Lessons Learned “Selling” My Micro-ISV

Those of you following the chronicles of my ASP.NET billing product know that I purchased it about 16 months ago and after putting in hundreds of hours cleaning up the code and growing revenue, I offered it for sale to free up time for this blog and pursue another potential opportunity (that has since gone by the wayside, as these things are apt to do).

Within a week of my “for sale” post I received 20 email inquiries, sent out nearly that many NDAs, distributed 13 sales packets (including a detailed description of the product with all the relevant data, and a Google Analytics PDF) to those who returned signed NDAs, and spent about 10 hours answering questions via email. I set a deadline for offers to keep the process from dragging on, and by the time the deadline passed I had three suitable offers on my desk. Two of them were nearly identical, with a down payment and monthly payments.

The third was something I hadn’t expected.

Good Developers
In my 9 years as a professional developer I’ve worked with at least a hundred developers, but I can count on one hand the people I would recruit if I were starting a company – these are the best software developers I’ve worked with. Most are not great because of their pyrotechnic coding skills; they’re great because of their non-technical chops (future-oriented, ultra-reliable, attention to detail, and smart).

When I put DotNetInvoice on the auction block I was contacted by a developer named Jeremy whom I worked with from 2000-2003 (and on a few small projects since then). We worked closely on a number of projects, pulled a few all-nighters, and wrote more software than many of the four (or more) person teams I’ve worked with since. Jeremy is one of the aforementioned developers that I would count on my one hand.

So Jeremy called to make an offer for DotNetInvoice, but he had some concerns. He was fine with the coding aspects of the project, but questioned whether he had the time to get up to speed on everything it takes to run a Micro-ISV given that he hasn’t done much in the way of shrinkwrapped software, SEO, and marketing. After a few conversations he brought up the idea of buying in as a partner.

I’m wary of partnerships for a few reasons. I’ve worked solo for years and I like the control, the ability to make decisions when and how I want, and the fact that I answer to no one except my clients/customers. Partnerships inevitably bring a loss of control and create many unknowns due to the fact that you’re working with another person, typically someone you don’t know as well as you should when you start the partnership (“You’ve been to jail for what?!”).

Having worked with Jeremy for thousands of hours I have a good read on his strengths and weaknesses, which means many of the scary unknowns of forming a partnership are a little less scary and a little less unknown. And I have to admit that the prospect of being able to share the ongoing support and development burden was enticing. To top it off, although the the other two cash offers were over my minimum asking price, they were not what I was hoping for.

So I mulled it over for a few days, talked to a few friends and colleagues, and decided that the partnership offered the best terms: I get a small bit of up front cash, retain partial ownership, and get to focus on the pieces of the business I enjoy (and where I do the most good).

We still have the complications that come with a partnership (potential conflicts, loss of control, things falling through the cracks), but the thought of keeping the product I’ve worked so hard to build and having more time for other endeavors is very, very appealing. And the fact that I’m going out of town next week and I don’t have to spend a moment thinking about answering support emails is priceless.

Although not what I anticipated, my gut tells me the product will be far better with two experienced people working on it.

Next Steps
We recently finished hashing out the contract, and expect to release the much needed next version, with much sweat from Jeremy, in the next few weeks.

Do I wish it had sold for a high valuation? I think so. But even though I was committed to selling, I had a nagging doubt about whether it was the right decision. If you’ve ever built something and tried to sell it you’ll know the mechanics of the sale aren’t the hard part – it’s the psychological piece. I think I lucked out this time around.

A few lessons I took away from the sale process (keeping in mind I’ve bought or sold several websites and one software product in the past):

  • Set Your Price Range – You’ll want to stay between 12 and 30 months of revenue. This is the standard range for websites and software products and in my experience is in line with what the market will bear. The range varies based on the amount of time your product takes to maintain, your expenses, and the number of potential buyers given your price range and technology.
  • Rule of Thumb on NDAs – If you expect the product to sell for more than $10k, protect the future buyer by requiring an NDA before disclosing financial information.
  • Prepare Your Sales Kit – Include a detailed summary of the product:
    • Product Overview
    • Customers
    • Technical details
    • Positive reviews and high-profile links
    • Revenue
    • Expenses
    • Partnerships
    • Personnel
    • Competition
    • Website traffic (although include a detailed traffic report in a separate document)
    • Assets included in the sale
    • Price range
    • Future plans (surely you will have a list a mile long)
  • Don’t Accept PayPal or Credit Cards – Chargebacks are too easy and the fees are high (3% of $10,000 is $300). Use escrow.com or good old fashioned checks.
  • Transferring Assets – You may want to use a service like escrow.com; they facilitate the exchange of your product once funds are deposited in an escrow account. Another option is to use a sales contracts that specifies the following: half of the purchase price to be paid up-front (via check), the assets are transferred, then the second half is paid.
  • Hold on to Your Domain Until the Last Dollar is Paid – I received two offers that involved ongoing monthly payments for a fixed duration (1 year). In this case, after a contract was signed and I had received the down payment I would have sent the assets to the new owner and pointed the domain to his server, but maintained control of the domain until the last dollar was in my hand. Maintain control of your domain name: it’s your most valuable piece of IP.

Thanks to everyone who expressed interest in the sale. I’ll keep you posted on how things progress.

[tags]asp.net, invoicing, partners, microisv, micro isv[/tags]

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#1 Jonathan on 06.04.08 at 4:42 pm

I’m reminded of a nugget of advice once received from a friend of mine in NJ who dug holes for a living: “the best partner is a dead partner”… 🙂

#2 Chris on 06.04.08 at 8:46 pm

Very interesting. BTW, thanks for the info on escrow.com. Good Luck!

#3 Warren on 06.04.08 at 10:41 pm

Is an NDA even worth the time of writing in up?

Unless what you’re selling is worth the better part of a million USD, all you’re going hear from a lawyer is “it’s not worth taking it to court” (i.e. legal fees will eat everything before you get a bite)

#4 list of strengths and weaknesses on 06.05.08 at 6:44 am

[…] […]

#5 Rob on 06.05.08 at 8:54 am

@Warren – This is a good question. A wise man once told me “We don’t write contracts for when we go to court, we write them to keep us out of court.”

In the case of small dollar contracts like this NDA, a sales contract for your website, or a small software development contract (under $50,000), the idea is not to win a court battle, but to accomplish two things:

1) To communicate with crystal clarity the terms of the agreement. This is enough to keep most people honest.

2) In case of a breach, to convince the other person (or their lawyer) beyond a shadow of a doubt that you will win a court case. If you can convince them of that, they would be foolish to go to court because you can sue for damages plus your court costs. This is why there are so many out of court settlements; one of the parties thinks they are going to lose and decide to pay damages instead of going to court and losing. This is the real power of a contract.

So yes, an NDA is worth the time.

#6 Why an NDA (or Any Small Dollar Contract) is Worth Your Time | Software by Rob on 06.05.08 at 9:16 am

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[…] Lessons Learned “Selling” My Micro-ISV “Within a week of my ‘for sale’ post I received 20 email inquiries, sent out nearly that many NDAs, distributed 13 sales packets, and spent about 10 hours answering questions via email. I set a deadline for offers, and by the time the deadline passed I had three suitable offers on my desk. Two of them were nearly identical, with a down payment and monthly payments. The third was something I hadn’t expected.” […]