Company acquisition is a bet on people, process, and the product’s durability. And like any meaningful bet, you need to have good judgment and recognize patterns to make the best choice.
You should prioritize businesses that solve real problems for real people and have been doing it long enough to have some scar tissue.
Or else, even the best product/company could end up failing.
I’ll share the six non-negotiables I’d look at before buying a software company, and why they matter.
Six Things to Look at Before Buying Any Software Company
It has to be vertical
The first thing to do is to check if the company you're considering goes deep into a specific industry.
Vertical companies are businesses that create software for a particular niche or industry. They're quite different from horizontal companies that serve general business functions for many industries.
Choose a company that focuses deeply on one sector, like building databases for healthcare companies, construction management software for construction companies, or even an inventory tracking system for auto repair shops. The more specific, the better.
They have less competition, value-based pricing power, and stronger customer loyalty because they are specialized.
Check if customers actually love the product
You can always rebuild code. But you can’t fake customer love. I read reviews. I trawl Facebook groups. I check Capterra, G2, Reddit threads, and support tickets to find what customers genuinely think of the product.
Here's what I look for:
- Are users sticking around for years?
- Is the churn rate low, even without discounts or long contracts?
- Are they talking about the product online, unprompted?
- Do they say things like “I don't know what I'd do without this,” or is the product just another option among many in the market?
- Do users advocate for the product in forums?
- Do they renew year after year without needing incentives?
It doesn't matter if a business is spending $50K/month on paid ads. If they’re not getting voluntary praise in niche Slack groups, subreddit threads, or industry conferences, that’s a red flag.
Real customer love looks like:
- People building their own integrations or workflows on top of the product.
- Customers treating support like a trusted partner.
- Product shout-outs in Slack or Discord groups.
- Organic referrals making up a big slice of new signups.
You can’t fake that level of emotional equity. When it exists, it’s a sign that the company is delivering value more than its feature set.
It’s been around for at least 3 years
Longevity matters because it shows that the company is durable.
You start to see an operational rhythm at this stage.
The company has actual processes, repeatable support flows, and a customer retention system that should work if they’ve been going strong for three years.
Anyone can create a product, run ads, and book demos, but it takes discipline to survive and thrive over multiple market cycles.
I draw the line at a three-year-old company, because three years is enough time:
- Find product-market fit
- Survive a few setbacks
- Survive at least one plateau or pivot
- Rebuild a broken process (maybe twice)
- See multiple economic or seasonal cycles
As Paul Graham once said, "Startups don’t win by being better. They win by being different and staying alive."
If the product is still being actively used and supported three years in, that’s a signal of staying power.
A Niche, and a Name in It
This one’s subtle but powerful. Look for companies that are number one in a small market, over one that's number 5 in a huge one.
These companies don't have to be extra popular, but they should be well known in their niche.
They should have:
- Mentions in community forums or industry Slack groups, like how these users recommended Augmented as an alternative for CoPilot:
- A consistent spot in niche roundups or buying guides
- Referrals that are not forced (something you’ll find in the comment section of Quora or a Facebook page).
If users consistently mention them in forums, Slack groups, or word-of-mouth referrals, it means they've built trust at scale.
Check if the product works well with other product-related software
Think Asana x Slack. Or Notion x Jira.
While you can look at companies individually, think in systems. Ask if the product can fit into a broader platform of tools that serve similar customers or workflows.
For example, if you buy a scheduling tool for veterinary clinics, will it work together with billing, inventory, or CRM tools targeting the same customer base?
This also means thinking about:
- Their tech stack compatibility. Does their technology (programming languages, frameworks, APIs, databases) align with your existing products or the platform you want to build? If it does, your engineers can more easily maintain, update, and integrate both systems.
- Sales motion. Can this product be bundled with others? Is there upsell/cross-sell potential?
- Customer overlap. Do existing relationships create entry points for new offerings?
You want to buy companies that can easily benefit from being part of a larger ecosystem, because no software is an island. If the product plays well with others, it usually outperforms everyone’s expectations.
Choose a founder with legacy
Lastly, you should care about the founder’s mindset.
Here's what you should look out for:
- A history of customer obsession.
- Thoughtful responses to early feature requests, even if the answer was “not now”.
- Respect for team and culture (even if the team is tiny).
Prioritize purpose. Some of the best acquisitions are from founders who weren't even sure they were ready to sell because they care so much about what happens after.
That's the kind of person you can trust to build something that lasts.
Conclusion
Acquisition is a philosophical decision.
The best company acquisitions are ones with substance. They serve a real market, solve real pain, and do it with consistency.
When you find a company like that, think about what it would be like to own this company for the next 20 years, and build with permanence in mind.
Of course, this is easy if the company already has value.