393: AI is a Threat to SaaS Multiples

Hey. It's Arvid, and this is the Bootstrap founder. We'll dive into one of the juiciest of topics today, software as a service business acquisitions and more importantly, what is responsible for a downward trend in multiples and acquisition dollar amounts right now. It has a lot to do with AI, you probably figured because that's doing a lot of damage all over the place, but it may not be what you think. This episode is sponsored by paddle.com, my merchant of record payment provider of choice. I use it in a lot of my properties and they're taking care of all the things related to money so that founders like me and you can focus on building the things that only we can build. And this is also a main topic of today's episode, but I digress. Paddle handles all the rest sales tax, credit cards fitting, all of that. I highly recommend it, so please check it out at paddle.com. Today, I wanna share something that's been on my mind ever since a conversation that I had with an investor friend of mine, Tyler Tringas. We were doing some fear setting, looking at how my business is currently performing, what it would look like if things went better, what it would look like if things went worse, you know, the kind of stuff, the conversations with your investor and mentor that make you really think about where you stand in the market and what's happening. And while I can share all of the personal details of this conversation, there is one part that really stuck with me and that's something that I think every SaaS founder needs to understand about what's happening right now in our industry service solutions. So for years, software as a service, SaaS, has been the golden goose of entrepreneurship, right? Founders have been building towards these beautiful acquisition multiples six x, 10 x, 20 x to annual revenue in whatever shape or form that may be measured. There were a lot of x's and a lot of numbers and these numbers weren't just wishful thinking. They were based on real market dynamics. That was actually the value of their companies. See, there used to be a fairly sizable moat around SaaS businesses, which is why they got acquired for these prices. It wasn't just about understanding the market that you serve or having industry expertise, but building the actual technology of a software as a service business was a technical feat. And I don't just mean the product here, I mean everything that enables the business. But the sales pipelines, the marketing automations, all these little things that you had to clumsily and carefully assemble over many many years. It took time to get things right. To even come up with things that nobody else may have ever built in that particular shape or form. And that expertise was encoded in both the business model, recurring revenue, which is amazing and focuses on …