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...
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.
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.
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?
"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.
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.
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.
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.
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?
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.
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?
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 $480k or we'll burn it to the ground"?
The reason why the site is being sold is missing from the sell pitch. "We have no more time to take care of it..." so why are you guys saying it's generating 20k$ 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.
[+] [-] evdawg|14 years ago|reply
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.
[+] [-] jasonfried|14 years ago|reply
[+] [-] sandofsky|14 years ago|reply
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.
[+] [-] rockarage|14 years ago|reply
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.
[+] [-] citricsquid|14 years ago|reply
[+] [-] pbreit|14 years ago|reply
[+] [-] csomar|14 years ago|reply
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.
[+] [-] JumpCrisscross|14 years ago|reply
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.
[+] [-] moe|14 years ago|reply
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?
[+] [-] datums|14 years ago|reply
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?
[+] [-] ashamedlion|14 years ago|reply
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.
[+] [-] manuelflara|14 years ago|reply
[+] [-] danielhellier|14 years ago|reply
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.
[+] [-] jasonfried|14 years ago|reply
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.
[+] [-] aviv|14 years ago|reply
[+] [-] tylermenezes|14 years ago|reply
[+] [-] duck|14 years ago|reply
[+] [-] cbsmith|14 years ago|reply
[+] [-] SpiderX|14 years ago|reply
[+] [-] zdgman|14 years ago|reply
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.
[+] [-] pbreit|14 years ago|reply
[+] [-] ozataman|14 years ago|reply
> 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?
[+] [-] raphaelb|14 years ago|reply
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?
[+] [-] trvlngwlbry|14 years ago|reply
[+] [-] joshaidan|14 years ago|reply
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?
[+] [-] martin_kivi|14 years ago|reply
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.
[+] [-] s7809|14 years ago|reply
"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."
[+] [-] mparlane|14 years ago|reply
[+] [-] chawkins|14 years ago|reply
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?
[+] [-] saluki|14 years ago|reply
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.
[+] [-] rwhitman|14 years ago|reply
[+] [-] tghw|14 years ago|reply
[+] [-] desireco42|14 years ago|reply
[+] [-] jasonfried|14 years ago|reply
[+] [-] g0su|14 years ago|reply
[+] [-] chawkins|14 years ago|reply
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.
[+] [-] kriro|14 years ago|reply
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.