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

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 :)

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.

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 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-...

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.

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.

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