
What I Learned Selling a Software Business - earlyresort
https://training.kalzumeus.com/newsletters/archive/selling_software_business
======
aresant
FEI still has the original listing on their site:

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...](http://feinternational.com/buy-a-website/3745-software-business-in-
education-niche-25k-gross-mo)

~~~
zkhalique
Could someone write an article about Patrick McKenzie's appeal and techniques
on marketing to the HN community? :)

And by marketing, I mean getting their attention and building a brand, not
money.

~~~
patio11
BCC was originally a bit of a purple cow, which is interesting to the HN
community because it overlaps programming/business but different than the vast
majority of what is on HN because it's the aggressively un-startup startup.
Publishing sales numbers before that was common probably helped a non-zero
amount, too.

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.

~~~
Bluestrike2
That's... prolific. On a _very_ unrelated note, are you the same patio11 who
was a parli debater a while back? I've seen your username across HN before but
never drew that connection until now. Assuming that's the case, I've got a
really embarrassing question for you.

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? :)

~~~
patio11
Wow, that's a blast from the past. Yep, that is indeed me. I don't remember
the specific post about kritiks, but the word I probably used was "sakura" in
the sense of "a human prop."

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.

~~~
Bluestrike2
Ha, same for me. It's crazy to think about how much time debate took up back
then. Blast from the past is right. Anyhow, thanks for the explanation. I
liked the analogy back then, and I still do now that I know the term :).

------
song
Just wanted to quote this:

"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...

~~~
mbesto
I regularly see companies (i.e. P&L, Balance sheets, technology spend, etc) in
the small/mid cap space (EBITDA of anywhere between $500k-$10M) and you'd be
amazed at how poorly documented businesses are that still are able to generate
serious profits.

~~~
mooreds
"There's no problem that sales can't solve."

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.

~~~
jerguismi
If the books aren't done properly, and you want to sell, but still can
demonstrate profitability, there will be someone who will buy at some price.

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.

------
dennisgorelik
This time Patrick's summary of Bingo Card Creator does not look rosy at all.

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.

~~~
beeboop
Patrick struggles with money? What's your source for that? Last I recall he
was writing about how he did consulting gigs making tens of thousands of
dollars a week.

~~~
graeme
I don't recall the blog post, but when Patrick switched from consulting to
appointment reminder only, he had a sudden cash crunch due to an (unexpected
tax bill?) and suffered a major health crisis. That wasn't that long ago.

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.

------
davidw
> Back in the day someone won a Nobel Prize for pointing out that, if a
> population of goods has unknown potentially costly problems, and there is no
> way to determine which particular instances of the goods have the problesms,
> the market will penalize all goods in that population. The canonical example
> is used cars.

George Akerlof and "The Market for Lemons":
[https://en.wikipedia.org/wiki/George_Akerlof](https://en.wikipedia.org/wiki/George_Akerlof)

~~~
nerfhammer
[https://en.wikipedia.org/wiki/The_Market_for_Lemons](https://en.wikipedia.org/wiki/The_Market_for_Lemons)

------
sdrinf
| Selling BCC was going to pay for living expenses while we built
Starfighter’s first game (Stockfighter) and also pay for some development work
to assist with the sale of my other SaaS business, Appointment Reminder.

^^ - 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!

~~~
patio11
AR is modestly successful, but needs to buy three things at the moment: my
family's living expenses, my attention (via hiring reasonably complete
replacements for me), and my contribution to Starfighter. It can afford
roughly one of them.

"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.)

~~~
dpritchett
This suggests that StarFighter has some cash that is being used to keep you
afloat. I don't expect you to disclose, but I'm guessing there's a silent
partner or maybe just some ex-Matasano money floating things. Cool!

------
benologist
I'm spending this year packaging up my current business to make it as
attractive as possible to potential buyers.

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?

~~~
patio11
Grow revenue via any legitimate means. Cancel any expenses that aren't
required to run the businesses (SaaS accounts you keep around "in case I get
around to it", etc). Obsessively document everything you do for the business;
get as much as possible outsourced to people following the procedures you've
written up, ideally without spending too much money on this.

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...](http://feinternational.com/blog/saas-metrics-how-to-value-saas-
business/)

I might also add "Negotiate the sales price, even if the buyer and/or broker
does not want to negotiate the sales price."

------
simonswords82
I got in touch with FEI about selling one of my web businesses and they
couldn't help due to our UK focus. Sucks for us, I've heard good things about
them.

Can anybody recommend a broker that assists UK based and focussed web
businesses?

~~~
ThomasSmale
Hi Simon,

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)

~~~
jordanlev
lol... didn't know the "I" in FEI stood for "International" until this comment
talking about how you are US-focused :)

------
voltagex_
>migrate all of my email in Google Apps for Work (oh God, don’t ever do this)

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").

------
voltagex_
>Accordingly, I decided to retroactively cut her in for 5% of the business.
Props to Pepper for accommodating this request, as it is somewhat non-
standard. ("Can you invoice me a substantial amount of money and promise me
that you will pay a particular employee of yours a bonus of the same amount,
net only of taxes?" "We can do that.")

Businesses exist that are this cool? Where do I find them?

------
pitt1980
"People try to buy software businesses with “no money down.” (“Will you loan
me the entire purchase price of the business? I’ll pay you back over the next
3 years. Promise!”)"

\----------------

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

\----------------------

I'd love to hear your thoughts about how receptive you might have been to an
offer like that

~~~
ufmace
I would expect that it isn't so much about the direct financial tradeoffs so
much as the question of - will you actually continue to pay on the loan
agreement, and what are my realistic options if you decide not to?

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.

------
BorisMelnik
I think one of the big things about BCC isn't how much (or how little) money
he made but how well documented the process was. We've all seen plenty of
projects do 10k months but not many of them are sustainable or so well
documented in a blog.

------
raymondhong
great

------
sbierwagen
(2015)

~~~
cpach
This essay was published like 17 minutes ago :)

~~~
sbierwagen
I could have _sworn_ I had read this post before, but googling doesn't show
any strings from it showing up anywhere else.

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](https://news.ycombinator.com/item?id=9589223)
and [http://www.kalzumeus.com/2014/12/22/kalzumeus-software-
year-...](http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-in-
review-2014/) somehow? Who knows.

~~~
dennisgorelik
You could predict many of these things described in this post from other
Patrick's posts and comments.

Other "I sold my SaaS business" stories discussed on HN in the past could make
Déjà vu impression too.

------
quellhorst
Such a long article but no mention of how much he sold it for.

~~~
simonswords82
$57,000 SOLD

See [http://feinternational.com/buy-a-website/3745-software-
busin...](http://feinternational.com/buy-a-website/3745-software-busin..).

~~~
kentt
I might be wrong, but I don't think that means that it was sold for 57k, only
that it was the asking price.

~~~
shawn-furyan
That's true but the article does mention how most of the things that impact
price went in patio11's favor. One can reasonably infer that if the seller
feels everything went in his favor at the end of the process that he wasn't
bullied too far off of his asking price.

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.

