I'm not surprised the site wasn't sold; the "business" of buying and selling sites isn't exactly very "37signal"-y.
With a price now available it's much more transparent for everyone involved; I hope though that this time they are able to accommodate due diligence.
In general, recurring billing is a scam by its opt-out nature. If you aren't on top of your accounting, tiny charges slip by. When you spot them, you may be too lazy to immediately cancel it, so you forget.
It isn't enough to know how many users are billed, but how many users are active on the service and willing to jump through the hoops when they have to update their account.
Also, beyond the server requirements, consider the cost of a support infrastructure. It costs much less for 37signals to support one more project in their portfolio than for a new company to spin up a support team from scratch.
I'm wondering, If you had $480,000, why not spend 10% of that to build an alternative, and release it on July 1. After all the customers are going to have to signup to a new payment system either way.
You'll lose the branding, unless 37Signals decides that it'll keep linking and promoting it. Potential buyers and clients are coming from 37Signals; and that's why design firms are putting a high monthly fee on the product.
The design and code are by no measure worth $480K. The clients (and steady cash flow) will go with clients. Expect a cash flow crash by losing the branding, and also changing the payment system.
If we assume a $480 000 purchase price, annual cash flows of $212 277 (12 times the mean monthly, which is fairly normally distributed save for March 2012) growing at 2% a year, and abandonment after 7 years the investment yields over 10% (IRR) so long as cash flows crash less than 56% from purchase to year 1. In other words, if first year cash flows are at least $93 000 and grow 2% a year from there, the investment will generate a 10% yield after 7 years.
This analysis is stylised, but it remains that even if one takes a 1/4 drop in cash flow from purchase to year 1 and manages to lose 5% of cash flows each year thereafter, the investment will earn a 23% yield assuming abandonment after 7 years.
Except 7 years ago the most popular social network was called MySpace. The iPhone, Twitter and ycombinator did not exist (amongst other things). Rails 1.0 was released that year.
Why would a niche job board, detached from the brand name that was its only asset, prevail through 7 more years of internet time?
Let's constrict the time frame to 3 years from purchase and continue the abandonment assumption. Assuming 2% annual cash flow growth we cannot sustain more than an 11% initial crash before yield falls below 10%. With -5% annual cash flow growth this number drops to 4%. The investment is probably not reasonably viable with a 3 year time-frame.
Note that a more nuanced analysis would ask for a more rigorously thought out required rate of return (in this latter case 10%).
Furthermore, even if they knew who 37signals was - that brand is removed from the product after the sale.
Alternatively, if you seriously believe the success of your job board is due to technical excellence and would map to other markets. Why would someone buy the tech for half a million dollars instead of replicating it within a few months for under 100k dollars?
Using the very same tech staff that he will need anyway to operate it?
Assuming the buyer cannot significantly mitigate any loss of customers resulting from the sale, I looked at the interaction between that crash and expected return. I assumed lower growth rates in my analysis based on the low growth and deviance in the historic cash flow data.
If a buyer got hit with a 1/3 initial crash but believed they could growth cash flows thereafter by at least 10% per year for 5-7 years they could expect an internal return of 21% to 30%, independent of the capital gain on the larger, growing company at the end of the road. The game naturally changes if one ignites such non-linear growth.
What's the ROI look like ? Lets say I absorb the development of the new billing system. How many clients will re submit there billing information ? If I leave it on auto pilot how long till I make my money back? 2.5 years ?
"With over 10,000 free accounts, there’s tons of untapped opportunity here in the existing customer base" Likely part of the buzz around the initial launch.
Pros: The revenue is there. The hosting cost is going to be affordable (low traffic),
Cons: billing switch (huge problem), unless there is value.
"We either sell it by July 1, or we close it down." - Close it down != a good home at all.
What's the operational overhead? support via emails? charge backs? bug fixes?
It's sort of like their job board (http://jobs.37signals.com/). People like the job board because of the types of developers it attracts. Both companies and prospective employees value each others' skills and styles. If 37s didn't own that job board and sold it, it suddenly becomes 'just another job board'. Is it the same deal with Sortfolio? Anyway good luck to the potential buyers of Sortfolio. Hopefully they won't have wasted $480,000.
It's condescending to suggest "I want it to go to a nice home but I'll close it down if I don't get x." If you're willing to entertain such thought then you do not truly value the user.
Sortfolio isn't right for us anymore. Our attention is elsewhere. If we can sell it for a fair price (we consider $480,000 fair), then we'll sell it. If not, we'll close it down and move on. There's nothing condescending about that.
I'm assuming in their favor that they really believe $480k would be fair deal - which means they've simply lost touch with reality and can no longer discern how much of their revenue stems from the brand and how much from actual product value.
The rational move would be to hire an admin for $100k (remember we're in alternate reality), tell him to keep the site up, go about his life and not call. And collect the remaining $100k until the product fizzles out.
Btw, I'd volunteer to take that admin-role when your sale fails. $100k may not mean much to 37signals anymore. For me it would be a lot of money. I promise to not call you ever, you can just forget that site after you handed it over. I will guarantee 100% uptime (yes 100%, via anycast, at my expense, included with the 100k).
Lols. Yeah, that's it.
> The rational move would be to hire an admin for $100k (remember we're in alternate reality), tell him to keep the site up, go about his life and not call. And collect the remaining $100k until the product fizzles out.
That's what any prospective buyer could do, and they haven't exactly been coming out of the wood work. Heck, if it's so easy, you could do it.
1. Site code - Sure you are getting a head start since you don't need to build from scratch but the site doesn't do anything special that can't be duplicated.
2. Brand Name - I think it's more about 37signals being behind this rather than Sortfolio being an awesome product. I don't know how many customers are going to actually use this when 37signals drops it.
3. Customers - See point 2. Why do I need to be a customer of just another portfolio site?
4. Design - Any good designer can reproduce this or create something completely new for you.
5. Steady Cash Flow - I can't even believe they mentioned this as a selling point. Steady cash flow AFTER you integrate your own billing solution.
I would be very interested to see someone estimate out the cost of just cloning this/hosting/advertising. I feel like for less than the purchase price you may get more value and then you just advertise directly to their market.
"Since Sortfolio is hooked up to our centralized billing system, you’ll need to write your own code to charge customers."
> We’ve put next to no effort into it over the last year…
You get points for honesty, sir, but this is akin to saying "Screw you, our dear 170 miserable paying customers. We have done nothing to make your money worth it, thanks for being suckers for our brand anyway. Oh, and I feel no shame admitting this publicly!"
How would you feel if you were (or are) one of the 170? Are they getting their money's worth?
If the site works and is providing those 170 people what they want then what exactly is wrong with that? If its not providing them what they want why are they still paying $99 per month for it?
I bet that one single "update your billing information" email detailing what the $99 was for, followed by culling everyone who hadn't updated their information within 30 days would result in an 80%+ drop-off in the revenue of Sortfolio. Not even disclosure that the service was for sale and hadn't been updated in a year - simply a "hey, you're paying $99/mo for Sortfolio. Please click here to confirm you want to continue doing so."
37signals are running the same scam as AOL dial-up here - they're relying on people who have forgotten to hit an "unsubscribe" button rather than providing real value. Personally, I had a lot of respect for 37signals going into this blog post, but I think that's pretty darn slimy.
1. Ultimately, the buyer has every opportunity to cancel the service. I strongly doubt 37signals are going out of their way to make it difficult, as other companies have.
2. If it does what it's meant to do, why would they need to continually update and improve the site?
3. I agree that with a reminder, people may unsubscribe, but it's definitely also possible that people see $99/mo worth of value in their listing. The links are not nofollowed, so the backlink would be worth something. Also, getting a single decent project referral ($10-20k) each year could justify a listing.
1. How much of the site is tied into the 37 Signals brand, and is the reason people pay to be listed on the site because of it's affiliation with 37 Signals and the Ruby on Rails community?
2. What's preventing competition from making their own similar service? Is there some barrier to entry or an unfair advantage?
So if this site is sold to someone else, will people still be interested in it now that it's no longer a part of 37 Signals? And what would prevent a competitor from creating a similar site for less than $480,000?
As for some background information, then I run a small Ruby on Rails development agency called PerfectLine (http://www.perfectline.ee) that caters specifically to startup founders who need to create their minimum viable products.
We have been paying for Sortfolio since the beginning of 2010 and actually couldn't be any happier with the kind of leads it brings in. I can say that quite a big chunk of our customers have actually found us first on Sortfolio and they usually convert to actual sales pretty well. It might be that our price and quality of service is in the right spot but on the other hand there's a good chance that the people coming through Sortfolio usually have a decent knowledge about what they want and what to expect.
I believe that Sortfolio has actually helped quite a few small design or development teams get off ground. It worked really well for us and I don't see why anyone else should see any worse return rates. That $99 per month is so little when compared to actual return it will get you.
I noticed that Sortfolio currently has around 10,000 free users and I believe that with little upselling it would be possible to convert a good portion of them to paying customers thanks to the value it actually provides. So from that perspective it shouldn't be too hard to earn back the $480,000 37signals is asking for Sortfolio.
"As a paying customer, I’m so happy to hear you’ve put “no effort into it in the last year. I can confirm this by the total absence of leads from Sortfolio, despite the health of our other initiatives.
1) Do you have (and are willing to share) the credit card information on file for each customer? Or is the new Sortfolio owner expected to contact or otherwise prompt existing customers to re-enter their payment information?
2) I think it would be useful to know how much traffic / new signups come from other 37s sites vs SEO or links from other sites.
3) I am very curious if there is more information they'd be willing to release. For example, how many of those $99 customers are happy, how many have garnered business they can confirm came from Sortfolio, etc.
4) "If we can sell it for a fair price (we consider $480,000 fair), then we'll sell it. " What thought process did you use to arrive at an asking price equal to roughly 28x monthly revenue?
Then it goes to a good home and you provide two rails developers a great opportunity and create two jobs.
Initially they can migrate the site to their own hosting.
You maintain links to sortfolio from 37 signals and continue to support and recommend sortfolio.
You maintain the existing billing system for them while they setup stripe for new signups and renewals.
Once a majority of the customers are on their stripe account then unplug your billing system.
Continuing to link to sortfolio and recommend it could be phased out over time.
Maybe they could pay a percentage of their revenue back to you over time.
Good luck finding sortfolio a new home.
You're right, this makes no sense.
37s is just trying for the hard sell. By adding a ticking time-bomb element to the sale (buy it at our price or it's gone forever!) they're hoping to pressure a buyer into coughing up a lot of money for it.
In fact this could be a decent idea for a "not so great dev->good dev" training project on your part. I guess you can afford to just hire really good people but maybe the forward thinking move would be to develop some training program for people fresh out of HS.
Pay them a comperatively low sum X/month but throw in a bit of mentoring. I'm sure you could get plenty of motivated people if you just ran a "37S got talent" type casting show here on HN.
Would cost you some valuable time for the mentoring but in return you'd get to keep that site's revenue and potentially gain a good employee for your core business down the line (which is the real value here imo)
This way you could keep the site connected to 37S and the credit processing stuff (which makes up a bunch of the value I'd guess) + generate some excitement as a nice side effect.
The idea seems pretty 37S-bootstrap like.
In any case, I completely agree with everyone else here. Unless the 37Signals sites continue to link through to this site, it instantly loses at least 20-30% of it's value right off the bat. There is very little value in this site from an IP perspective. It appears that all the value comes from the existing user base and the publicity generated from 37Signals. I'm not going to discount the user base, that's obviously huge. But I'm not sure it's worth much without the 37Signals name behind it.
I have a hard time believing it would be worthwhile for them to hawk the site publicly just to fuck people over though, so I do take them at face value when they say that they believe it is worth that to them.
So few paying customers could be giant firms paying on the off chance that they get 1 client down the road. For it to be a compelling business, it would need to be clear that paying clients are finding developers there.
I would also be interested to know their goals when they built it, and why it's being sold.
Best way to gather this information is to take the time to contact the customers directly being honest as to the purpose of the inquiry.
“Sortfolio just isn’t core to our business.”
Also, what about the Job Board?
Job board is effectively the same as Sortfolio, yet it makes millions per year. Why not shut down Job Board as well?
Lastly, what about Deck Network? This is yet another million dollar per year generating site that is a pure advertisement property. There’s no way you can claim the Deck is core to 37signals.
So why don’t you just admit what is truly happening here. You are unhappy with the relatively low revenue, and don’t want the buried of the services anymore.
Opening bid is $250K. Buy It Now is $480K.
Listing includes traffic/revenue claims. Check out the site details page to see incredibly strong keyword ranking: https://flippa.com/auctions/2739829/due-diligence . No prize for guessing which language its written in! ;-))
Financing can be done through a bank loan, private lenders, or escrow account. If it wasn't against some sort of investor protection idiocy (in the US), they could probably hold an auction for shares, turn it over to a board voted in by the share holders and then get on with the business of running the business.
Organization of the community I would imagine could work to something like how StackOverflow operates in it's community aspects.
The site needs some TLC, but I'd hope that it could find some sort of home rather than completely die if no one buys for that price. (Besides, it has already been stated the two major hurdles are loss of the 37signals brand and billing switch)
Maybe to help kids learn how to code?
The site is using auto-renewal billing and having someone not cancel is not the same as someone finding value in the service.
Also even though they would like to get $480,000 they should also invite any offers above $X. If nobody bids at $480,000 they will have to try to sell it at a lower price and it will seem like a fire sale.
It's not being sold for a lower price. It's $480,000 by July 1 or we close it down.
I love how open and direct 37signals culture is. Very inspiring.