9 ms·

What it's like buying a $128k side project

313 points by kareemm 10y ago

kareemm 10y ago
OP here. Happy to answer any questions!
- tiffanyh 10y ago
  Since it appears codetree is to build project mgmt on top of Github, what's your thoughts on Githubs recent feature release called Projects? https://github.com/blog/2256-a-whole-new-github-universe-announcing-new-tools-forums-and-features https://github.com/blog/2256-a-whole-new-github-universe-ann...
  - kareemm 10y ago
    We wrote a post about this recently[1]. It really depends on how you want to use them, but here are three things that might not be obvious about Projects on first glance: * GH Projects exist within a repo, so you can only have Issues from a single repo on a Project. * A Project contains a subset of issues within a repo - they need to be added manually to the project. This would make it tough to manage a whole project with a Project because you'd have to manually add any issue you created to it. * You can't filter issues in a Project. Fundamentally a Project is not driven by a query, it's driven by manually adding issues to a Project. So slicing and dicing issues on a Project isn't possible. I think GH Projects could be used to manage the release of an Epic (e.g. a subset of issues grouped together within a repo). But I think it'd be challenging to manage an entire project with one. 1 - http://blog.codetree.com/articles/the-important-differences-between-github-projects-and-codetree.html http://blog.codetree.com/articles/the-important-differences-...
    - cphoover 10y ago
      What's your status on integrating with other platforms? any plans for integration with other platforms in the future (gitlab, gogs, other platforms...)
      - kareemm 10y ago
        Integrations with other platforms are on our list, but right now we're focused on improving the product for existing GitHub customers. The GitHub market is so large that to split our focus right now wouldn't make sense.
- CarlyleDon 10y ago
  what are your thoughts on aqui-hiring a side project instead of just purchasing a side project, but incorporating the sole developer(creator) too? how would you estimate the valuation in that case? would you offer him/her the price to purchase the side project in addition to a salary? or offer a unique compensation package that takes into account of the valuation of the side project?
  - kareemm 10y ago
    > what are your thoughts on aqui-hiring a side project instead of just purchasing a side project, but incorporating the sole developer(creator) too? I'd want to feel good about the reasons the creator wanted to sell and keep working on it. I think it would be hard to take the product where we wanted without the creator getting frustrated - if s/he had the vision and ability to execute, why did they need to be hired? That said, I'd be open to it. > how would you estimate the valuation in that case? would you offer him/her the price to purchase the side project in addition to a salary? or offer a unique compensation package that takes into account of the valuation of the side project? Hard to say because I think it depends on the situation.
- Keats 10y ago
  Any book or resource to learn the financial projections etc?
  - kareemm 10y ago
    I'd read a few prospectuses and make sure you understand them (especially the profit and loss statements - lots of info online about these). Sign up for FE's mailing list to get some prospectuses. Otherwise, it depends what you want to learn. I'm sure a quick search on Amazon would be fruitful.
  - rstocker99 10y ago
    Are you asking about valuations? FE has a post on how valuations work. It's pretty simple. Basically a multiple of how much cash you can take out of the business. If that number is small and not growing then the multiple is small. If the number is big and/or growing fast then the multiple will be larger. The key is it's about how much cash the business makes now vs. traditional tech VC land is about... how big this might be some day maybe. If you're interested in buying a business the people who know how all this stuff works are the private equity people (PE). These guys do this stuff all day long (obviously at much larger scales. If you search you can find a fair amount of info on PE. On a smaller scale there is good info from people researching search funds. Search funds are basically small scale PE. Here's a good starting point: http://www.gsb.stanford.edu/faculty-research/centers-initiatives/ces/research/search-funds http://www.gsb.stanford.edu/faculty-research/centers-initiat....
  - wj 10y ago
    Warren Buffett's annual shareholder letters are one of the better ways to learn about these things. Easier to read than textbooks with plenty of real life examples. http://www.berkshirehathaway.com/letters/letters.html http://www.berkshirehathaway.com/letters/letters.html
citizens 10y ago
Thanks for being so open with this information...makes me want to get my side projects back in gear. Edit: Also, best of luck!
- kareemm 10y ago
  Go for it :) Edit: and thanks!
- NDizzle 10y ago
  Wow, yeah, thanks for sharing!
alexbeloi 10y ago
It's not obvious to me why price was a function of earnings in a situation like this, the goal of the purchase seemed to be to save resources of developing the tracker inhouse and save time building up a customer-base, earning seems mostly irrelevant in this case. If the codetree was looking to raise funding, it seems like a reasonable metric for valuation.
- kareemm 10y ago
  Hey Alex, in transactions of this size (sold through a broker like FE), valuation is often based on earnings.
- HeyLaughingBoy 10y ago
  The goal of the purchaser was to save cost of development but the goal of the seller was to get as much as possible. In that case, basing the selling price on earnings makes more sense for the seller. After all, he can always look for another buyer if the deal doesn't work out.
  - alexbeloi 10y ago
    I guess I thought the cost of development would be higher than $128k, so it would be beneficial to the seller to use that as a metric. One month of an average engineer's time costs an employer around $20k. Could one engineer recreate this product in 6 months working full-time? The maker of codetree probably has a really good idea of how long it takes. If the answer is yes, does the buyer have someone on hand to take this on? if not, you have to hire someone, that takes time. If you don't want to do that, contract it out at double the cost. Then at the end of the day you're now delayed however long it takes to finish the product plus maybe hiring time. Codetree's initial blogpost says the developer took 6 months working part-time to launch the initial product. Supposing it could be done in 3 months working full-time to get to the latest iteration, cost to develop is $60k + 3 months + 1 engineer or $60k + 3 months + 3 month hiring process + 1 engineer(new hire) or $120k + 3 months + 1 contractor. Pulling an engineer off of a project also adds cost to the project they would have been on had they not left. I would guess the effective cost of development is $120k + 3 months time, if you want to acquire the product instead, the question becomes how much money would you be willing to pay to have it now (plus negotiation time) instead of 3 months from now?
gxs 10y ago
Wow how interesting to read this here. I saw this company on FE and requested more information. In the end, I decided against making an offer because developers are notoriously hard to develop for. That said, the business itself looked great, wish you the best of luck and good on you for taking a shot.
- kareemm 10y ago
  Ha, thanks for not making a competitive bid :) Appreciate the kind words.
thoughtpalette 10y ago
Amazing breakdown. I've always been interested to see how these negotiations go from both a developer perspective and armchair entrepreneur.
- kareemm 10y ago
  Thanks. Hadn't seen anything like this either so wanted to share :)
msmart 10y ago
very interesting read. We looked at github issues mgt tools a while ago and settled on huboard. We didn't find codetree during our search for tools... so it's definitely a challenge to reach developers. Fine posts like this can do the trick ;-) Codetree looks great! Good luck!
- ferentchak 10y ago
  Did you guys look at Waffle? My buddies made that with a few interns a while back.
  - msmart 10y ago
    Yes, we looked at huboard.com, zenhub.io, waffle.io and blossom.io. There are really a lot of tools out there. But I can't remember the reasons we choose huboard over blossom. In addition, the tools evolve quite quickly. So the reasons might be outdated anyway.
- kareemm 10y ago
  Thanks!
econner 10y ago
Why was he selling the website? (That would be my first question in evaluating it)
- rmtew 10y ago
  This was covered.
- metamet 10y ago
  The prospectus stated Derrick was selling to focused on Drip, which was a plausible reason to sell.
strictnein 10y ago
128 = 2^7 Wonder if prices like this are more attractive to techies.
- xyzzy4 10y ago
  128,000 is not 2^7
  - strictnein 10y ago
    No, of course not. But the price was listed as "$128k". The closest power of 2 to the actual full price is 2^17, but I doubt most technical people would recognize that as 131,072.
seibelj 10y ago
This is awesome! I like FE so much more than Flippa which has cheaper businesses but appears rife with scams. I may buy a business here someday.
ryandrake 10y ago
It's great to read the details about what it takes to buy a small business. Thanks for posting this and being so open about what went into the negotiation. I always thought (if I were to one day run into money) buying an already-running business would be a better, less risky path towards entrepreneurship than starting with a blank text editor! A few questions: Is it common to have to fork over all cash for these sized deals? Is it possible/acceptable to finance? What alternatives to seller financing have you seen? I don't imagine it's possible to just waltz into your local bank and say hi guys I need $100K to buy a website! I'd be interested in learning more about finding these deals. You found this one through FE. Are there other common places to find tech listings? Do you ever approach companies that you like but aren't actively looking to sell? I'd love to see a play by play of how one of those conversations go.
- charlesdm 10y ago
  > Is it common to have to fork over all cash for these sized deals? Is it possible/acceptable to finance? What alternatives to seller financing have you seen? I don't imagine it's possible to just waltz into your local bank and say hi guys I need $100K to buy a website! I've discussed this with my local Belgian bank (well, not $100k, closer to $1-1.5m), and they'd be happy to do it if I put up 25-30% of the capital. So should definitely be doable. The issue is finding a good and viable asset that won't deteriorate. Usually there's a reason why people sell.
  - jakobegger 10y ago
    The reason might be that the owner gets bored with the business? Maybe the owner liked the getting started part, but doesn't enjoy all the analytics and marketing stuff that's necessary to grow the business to it's full potential?
    - charlesdm 10y ago
      Absolutely. But buying an asset can be quite hard, especially if you're at least trying to align it with your personal skill set. For example, I've probably looked through 30-40 prospectuses and have only once found something moderately interesting.
sharemywin 10y ago
I think what it comes down to it was such a small amount of money they knew you weren't going to walk away.
blantonl 10y ago
What was the broker's commission structure in this deal?
- kareemm 10y ago
  Not sure, the seller's the one who pays commission.
- deleted 10y ago
  [deleted]
- joshcanhelp 10y ago
  Typically 15%
deleted 10y ago
[deleted]
deleted 10y ago
[deleted]
apo 10y ago
About risks, the article notes: > Github would improve its Issues product and render Codetree irrelevant That seems like a very large risk, especially given GitHub's progress to date. How will it be addressed?
titomc 10y ago
Very good insights on buying a side project. I too have some side projects. But I never want to go fulltime into it because it's using APIs of some well known services. I always say " Never play soccer in someone else's ground ". You never know when they will throw you out of the ground. If you are basing the business out of github's resources you are at high risk.
GFischer 10y ago
Thank you for being so open and sharing the actual spreadsheets. It makes things a lot clearer for us dreaming for an acquisition someday :) - even though I worked for a company that went through an acquisition as an employee and even gave a talk on the subject, this is a new perspective for me :)
MicroBerto 10y ago
Wow, if you want to learn how not to negotiate a deal, this is the story to read! This guy had you right where he wanted the entire time and he knew it. He didn't have to lift a finger or budge an inch. You clearly show your hand(s) way too much (which is clearly in your nature given this blog post, and that's not always a bad thing... although in this case it was). If it was a really large deal, you'd need to be willing to walk and show it. Instead of reading a relatively overrated book that did you absolutely nothing, I'd recommend having someone be the bulldog/enforcer and have no qualms about it. But ultimately, I have a feeling you're going to be so successful in something eventually (if not this!) that this money is meaningless in the grand scheme of things, so it's all cool and maybe you knew that. But man, that was painful to read. Good stuff otherwise and great luck guys!

313 points by kareemm 10y ago

kareemm 10y ago

OP here. Happy to answer any questions!

tiffanyh 10y ago
Since it appears codetree is to build project mgmt on top of Github, what's your thoughts on Githubs recent feature release called Projects? https://github.com/blog/2256-a-whole-new-github-universe-announcing-new-tools-forums-and-features https://github.com/blog/2256-a-whole-new-github-universe-ann...
- kareemm 10y ago
  We wrote a post about this recently[1]. It really depends on how you want to use them, but here are three things that might not be obvious about Projects on first glance: * GH Projects exist within a repo, so you can only have Issues from a single repo on a Project. * A Project contains a subset of issues within a repo - they need to be added manually to the project. This would make it tough to manage a whole project with a Project because you'd have to manually add any issue you created to it. * You can't filter issues in a Project. Fundamentally a Project is not driven by a query, it's driven by manually adding issues to a Project. So slicing and dicing issues on a Project isn't possible. I think GH Projects could be used to manage the release of an Epic (e.g. a subset of issues grouped together within a repo). But I think it'd be challenging to manage an entire project with one. 1 - http://blog.codetree.com/articles/the-important-differences-between-github-projects-and-codetree.html http://blog.codetree.com/articles/the-important-differences-...
  - cphoover 10y ago
    What's your status on integrating with other platforms? any plans for integration with other platforms in the future (gitlab, gogs, other platforms...)
    - kareemm 10y ago
      Integrations with other platforms are on our list, but right now we're focused on improving the product for existing GitHub customers. The GitHub market is so large that to split our focus right now wouldn't make sense.
CarlyleDon 10y ago
what are your thoughts on aqui-hiring a side project instead of just purchasing a side project, but incorporating the sole developer(creator) too? how would you estimate the valuation in that case? would you offer him/her the price to purchase the side project in addition to a salary? or offer a unique compensation package that takes into account of the valuation of the side project?
- kareemm 10y ago
  > what are your thoughts on aqui-hiring a side project instead of just purchasing a side project, but incorporating the sole developer(creator) too? I'd want to feel good about the reasons the creator wanted to sell and keep working on it. I think it would be hard to take the product where we wanted without the creator getting frustrated - if s/he had the vision and ability to execute, why did they need to be hired? That said, I'd be open to it. > how would you estimate the valuation in that case? would you offer him/her the price to purchase the side project in addition to a salary? or offer a unique compensation package that takes into account of the valuation of the side project? Hard to say because I think it depends on the situation.
Keats 10y ago
Any book or resource to learn the financial projections etc?
- kareemm 10y ago
  I'd read a few prospectuses and make sure you understand them (especially the profit and loss statements - lots of info online about these). Sign up for FE's mailing list to get some prospectuses. Otherwise, it depends what you want to learn. I'm sure a quick search on Amazon would be fruitful.
- rstocker99 10y ago
  Are you asking about valuations? FE has a post on how valuations work. It's pretty simple. Basically a multiple of how much cash you can take out of the business. If that number is small and not growing then the multiple is small. If the number is big and/or growing fast then the multiple will be larger. The key is it's about how much cash the business makes now vs. traditional tech VC land is about... how big this might be some day maybe. If you're interested in buying a business the people who know how all this stuff works are the private equity people (PE). These guys do this stuff all day long (obviously at much larger scales. If you search you can find a fair amount of info on PE. On a smaller scale there is good info from people researching search funds. Search funds are basically small scale PE. Here's a good starting point: http://www.gsb.stanford.edu/faculty-research/centers-initiatives/ces/research/search-funds http://www.gsb.stanford.edu/faculty-research/centers-initiat....
- wj 10y ago
  Warren Buffett's annual shareholder letters are one of the better ways to learn about these things. Easier to read than textbooks with plenty of real life examples. http://www.berkshirehathaway.com/letters/letters.html http://www.berkshirehathaway.com/letters/letters.html

citizens 10y ago

Thanks for being so open with this information...makes me want to get my side projects back in gear. Edit: Also, best of luck!

kareemm 10y ago
Go for it :) Edit: and thanks!
NDizzle 10y ago
Wow, yeah, thanks for sharing!

alexbeloi 10y ago

It's not obvious to me why price was a function of earnings in a situation like this, the goal of the purchase seemed to be to save resources of developing the tracker inhouse and save time building up a customer-base, earning seems mostly irrelevant in this case. If the codetree was looking to raise funding, it seems like a reasonable metric for valuation.

kareemm 10y ago
Hey Alex, in transactions of this size (sold through a broker like FE), valuation is often based on earnings.
HeyLaughingBoy 10y ago
The goal of the purchaser was to save cost of development but the goal of the seller was to get as much as possible. In that case, basing the selling price on earnings makes more sense for the seller. After all, he can always look for another buyer if the deal doesn't work out.
- alexbeloi 10y ago
  I guess I thought the cost of development would be higher than $128k, so it would be beneficial to the seller to use that as a metric. One month of an average engineer's time costs an employer around $20k. Could one engineer recreate this product in 6 months working full-time? The maker of codetree probably has a really good idea of how long it takes. If the answer is yes, does the buyer have someone on hand to take this on? if not, you have to hire someone, that takes time. If you don't want to do that, contract it out at double the cost. Then at the end of the day you're now delayed however long it takes to finish the product plus maybe hiring time. Codetree's initial blogpost says the developer took 6 months working part-time to launch the initial product. Supposing it could be done in 3 months working full-time to get to the latest iteration, cost to develop is $60k + 3 months + 1 engineer or $60k + 3 months + 3 month hiring process + 1 engineer(new hire) or $120k + 3 months + 1 contractor. Pulling an engineer off of a project also adds cost to the project they would have been on had they not left. I would guess the effective cost of development is $120k + 3 months time, if you want to acquire the product instead, the question becomes how much money would you be willing to pay to have it now (plus negotiation time) instead of 3 months from now?

gxs 10y ago

Wow how interesting to read this here. I saw this company on FE and requested more information. In the end, I decided against making an offer because developers are notoriously hard to develop for. That said, the business itself looked great, wish you the best of luck and good on you for taking a shot.

kareemm 10y ago
Ha, thanks for not making a competitive bid :) Appreciate the kind words.

thoughtpalette 10y ago

Amazing breakdown. I've always been interested to see how these negotiations go from both a developer perspective and armchair entrepreneur.

kareemm 10y ago
Thanks. Hadn't seen anything like this either so wanted to share :)

msmart 10y ago

very interesting read. We looked at github issues mgt tools a while ago and settled on huboard. We didn't find codetree during our search for tools... so it's definitely a challenge to reach developers. Fine posts like this can do the trick ;-) Codetree looks great! Good luck!

ferentchak 10y ago
Did you guys look at Waffle? My buddies made that with a few interns a while back.
- msmart 10y ago
  Yes, we looked at huboard.com, zenhub.io, waffle.io and blossom.io. There are really a lot of tools out there. But I can't remember the reasons we choose huboard over blossom. In addition, the tools evolve quite quickly. So the reasons might be outdated anyway.
kareemm 10y ago
Thanks!

econner 10y ago

Why was he selling the website? (That would be my first question in evaluating it)

rmtew 10y ago
This was covered.
metamet 10y ago
The prospectus stated Derrick was selling to focused on Drip, which was a plausible reason to sell.

strictnein 10y ago

128 = 2^7 Wonder if prices like this are more attractive to techies.

xyzzy4 10y ago
128,000 is not 2^7
- strictnein 10y ago
  No, of course not. But the price was listed as "$128k". The closest power of 2 to the actual full price is 2^17, but I doubt most technical people would recognize that as 131,072.

seibelj 10y ago

This is awesome! I like FE so much more than Flippa which has cheaper businesses but appears rife with scams. I may buy a business here someday.

ryandrake 10y ago

It's great to read the details about what it takes to buy a small business. Thanks for posting this and being so open about what went into the negotiation. I always thought (if I were to one day run into money) buying an already-running business would be a better, less risky path towards entrepreneurship than starting with a blank text editor! A few questions: Is it common to have to fork over all cash for these sized deals? Is it possible/acceptable to finance? What alternatives to seller financing have you seen? I don't imagine it's possible to just waltz into your local bank and say hi guys I need $100K to buy a website! I'd be interested in learning more about finding these deals. You found this one through FE. Are there other common places to find tech listings? Do you ever approach companies that you like but aren't actively looking to sell? I'd love to see a play by play of how one of those conversations go.

charlesdm 10y ago
> Is it common to have to fork over all cash for these sized deals? Is it possible/acceptable to finance? What alternatives to seller financing have you seen? I don't imagine it's possible to just waltz into your local bank and say hi guys I need $100K to buy a website! I've discussed this with my local Belgian bank (well, not $100k, closer to $1-1.5m), and they'd be happy to do it if I put up 25-30% of the capital. So should definitely be doable. The issue is finding a good and viable asset that won't deteriorate. Usually there's a reason why people sell.
- jakobegger 10y ago
  The reason might be that the owner gets bored with the business? Maybe the owner liked the getting started part, but doesn't enjoy all the analytics and marketing stuff that's necessary to grow the business to it's full potential?
  - charlesdm 10y ago
    Absolutely. But buying an asset can be quite hard, especially if you're at least trying to align it with your personal skill set. For example, I've probably looked through 30-40 prospectuses and have only once found something moderately interesting.

sharemywin 10y ago

I think what it comes down to it was such a small amount of money they knew you weren't going to walk away.

blantonl 10y ago

What was the broker's commission structure in this deal?

kareemm 10y ago
Not sure, the seller's the one who pays commission.
deleted 10y ago
[deleted]
joshcanhelp 10y ago
Typically 15%

deleted 10y ago

[deleted]

deleted 10y ago

[deleted]

apo 10y ago

About risks, the article notes: > Github would improve its Issues product and render Codetree irrelevant That seems like a very large risk, especially given GitHub's progress to date. How will it be addressed?

titomc 10y ago

Very good insights on buying a side project. I too have some side projects. But I never want to go fulltime into it because it's using APIs of some well known services. I always say " Never play soccer in someone else's ground ". You never know when they will throw you out of the ground. If you are basing the business out of github's resources you are at high risk.

GFischer 10y ago

Thank you for being so open and sharing the actual spreadsheets. It makes things a lot clearer for us dreaming for an acquisition someday :) - even though I worked for a company that went through an acquisition as an employee and even gave a talk on the subject, this is a new perspective for me :)

MicroBerto 10y ago

Wow, if you want to learn how not to negotiate a deal, this is the story to read! This guy had you right where he wanted the entire time and he knew it. He didn't have to lift a finger or budge an inch. You clearly show your hand(s) way too much (which is clearly in your nature given this blog post, and that's not always a bad thing... although in this case it was). If it was a really large deal, you'd need to be willing to walk and show it. Instead of reading a relatively overrated book that did you absolutely nothing, I'd recommend having someone be the bulldog/enforcer and have no qualms about it. But ultimately, I have a feeling you're going to be so successful in something eventually (if not this!) that this money is meaningless in the grand scheme of things, so it's all cool and maybe you knew that. But man, that was painful to read. Good stuff otherwise and great luck guys!