Welcome to Under the Radar show about independent iOS app development. I'm Marco Arment. And I'm David Smith. Under the radar is usually not longer than 30 minutes, so let's get started. So I think for today's episode, I thought it would be interesting to talk about the topic of acquisitions or selling your app.
Or, I guess, the ways in which you might wind down and being an indie app developer. And we talked about it. It's funny, we've been doing this show long enough that I was like, I feel like we've talked about this before. And I looked it up and I think we talked about this on episode 72, which was back in March of 2017.
So probably worth revisiting at this point, regardless of whether we've touched on it again. Because I think it's a thing that is important to have a handle on in terms of your approach to your business.
Because inevitably, eventually, you're going to want to not be in business, I would expect. In the sense of, you know, while this is a lovely career that we've both made, and I think if you can make it work, you can be really satisfying, fulfilling, potentially with reasonable renumeration, you know, job and career.
At some point, you might want to move on to do other things that could be at the very end of your career, you're sort of retiring. It could be because you are sort of lost interest in what you're doing or is a lost interest in one of your apps. This is something that, you know, I think is a complicated question for what you do when something is sort of towards the end of its life.
But maybe it still has a little bit of value, you know, is it worth trying to find a market to sell something, or maybe you feel like you just sort of like lucked into a particular opportunity or, you know, someone of your apps is having a moment and you feel like there's this narrow window where you maybe you could get a higher return if you sold it or moved on to someone else.
Or I mean, I think the impression I get is just sometimes like the money is really good. And I mean, I recently, this is sort of somewhat top of mind Apple announced that they were buying the pixelator team apps, et cetera. And you know, it's one of those things where I imagine, you know, Apple is one of those companies that could just sort of back the money truck up to your house and be like, here you go.
And regardless of whether it's necessarily something you were looking for or wanting or planning on, at some point the money might just be too good and you just it's a good opportunity.
But I think it is still nevertheless a useful thing to think about before you're in that scenario of either something is winding down or you feel like you're at a hot moment or the money truck is showed up to understand kind of both both that process would look like mechanically and also just sort of reasons why you may want or may not want to pursue it.
We hear a lot about the high profile acquisitions things like what happened with pixel made or you know apples buying this this you know this big app company, you know, this very successful, you know, well known app company apples buying it for probably a pretty large sum of money. And they're going to go join Apple and we hear about those and you know those those go how they're going to go look at that.
But there's also so many other app sales that we just never hear about in the press that good they just you know they don't they don't rise to the level of of being noteworthy enough or people keep them too confidential and no one even knows they happened.
Most you know most of the time what we will be approached by or what opportunities will be available to us as the seller of such a business is going to be those more boring kinds it's going to be like you know some company that wants to you know buy your established app and then strip mine with ads and subscriptions and things like that.
Or it's going to be somebody building a portfolio for a private equity firm or you know something like it's those are more likely the kinds of you know opportunities that people like us generally tend to get. Yeah, and I think those are interesting opportunities because in many ways like there's I think I become very emotionally attached to my apps.
But in many ways they are like an annuity in finance terms, which is a financial product where you acquire something and then it pays you a regular amount of money into the future. And in a weird way app development has always kind of fit that model in my head where it is this thing that we make we tend to put a lot of you know sort of time energy and effort in upfront.
And then we can have some reasonable expectation of return over time and that's potentially very attractive to people like I've been approached by I mean for a variety of reasons over the last 17 years that I've been doing this I've had people approach me and I have you know for saying that they wanted by my apps and sometimes I get the impression it's like a you know there are fund manager and someone decided that this is potentially a useful diverse diversification scheme that they could buy into sometimes it's see you there's companies that seem to just be.
Structured around this but I think it's most often yeah I think you're ending up in a situation where someone is going to come and they want to buy your app because they think they could make more money from it then it's going to cost them and it's entirely a financial transaction in that way and I think that's interesting sometimes when I think about like these people who are approaching me and it's probably going to say like I think sometimes there's just also a there's a number of people who seem to also just spam developers.
With any amount of success on a weekly basis with sort of pitches that they're going to buy your app or that they're actually just brokers who are trying to take 10% of the sale price and they're just kind of constantly fishing for these and I get these all the time I've never really responded to them because I'm not interested in selling my apps but there's this weird thing that sometimes in the back of my mind I'm like is my you know am I undervaluing or under is my app under performing versus what it could.
And I think some of that is probably necessarily true because the nature of a lot of these acquisitions would be that they're buying it with the expectation that they can extract more money in the short term from it than the you know the upfront price that they're paying you. Whereas I'm structuring my business to be long term you know good annuity into the long term that doesn't you know fall off very quickly.
And that's just a different meant you should have mentality and mindset and you know it's possible that over say a three year period I could make substantially more money if I was do structuring my business such that it was you know just. Extracting every little penny out but at the end of that three year period I may not have much left and maybe that's just an IE for you that I have but I think it's tricky to think of if someone's coming trying to buy something from you.
They're thinking that they can make money from that transaction I don't think I mean it's possible that they would be buying it as part of like a broader branding strategy and I've had a you can kind of imagine that sometimes that's what's happening that it's they're trying to find their way in or get it to hold into an industry or things like that.
But I think we'll buy in large if someone's trying to buy something from you they're expecting that you know after a reasonably short amount of time they would have recoup to their purchase price. Because otherwise there's no reason for them to be doing it in the first place.
And you know there's all sorts of asterisk and tricks that go along with that like for instance like well you know when you get those those emails from the from the app brokers who are like we're just buying apps like yours and we've. We've seen it on the rank list and we think you're you're making X or we think you know we we we we'd be willing to offer you know why for it in my experience.
The ability for external entities to try to estimate how much money you make with your app is comically imprecise and inaccurate to the point where like I've never gotten one of those in bound ones to any of my apps that was anywhere close to what it actually made usually they dramatically underestimate what I make which is a good problem to have honestly.
But that can you know that can radically change you know what what their interest might be and it also like so far like in my career so far but we'll get to our specifics later but but yeah I have found that usually the app is worth more to me than it is to somebody else.
But you know there's also there are other reasons why somebody might want to buy your app like for instance if you are retiring from the app for whatever reason whether you're your entire career or just the app or maybe you're going to work for Apple and you have to invest yourself of your personal you own app through whatever.
A lot of times somebody in your customer base who is a developer looking for another business might buy it to just take it over because they just like the product and they want they want the product to continue and they're like you know what I'll buy it that that would be one of my portfolio thing.
Like that does happen it's not that common but it does happen so you know there are other reasons why people might want to buy it as well but ultimately it comes down to they're not going to buy it if they don't think they can make money from it within a fairly short time.
Yeah and I think it's also probably worth pointing out that there's an interesting aspect of selling an app that I think it's sometimes easy for me to think that if I'm selling my app what they're buying is like the code and like as though that is the valuable part maybe.
Maybe that because that's the part that I value personally that I'm like proud of that or the design or the assets or those kinds of things and I think the reality is is more over they're buying its market position beyond the actual sort of code itself which I think is sometimes tricky to value and sometimes tricky to understand that what they're buying is your existing customers more than your actual app like and sometimes I think about this just sort of like I have them the the the mental.
The mental exercise of how long would it take me to recreate one of my apps from scratch knowing what the app is now so in terms of what having been able to bypass all of the design dead ends that it took to actually build it in the first place and all the things the inefficiencies event.
If I sat down and wanted to make a domino plus plus from scratch how quickly could I do that and my suspicion is that a senior iOS developer like myself could probably rebuild it in I don't know four to six months or something along those lines which is one of those things and you think about it if it becomes like okay so that's going to be a cost of a couple hundred thousand dollars maybe like in terms of if you were to hire someone to do that and that in terms of the actual if someone is buying that kind of thing.
If someone is buying that code it's like that part of the purchase price is not actually very substantial but they really are buying is the fact that it has name recognition it has users it has subscribers is I think something you know it's like it's has this is proven track record because that's why they aren't just saying let me you know let me hire an I hire a developer let me pay them to three hundred thousand dollars build this app and put it in the app store because it's like that that transaction is unlikely to be profitable.
Versus coming in and buying the actual sort of name and recognition and position in the app and that's what they're actually buying and that's tricky because that is very challenging to value because this is a formal thing you can't it isn't just the you know whatever a hundred and fifty dollars an hour time so many hours to create the thing that you could kind of do if you were doing just
valuing the actual you know the swift code itself the value is much more femoral and much more emotional and much more complicated you know beyond that. Yeah and another reason people might want to buy your app is just to acquire you as a person who is good at making such things a person with certain talents and certain skills and a certain reputation maybe these are called acqua hires where they're they're acquiring your business mostly to get you to come work for them.
And this is a dramatically different kind of acquisition as well and usually I think the ones we hear about where a larger tech company is involved I think this is almost always you know either the goal or at least the biggest part of it for them is you know they they often want the talent more than they want the app or the business itself and this usually creates bad outcomes for customers usually this this ends up whether immediately or a little bit down the road that's usually what ends up with the app getting.
Cast into the sunset.
Because usually that's you know the company wants the people and usually there is some kind of contract where you might have to go you might have to work for them for like four years or if you don't work for them first time of time you don't get all your money or whatever you know some kind of structure like that to try to keep you there and you know that has mixed results in the industry to you know oftentimes people who are acqua hired into a company end up leaving one day after all their stuff vests and after all those deadlines pass.
But you know that's that's part of the game but. You know if you are selling an app on you know if you're on the selling side of of something where somebody wants you to come along with it. Odds are you know they are probably more interested in you and I think you have to you have to wonder at that point like what what do I want for the future of my app you know if if they're if you are going along for the sale and the company seems to want you more than the app.
Then that probably means your app is going to go away and is that the outcome that you want and you know you have to wait and sometimes that's your best option by far like sometimes the money is good enough from the offer. And especially if the app or business is not doing that well for you like if it's kind of on its way down or it's it's past its prime or you know the market has been too hard for you a lot of times the offer you get as as the acqua hire will be the best outcome that you have.
And so it would be you know stupid not to take it and your customers will just have to understand at that point that's just that's life. But you know if the numbers are close if if you know they want to hire you for a certain amount and you're like well if I just kept running the app. I could basically make you know similar or better money.
Then you have to consider like well if I go work for them my app is going to die my customers are going to you know be screwed in some way maybe that might hurt my reputation in some in some way you know so there's. There's other factors to consider there but you know usually the acqua hire is bad for the app usually it's good for the people and sometimes oftentimes that is the best option.
Yeah and I think it's fair to say with those is I think I know many people who have gone the slightly in sort of the acqua hire and or the they built an app as a way to build skills and establish credentials which their ultimate goal was to get hired by a big company you know by good to go work at.
Meta or Apple or Google or one of those companies that there that was a method perfectly reasonable approach and I think especially for someone who is breaking into the career and starting out that there is nothing you know from never I've never I don't do a lot of hiring but from talking to a number of people who have our hiring managers or who do that kind of work.
It is usually very it is a very good sign if a candidate has an app that they've made that's put on the app store that they've gone all the way from file new project to you know release for sale that that experience is very how is very helpful and so it's entirely possible that you would you know sort of you're in a position where the acqua hire version of this is mostly them just giving you some nominal amount of money to.
Mind down your app business because it's not appropriate for you to do that if you're also working for them and if that was what your goal was sort of from the beginning then great but it's the tricky thing I think the point you're getting to more is it's tricky to think that you're another company is unlikely to care about the product that you made as much as the product as you do because necessarily it is coming into a broader picture with different goals and different alignment.
Maybe different values in terms of what they're trying to build or the direction they want to go and so. And it's the kind of thing where I think it's easy for them to potentially make promises or describe things in a certain way which ultimately turns out to do not be 100% you know exactly how things are going to go so it's something to go into with sort of open mind with in that perspective.
And I think it's also important to understand that the be very very circumspect about the amount that you are being tying yourself down with is also something that I like I've had these kind of things presented to me and it's tricky for me to imagine a scenario where it's like you ended with like the golden handcuffs situation where you're you are tied into a particular company sort of one way or the other for the next three years.
That's a really tricky place to be because life is complicated your family needs might be complicated like you're tying yourself into this future promise that could go one way or could not go one way and it's like whether that makes sense for you is obviously going to be very dynamic but that aspect of it always feels a little tricky with those kinds of scenarios because they hire you with these promises.
It turns out that you know market conditions change the business changes something changes which you're still stuck there for years doing whatever it is that you need to do to make that happen and so it's a really awkward place to find yourself.
It all comes down to what are your options you know if you're going to get a really good price from this acquire who wants to go work for them and you're and your apps not making that much take the opportunity take the money you know honestly like unless there's some really big reason not to like you know I it's hard for me to advise anybody to do it.
It's hard for me to advise anybody not to take a good opportunity comes their way if it's better than all of their other opportunities by a big margin and the good thing you know so in terms of how much money you'll actually make from selling your app you know it varies a lot in cases of acqua higher is it really does like because that it's all about like what is your value as a person to the business buying you and typically if you are if you are going along with the product that typically increases the value that somebody is willing to pay for the for the combined packet.
Because somebody just taking on an app with no one to work on it and no one familiar with it like from scratch that is that is usually worthless to them because unless it's a very small acquire unless it's the case of like you know you're retiring and some other small developer wants to pick it up from you that's a different story that's a different kind of money because you know the acquire then might not be able to afford to keep paying you as a salary employee but usually with larger companies being the being the purchasers.
Usually they want you to come along with it because that because you are part of the value if you don't go along with it you can you can typically expect you know some multiple of what the app makes per year usually in the low integers so you know something like you know one to 4x its annual profit that you know might be and this varies a lot based on market conditions market you know what the market is even like if you're in a super growth market.
You might get 10x your annual your annual profit as your purchase price. Something that's really young and expected to keep booming ahead of you but if you are if you've just been running this app for a few years and you know the kind of the plateau of profitability has already clearly been reached. Yeah you're going to you're looking at like you know one to 4x maybe your your annual profit as your purchase price.
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So you don't have to remember that you are then use the code radar so that you came from our show our thanks to century for their support of this show and relay. So Dave why why are you not swimming in money from acquisitions it's an interesting question and it's one that I think about regularly like you know it's like what do I want to do with my with my career wider and I pursue these and I think ultimately for me.
So the reality of a typical acquisition say someone came and said hey I'll give you three times your last you know your last year's profits to buy your apps from you like that would be a perfectly reasonable sort of transaction for someone to suggest and inevitably what I end up in is the well or I can keep them continue to work on them enjoy that process and at the end of the three years have in addition to the money that they would have paid me continue to own the asset that will pay money into the future.
And so I think financially it works out well as long as you're enjoying the work to continue doing the work and so in that sense it's less appealing financially because most of what there you would be sort of buying is the risk mitigation that the industry goes you know down very quickly and so you would have sort of locked in a good price in that sense which I don't know at this point I've been doing this for long enough that I feel like you know my apps have sort of settled into a very stable place and
the scenarios where they would be dramatically worse off in three years tend to look more like large structural changes to the world which you can't predict rather than you know just like the natural market forces that I've you know it's like I pedometer plus plus is almost 10 or 11 years old I think now you know which is miss up to four years old which is kind of a wild thing for me.
And these you know at a certain point things do tend to settle into a groove and you can kind of have some expectation and so that sense I just enjoy having the annuity I'd rather have the money every year rather than trying to you know sort of get it all up front. And I think also there's an element of a lot of these things that and this is I've only once gone down the road of exploring an acquisition this was seven eight years ago now was quite a while ago.
And I think to it didn't just didn't really align well with the way that I built my business and the way that I approach business maybe where it was like had some nice conversations with the sort of the initial mergers and acquisitions person who was like I guess the scout for trying to you know sort of find apps to buy.
But then it very quickly turned towards the more you know like the MNA lawyers version of things and I hired a lawyer and we went through it and it just turned into business in a way that I didn't enjoy and that I found didn't feel particularly like I didn't feel at home in that I didn't feel comfortable I didn't feel confident that I was making good choices and ultimately I just like walked away because it ended up getting kind of nasty and specific in ways that I didn't enjoy.
And it's like it's ultimately wasn't necessary like I could continue just making my apps and doing my work in that way because I didn't build my business and structure it for that kind of an exit in a way that I think your people who get into business with the ultimate goal that they want an exit they want to build this thing up.
And then it's like a you know the planting seeds and a field they wanted to grow and then they want to harvest that and move on to the next field and that's not really my view it's like I think I have much more of a garden I guess gardeners view in that where I want to every year continue to investing and growing and developing something and making it better and better and that model just is different than an acquisitions model and it's a different mindset and so you know at this point it's the kind of thing where I don't expect to ever sell something that.
I've made other than a scenario where I feel like I've lost interest in it or I am retiring or moving on or my life sort of priorities or goals have shifted but you know the sort of short term financial benefit of it it just doesn't really appeal versus just continuing to own the thing that I can continue to grow and nurture and then you know whatever after the multiple period into the future continue to own and so it would have to be the kind of silly money kind of scenario which is really important.
I mean you never know like you I wouldn't say you never say never that you know someone shows up and says they want to pay you 20 times the annual profit of your apps for your apps and like saying note of that is a very true will be a very complicated thing but the reality is that scenario is extraordinarily unlikely I think and so it's not
that much of the time it's going to be the kind of thing that you could much more reasonably wrap your arms around of like a two to three you know your multiple where for me I'll just keep doing what I'm doing and enjoy it but I know you've gone down the other side where you have actually sort of sold things or transition things on in various ways so you have a slightly different perspective or maybe after those experiences you've landed more where I am now.
Yeah I mean pretty much the latter so you know I saw I sold Insta Paper and the magazine magazine I sold to Glenflashman the editor for almost nothing because frankly it wasn't doing very well and he was creating most of the value at that point and so I was going to just shut it down and he said I'll give it a shot so I sold it to him for almost nothing and so that that was good experience Insta Paper was more complicated you know that was I thought it needed a bigger staff and more resources to really compete in its market also.
The money had been going down you know I was past my peak I was past my prime and also I wanted to work on on a podcast app instead and so all those factors combined to convince me all right I think I will sell it and that was my first sale I you know I was inexperienced I structured the deal in such a way that that like I got money over time and that ended up screwing me honestly so I would honestly recommend if you're going to do this kind of thing get your money
up front and you know contracts are are not worth a lot that was kind of a negative experience for me and the creator a lot of negative emotions like for a while I didn't use Insta Paper because I was mad about how things went and that was just it was a very complicated situation that mostly due to my own inexperience in getting that deal and negotiating that deal so I would say keep
things simple get your money upfront but even that kind of taught me maybe I don't want to sell my stuff maybe this is not the way for me and you know with overcast I've been fortunate that after it's first few years I landed on the subscription model
subscription plus ads model that I have now it's it's a good business and it works and it makes money so a combination of it continuing to make decent money and also I continue to be interested in it and also there's nothing else I want to be building with that time
that combination has me sticking with overcast for for the foreseeable future now any of the things could change you know if it stops making money or if some amazing opportunity come to but I want to work on instead you know maybe I'll be maybe something different will happen but for the time being I'm more in that annuity sense of like I like working on this app I don't want anyone else to work on it or ruin it or shut it down and I I still continue to see a lot of potential
in overcast like I yeah of course I get those emails from people who are you I'm interested in buying your app and you know you it's never anybody from like the podcast business it's just you know these you know private equity people when you get
down to like what would they actually pay me for it it would always I we don't we don't even get that far honestly but the reason why is that usually my first response is you know well you would have to pay me X number of figures and it's so it's such an absurd price that they don't even
respond usually but the reality is like you know I keep it because it is worth more to me and I think that instant that overcast I think that overcasts best days are not behind it I think they're ahead I think there is still growth in this app and so I think I can make more money continuing to run it myself then selling it to one of these companies like you were saying earlier so that's where I am right now but again like that could change and I don't you
don't fault anybody for accepting when a truck full of money backs up to their house and is like hey we want to buy your app and shut it down if you just you know do a little bit of soul selling and maybe come work for us and that's hey that's fine like if if the money is right like everything is for sale for the right price for the most part so if the money was was amazing sure I would sell overcast but I don't
think it's worth that much to anyone else except me and I'm for the foreseeable future I'm fine with that because I enjoy working on it and it's still doing well. And I think an element of that is the reality of it's our val our apps is value to us exceeds its financial rewards is I think it's what we're both saying is in the sense of it isn't you know there's not this it's like our businesses are worth three times the annual profits.
There were more that than that was with that they were emotionally invested we have you know lots of things built into these we enjoy the process that we know that we've hit on something that succeeds and that value is unlikely to be paid for by someone who wanted to buy it and so unless they're doing it for another reason it's just not going to work out and isn't going to be worth pursuing but you know you never know maybe the eventually the truck gets big enough and you know like the same way I said I don't fault anyone who who accepts that money truck but generally for me it just doesn't really make sense.
Congrats to pixel made. Congrats. Thanks for listening everybody and we'll talk to you in two weeks. Bye.