Q&A with both buyer and seller of a 6 figure web app. Ask us anything | Hacker News Reader

Q&A with both buyer and seller of a 6 figure web app. Ask us anything

17 pointskareemm21 comments

Hi HN!

kareemm and derrickreimer here.

I (Kareem) was part of a partnership that bought Codetree in June from Derrick for six figures. Codetree is a project management tool for GitHub issues.

We haven't seen anybody fully open up the kimono around an acquisition like this before, so we're going to try something we've never seen: we're both happy to answer any questions you have to demystify the process around buying a business like this.

Here are some things you might want to ask about:

- specific numbers

- the mechanics of buying a business

- our psychology during the negotiation

- why we chose this business

- how we found it

- deal terms

- the risks of buying a business

- etc

Some more context

Here are some things we (the buyers) have done before buying Codetree:

- We've built products at places like ESPN, Microsoft (via acquisition), and MySpace (back when it was bigger than Facebook!)

- We've led product and dev to help Chimp.net grow from an inkling in the founder's eye to more than $150M in donations to charity.

- We've bootstrapped four successful SaaS businesses, sold one of them, and folded two others

- We've started one venture-funded company, an online marketplace that was sold in 2010

- We've run product and dev teams at two venture-funded companies

- Combined, the three of us have been writing software professionally for 45 years

After a year of figuring out what the next business was that we wanted to start and/or run, we ended up buying Codetree.

Derrick has also been pretty busy: just after selling Codetree to us, he sold Drip - an email marketing company he co-founded - to LeadPages. Two acquisitions inside of a month!

It's 10a PT and we'll be around for an hour or so.

Ask away!

EDIT 1110a: Wrapping up. Not a ton of questions but thanks for the ones you fired over, HN!

In this type of transaction both parties end up achieving their goal going into things. The seller wants to sell, and the buyer wants to buy. Both parties likely disagree with the potential of the product.

With that in mind, a question for the buyer - What do you understand about the business that the seller doesn't that makes this seem worth while? And for the seller - What aspect of the business makes it a target for sale rather than growth?

The bottom line for me was time and focus. If I had more hours in the day, I would have kept Codetree and grown it. My other business Drip was experiencing crazy growth and Codetree had always been a side business, taking the back seat to the needs of Drip. At the time of sale, I had at least 50 different feature ideas/growth opportunities written down but very little time to implement them. Rather than watch the product slowly fade away, the next best outcome for me was to see someone else realize that potential.

Good q, thanks Shorrock.

> What do you understand about the business that the seller doesn't that makes this seem worth while?

We were guessing that the seller was getting too busy running his day job at Drip to devote enough time to Codetree. It seemed reasonable because we'd been following Drip via Rob Walling's podcast and blog for years and Drip sounded like it was doing well.

We'd been in a similar spot with a previous business we sold. A seller may want to sell for a variety of reason, not just because the business is destined for failure.

But broadly, we think the PM market is huge, GitHub is huge and seems as good a partner as you could want given the platform risk, if "Software is eating the world" is true (we think it is) then the # of devs is only going to increase and they're going to need tools. And we're devs and love serving devs. So it was a good fit.

I've been bootstrapping a small project management tool for non-technical folks that integrates with Gmail and Gcal called Braid - https://braidhq.com .

Obviously, getting people to recognize that the tool is important enough in terms of time/hassle to pay for is super hard. What advice would you have for me?

I think the most important thing is to know your target market, how to reach them, and to be talking to them about how best to solve their problems.

> getting people to recognize that the tool is important enough in terms of time/hassle to pay for is super hard.

In my experience if it doesn't solve a top of mind burning problem for your customers, selling is going to be uphill all the way. When do people have the pain that your tool solves? And how would they go about finding a solution to that pain? And how do you harvest that intent?

Hiten Shah has a good framework for marketing:

1. “Who are your customers?” 2. “Where do they hang out?” 3. “How should you engage?”

You can read more here: http://home.profitwell.com/saas-dna-project/hiten-shah-saas-...

Hey Kareemm,

There are a ton of project management tools out there, why buy Codetree? Was there something specific about the business that stood out to you?

I imagine when you buy a business you believe there are things you can do that will increase the value of the business. What are the top things you think you'll be able to do that were not already being done?

Cheers!

Good q, thanks!

> There are a ton of project management tools out there, why buy Codetree? Was there something specific about the business that stood out to you?

We believe that in big markets like project management there's lots of room for many successful companies (depending on your definition of success). We know and like the issue tracking space since my partners and I have been devs for 15y each.

But why Codetree? Because it was available, is a good product, and was the right price :) It's hard to find the intersection of those things and we looked at different businesses for about a year.

> I imagine when you buy a business you believe there are things you can do that will increase the value of the business. What are the top things you think you'll be able to do that were not already being done?

Ultimately the goal is to help software teams make and ship better software. Right now the things we're focusing on are:

1. Talk to customers and improve the product. A good product matters, especially with developer tools.

2. Build out new marketing channels. Without new signups, it doesn't matter how good our product is :)

Kareemm, thanks for the quick response! Agreed that in a big market there are lots of players. But even in markets with lots of players, each player will have some sort of advantage over others. Do you see anything like this existing in Codetree or is this something your going to have to work at to develop?

Good q. In our experience a dev tool is right for a team if the tool fits the team's workflow. If you want to customize the heck out of what you do, use JIRA. If you're hardcore Scrum, use Pivotal. etc

Codetree's biggest differentiator from the large market is that it has a two-way sync with GitHub. But there are lots of companies who do that. So if you're looking for a tool that sits on GH then we may get a look. To differentiate from the rest of the GH tools we have some feature-level differentiators, the biggest being that we have a table view of your issues. From an information density perspective there's no beating a table.

Feature-level differentiators scare us though - we definitely need to work harder to make Codetree a product that's substantially different from the everything else that's out there.

I'm going to cheat and ask derrickreimer a question because i'm curious.

Was there any point in time during the negotiation when you thought the deal with us was going to fall through?

Good question! I felt really good about the prospect of selling to Kareem and the partners after our initial conversation. It seemed like a really good fit. Probably the point of highest doubt for me was after receiving the first offer. I was able to stay pretty logical about things, but I was definitely concerned we would not be able to bridge the initial gap. Having David from FE International as an advisor was key to keeping me level-headed. After we agreed on a price, I was pretty confident we would close.

David @ FE did a great job for you guys. We had talked to him a couple years ago about being our broker when we sold a previous company. We didn't use him for other reasons, but having been on the buy side of the transaction, we wouldn't hesitate to him him represent us if we were selling a business.

Thanks gents :)

> specific numbers

So what were the specific numbers? How did you guys arrive at the number? Did you negotiate? Were there any fees?

We paid $128k, which was asking, and 3.5x seller discretionary earnings (basically revenue minus expenses, where expenses don't include any money the seller chooses to take out like his salary or healthcare, etc). Our opening offer was 2.8x SDE. We came up because we looked at our alternatives to buying it and they were unpalatable - we really liked Codetree because it ticked a lot of the boxes for us.

Transactions of this size typically go for between 2.5-4x SDE.

Fees, if any, were paid by the seller.

I think that answers my question, thanks... Sounds like pretty straight forward maths for the most part :)

Whilst I'm also interested in the actual numbers :) I'm also interested to learn how you came about an evaluation.

Was it based on user count, current revenue, growth potential, etc?

Thanks.

As the seller, I paid a fee to FE International (my broker). Similar to having a realtor help sell your house, it was absolutely worth it. FEI compile a prospectus, distributed it to their network of buyers, advised on selling price, sat in on calls with potential buyers to keep the conversation on point, and overall helped me maintain my sanity.

What kind of technical due diligence did you do?

We had several hour-long screensharing sessions where I walked the buyers through the codebase and talked through the data model, architecture, etc.

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