Although I realize that this is entirely private, but it would be incredibly awesome if you could share some vague ranges of how much you paid for both this startup and the other "web apps" mentioned in part 1. This info could put it into perspective of what it would cost to buy the idea and work, as opposed to having to incubate it yourself.
You make interesting arguments about how buying saved you time and effort, and also reduced risk, but ultimately everything is a trade-off and knowing the range of $$$ would make comparison a lot easier.
I've purchased web apps and websites (and have colleagues who have done the same) for $1k-$2k that today make right around that each month. But those are the best results; that's not the most common outcome of purchasing in this range.
The most common purchase price is between $2k and $7k. Though I do feel like that's been creeping up over the past couple of years as this approach of buying becomes better known.
The more you can spend the better off you are; everyone's trying to buy in the $2k-5k range so there is far less competition in the $10k-$25k range. But $5k-$10k can also net you a nice app.
In addition, although this approach saves months of dev time it does take time to find deals. You either have to sift through sites on Flippa, which I did for years, or find deals and cold email like I did. It's not something where one day a deal just drops itself into your lap with no work invested.
The hardest one is the first one - once that's going you can use revenue from that to buy the second, and so on. This most recent acquisition was funded purely with revenue from the other 8-10 apps I've bought and revamped over the past several years.
Thank you! This is actually incredibly helpful in putting this into context. Reading your original posts, I somehow expected to see 5 to 6 digit numbers, as opposed to the 4 to 5 digits that you quoted.
Very insightful, as always. I liked the bit at the end about squirming a bit because "I didn't build it". It puts the focus on the business of making money from a product.
I'm enjoying the series so far. In part 3 I'd love to see something about the mechanics of executing the deals without getting burned. Stuff like finding contracts, escrow, etc.
Perhaps you could broadly discuss how you made the economics work? As I understand it they had a site that they were putting virtually zero effort into, so they must have wanted a pretty hefty multiple of the annual income. Because even if that income was declining, it was still taking zero effort to generate. You, on the other hand, had to have assumed you could make the revenue grow significantly via active investment, right? You did mention that eg broken sql or query parsing was leaving a ton of data and/or money on the table as it were, but you couldn't have known that ahead of time, could you?
So maybe you could explain something like:
eg they wanted 3x annual profits, and I made assumptions x, y, z around potential growth via active marketing, etc. Or perhaps you dug up some competitors to imply that future revenue declines would be more rapid than expected? Also, perhaps you could explain how you came to your opening offer -- did you literally email them and say hi, I'd like to buy this and here is my estimated offer, or did you get some numbers first? If the former, how did you ballpark the income?
Even if you don't care or have time to answer the above questions, thanks a bunch for being willing to share these things. I feel like these deals must happen pretty often but there isn't much of a public guide to doing them.
You make interesting arguments about how buying saved you time and effort, and also reduced risk, but ultimately everything is a trade-off and knowing the range of $$$ would make comparison a lot easier.
Thanks for a great post too!