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.
kareemm has already answered the questions about financing but I actually think your second question about "where to find these deals" is really the more interesting and important question. The obvious answer is places like FE where we found Codetree but that was a total fluke and it's not the right way to approach it.
The truth of the matter is that many business are for sale if you ask. The right approach is to think about the type of business you want to buy, build a list of all of the ones that fit and to cold email them and see if they'd be interested in selling. Basically the same approach you'd take if you were trying to sell B2B software i.e. Predictable Revenue style.
I can already hear people saying, "No way people don't do that" or "That would never work" but it does and people do. In fact we know a number of people that bought their businesses using that approach and it is exactly what we were about to start doing before Codetree fell in our laps. It's also the way that a lot of PE, VC and search fund deals get done.
> 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.
> 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!
Bank loans, equity partners, seller financing, and cash are the options I've seen. Equity is harder for a deal this small. But bank loans are a definitely option. If you're in the US I think there are SBA loans that are available too.
I know someone that recently bought a business that was for sale for 100k for something like 10k and x% revenue for 2 years. Basically if revenue was constant the cost ended up at 100k. If it dropped it would be less.
Kind of a neat way to not need all the money up front, and make the owner shows you his business is not on the decline.
That's why "cash in hand" was one of their selling points.
If the buyers had to get loans, sell other assets, etc to make it happen, it would introduce risk - in delay, extra negotiations or even total failure - for the seller.
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?
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.
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.
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!
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.
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 :)
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 ;-)
[+] [-] ryandrake|9 years ago|reply
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.
[+] [-] rstocker99|9 years ago|reply
The truth of the matter is that many business are for sale if you ask. The right approach is to think about the type of business you want to buy, build a list of all of the ones that fit and to cold email them and see if they'd be interested in selling. Basically the same approach you'd take if you were trying to sell B2B software i.e. Predictable Revenue style.
I can already hear people saying, "No way people don't do that" or "That would never work" but it does and people do. In fact we know a number of people that bought their businesses using that approach and it is exactly what we were about to start doing before Codetree fell in our laps. It's also the way that a lot of PE, VC and search fund deals get done.
[+] [-] charlesdm|9 years ago|reply
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.
[+] [-] kareemm|9 years ago|reply
Bank loans, equity partners, seller financing, and cash are the options I've seen. Equity is harder for a deal this small. But bank loans are a definitely option. If you're in the US I think there are SBA loans that are available too.
[+] [-] brianwawok|9 years ago|reply
Kind of a neat way to not need all the money up front, and make the owner shows you his business is not on the decline.
[+] [-] caseysoftware|9 years ago|reply
If the buyers had to get loans, sell other assets, etc to make it happen, it would introduce risk - in delay, extra negotiations or even total failure - for the seller.
[+] [-] citizens|9 years ago|reply
Edit: Also, best of luck!
[+] [-] NDizzle|9 years ago|reply
[+] [-] kareemm|9 years ago|reply
Edit: and thanks!
[+] [-] gxs|9 years ago|reply
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|9 years ago|reply
[+] [-] kareemm|9 years ago|reply
[+] [-] tiffanyh|9 years ago|reply
https://github.com/blog/2256-a-whole-new-github-universe-ann...
[+] [-] CarlyleDon|9 years ago|reply
[+] [-] Keats|9 years ago|reply
[+] [-] alexbeloi|9 years ago|reply
If the codetree was looking to raise funding, it seems like a reasonable metric for valuation.
[+] [-] HeyLaughingBoy|9 years ago|reply
[+] [-] kareemm|9 years ago|reply
[+] [-] pbreit|9 years ago|reply
[+] [-] thoughtpalette|9 years ago|reply
[+] [-] kareemm|9 years ago|reply
[+] [-] strictnein|9 years ago|reply
Wonder if prices like this are more attractive to techies.
[+] [-] xyzzy4|9 years ago|reply
[+] [-] MicroBerto|9 years ago|reply
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!
[+] [-] apo|9 years ago|reply
> 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|9 years ago|reply
[+] [-] seibelj|9 years ago|reply
[+] [-] GFischer|9 years ago|reply
[+] [-] sharemywin|9 years ago|reply
[+] [-] msmart|9 years ago|reply
Codetree looks great! Good luck!
[+] [-] ferentchak|9 years ago|reply
[+] [-] kareemm|9 years ago|reply
[+] [-] unknown|9 years ago|reply
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[+] [-] econner|9 years ago|reply
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[+] [-] kareemm|9 years ago|reply
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