Hey there, Oyku here!
Welcome back to another issue of Scaling Apps!
In this issue, we’re diving into the complexities of exiting a Shopify app business. I had the pleasure of interviewing Erikas Mališauskas, the co-founder of Kaching Appz. Erikas and his co-founder, Donatas Stundys, have been developing Shopify apps since 2021, now with their tight-knit team of 5.
This edition is a must-read for anyone considering an exit or simply curious about the process. We’ll cover the strategic choices, essential preparations, and key considerations that can make your exit journey as smooth and successful as possible.
From Idea to Implementation
Our first Shopify app was Guarantees & Features Icons which let merchants add icons to their stores. Whether it’s a feature block on the product page or a guarantees section on the homepage, we covered it all. At the time I came up with this idea, there were almost no apps solving this problem.
My main criteria when choosing what to build on Shopify were:
1) broad market - something useful for any merchant, not just niche category;
2) not complex - something that we could build and launch in a month. This app matched both of these criteria.
Initial vision and goal: growth or an eventual exit?
Our initial goal was to test the Shopify app ecosystem. Learn how apps are being reviewed, how to rank better in the app store, see how ads perform in the marketplace, etc. Basically we wanted to set ground for our next apps which would be more complex in a more competitive space. We were not building it just to sell it but the exit option was always on the table.
The Decision to Exit: Timing & Reasons Behind
About 1.5 years after launching and scaling the app, we introduced another app in the Upsell category, which we knew was more scalable. We noticed our first app wasn’t growing while competition was increasing, so we realized it was time to exit. It was at that moment that we realized we needed to exit. The decision was quick, and we sold the app in less than a month.
The Biggest Challenge of the Exit
Our biggest challenge was that we didn’t do much accounting and all of our app’s income was mixed with my personal company’s income, so I had to go through bank statements and gather all transactions to get accurate profit information.
Determining Valuation
To determine our app’s valuation, I did extensive research and checked acquire.com to see how other Shopify apps were valued. Realizing our profitability was higher than most, I could price the app at a higher multiplier. We eventually agreed on a $250K price, paid in full. At the time, our MRR was $6,700, and our profitability was around 90%.
Finding a Buyer
We listed our app on acquire.com, but our buyer actually came from a Facebook group where I also posted the listing. Many inquiries from acquire.com were from people who weren’t serious about buying, just browsing around.
Marketing the Listing
I tried to focus on the clear upsides. For example, our profitability of 90% was a huge factor in making a listing look appealing. I highlighted good stuff on the listing to get as much engagement as possible, while the downsides such as big churn were left for the calls.
Tracking Financials & Documenting Processes
Initially, we didn’t track our finances as we should have, therefore we had to spend a lot of time before the exit to collect all the expenses. Now, we use Revolut Business for tracking all income and expenses, matched with invoices. All of our transactions are categorized, so it’s nicely put into analytics.
We didn’t document anything, our process is still really straightforward as it’s mostly two of us doing most of the stuff. It’s all in our head and it works fine as long as we don’t expand our team and for now, we don’t have plans to expand.
Creating the Exit Terms
We knew we wanted to focus on our new app, therefore we were looking for a deal where we could fully exit without a need for support. I would suggest always having a clear vision of why you’re selling and what your plan is. Otherwise, you could feel regret. Looking back, we are really happy we sold because we used the time and money to scale our new app which is currently making 6-figure MRR.
Lessons Learned
One key lesson is to always think about the buyer. They will need all of the information to continue working on the app. This means they will have to dig into your code, they will have to take on customer support, ads, etc. Proper documentation makes the transaction smooth. Also, persistence pays off.
When listing on acquire.com, we faced initial disinterest, but eventually found the right buyer. There’s always someone interested, you just need to reach them. Whether it’s Facebook groups, LinkedIn cold DMs, or Twitter.
Nowadays, we receive a lot of interest in buying our app, and I try to connect with interested people because you never know when you will want to exit, these connections may be helpful in the future.
Another Side of the Coin: Acquiring Apps
From another perspective, Griffin Caprio addresses the significant impact of technical debt arising from Shopify’s announcement to deprecate its long-standing REST API by February 1, 2025. This change underscores the importance of planning for future technical challenges when considering an acquisition.
Read the thread.
Thinking about making an exit?
You might want to check out AppHub, which raised $95 million from growth-equity firm PSG last year. AppHub specializes in building and acquiring apps tailored for e-commerce merchants. (This isn't sponsored content, just a friendly tip! 🙂)
That’s all for this issue! Stay tuned for the next one.
Let's connect on social if you have suggestions for success stories for Shopify apps or growth topics.
See you next time…
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