I bought HitTail (a SaaS app) in 2011, grew it, and sold it last week | Hacker News Reader

I bought HitTail (a SaaS app) in 2011, grew it, and sold it last week

blog.hittail.com

106 pointsrwalling58 comments

It's been great listening to Rob's story about HitTail on the Startups for the Rest of Us podcast [1]. I highly recommend this podcast for the coder/entrepreneurs out there. It will motivate you and keep you focused on starting small and growing from there.

[1] - http://www.startupsfortherestofus.com/

Agree one of the best pod casts out there.

Here's the original story of the purchase and revamp: http://www.softwarebyrob.com/2012/01/25/the-inside-story-of-...

Also a podcast interview covering more details about it (many technical) http://techzinglive.com/page/921/165-tz-interview-rob-wallin...

Discussion https://news.ycombinator.com/item?id=3511437

Congrats Rob! Enjoyed following his various posts and presentations about HitTail.

I suspect this is the listing for the sale on FE International:

http://feinternational.com/buy-a-website/5262-saas-keyword-t...

I'd also be curious if Google's recent updates ("not provided" keywords in analytics, etc.) have impacted the ability to make this an effective product in the long run.

Thomas from FE International here. That's the right link.

HitTail uses Webmaster Tools (Search Console) rather than Google Analytics so the product still works fine - I tested it myself before we listed the business and found it very helpful!

No doubt the long-term outlook of this product has changed dramatically since its initial conception and the 2011 acquisition. It's an analysis and recommendation engine built on search data for each site. That data used to be directly available to and collected by HitTail, since search terms were in the referring URLs of every visit to the site coming from a search engine.

Now that Google virtually never includes search terms in referring URLs, the only way HitTail can get the data it needs is via Google's APIs. Google can change the API, remove the API, or change the terms of use, and HitTail's SOL. Already they only have access to a subset of search data the API makes available, rather than all long-tail keywords, which they had a few years ago.

Will Google remain friendly to tools like this in the future? Who knows. That's a risk the new owner hopefully evaluated before taking it on.

I believe HitTail has it's own history of terms it's collected over the years before google took it off the table

Congratulations, Rob, it's nice to see counter-examples to the "it's all chance" worldview.

I looked at the FE International listings, and I have to ask of those who know about these things: What would lead somebody to sell a going-concern business for 2x earnings? There were several examples. I don't want to go straight to "scam!" but that seems too good to be true.

Thanks!

Re: valuation - reputable online businesses are typically valued in the 2-3.5x annual net profit range. See http://feinternational.com/blog/how-do-you-value-an-online-b... for more info about valuations.

But honestly, it comes do to what the market is willing to pay for a financial (as opposed to strategic) acquisition.

When I realized this, I knew I'd stick with my business for the long haul (at least until any interest went above 'FU money' level). If I can make $1m profit per year to take out as dividends, selling it for a once-off $3m seems bizarre unless I had a rapid need for money elsewhere.

This depends on the tax situation of the country you live in. If you do the math, you might realise to get $1m in personal income by declaring dividends, you actually need to earn $2m in corporate profit. So to get $3m (capital gains from a sale), you would need to earn $6m in taxable income. Meaning it would take you 4/5/6/7 years.

Also, if you then reinvest that $3m in more traditional assets (stocks/bonds/property/alternatives), you can earn 5-10% on that capital ($150-300k per year), WHILE working on something new. Capital is awesome.

Boring calculation for people in the UK (as I am, and I've thought about this quite a bit ;-)).

Under certain conditions you can use "Entrepreneurs' Relief" to only pay 10% capital gains on your sale of a business (up to a limit of £10m), so a £3m sale could net you £2.7m in hand.

Depending on many circumstances, £1m in dividends (per year) should net you around £750k. So it would take about 3.6 years to make the same as selling for current 3x annual profit. However, if your profits were increasing by more than 10% per year, it would be a wash.

You also don't need to pay corporate tax when booking a capital gain on your shares, so the tax advantage is actually a lot more.

£1m in corporate income is taxed at 20%, so you're left with £800k after tax. Then you declare a dividend, and pay a dividend tax. That'll be 25-30%, so you'd be left with £800k - 30% = £560k in pocket.

To earn £3m (in pocket), you would have to generate approx. £5.25m in pretax corporate profit.

Whereas with a share sale, you will be taxed at 10%, meaning you're left with £2.7m (if you sell for £3m). A significant difference.

I live in Belgium, where the difference is even larger. Capital gains on share sales are tax free, corporate income + dividends are taxed at about 45%.

Obviously this assumes market conditions will remain stable. Moreover is the issue of the developer/entrepreneur: if you want to stop working for a period of time, the cost to replace your job roles in the company usually means increased cost/decreased profit, so the calculus changes given those factors.

Our average sales multiple is nearer 3x but this is still a good question.

Often businesses (especially those selling nearer 2x) are relatively young so the valuation reflects the risk.

We have a very stringent pre-listing due diligence process so while it remains the buyer's responsibility to conduct their own due diligence, none of our listings are scams.

I wrote a little more about why people sell businesses last year: https://www.linkedin.com/pulse/20141023121347-71653461-6-rea...

Thanks, Thomas. I really didn't mean to suggest any of your listings were scammy, that was poor wording on my part.

No issues at all - it's a common question! If you look elsewhere in the market (especially marketplaces) your comment regarding scammy listings is certainly valid. Part of the reason we have done so well is our pre-listing due diligence, serious buyers don't have to waste their time on scam/very poor quality listings and sellers get exposure to serious buyers who aren't tired by trawling through all the junk :)

There's a range of answers to this question, but the simplest answer to "Why take N years of earnings today and give up the business?" is "Because then I get N years of earnings today and can spend my next N calendar years doing something else."

The exact setting for N comes down to a variety of factors, market conditions, and a negotiation between a particular buyer and a particular seller. As someone who happens to be long SaaS companies at the moment I would prefer N=50 but I know SaaS owners whose lives would be improved by a sale at 2. (As mentioned in sibling comments, market right now is 3ish.)

I was more than happy to score a 20 and I would have settled for 10... but don't tell the buyers.

Do you mean your buyers paid 20x your business' yearly profits?

Why?

Excellent question! But I don't have the answer for you.

But did you actually sell at 20x yearly profits?

No, I sold at 20x turnover.

20x gross revenue?

Wow!

What was the name of that business and what year was that?

None of your business :)

But it's very well possible to make deals like these, it just matters that the buyer has a different idea of the value of the business for them than you do. Which answers your earlier question in a way, but the 'why' is actually probably a lot more complicated than that and I can't really speak for the buyers, the only thing I know for sure is that they had a totally different idea of where they were taking this than I did. They probably thought it was cheap.

Beauty is in the eye of the beholder...

Actually, I just compared your deal with Twitter:

12 months revenue ending 2013-12-31: $664.89M

Twitter IPO Valuation: $24 Billion (Nov. 07, 2013)

Price/Gross revenue ratio = $24B / $664.89M ~= 43x

That makes your 20x sale look like an underperformer.

Yes, there are many other deals that are better. You forgot to ask the key question though :) But I'll let it rest, none of this is for public consumption and I shouldn't have written the first comment.

What is "the key question"?

Purchase price, most likely.

There's also a tax benefit in the U.S. Taking the capital gain can be far more favorable than taking the profits of the business as regular income.

I sold my software business with FE International earlier this year and hit about 3x yearly earnings for a 1.5 year old company. Comparing it against the rest of the market, particularly Flippa and Empire Flippers I felt that it was a good deal. Plus you get great guys like Thomas to handle everything for you.

Note: reading that back almost sounds like an advert but I'm not affiliated in any way, just a happy customer :)

We just bought a SAAS business via FE International last month (http://talentdesk.com). Process was incredibly smooth. I'm happy to answer questions privately if anyone has any on what it's like on the buyer side.

Congratulations on the acquisition! Great to hear you found our process smooth, too.

What did your due diligence process look like?

FYI, uBlock blocks your site.

here's why:

"It will give you a script which you need to add in the head part of your blog and it will start tracking all Keywords which drive traffic to your Blog/Website"

http://www.shoutmeloud.com/hittail-review-related-keyword-su...

Whenever I see uBlock flagging something, I always make sure to double-check as to what it actually is. In this case, it doesn't seem like HitTail is that malicious.

uBlock has had some pretty stupid political blocks, e.g. sourceforge globally

This block is coming from "Peter Lowe’s Ad server list", not uBlock-maintained lists.

You never know which installers will get hijacked so as a precaution it's a good idea to block SF globally.

Another great reason to use a different domain (eg: hittail.net) for hosting a tracking platform.

Thanks for reporting! We'll look into this.

Hey Rob -

Financially speaking (and knowing what you know now) would you do it again? Will you be going through the trash to find your next treasure?

Congrats!

>>Financially speaking (and knowing what you know now) would you do it again?

Absolutely, no questions asked. Several reasons:

1. Acquiring an app with product/market fit puts you ~18 months ahead of starting from scratch. Like most founders, I'm not a very patient person. I'm now working on GetDrip.com, and it took us a long time to hit p/m fit. The slog to get there is the worst part of launching a product, IMO.

2. Financially, this was a game changer for me. During the course of my tenure with HitTail, revenue + the sale prices funded multiple angel investments, the budget for building and launching Drip, and many other things I would not have been able to afford previously.

3. The acquisition and revamp were also game changing for me in terms of what I was able to learn, the content I was able to produce from it (multiple MicroConf talks). Both are important to me.

Even without the sale, the learnings and financial rewards were still a major success for me.

>>Will you be going through the trash to find your next treasure?

I've already started my next one, GetDrip.com. I built it from scratch with a co-founder, and I can't count the times I've said "I'm never going to build from scratch again!"

I try not to say "never," but if I could choose build or buy I would buy. Every. Single. Time.

How do you know that the business you are buying already has product/market fit?

I've always enjoyed Rob's take on things. The things he's worked on seem like "a good goal" rather than something completely unobtainable, like most SV style startups seem to those of us who are not there and don't want to kill ourselves working on one. I highly recommend his book even though it's a bit long in the tooth at this point:

http://amzn.to/1OuZPHs

As a listener of both Techzing and Startups for the Rest of Us, it's fun to have followed almost the whole story since it's beginning :)

Congrats Rob!

Are you looking for your next adventure? I have spent 9 months building a startup, at large scale (60 servers, 4 million data points a minute) My email is in my profile, I would love to chat and get your thoughts and advice :)

Excellent! I am sure HitTail is in great hands with Stas behind the cockpit. Looking forward to seeing what comes and excellent job by FEI.

Is there a writeup for the story of this sale?

I'm working on something.

Perhaps you could discuss it with the techzing guys again? It would be nice to get into the details.

Here's a write-up of a few things I learned on the journey: http://www.softwarebyrob.com/2015/12/02/what-i-learned-buyin...

Brilliant "Discount for Bloggers" strategy = loads of positive reviews.

Congrats! I enjoy your podcast very much

Congrats, Rob!

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