

We've got a million dollars and we want to buy your micro ISV - spolsky
http://blog.businessofsoftware.org/2009/04/the-red-gate-million-dollar-challenge.html

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imp
I like their checklist of items they're looking for in a web app. It seems
like a good list for anyone developing a product. This item stood out to me as
insightful:

"If you’re selling your product then it must have at least a 10% conversion
rate. In other words, if ten people download it, or trial it, then, on
average, one person should buy it. For us, this is a sign that you’ve got a
product that works. We don’t care how many customers you’ve got - the fewer
the better, in fact. It’s the ratio of trials to purchases that counts. If
your not charging for it then we’ll look for a sign that a significant
proportion of your users are actually using it regularly."

I haven't seen so much emphasis put on conversion rate before. Since they have
a lot of experience with this sort of thing I think that means it is a better
indicator of success than I've previously thought. From reading articles
online, I had thought of conversion rate as more related to shiny buttons and
A/B tests. That stuff matters, but it really does come down to how good the
product is.

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AaronJ
In what world does a product that generates $10k/mo have a lifetime value of
$400k? I'd think if a business was attractive enough to be purchased they
would expect more than a 40 month lifespan.

~~~
mdasen
Perpetual revenue is never worth as much as one thinks.

First, even if your product generates $10,000/mo forever, it clearly doesn't
generate infinite profits. In fact, money that comes 5 years from now is worth
less than money today. Why is that? As a simple example, let's say you have
the option between $380,000 today and $10,000 per month for 40 months. Which
is worth more? The $380,000 is worth more because if you put it in a CD for
that time period, it would become more than $400,000 by the end of that term.
So, money in the future isn't worth its full value.

Second, there is risk in a product that generates monthly revenue. A
competitor could come by and undercut you and you have to reduce your pricing
(and therefore profits). Heck, things could get so bad that your product
becomes worthless. A cash buyout doesn't carry that risk.

Third, there is money that you have to put into a product over time. So, you
might have something generating $10,000 worth of revenue each month, but you
have to work full-time maintaining it and improving it. As such, you are
forgoing other ways of earning money. Let's say that other way would get you
$4,000 per month (low for a computer programmer with such skill - remember,
that $10,000 is pretax as well). So, would you rather $4,000 per month plus
$400,000 or $10,000 per month? At 10% interest (the rate of growth of the S&P
500, you'd have an additional $3,333 from the interest off that $400k bringing
you to $7,333). So, it might not be as much, but you still don't have the risk
of your business being undercut, made obsolete, etc. And if you're earning
$80,000 per year (a reasonable salary for a programmer making such valuable
programs), you'd be getting $6,666+$3,333 = $10,000 in a much more stable way
where you don't have to worry about where the market might go. Plus, those
types of jobs usually come with at least $10,000 in benefits (health care
being a big part of that). And you have no expenses since your employer is
paying for the servers and such.

So, it's not such a terrible price. There's a lot of risk they're taking as
the buyer and they're taking over all of the maintenance. Maybe you believe in
your product more or maybe you enjoy working on it which gives other value to
the project for you. But it isn't that it will only last 40 months.

Again, this might be different if this is a project that requires a few hours
a month of work in which case it doesn't change your potential for other
salary. It might be different if you see a great way to expand the project to
get more revenue. It might be different if there are competitors nipping at
your heels. Maybe I'm too risk-averse, but it's important to see how it all
fits together - from the present value of future money to the risk of
competition and obsolescence to the amount of time you need to put into the
project and how you could alternatively earn money with that time.

~~~
boris
There is a flip side to that coin: preserving, let alone growing at the rate
of 10%, $400,000 is a lot harder than most people realize.

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zmimon
I agree with the first comment on the page - 10% conversion rate is almost
unheard of. It makes me suspect that this is a publicity stunt or some kind of
market research gimmick and that the bar is set to deliberately exclude them
from actually buying anything except something that is already a money-
printing machine.

And as another commenter points out - by even talking these guys you're
basically then giving them a product to clone and take your own customers
away. I'd be very careful about talking to them.

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zandorg
Given that list, if I was as successful as they require for this, I wouldn't
want to sell!

~~~
jasongullickson
On first blush I agree, but after thinking about it for a few minutes I can
see a scenario (actually, recently experience several) where once the
interesting engineering problems have been solved and the major challenges
overtaken, my interest in incremental growth and feature releases dwindle and
I wouldn't mind turning the product over to a company interested in growing
the product gracefully (so I can move on to the next challenge).

I would like to be "on retainer" though if in the future some compelling
feature was needed or some great bug was to be addressed that proved
challenging and/or interesting...

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rgrieselhuber
Answering the questions they require without getting a signed NDA is stupid.

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hillel
I guess some people may be completely unable to grow their own business, but f
you have a business that already has happy paying customers, then why sell
out. It feels to me like you've already done the hard part.

<http://www.jacksonfish.com/blog/2009/04/21/sell-or-sell-out/>

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edw519
I stopped reading at "We specialise in Microsoft platforms".

~~~
luckystrike
No offence meant edw519, but i thought it might be good to reproduce their
entire text here, so that people like me who often read comments first might
get a better picture.

    
    
      It’s got to be software aimed at software developers or sysadmins. 
      We specialise in Microsoft platforms, but will consider others too.

~~~
edw519
No offense taken.

I stand by my original comment.

If they specialize in Microsoft, that's all I need to know. I'm not
interested, no matter what they have to say after the "but".

~~~
eru
Microsoft software: That's where some money is. Especially on the Desktop.

~~~
edw519
"That's where some money is."

Not for me.

I don't object to Microsoft because of personal preference. I object because
of software quality. Which translates into, "less money for me".

Without exception, every experience I've had with a customer who had Microsoft
products on their server has been profoundly negative. I've had to account for
things I would never dream of in a "-ux" environment. I have to regularly stop
and deal with things normally outside my control. Which slows down progress
and diverts attention from the critical path. In addition, these customers
"think differently". I can't quite put my finger on it, but they just don't
see possibilities they've never experienced.

So when someone says that they specialize in Microsoft, I have only 2
thoughts:

1\. Good luck to them.

2\. Not interested.

~~~
eru
That's surely a rational response. I took care to write "some money" not "all
money".

