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Sortfolio: Going once, going twice... (37signals.com)
108 points by hawke 1634 days ago | hide | past | web | 95 comments | favorite

We contacted 37signals when they originally announced their intention to sell Sortfolio. Having bought and sold sites before we asked for some pretty standard information about traffic, revenue, etc. These questions weren't answered and we did not pursue the matter further.

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.

I provided traffic/revenue figures to anyone who asked. If you're a serious buyer, and you have other questions, please contact me directly at jason@37signals...

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?

It is possible 37signals doesn't have the information, but the gateway does and would be willing to transfer the credit card numbers. Either way, this is critical detail that needs to be worked out.

I don't see how this could be done if they are PCI compliant.

there are several ways to reach compliance; not having the information is just the easiest

I'd be worried about the requirement to switch billing. I'm not sure there's a clean way to switch a customer from one billing system to another without requiring user intervention.

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.

> We’ve put Sortfolio on the clock: We either sell it by July 1, or we close it down.

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.

It's a customer challenge not a technical one.

Because 37 Signals is more popular than you are.

So if 37 Signals is more popular than you, what value there in paying $480,000 for a site whose customers may not be interested in it after 37 Signals leaves?

The brand value because of the 37 signals past cachet. The same reason brand x can be owned by random hedge fund company and people will still buy it.

Exactly, so you should expect some customers will leave once there is a sale, perhaps a significant amount. And if there is no sale they will be closing shop on July 1, so 37signals won't compete with your product if you build an alternative.

I was auditing my finances last week and discovered in the last year I spent over $300 on a tenderapp.com subscription that I had forgotten about. I'm inclined to agree with you there, especially when the target sortfolio customers are businesses, $99/m is easy to forget about until you're asked to renew your details. I wonder if 37 Signals will publish information on how many of their $99/m paying customers (although at $99/m that's only about 200?) actually login and use the site every month, although maybe they'll disclose that to interested parties.

Unless I hear differently, I would assume that the buyer gets the recurring billing account.

You get the design, the branding, the code (it's a Rails app), the customers, and the steady cash flow.

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.

37signals is pricing this deal with the assumption that there will be a significant (>50%) departure of customers upon the deal closing, that cash flow growth thereafter will be meagre (<10%), and/or that the whole thing will collapse within a few (~3-5) years.

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.

the investment will generate a 10% yield 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?

Fair point, 37signals may also expect the whole thing to organically fizzle out within a few years (updated).

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%).

I think a smart businessperson could blow it up much bigger. Open it up to a variety of different industries. Wedding planners, photographers, florists, interior designers, architects, etc. Think big.

Wedding planners, photographers, florists, interior designers and architects have no idea who 37signals is. Consequently they won't be fazed in the slightest by a simplistic job board with relatively poor usability entering their respective markets.

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?

To be clear my cursory analysis does not rule on the goodness of this deal for a buyer who believes they can affect the growth variable, it was merely feeling for the edges of plausibility.

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.

Sure, but why start by paying half a million dollars for a used codebase?

"We just want it to go to a good home". - Then a fixed priced is probably not the way to get there.

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?

I believe this was a concern raised the first time they were trying to sell it, but a big worry for anyone considering purchasing Softfolio is probably what would happen when 37s no longer owns it.

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.

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. That won't give you the exact answer of "how can it fall once it's no longer a 37s product", but it's a start.

I don't believe for a moment he will shut down $200,000 profit with little maintenance.

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.

Believe it.

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.

You're right. Disingenuous would have been a better choice.

I guess you'll have to wait and see.

Will you pay a commission if someone brings you a buyer? The buyer would still pay $480,000 and the commission would come out of that.

Or the charity that can benefit from putting this on auto-pilot.

If it passively generates $200k /yr with no maintenance, what reason is there to sell?

Focus. Just because something has little to no maintenance doesn't mean you don't think about it. When it doesn't match your existing portfolio of products it makes it harder to incorporate into your overall plans.

If they aren't focused on it, it is a distraction and can potentially tarnish the brand. Plus, they aren't going to sell for nothing, so they get immediate capital they can invest in areas where they expect a higher rate of return.

In other words: decadence.

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).

> In other words: decadence.

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.

They are shutting it down for no money on July 1st. There is no immediate capital in that situation.

Yup, that's more about the brand issue. You have to shut it down eventually, and they've been awfully patient (likely because of the incoming capital).

Because it's summer, they want their $480k to spend on their vacations.

I don't think they're worried about summer vacation money.

I don't see what is actually of value in this deal for someone to merit a 480K purchase:

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.

Why do you think the buyer would need a new billing solution?

Because it mentions it directly in the link that this discussion is about.

"Since Sortfolio is hooked up to our centralized billing system, you’ll need to write your own code to charge customers."

Oh, I see. I missed that. I suspect they wouldn't turn over the credit card information. Yes, that would be a big problem for the new buyer.

I am a little shocked by the audacity of this post.

> 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?

That feels a little heavy handed and like you are projecting of your own values onto the situation to me. The 170 customers are paying right?

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?

$99 is an easy line to overlook on even a small-business account, especially when it's going to a theoretically reputable company like 37s.

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.

I fully appreciate that subscription plans go some way towards exploiting the laziness of people, but I think you're being a bit harsh:

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.

This situation presents an interesting contrast with that of Instagram. Here you have a site generating revenue - and more importantly profit - that is on sale for 0.00048 the sale price of Instagram... and then gets absolutely skewered in the comments for suggesting such an amount. Obviously, the purchase of Instagram comes with much more than simply a maintenance-free website and some paying customers. I'm not saying that Instagram is or is not worth $1B or that Sortfolio is or is not worth $480k, I'm just saying there's probably an interesting nugget hidden in this contrast that says something about what we value these days.

I question whether this site it worth $480,000 cash, and here's why:

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?

Looks like very few (or none) of the people here have actually used Sortfolio as paying customers. I believe a lot of the doubt wouldn't be here if you would have done that.

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.

They're already losing customers. Here's a customer's comment from their blog:

"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.

Account cancelled."

After reading the "sales pitch" I instantly had the same thought as the customer you quoted did. It really shows they are trying to make money out of something that no one wants IMO.

3 good questions that have been overlooked, that I hope Jason will answer. Plus 1 question from me.

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?

Since you're thinking about closing it anyway why not choose a 2 person rails team that you could mentor to take over sortfolio.

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.

Such a weird sales tactic - sell it for $480k or shut it down. Isn't that a bit like the landlord of a profitable duplex selling it with the real estate listing as "Buy it for $480k or we'll burn it to the ground"?

Does the haystack.com domain come with it?

I liked it better when it was Haystack, it meant something to me.


The reason why the site is being sold is missing from the sell pitch. "We have no more time to take care of it..." so why are you guys saying it's generating 20k$ a month without you doing anything?

>"We have no more time to take care of it..." so why are you guys saying it's generating 20k$ a month without you doing anything?

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.

Have you considered simply hireing someone to maintain the site/keep it afloat? Seems like this could be done remotely for the most part.

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.

Surely a lot of that value comes from the prestige and attention that accrue to 37signals, not because it's an amazing job board.

Let me get this straight. You want to sell a web property that requires no effort to maintain and generates ~$17k/month(!). Wowzers, I'm jealous. Besides that, what happens if you don't sell it now that a "price" is on the market? I'm curious to know how this may affect other "meta" sites like this. I applaud you guys for the guts to do this.

When you say profit, do you really mean profit? What is one to make of those numbers in that spreadsheet? Surely there are hosting costs and processing fees that eat into that. Or do are those numbers figured after costs are taken into account?

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.

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. It seems like they've started, but not finished, to make one side of the market, but there's not much evidence about the other.

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.

"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."

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.”
If Sortfolio was making more money, like $2M per year, would it then be “core to your 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.

Sortfolio is listed for auction on Flippa - https://flippa.com/2739829-sortfolio-com-web-design-marketpl...

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! ;-))

Have you considered selling it directly to your user base?

How would that even work?

I'm making the assumption there is a dedicated group of users that wishes to see the site continue.

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.


I really wish I had that kind of money laying around, i'd would easily hand it over in a heartbeat. It would be such a shame for an almost auto-pilot business to be shutdown for no good reason other than its simply not worth it to 37Signals and while thats a perfectly legitimate reason, its so much potential lost for someone like me who would value it immensely.

I don't have 480k, but I'd love to just work on the site and attempt some ideas with perhaps a rev-share agreement.

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)

As someone who occasionally needs to hire webdesigners, IMHO Sortfolio is the best tool to do that. I've already hired one designer I found through the site this year, and talked with five or six others. I certainly hope that someone actually buys this and keeps developing it.

I kinda want 37signals to donate it to the Apache Foundation. More open source projects could use attention from visual designers, I kinda want Apache to have a non-Java-based project, and 37Signals could add another project to /opensource.

Anybody considering co-buying it?

I suggest you donate the profits to charity each year

Maybe to help kids learn how to code?

Is there a reason you are not going with a domain marketplace to sell this (eg: Sedo, Flippa)? I feel like posting on such sites would get it the exposure it needs to be sold.

We may do that too.

I personally think a fair price is the highest price the market will pay for it. Over a year to sell a website seems the price might be an issue.

It should be ideal for companies like oDesk. They get readymade user base for the product that is similar to what they are doing.

What's the churn?

Anyone know what being a premium member gets you? I wasn't able to quickly figure that out upon first encounter.

> There is no charge to be listed on Sortfolio — every web designer gets a free listing. We also offer a Pro listing for $99/month. The Pro listing includes a larger interactive display ad, up to 6 large images, placement above free ads, and a spot for your logo. You can upgrade, downgrade, or cancel at any time.


What has the world come to, when a company such as 37Signals has to start flipping sites?

Nobody wants the damn thing.

Am I alone in feeling insulted in how this blog post was written/handled?

The bottom line when evaluating whether to purchase this or not would involve doing due diligence and contacting the paying customers at the very least to determine how satisfied they are with being listed there.

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.

"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.

And they kill the puppy. Tell him about the puppy.

This may be one of my favorite posts on SVN for the sheer guts of it. "We had many tire kickers. We want X."

I love how open and direct 37signals culture is. Very inspiring.

I think Sortfolio's secret weapon is not the code, the design or the feature set -- which I'm sure are all good -- but the fact that it was promoted by and connected from, eyeball traffic-wise, the huge audience that 37Signals, Basecamp, JF, DHH, already have. That said, if they can find a buyer who also has the ability to park it adjacent to a pre-existing web property, then it could be a smart buy. But if you don't have that? Probably a bad buy at the price they're asking. I'm reminded of how Atwood and Spolsky banded together to leverage their pre-existing eyeball streams to promote and get StackOverflow off the ground (essentially a repeat of what Spolsky did alone with his blog and FogCreek, but then on a large scale). There are lots of easy ways to make money if you already are famous and/or have a large traffic base. (See Paris Hilton.) Those methods don't exist for folks who don't start with that.

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