophic things gearing up for sale.
axus 2y ago
Hopefully your buyer gets a nice sales boost from this article! Why wouldn't you go back to a corporation and try to make a software product there, as an employee?
- mtlynch 2y ago
  Thanks for reading! >Why wouldn't you go back to a corporation and try to make a software product there, as an employee? Oh, boy. So many reasons! The thing I really love about running a company of my own is that I don't have to get anyone's approval to do things. If I have an idea, I can work on it, and I don't have to convince anyone or justify the time or money. I also really love being able to choose my own hours, tools, and schedule. At Google, I found real-time chat distracting and net negative (I get that they bring value to some people, just not me), and I found that most meetings were a waste of time. At TinyPilot, we never used real-time chat, and we were deliberate and efficient about meetings. At Google, I often found that things that were good for the company or my team or our customers were often not aligned with incentives for me (e.g., it was easier to get promoted for launching a complex feature than for a trivial feature that solved the problem elegantly). With my own small company, it's much easier to align incentives between me, my teammates, and our customers. I could go on and on, but I guess the underlying issue is that I place a high value on independence and autonomy, and no employer can match what I get on my own.
beambot 2y ago
$249k revenue & 6 people => $41.5k per person + yourself. How does this math work out...?
- deleted 2y ago
  [deleted]
- Sylarr 2y ago
  249k earnings, not revenue.
  - beambot 2y ago
    Ah, gotcha! Thanks.
eric-hu 2y ago
Congratulations on your sale Michael. I've been following your blog over the years and have learned a lot. Really happy for you that you could find a buyer and wrap things up with TinyPilot. Looking forward to seeing what you work on in the future!
hermitcrab 2y ago
Congratulations on the sale. Thanks for including real numbers, that will be helpful if I ever sell one of my products.
- hermitcrab 2y ago
  Also, one of the things that no-one tells you about parenthood is just how much effort you spend entertaining them. So maybe bookmark this, it might come in useful in a few years!: https://successfulsoftware.net/2014/01/31/fun-and-geeky-things-to-do-with-kids/ https://successfulsoftware.net/2014/01/31/fun-and-geeky-thin...
sgallant 2y ago
Congratulations on the sale and the upcoming baby! There are a lot of comments here comparing the financial outcome of your TinyPilot journey Vs what could have been had you remained at Google. Can you share your perspective on that? Are you happy you chose the path you did? If so, why? Thank you
sgraz 2y ago
No questions, just sharing that I was smiling like an idiot when I saw the wire transfer email screenshot. Maybe I felt emotionally invested since I remember reading your previous posts about the less-than-ideal design studio collaborations. What a feeling! Congrats.
rexreed 2y ago
There's some question as to whether the acquisition payment is taxed as income as per an Asset Purchase Agreement or as capital gains as per a sale of company ownership. Which was it for you? Also, can you recommend or refer the law firm that you used for the transaction paperwork?
garrettc1 2y ago
What escrow service did you choose? Why did you choose them? For context, I'm going through a similar process as you right now.

Lovely read, and great to see a happy ending - I remember your previous blogs here. As a sometime-bootstrapper and having failed at a previous hardware startup, I can relate to many of the emotions you narrated through. It may be too early, but my biggest curiosity is whether you think you will bootstrap something again? (In my case, after the hardware business and some time off, I found that taking a swing at a “pure software” idea was the right balance for me, after the considerable challenges and occasional joys of building physical things..)

mtlynch 2y ago
Thanks for reading! >you think you will bootstrap something again? Yes, definitely. Not hardware again because I think getting to the scale where you can use external vendors is so difficult and risky that it requires more specialized hardware expertise or VC backing. I'm going to start with educational products because I liked my brief experience with that and never had time during TinyPilot, but I'd eventually like to build a SaaS that I can grow in a calm, sustainable way.

scripper 2y ago

Hey there, loved the post. What do you think is next for you? Would you do it all over? Thanks for all of the content!

mtlynch 2y ago
Thanks for reading! >What do you think is next for you? Next is either an educational product or a SaaS business I can build either fully solo or with 1-2 teammates in customer support roles. >Would you do it all over? No, not knowing what I know now about how difficult it is to succeed in hardware. I'm grateful that TinyPilot worked, but there's definitely a reason why there are so few bootstrapped hardware companies. In the first few years, there were so many things that could have clobbered the business, like supply shortages, manufacturing errors, lost shipments, design mistakes. I did a lot of things to mitigate these risks, but a lot of it just came down to being lucky enough to avoid random disasters. For example, there were definitely times in the business where a critical part could have been lost in shipping, and we would have been dead in the water for months if it went missing or got delayed. As the business matured, we were able to mitigate those risks better, but I wouldn't want to go through those first two years again unless I had a huge amount of investment or co-founders with more specialized hardware/manufacturing expertise.
- scripper 2y ago
  Great to know, thanks so much for the info!

kohanz 2y ago

Congratulations on building something of value and successfully selling it. It's quite the achievement and most don't get to this level. I do have to say, I was somewhat surprised by the low multiple on the valuation, but perhaps that's just what the range is for a business of this nature. We're spoiled in the world of software and recurring revenue. What about the tax implications of the sale. Have you figured out how much of the sale you'll be able to put in your pocket?

mtlynch 2y ago
Thanks! >I do have to say, I was somewhat surprised by the low multiple on the valuation, but perhaps that's just what the range is for a business of this nature. We're spoiled in the world of software and recurring revenue. Yeah, from what I've heard, SaaS businesses sell for a much higher multiple, often selling as a multiple of revenue rather than earnings. The other thing that's really reduced valuations is interest rates. When interest rates were <1%, private equity was bidding up prices of businesses because it was a decent place to park money, but now that you can get 5.3% from a money market, the additional return from buying a business isn't worth the risk. >What about the tax implications of the sale. Have you figured out how much of the sale you'll be able to put in your pocket? Still working out the exact figure with my accountant. His expectation was that I'll keep a pretty large percentage after taxes because of Section 174. I had a large amount of expenses each year in software development from overseas contractors, and with Section 174 changes that went into effect in 2022, I had to amortize them over 15 years.[0] But with the liquidation of the company, I can count those expenses immediately, and they offset the income from the sale. So Section 174 is still a bad deal for software founders, but at least when you liquidate the company, you don't have to wait out the full 15 years of amortized expenses. [0] https://blog.pragmaticengineer.com/section-174/ https://blog.pragmaticengineer.com/section-174/
- actionfromafar 2y ago
  I can only assume there must spring up an industry around liquidating software companies in some kind of shell scheme!
- 2y ago

duckmysick 2y ago

Well done on the sale and congratulations to you and your wife. Best of luck to both of you. I have a question about this part: > I’d also risk TinyPilot’s sales slipping after so many months being distracted from the business. What was the time split between the sale process and running day-to-day operations? I know bigger companies have dedicated teams for that, but I'm curious how does it look like in smaller ones.

mtlynch 2y ago
Thanks for reading! >What was the time split between the sale process and running day-to-day operations? I know bigger companies have dedicated teams for that, but I'm curious how does it look like in smaller ones. It varied from week to week, but I was spending 10-25 hours per week on the sale for about five months. But beyond wall time, the time I spent on the sale was often much more stressful than anything else and left me mentally drained for anything else. The sale involved preparing reports that I'd never created before, and it was extremely important for me not to make any mistakes because I didn't want the buyer to think I'd provided fraudulent information. I also had to focus much more on short-term results than normal. Part of this was a lack of time to oversee complex projects, but the other part was that it's to my detriment to invest in something that pays off in six months if I sell the company at month three. But I can't run that way forever, so I knew if I tried to run the company like that indefinitely, I'd pay the penalty for always focusing on the short-term at the expense of long-term.

xiphias2 2y ago

I would be interesting in reading the ,,buying process'' part of the same deal from the buyers. BTW tinypilot.com is down: https://www.isitdownrightnow.com/tinypilot.com.html https://www.isitdownrightnow.com/tinypilot.com.html

1-more 2y ago
https://tinypilotkvm.com/ https://tinypilotkvm.com/
- jimbobthrowawy 2y ago
  Thank you. The URL near the start of the blogpost is incorrect, and I was wondering if it was hugged to death or if the buyer took it down for some reason.

2c2c 2y ago

did you have a salary?

mtlynch 2y ago
No, I didn't pay myself a salary. TinyPilot was a single-member LLC, so all the profits were pass-through income on my personal taxes. I share more about the finances in my annual review posts: https://mtlynch.io/solo-developer-year-6/#tinypilot-became-20x-more-profitable https://mtlynch.io/solo-developer-year-6/#tinypilot-became-2...
- DougN7 2y ago
  So your personal net income in 2022 was $10,447? That’s not enough to live on so I must be misreading it.
  - mtlynch 2y ago
    My net income from TinyPilot was $10,447 in 2022, but I had other income from investments (mainly just boring index funds). But I live in Western Massachusetts and own my home (no mortgage), so my cost of living is fairly low.
    - nunez 2y ago
      Incredible!

everial 2y ago

Congrats on the upcoming little one! As someone who also had first infant late last year, consider dialing back your productivity expectations with a newborn (both because it's a wonderful time and because oh-heaven it's so much work).

mtlynch 2y ago
Thanks so much! Yes, I'm definitely planning to spend less time on work over the coming years.

ativzzz 2y ago

> and we received pre-qualification for an SBA loan What does this mean? How does this work? Shouldn't the buyer take out the loan? Or does it look something like - tinypilot takes out 600k, which you pocket - you transfer ownership - tinypilot is in debt, not the buyer ?

mtlynch 2y ago
Thanks for reading! Yes, you're correct. The buyer takes out the loan. This was an asset sale, so assets transferred over but not any debts. The seller (me) can approach a loan broker and show their financials, and the loan broker can say, "I think it's likely that the SBA would approve this loan, and I can connect you with lenders I think would offer the SBA loan for acquiring this business." The SBA pre-qualification isn't binding or official, but I guess the loan broker's prediction is accurate enough that the brokerage will list businesses as SBA pre-qualified based on the loan broker's assessment.
- ativzzz 2y ago
  Ah I see, it just makes it easier for potential buyers to get a loan. Thanks for the response and the cool blog!

berkanunal 2y ago

Congratulations. I have been following the retrospectives for more than 2 years now. I hope to keep enjoying your monthly posts. My question is, did you change anything on your strategy after you were set on selling? Or the goal was still the same, optimize earnings?

mtlynch 2y ago
Thanks for reading! >My question is, did you change anything on your strategy after you were set on selling? Or the goal was still the same, optimize earnings? Once I started the process of preparing the company for sale, it did change a lot of the strategy. For example, one of the things I'd been thinking about was how to allow users to purchase recurring subscriptions to their TinyPilot Pro software licenses rather than having to remember to re-purchase every year. But once I started the sales process, that basically became non-viable because it meant I'd be investing thousands in software development, but it wouldn't pay off for another year or so, so it would weaken our profit and loss statements and result in a lower valuation. There were a lot of things like that, where I had to reject any investment that wouldn't pay off in three months or less. The other thing that was a bummer about preparing to sell was realizing that everything effectively becomes so much more expensive. Normally, if I want to give someone a $5k bonus, it costs me $5k. When I knew I was about to sell and wanted a 3x multiple, the $5k bonus effectively costs me $20k because it's $5k for the bonus itself and then -$15k for the sale price on a 3x multiple. I could try to argue that the $5k is "discretionary" and therefore not part of SDE, but I think the buyer would be in their right to argue that it's not discretionary, as it sets bonus expectations for future years. [0] https://mtlynch.io/retrospectives/2023/08/#what-would-make-recurring-subscriptions-worth-the-effort https://mtlynch.io/retrospectives/2023/08/#what-would-make-r...
- abtinf 2y ago
  Everything was always that expensive, it was just less obvious. What if you had moved to outsource the office tasks sooner? Could you have better invested that time and stress elsewhere? The $100k per year improving hardware? Was that the best way to spend the money? Maybe it would have been better spent on marketing, or investing in reducing production costs with better tooling. Whatever the differential from what you spent was lost at 3x. Gains often compound over time too. Cost reduction begets cost reduction. Of course, thinking like this results in madness and moral hazard. I’ve seen companies do crazy, catastrophic things gearing up for sale.

axus 2y ago

Hopefully your buyer gets a nice sales boost from this article! Why wouldn't you go back to a corporation and try to make a software product there, as an employee?

mtlynch 2y ago
Thanks for reading! >Why wouldn't you go back to a corporation and try to make a software product there, as an employee? Oh, boy. So many reasons! The thing I really love about running a company of my own is that I don't have to get anyone's approval to do things. If I have an idea, I can work on it, and I don't have to convince anyone or justify the time or money. I also really love being able to choose my own hours, tools, and schedule. At Google, I found real-time chat distracting and net negative (I get that they bring value to some people, just not me), and I found that most meetings were a waste of time. At TinyPilot, we never used real-time chat, and we were deliberate and efficient about meetings. At Google, I often found that things that were good for the company or my team or our customers were often not aligned with incentives for me (e.g., it was easier to get promoted for launching a complex feature than for a trivial feature that solved the problem elegantly). With my own small company, it's much easier to align incentives between me, my teammates, and our customers. I could go on and on, but I guess the underlying issue is that I place a high value on independence and autonomy, and no employer can match what I get on my own.

beambot 2y ago

$249k revenue & 6 people => $41.5k per person + yourself. How does this math work out...?

deleted 2y ago
[deleted]
Sylarr 2y ago
249k earnings, not revenue.
- beambot 2y ago
  Ah, gotcha! Thanks.

eric-hu 2y ago

Congratulations on your sale Michael. I've been following your blog over the years and have learned a lot. Really happy for you that you could find a buyer and wrap things up with TinyPilot. Looking forward to seeing what you work on in the future!

hermitcrab 2y ago

Congratulations on the sale. Thanks for including real numbers, that will be helpful if I ever sell one of my products.

hermitcrab 2y ago
Also, one of the things that no-one tells you about parenthood is just how much effort you spend entertaining them. So maybe bookmark this, it might come in useful in a few years!: https://successfulsoftware.net/2014/01/31/fun-and-geeky-things-to-do-with-kids/ https://successfulsoftware.net/2014/01/31/fun-and-geeky-thin...

sgallant 2y ago

Congratulations on the sale and the upcoming baby! There are a lot of comments here comparing the financial outcome of your TinyPilot journey Vs what could have been had you remained at Google. Can you share your perspective on that? Are you happy you chose the path you did? If so, why? Thank you

sgraz 2y ago

No questions, just sharing that I was smiling like an idiot when I saw the wire transfer email screenshot. Maybe I felt emotionally invested since I remember reading your previous posts about the less-than-ideal design studio collaborations. What a feeling! Congrats.

rexreed 2y ago

There's some question as to whether the acquisition payment is taxed as income as per an Asset Purchase Agreement or as capital gains as per a sale of company ownership. Which was it for you? Also, can you recommend or refer the law firm that you used for the transaction paperwork?

garrettc1 2y ago

What escrow service did you choose? Why did you choose them? For context, I'm going through a similar process as you right now.