Bare Naked App

Hey folks,

Just a reminder - we’re now blogging at Carsonified. Here’s the RSS feed if you’d like to switch over.

Thanks!
Ryan

I’ve pointed this FeedBurner feed over to Carsonified now. We’re no longer updating BNA. Hope you enjoy the new blog. It’ll be more of the great same content, but at a new address.

Head over to Carsonified to learn more about questions potential buyers are asking, and what our Churn Rate is (and what Churn Rate means :D)

Howdy folks. Just a quick note to say that I’ll be finishing the story of the DropSend sale over on my new blog, Carsonified.

We will no longer be posting on Bare Naked App, so please subscribe to our new feed. Thanks!

It’s been a really interesting process learning how to value DropSend. In light of this, I’ve written an article over at Vitamin on the subject.

We thought it would be fun to play “Guess the Value” and pick a different web app each time. The first article is called Guess the Value: Basecamp.

Head on over and guess the value of 37signals‘ popular web app, Basecamp.

Update

Three buyers are very interested at this time. I’ve spent a lot of time emailing back and forth, making phone calls and preparing documents. It’s all pretty time consuming, but very interesting. I think we’re getting close to receiving formal bids. Everyone is aware and comfortable with the current minimum bid of $900K USD.

My biggest fear was that by live-blogging the sale, I would scare away buyers. The opposite has been true. Everyone who has gotten in touch said they find it fascinating and they appreciate the openness.

Meanwhile …

Gill came across something that made me laugh. She found an old photo of me in Carson Systems’ first office (our top bedroom!).

Gotta love that! An old crappy PC, a cactus plant, and two wooden desks!

Here’s a look at Carson Systems now. Wow, things sure change quickly. We’ve now got our own office, a four-day working week, five employees, gorgeous Mac gear, daily fresh fruit shakes and fresh ground coffee. Can’t complain!

On another note …

Someone called me out about my claim that we spend zero money on advertising.

I know you are never going to believe me, but I had forgotten about that ad. We spent £1800 on it (we got reduced rates because it was a slow month for the magazine), and we got one sign up (a Business Plan user) off it. The ad ran for 30 days in July (I think).

What does that prove? It’s hard to say. Possibilities:

1. DropSend is not right for the audience.
2. The reason we got the ad so cheap is because the readership is down.
3. The design of the ad wasn’t compelling enough.

Anyway, thanks for calling me out. I had honestly forgotten we did this ad (probably because it was such a dismal failure).

We promised to reveal the breakdown of the number of users on each plan, so here we go!

• Basic ($5): 216
• Standard ($9): 157
• Pro ($19): 90
• Business ($99): 43

Now here is the breakdown of the monthly revenue over these plans:

• Basic: $1080
• Standard: $1413
• Pro: $1710
• Business: $4257

This data communicates something very clearly: there is money to be made in SMB, premium plans. 50% of our revenue comes from only 11% of our customers..

I had an interesting conversation with Jason Fried of 37signals about these numbers. We both agreed that $5 plans are a lot of hard work, for very little money.

My advice for those of you building web apps based on monthly subscriptions: have a plan for getting people off of the low-paying plans. Or maybe don’t offer a low-paying plan at all.

With DropSend, we found the best way to get people to upgrade is by offering them a coupon. By upgrading before a specific date, they would save anywhere between 10% - 100% of the first month.

Side note: You’ll notice that the numbers for November on both graphs look like they tail off a bit. This is because we’re only nine days into November.

Update

We had a request for the number of users over the months. Here you go:

December 2005: 4,249
January 2006: 8,430
February 2006: 12,478
March 2006: 17,628
April 2006: 22,206
May 2006: 27,882
June 2006: 33,665
July 2006: 38,953
August 2006: 44,635
September 2006: 50,144
October 2006: 56,611
November 2006: 58,462

Important note: Every time you send a file to someone, it creates an account for them. Therefore these numbers don’t really represent the actual growth of DropSend. A better representation would be how many registrations we get. Unfortunately we just started tracking this. Nine days into November, we’ve gotten 249.

Just to keep you up-to-date: We’re currently in serious talks with three major buyers.

All three have agreed to a minimum bid that we’re very happy with. In addition to this, all three of these companies will take great care of our users.

However, I’m only going to let myself get excited once the money is in the bank :)

Well, there have been a ton of both positive and negative comments related to my post on our monthly profit figures. I’d like to take some time to respond to the negative comments.

Here we go …

As others have noted, the “profit” really isn’t a real number. There is no accounting for support, future development, company overhead etc. If you assume everything can be handled by two people — an engineer at $60k and an admin person at $30k — your entire profit is gone. And you don’t even have an office, phones, foosball table or any of the stuff that makes a business fun.

The current high bidders for DropSend do not plan on running it as stand-alone company. It simply does not have the revenue to support this. Therefore, the costs for management are assumed to be absorbed by someone who is already on their staff.

While the revenue growth is impressive, there is less than a year of history. The projected numbers are very nice, but completely unprovable at this point. Anyone with Excel and itchy fingers can build the same model.

Our growth estimates are very conservative. We do not, in any way, have “itchy fingers”. If that was the case, I’d be bumping those growth figures up by a few percentage points. It’s perfectly reasonable to predict that revenue would grow with increased advertising. However, just to be safe, we’ve left the current revenue growth at 8.6% and not increased it.

3) The product is a one-trick pony, not a platform driving broader adoption. That puts a limit on the multiple you’re going to get too.

Wrong. This is what makes DropSend so valuable. It’s damn good at one thing: sending large files.

Selling is one way to make money with a business, but running a Business that is profitable is usually better. I think this is the source of some of the skepticism about this sale. If it is indeed profitable then why the need to sell?

When a business is sold (in the UK), you enjoy 75% tax relief on the sale. This is because the government wants to encourage citizens to build businesses, sell them and thus bolster the economy. This is why I said “Businesses are built to be sold.” If you don’t plan on selling your business at some point, you’re missing out on a perfectly legal way to enjoy the profit you’ve created.

the fact that its not being advertised means project mostly depends on Ryan’s connections and exposure for publicity, which makes it even less attractive once it is disconnected from Carson’s.

This is just not true. I’d say that 99% of DropSend customers have never even heard of “Ryan Carson”. Why is DropSend growing? Because it’s viral. Every time you send a file to someone, it says “File sent by dropsend.com” at the bottom of the email. This virality is enough to achieve our 8.6% growth per month. If someone to invest, say, $10K on a concerted marketing campaign, those figures could increase substantially.

I’m here at Web 2.0 and I just had a meeting with one of our prospective buyers. Unfortunately I can’t share who they are, but things are looking good.

I’ll keep you updated.