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I think this shows that software product valuations really are variable. People quote things like "2x revenue" all the way up to "15x revenue." If these stats

I think this shows that software product valuations really are variable. People quote things like "2x revenue" all the way up to "15x revenue." If these stats are correct, patio11 sold his for roughly 1.8x yearly revenue. If revenue and margins stay stable, the new owner will recoup their investment in 3 years. This seems reasonable to me.

31reasons 11y ago
3 years in a very unpredictable field is a very long time. Anyone can come up with exactly the same product in much less time than before.
- cpayne 11y ago
  Not sure why this comment got downvoted without a reply. Anyway, I remember hearing the same argument when Youtube exploded. It's one thing to have a product (Bingo Cards, Youtube or whatever) but distribution and an existing client base is another.
- bigiain 11y ago
  That's true - what is gonna be much harder for any new competitor is to match BCC's SEO. Nine years worth of intelligent, diversified, and Google friendly reputation building is not going to be duplicated quickly. It wouldn't be an _impossible_ task to outcompete BCC I suspect, especially if the new owner just lets it coast and wind down instead of staying on top of the game (which Patrick readily admits he hasn't done for some time), but I suspect you'd probably need a PPC budget of around the same magnitude that the new owner just paid to kick-start a competitor - even if you already had production-ready code and a suitable hosting platform ready-to-go. I think you're right - in that assuming "it'll be paid off in three years" is a naive view of the way SaaS businesses age - but I also suspect there are already several "exactly the same product"s out there already, none of which have got the traction BCC has, and that the value here is not in a bunch of code that makes PDFs from lists, but in the business backend and the historical web presence and SEO.
  - tptacek 11y ago
    My understand of this is roughly: * There's a fairly liquid market for sites of any sort that have a demonstrated ability to generate revenue. * The valuation of those sites goes up when revenue is recurring. * The valuation goes up with history/track record. * That market is not especially oriented towards teachers. Given the universe of different sites you could build that would charge a subscription fee to serve some niche of customers, it would be pretty weird to compete for the Bingo Card space. (I was surprised at how liquid the market for this stuff was.)
    - bigiain 11y ago
      "it would be pretty weird to compete for the Bingo Card space" I guess the only counter argument is that there's now a "product market validation" that says a Bingo Card site is "worth" $60k to someone. If I had nothing else to do and - for example - a Wordpress plugin that'd let me create one of these in a weekend, it'd be a not insane idea...
      - larrys 11y ago
        Where do you get the 60k from? The price listed (57k) was the asking price afaik we don't know what it actually sold for.
        bigiain 11y ago
        It's just that $57k rounded to one significant digit. Not an accurate assessment, but at least a vaguely supportable "here's why I'm going this side project!" claim...
    - edanm 11y ago
      "(I was surprised at how liquid the market for this stuff was.)" I'm fairly surprised by this too. Why do you think that market is so liquid? I will note that in Software, Entrepreneurship == Innovation in many people's minds (i.e. a startup inventing something new). In non-software entrepreneurship, buying an existing business and running it is considered a very common path to becoming a business owner. As is starting a copy of other existing businesses (e.g. another restaurant), or even flat-out extending an existing business (e.g. the amazingly successful business innovation of "franchising).
yetanotheracc 11y ago
I can't stop thinking that if I bought it, even taking a loan of $57k, I could both pay back the loan and live comfortably off the profits here in Eastern Europe. With some effort it might be possible to increase the revenue - if I remember correctly Patrick said he has not been putting much time into BCC lately.
- viraptor 11y ago
  > if I remember correctly Patrick said he has not been putting much time into BCC lately. You're right: http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-in-review-2014/ http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-... "I worked less than five hours on Bingo Card Creator this year. It runs itself… not particularly well, but it runs."
- codingdave 11y ago
  I had the same thought, as I do have some spare cash and am in the market for a low-maintenance, profitable side project. But I did some due diligence on the actual numbers when it was for sale, and... chose not to pursue it any farther. I wish the new owners luck, but it is definitely a project needing active effort at this point, not just a side income stream.
  - tertius 11y ago
    "am in the market for a low-maintenance, profitable side project." Aren't we all...
mdasen 11y ago
When people quote high revenue multiples, usually they're in an area that they see high future growth. Patrick's writings on BCC make it seem like a business that is stable to declining. Of course, as you point out, the low multiple (3x annual profits) means theoretically recouping the investment in three years (not including interest and opportunity cost). Patrick posted that BCC's 2014 sales declined 33% from 2013. If sales keep declining at that rate, $19k turns into $13k for 2015 which turns into $9k for 2016, $6k for 2017, and $4k for 2018. At that point, the business really isn't generating much and it would take well over a decade to recoup even without accounting for interest and opportunity cost. But it might level off. It might go up if the new owner puts some love into it. However, I think the most likely scenario is that revenue and profits continue to fall. That's not to say $57k is a bad deal for the site, but I don't think it means easy-money. It seems like a sane deal. I think a buyer doing due diligence would have to look at the site, calculate (or guess) at a declining revenue curve assuming ~$12-18k in profits for 2015 and maybe seeing the rate of decline flatten out in the future and see some profits to be had. I know, $19k/year with a $57k price-tag looks really appealing on paper and makes it seem like easy money ($19k/year forever!). By Patrick's own writings, BCC's visits, sales, and revenue are all declining by a third year-over-year. He hasn't invested in the product for a while. There will definitely be some auto-pilot money, but not $19k/year for three years. It can still be a good deal. It's just important to go into deals eyes-open. $57k seems like a fair price for BCC. If the new owner does good marketing and customer acquisition, profits might level off quickly, but that also means really working on the project. There's a decent amount of risk in a project this small and so charging too much for it doesn't really account for that risk and the current downward trend. That said, it seems like a bit of work could go a long way and recoup the investment in the 5-10 year time-frame and make a reasonable amount of money. It can be a good business, but it isn't free money. I think if the profits were stable year-over-year, Patrick wouldn't be selling it (or he'd be selling it for a lot more money). If it had brought in $19k/year since 2010 totally stable, I could see a six-figure price tag on the site (maybe $150k, maybe more). But according to Patrick, BCC "has been on a steady decline since [2012/early 2013]. This decline accelerated in 2014." * None of this is meant to be negative about patio11. It's just meant to be realistic about the likely future profits of BCC based on the decline noted by patio11 in his 2014 Year in Review: http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-in-review-2014/ http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-....
hajrice 11y ago
Typically it's 3 - 3.5x X Annual Profit (+ Owner Wage)
lawnchair_larry 11y ago
Revenue is not useful. He probably sold it for 3x EBITDA.

31reasons 11y ago

3 years in a very unpredictable field is a very long time. Anyone can come up with exactly the same product in much less time than before.

cpayne 11y ago
Not sure why this comment got downvoted without a reply. Anyway, I remember hearing the same argument when Youtube exploded. It's one thing to have a product (Bingo Cards, Youtube or whatever) but distribution and an existing client base is another.
bigiain 11y ago
That's true - what is gonna be much harder for any new competitor is to match BCC's SEO. Nine years worth of intelligent, diversified, and Google friendly reputation building is not going to be duplicated quickly. It wouldn't be an _impossible_ task to outcompete BCC I suspect, especially if the new owner just lets it coast and wind down instead of staying on top of the game (which Patrick readily admits he hasn't done for some time), but I suspect you'd probably need a PPC budget of around the same magnitude that the new owner just paid to kick-start a competitor - even if you already had production-ready code and a suitable hosting platform ready-to-go. I think you're right - in that assuming "it'll be paid off in three years" is a naive view of the way SaaS businesses age - but I also suspect there are already several "exactly the same product"s out there already, none of which have got the traction BCC has, and that the value here is not in a bunch of code that makes PDFs from lists, but in the business backend and the historical web presence and SEO.
- tptacek 11y ago
  My understand of this is roughly: * There's a fairly liquid market for sites of any sort that have a demonstrated ability to generate revenue. * The valuation of those sites goes up when revenue is recurring. * The valuation goes up with history/track record. * That market is not especially oriented towards teachers. Given the universe of different sites you could build that would charge a subscription fee to serve some niche of customers, it would be pretty weird to compete for the Bingo Card space. (I was surprised at how liquid the market for this stuff was.)
  - bigiain 11y ago
    "it would be pretty weird to compete for the Bingo Card space" I guess the only counter argument is that there's now a "product market validation" that says a Bingo Card site is "worth" $60k to someone. If I had nothing else to do and - for example - a Wordpress plugin that'd let me create one of these in a weekend, it'd be a not insane idea...
    - larrys 11y ago
      Where do you get the 60k from? The price listed (57k) was the asking price afaik we don't know what it actually sold for.
      - bigiain 11y ago
        It's just that $57k rounded to one significant digit. Not an accurate assessment, but at least a vaguely supportable "here's why I'm going this side project!" claim...
  - edanm 11y ago
    "(I was surprised at how liquid the market for this stuff was.)" I'm fairly surprised by this too. Why do you think that market is so liquid? I will note that in Software, Entrepreneurship == Innovation in many people's minds (i.e. a startup inventing something new). In non-software entrepreneurship, buying an existing business and running it is considered a very common path to becoming a business owner. As is starting a copy of other existing businesses (e.g. another restaurant), or even flat-out extending an existing business (e.g. the amazingly successful business innovation of "franchising).

yetanotheracc 11y ago

I can't stop thinking that if I bought it, even taking a loan of $57k, I could both pay back the loan and live comfortably off the profits here in Eastern Europe. With some effort it might be possible to increase the revenue - if I remember correctly Patrick said he has not been putting much time into BCC lately.

viraptor 11y ago
> if I remember correctly Patrick said he has not been putting much time into BCC lately. You're right: http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-in-review-2014/ http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-... "I worked less than five hours on Bingo Card Creator this year. It runs itself… not particularly well, but it runs."
codingdave 11y ago
I had the same thought, as I do have some spare cash and am in the market for a low-maintenance, profitable side project. But I did some due diligence on the actual numbers when it was for sale, and... chose not to pursue it any farther. I wish the new owners luck, but it is definitely a project needing active effort at this point, not just a side income stream.
- tertius 11y ago
  "am in the market for a low-maintenance, profitable side project." Aren't we all...

mdasen 11y ago

When people quote high revenue multiples, usually they're in an area that they see high future growth. Patrick's writings on BCC make it seem like a business that is stable to declining. Of course, as you point out, the low multiple (3x annual profits) means theoretically recouping the investment in three years (not including interest and opportunity cost). Patrick posted that BCC's 2014 sales declined 33% from 2013. If sales keep declining at that rate, $19k turns into $13k for 2015 which turns into $9k for 2016, $6k for 2017, and $4k for 2018. At that point, the business really isn't generating much and it would take well over a decade to recoup even without accounting for interest and opportunity cost. But it might level off. It might go up if the new owner puts some love into it. However, I think the most likely scenario is that revenue and profits continue to fall. That's not to say $57k is a bad deal for the site, but I don't think it means easy-money. It seems like a sane deal. I think a buyer doing due diligence would have to look at the site, calculate (or guess) at a declining revenue curve assuming ~$12-18k in profits for 2015 and maybe seeing the rate of decline flatten out in the future and see some profits to be had. I know, $19k/year with a $57k price-tag looks really appealing on paper and makes it seem like easy money ($19k/year forever!). By Patrick's own writings, BCC's visits, sales, and revenue are all declining by a third year-over-year. He hasn't invested in the product for a while. There will definitely be some auto-pilot money, but not $19k/year for three years. It can still be a good deal. It's just important to go into deals eyes-open. $57k seems like a fair price for BCC. If the new owner does good marketing and customer acquisition, profits might level off quickly, but that also means really working on the project. There's a decent amount of risk in a project this small and so charging too much for it doesn't really account for that risk and the current downward trend. That said, it seems like a bit of work could go a long way and recoup the investment in the 5-10 year time-frame and make a reasonable amount of money. It can be a good business, but it isn't free money. I think if the profits were stable year-over-year, Patrick wouldn't be selling it (or he'd be selling it for a lot more money). If it had brought in $19k/year since 2010 totally stable, I could see a six-figure price tag on the site (maybe $150k, maybe more). But according to Patrick, BCC "has been on a steady decline since [2012/early 2013]. This decline accelerated in 2014." * None of this is meant to be negative about patio11. It's just meant to be realistic about the likely future profits of BCC based on the decline noted by patio11 in his 2014 Year in Review: http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-in-review-2014/ http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-....

hajrice 11y ago

Typically it's 3 - 3.5x X Annual Profit (+ Owner Wage)

lawnchair_larry 11y ago

Revenue is not useful. He probably sold it for 3x EBITDA.