What I Learned Selling a Software Business
training.kalzumeus.com
training.kalzumeus.com
Yearly revenue - $31,000
Yearly net profit - $19,000
Asking price - $57,000 SOLD
It's fascinating what a small amount of money we're ultimately talking about vs. the influence of the "cult of Bingo Card Creator fans" on HN - which I am card carrying member of.
(1) http://feinternational.com/buy-a-website/3745-software-busin...
The more interesting thing to me is how par-for-course BCC was for the MicroISV community. I think Patrick might be a particularly disciplined example of a MicroISV person, but his success isn't outlandish in context. I feel like the MicroISV vantage point is something that HN could use more of.
(Caveat: Patrick's cofounder this time around, and one of his clients at a previous company).
Even Patrick - in this essay - says "I’ve been probably best known for running a teeny tiny little business called Bingo Card Creator."
It's just amazing that a $31k/yr biz is instantly recognizable by name amongst most of the dedicated HNers as part of our mythology.
I love it, Patrick is one of the people that's always made HN feel like a small / cohesive community even though its footprint is huge.
And by marketing, I mean getting their attention and building a brand, not money.
Many HNers feel a sense of personal investment in me, because HN has been my home-away-from-home for ~7 years now and I am a "local boy who made good."
I write decently and have a strong written voice which people like.
A relatively small fraction of what I write is immediately useful to people.
Also: I write a lot. My published output is something on the order of ~3 million words, roughly ~2 million of which are on HN. (Give or take 500k or so. It's been a while since I ran the script and I don't have a few hours to wait before bed.) That's roughly Lord of the Rings, Harry Potter, and Game of Thrones... combined.
There: that's the whole secret. Use these dark magicks responsibly.
I remember reading a comment of yours on Net Benefits years ago on critiques (I think it was about how some critiques more or less used the subject as a one-dimensional cutout to haul out in the middle of rounds and stick back in the box when done) and you talked about a Japanese phrase that meant something along the lines of "wallflower" (?) in that context.
I searched for that comment a few times, but never could find it again. It drove me up a wall in a few rounds because it was always on the tip of my tongue but I couldn't remember. Then it didn't matter after my school decided to screw up our debate program, but it was one of those dumb little things that continued to bug me. Any chance you remember what I'm talking about, now that the annoying itch to know has come back? :)
Sakura are, in the Japanese theatre tradition, confederates who you place in the audience with instructions to be vocally demonstrative at particular points in the play. This is to get the rest of the audience to join in. They're not actors but they are deployed to make the actors look good.
A huge thanks to Patrick for reminding all of us to Raise Our Rates. I've still yet to bill above $200/hour but I aim to have an effective "rate" well beyond that soon.
https://hacker-news.firebaseio.com/v0/user/patio11.json?prin...
I don't know about Patrick but Algolia correctly sorts my highest comments, too. What number are you expecting from patio11's results that you're not seeing?
I can't say whether it's FireBase or Algolia that's at fault, but my HN search results are definitely wrong.
It look like it doesn't have anything from the past year? But maybe there are other issues too.
When I hit this, the top comment has a score of 12 https://hn.algolia.com/?query=author:timv&sort=byPopularity&...
That means it's missing all of these (and probably more)
* https://news.ycombinator.com/item?id=11084278
* https://news.ycombinator.com/item?id=11077893
* https://news.ycombinator.com/item?id=11070269
He is transparent. I first learned about him from the Business of Software forum and it's incredible to see the path he traveled. I feel like he is my close friend and I am rooting for him to succeed.
Not only he shares what he has learned, you can email him about specific things and get valuable advice for free for which he charges his clients several thousands of dollars.
Finally, everyone loves rags to riches story. In his case, he wasn't exactly poor, but he is a guy just like you and me and hustled his way to success [1].
[1] Success not in terms of millions he made but rather by living life on his own terms doing what he loves.
I think it helps a lot that he built a business that's "human scale" - everyone can relate to replacing their salary, whereas building some zillion dollar SV business really isn't in the cards for most of us.
Also, bingo cards was a huge wakeup call that you don't have to do something technically brilliant or with an amazing business model. "Just" find a niche and sell stuff to people with a need.
Patrick's writing and experience have offered us a refreshing counterpoint to that narrative. I don't know if Patrick set out specifically to provide that counterpoint, or to be a poster child for small software business in general. Regardless, he's kinda sorta become one. Which is cool. He reminds us that there is an interesting, livable life to be had running one's own business(es) and not grooming oneself for unicorndom.
It also helps that he's contributed sensible, detailed, thoughtful, honest commentary throughout his tenure in this community -- be it about BCC in particular, or about any other topic he comes across.
Finally, he's been at this slowly and steadily over the course of however many years. That authenticity contrasts very starkly to, e.g., the legions of folks who pop into HN every so often for the explicit purpose of marketing themselves. Patrick's HN fame is a side effect of his contribution to this community, and not the result of some calculated campaign to achieve it. That's awesome for Patrick, and Patrick's presence has been awesome for HN.
I'll stop now, as this was not meant to be a hagiography. I don't know Patrick from Adam. For all I know, he once refused to help an old lady cross the street. Maybe he grabbed an extra slice of pizza from the high school cafeteria once when no one was looking. Who knows. But from what I can tell of him, he seems like a stand-up guy. :)
Not everyone does that, so anyone that does stands out. If you've been on HN for a while, you might also remember the guy doing the Japanese candy boxes.
Years ago, SEO was easy and many of us built low-effort, recurring revenue as a result. But not all of us capitalised by building a personal brand around it. I can identify with Patrick's path:
- build
- wow, SEO is easy
- this is amazing; money for almost zero effort!
- get distracted, ignore declining revenue
- site becomes mental baggagehttp://www.kalzumeus.com/2014/11/07/doing-business-in-japan/
"I’m told, against my expectations, that BCC was impressively well-documented by the standards of other businesses its size. This implies that many people are running their small projects in even more of a cowboy fashion than I do, for example by not having dedicated books for the business. If this describes you, God help you. At a minimum, get your books for the last year done professionally — whatever you spend on bookkeepers/accountants will be a pittance next to the time saved and additional valuation captured."
Even if you're not selling, getting this done will save a lot of headaches the road... Dedicated books for the business is a MUST. I know a lot of small businesses where this is not done religiously and it always comes back to bite the owner in the ass...
EDIT: By the way, I was curious so I just took a look at the BCC site, the blog is timing out...
Well, except if you want to sell your company at some point in the future or actually have some idea of COGS or know how you are actually doing.
Money can solve also the problem where you can pay someone to go through your accounts etc, and make the books from ground up. Of course it is going to be expensive, and you need a good accountant for that.
All facts are still the same, but the overall impression of BCC now is that it is a small, declining and time-consuming business. Patrick himself actually struggles with money, like all of us.
Patrick definitely has (had?) the power of optimistic spin in his stories.
TFA says is best:
- small: "BCC was generating “a meaningful amount of money” (low tens of thousands in profits a year) without requiring a heck of a lot of work for it."
- declining: true, but based on not investing in it
- time-consuming: "BCC was not taking up much of my time (thanks to Sugar handling most of the support) but it was taking more than zero of my mental cycles every year."
"It was not entirely accurate because the weight of what I had done hit me, all at once, when I was writing that. I cried actual, physical tears.
I think every founder has their own relationship with their business. My history with BCC was pretty intense. It was one of the only things keeping me going in my dark days as a salaryman. It got me out of that situation. It was a cornerstone of my public image for years and, sometimes, even my identity. I was The Bingo Guy.
Not being The Bingo Guy? That adjustment took quite a while but had mostly already happened. Admitting it? Oof, that hit like a ton of bricks."
The change in impression did not happen overnight though. Earlier posts were much more optimistic, with slow decline of optimism over the years.
The thing is, even the same earlier years of BCC growth do not look as rosy anymore as they were at the time of that growth.
Why? He stopped actively focussing on the business years ago. Of course it's going to decline. Few recurring revenues businesses, if any, are truly "build it once, sell it forever". They need upkeep and growth plans.
Patrick's growth efforts went elsewhere.
My point is about growth in ~2008-2012.
Back then in Patrick's stories that growth looked impressive. The same ~2008-2012 years of BCC business do not look as impressive anymore.
Now we can see how BCC was time-consuming business with profits that are not really exciting for software developer.
That said, the learning aspects of BCC for all of us still look great: baseline for our businesses, realistic expectations, and relevant know-how.
But he had other, better opportunities.
If you thought if looked more impressive then, maybe you hadn't actually looked at the numbers, or were confusing his consulting revenues for BCC numbers? The numbers were never that high. But the point was that they let him leave his work at a Japanese company, and develop expertise he could use to consult for others. And he could have kept going at BCC and grown that instead, of course.
In 2014, it was bringing in $4,000 an hour [0]. Sure, that hourly rate doesn't scale, but it was only 4-5 hours work for the entire year.
It's not surprising that sales weren't anywhere near the level they were when more time was invested in sales and marketing.
To me, it seems not so much that BCC was time consuming, it was that everything else consumed Patrick's time and there wasn't time for BCC except the bare minimum required to keep it up and running.
[0] http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-...
With the facts - yes: open and honest.
But interpretations and impressions Patrick created with these facts are not as reliable.
Consider a major change Patrick applied to the Bingo Card Creator at the height that business:
http://www.kalzumeus.com/2012/08/06/stripe-and-ab-testing-ma...
Not only did the 8 card limit absolutely crush the 15 card limit (99% statistical confidence, 1.89% conversion rate instead of 1.04% conversion rate from free trials to paid accounts on a sample size in the 5,000s range)
The facts are all correct.However the interpretation is missing a very important point: that "8 card limit" (instead of "15 cards limit" previously) made free version of BCC much less attractive, which, in turn, decreased visibility of BCC web site in Google search results and sent BCC business into long term decline.
The other is that Patrick has the courage to be honest with the whole thing even though I'm quite sure he's aware that that blog post is almost kind of painfully honest.
I think the consulting gigs were not constant. Those were the high points. He had a high income, just not so high as if you multiply $15,000 * 52.
I'm writing this as a fan of Patrick's. Just clarifying your answer based on my recollection of his writings. It's pretty plausible he didn't have a massive savings buffer.
Speaking as an entrepreneur, there's always conflict between saving money vs. investing more of it in businesses. I imagine a lot of value is locked up in appointment reminder. This last paragraph is entirely speculation and not based on anything I remember Patrick writing.
One possible interpretation of that statement is that he had inadequate savings and was struggling with money.
I think there are other equally valid interpretations that could be made, but if you read this post from a negative viewpoint, it's easy enough to reach the conclusion that if Patrick has decided to convert an asset into real money that must be a bad thing.
George Akerlof and "The Market for Lemons": https://en.wikipedia.org/wiki/George_Akerlof
^^ - you're selling AR as well? Last presentation was showing that to be a profit machine? Would love to learn about the reasoning behind that decision!
"Why sell AR?" is pretty straightforward: I'm CEO of Starfighter. I signed up for 5~10 years of my life building stock exchanges and getting devs better jobs, and that's more than enough work. It does not need to be interrupted by e.g. dealing with the Lithuanian hacker ring which found a novel way to route calls to Caribbean phone sex numbers. (A great story for another day.)
Focusing on one thing is best. I recently sold my SaaS for the same reason — I wanted to eliminate needing to worry about it while working on growing my other (more profitable) business.
(Lastly, as things that probably make Patrick excited to get out of bed and work, I'm assuming Starfighter > AR.)
This talks a lot about the process, but what are some things people like us can do to maximize their return on such a sale?
Get your ducks in a row on numbers, most importantly the financials (bookkeeping bookkeeping bookkeeping) but also classic (SaaS?) analytics numbers like number of trials, conversion rate, churn rate, etc. Historical numbers and numbers segmented per traffic source/vintage are good things to have, too. Bonus points if these are pointing in the right direction over time.
In more detail: http://feinternational.com/blog/saas-metrics-how-to-value-sa...
I might also add "Negotiate the sales price, even if the buyer and/or broker does not want to negotiate the sales price."
Can anybody recommend a broker that assists UK based and focussed web businesses?
Sorry we couldn't help - our focus tends to be on businesses that are primarily US focused with their customer base (although our sellers are based all over the world). Not aware of any established UK brokers who focus on web businesses - there isn't a huge market with UK buyers for online businesses so not overly attractive to enter.
Thomas (from FE International)
Yeah... I have a non-trivial number of purchased Android apps on my Google Apps for Work account ($6AUD/month) and there's no published way to move apps to a "normal" Google account.
I'd probably be paying Google forever if I had business dependencies hanging off that account (but I set it up when custom domains were "free").
Businesses exist that are this cool? Where do I find them?
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While I see why you would have run away from that particular structure, I'm curious as to how flexible you might have been from a straight lump sum structure
If I was buy a business like this, willing to accept $X as money down, some % percentage of revenue for Y months, until you were paid Z amount, with some contingencies built in would look pretty attractive
a sellers willingness to agree to terms like that would send a pretty strong signal that they weren't selling a lemon
as a buyer, I'd be willing to commit to a Z price significantly higher than what I'd be willing to commit as a lump sum up front
if the seller believed in the business, (and I guess were able to substantiate that I had enough ability no to drive the business into the ground) it seems like such a structure would net the seller more as well
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I'd love to hear your thoughts about how receptive you might have been to an offer like that
The first would require quite a lot of expensive, invasive due diligence on your ability to pay that people selling software businesses don't care to perform or pay somebody else to perform.
The second is likely to be lousy. Options are likely to be to file a lawsuit, which is expensive, and try to collect if you win, which may or may not be possible, and is almost certainly very time-consuming.
If you're selling a software business, you're mostly likely doing it because you don't want to bother with it anymore. You are very unlikely to suddenly decide you want to start up what is effectively a bank for one guy. I'd tell anyone who says they can't afford a lump sum to try to get a loan from an actual bank, because I have no interest in pretending to be one.
It's always disconcerting to get slapped in the face with clear evidence of a memory error. Did I combine https://news.ycombinator.com/item?id=9589223 and http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-... somehow? Who knows.
Other "I sold my SaaS business" stories discussed on HN in the past could make Déjà vu impression too.
Either way, that's kind of awesome.
The way it works right now is that we have a keyboard shortcut to open the archive.org page for a url posted to HN—kind of like the 'past' and 'web' links we display at the top of /item pages, except faster [1]—and we use that when trying to find the date of an article. Sometimes the archive doesn't have it yet, in which case we click the link to add it.
1. Actually a number of HN features have started as moderator keyboard shortcuts. It would be fun to release that software, but... time.
See http://feinternational.com/buy-a-website/3745-software-busin....
He does also mention how one seller tried to demand a 40% discount at close, and that the broker had a better deal waiting in the wings. So we can have a pretty high degree of certainty that the sale price was between $28,500 and $57,000, likely closer to $57k.