How to Sell a Software Business for Over $1 Million | Marketer Intel

How to Sell a Software Business for Over $1 Million

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In 2010, I launched Long Tail Pro, a keyword research software tool.  Over the next 5 years, I grew the company from 0 to about $1 million in revenue per year. I sold that company in 2016.

Although I’ve shared some bits and pieces of the Long Tail Pro story over the years, I haven’t really shared anything that’s happened since 2016.

Building and selling Long Tail Pro is a monumental event in my life and so I hope you don’t mind if I talk a little bit more openly about it than I have in the past.

Today, I share the “untold” story of Long Tail Pro and what has happened since I sold the company, along with some of the valuable lessons learned along the way.

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Please watch the video to get all the details of how I build my software company, why I sold the company, and what has happened since.

Overall, I hope you enjoy some of the thoughts I share related to selling my software company.

Hey everyone: it’s spencer, here and today i want to take a trip down memory lane. I want to talk a little bit about my previous software company called longtail pro. I was recently on a podcast and the story of longtail pro came up and i felt like i’ve, never really shared the entire story.

I’ve shared that i built the software that i sold the software, but i haven’t shared a ton of the details and actually what has happened since, and so i want to dive into that today. It’s. Really just a story of long tail pro how it’s dramatically changed my life and how it ‘

S impacted how i’ve done business in the future as well. So let’s dive into that. I started long tail pro back in actually 2010 is when i started developing the software tool. It really didn’t launch until the very end of 2010 and really early 2011, and so i won’t dive into it too much uh.

Other than it was an idea that i had on my own so that i could do keyword research a lot faster. I was out building tons of niche websites and i wanted to input more than just one seed keyword tools like market samurai.

That was really the one i was aiming for. You could only input one seed keyword. It would spit out a couple hundred results and that’s great. But i wanted to input 10, 20 30 different seed keywords in different niches and have it just spit out thousands of keywords, check and tell me if the exact match domains were available and give me all the metrics that i needed to make a decision.

Whether or not i should start a website on those keywords, and so i did the analysis i’m, not a developer, so i hired somebody and i built the software, and i launched it to my very small list of maybe 1500 people.

I actually had a blog back in the day called niche adsense challenge.com. If you go there, i don’t think it’s working anymore, so i did have a small list and i went ahead and i launched it to that list.

I also did a warrior forum special offer if you remember the warrior forum, and i got some sales, i think in the first month i made about 2 500 bucks, which was huge for me. I still had a full-time job.

I was working as a business banker at wells, fargo bank. This is right before i decided to quit my job, and so it was well received. I thought and then the the months after that you know you have a launch that goes really well and then it sort of goes down and i was making maybe a few hundred dollars a month after that for a little while – and i was happy with that – I had never launched a software tool, and so it was doing pretty well, i thought, but, as would happen with software, there started to be some bugs, and so i needed to go back to my developer.

Have those bugs fixed and for a while. That was fine for a couple of months, but then the developer was overseas and he started getting less and less responsive and i decided you know what. If i really want to build a business here, i got to have somebody that’s responsive.

I got customers breathing down my neck, saying: hey the tool’s broken it’s, not working. I think at the time you know it’s, definitely less than 100 customers, but still i wanted to make them happy and i decided i needed to hire a different developer.

I needed to get somebody that was more responsive in my own time zone that had english as a first language that i could communicate better with and i asked the developer hey. Can you give me the source code, and this is a story i have shared before? Maybe you’ve heard it a few years ago, but basically he said, came back and said: whoa you, didn’t, buy the source code, i own the source code and if you actually want the source code, it’s.

Going to cost you an additional fifteen thousand dollars, i had already paid, i think, a little more than fifteen thousand well, maybe less than fifteen thousand dollars for the very first version, uh of long tail pro – and so here i am with this dilemma of.

Do i pay this guy 15 grand to get the source code that i thought i already owned? Do i close down shop completely or number three? Do i go out and hire a new developer and just start from scratch and i ‘

Ll be honest. I thought about shutting down completely. I remember having a very vivid discussion with my brother, and he said: no, you, you, probably shouldn’t continue on with this business. It’s only making a few hundred dollars a month.

Why spend fifteen thousand dollars just just close up shop? It was a really tough decision, but i decided i’m gonna go out. I’m gonna hire another developer and i’m, going to build the software tool from scratch and just make it even better than it was before so.

Fortunately, i did that. I built the second version of long tail pro. It took about six months. I had to give a lot of refunds. I had to keep customers at bay. It wasn’t a fun time, because the old software tool stopped working pretty much 100.

If i recall correctly – and i gave everyone that had paid the new version of long tail pro – i basically said hold on it’s, going to be a few months. If you want a refund, i’ll. Give it to you, if not if you can hold on, i promise i’ll, get you a better version and i did.

I gave them uh the new version for free and i relaunched the software tool and fortunately, it sold even better. By that time i had a bigger list. I did another launch on warrior form by this point. I had quit my full-time job because my niche sites were doing well is making a little over ten thousand dollars a month, uh 10 15 ish thousand dollars a month.

When i quit my job and it grew a little bit from there and um. I felt like i had something on my hands here. I’ve got a software company that i can build now, the first full year. Sorry, not the first full year, the first year that i launched it was 2011 really um.

I guess that was the first full year and i made maybe thirty thousand dollars in sales uh. It definitely picked up in the second half of the year uh and then in 2012. I think it just cracked a hundred thousand dollars in sales, and so i definitely had something that was growing now.

It was not easy, it was tons of development work and you have to remember at this time it was still a desktop application, so it was no recurring commission, i sold it anywhere in the beginning, it was like 47 bucks, one time you bought it and you Had a lifetime license uh, you got all the updates for free at some point i bumped up the price to 97 bucks and so then in early 2013 is when i did this huge launch.

I re i i brought in mark thompson. He did. He helped me. Do this affiliate launch, he was really good at recruiting affiliates and we did something like 250 000 in sales in about 10 days, and that just blew my mind up to this point.

I was doing all the support myself all the sales and marketing everything other than the development work, and i was absolutely overwhelmed after the first day. Luckily, i reached out to my facebook group and i found a support person that stayed with me for the life of the company and actually still helps uh with some support for link whisper.

Now his team does anyways. He’s, a different story, but he’s, built an entire team now of support staff anyways. I started hiring people to help out with the business after that launch and then shortly after that, we introduced the recurring commission structure of the keyword, competitiveness.

It was called long tail platinum, and that was a big move for the business, because now i was getting that recurring commission and so the company began to grow from 2013 to 2014. The recurring subscription uh was growing.

I was just doing a lot of hustling. I was blogging on niche pursuits. I was doing podcasts word of mouth was huge for longtail pro had an affiliate program, guys like pat flynn and empire flippers, and lots of other people were promoting uh long tail pro and then again in 2015.

I did another huge launch with mark thompson again and this time it crushed it even more. I think it was like 500 000 in total revenue and again that’s, top line revenue before i paid affiliates right so affiliates made 50, and then i had to pay mark thompson, something like 25 of what was left over.

So it still was like well over six figures that i put into my pocket um from like a one week launch. So it was. It was huge and that really put long tail pro on the map. Even more and so 2015 was a stellar uh huge year and then 2016 was just even bigger.

I kept doing promotions recruiting affiliates. I had jake kane at this point, a full-time employee, helping me run the operations of the business, recruiting affiliates, uh and doing a lot. I mean i there so many lessons learned that i could dive into.

But honestly i’m, not an expert at this stuff. I i you know i was a business banker by trade. I wasn’t a developer, but i was very open about updates and ideas that i had for the software tool. I tried to always be very honest with customers and do the right thing by customers.

Um always try to make it easy to get a refund or if they saw a bug, we’d, update it for them. I would hop on calls with customers in the early days and fix things and and the business grew, and it did really really well in 2016, and let me see if i can actually find some of those stats here.

I wrote a blog post where i shared a lot of the uh results, and so well. This only goes to um 2015, but basically, 2016 was was even bigger. We uh the company, basically just eclipsed a million dollars in sales, a million dollars in revenue and no, i’m.

Sorry, no 2015 is the correct year, so uh just shy of one million dollars in revenue in 2015 and just over six hundred thousand dollars in net profit uh. That is more money than i thought i would ever make.

You know i was working as a business banker making way less than that. You know making less than six figures a year at my old job in 2011 and then in 2015 to be, and again i was the 100 owner i owned all of the company, and so after paying all employees development everything to have over six hundred thousand dollars.

Put into my own pocket in just that one year, um it’s, huge it’s, it’s, life-changing amounts of money, and i do have a blog post. If you search for how i sold my software company on niche pursuits, you can see this graph.

You know you can see in 2014 that the net profit was closer to 300 000 and then basically doubled in 2015, and a big part of that was that one launch where you know like i said i put over a hundred thousand dollars within about a week Period uh in my pocket, so it was already life-changing amounts of money, even if i had just held on to the company, but there were definitely competitors coming in a lot of additional keyword.

Research companies were coming in, google was making it harder to access the data and longtail pro was still a desktop application, and i knew to take it to the next level. It needed to be an online tool, and so i had to decide.

Do i take this company and create a whole new version of the software going from a desktop application to an online tool is no easy task and takes a lot of investment. Do i make that shift? Do i feel like i can still compete with all these new keyword, research tools out there am i still comfortable with the fact that google is having a very tight grip on the data.

There was a lot of decisions at play and i decided i was ready to sell the company. I had grown it to the point where i felt i could grow it and i wanted to sell and it just worked out that i told a few people hey.

I’m thinking about selling and word kind of spread a little bit and i actually got three different people that were interested in buying just privately. I never had to list it publicly anywhere and um.

I ended up going with wired investors if you ‘ Ve listened to the podcast, you’re, familiar with those guys and um my history with them there. I had known them for many years and i felt like they could take the software to the next level.

So, after negotiating several different points, i signed an asset per purchase. Agreement with wired investors and i won’t get the exact price. It does feel a little bit awkward to share how much money um i sold long tail pro for the exact amount, but i shared the income numbers of the last full year in 2015 and if you know multiples of software, you can do some math and get Pretty close to to what i sold the company, for it was a life-changing amount of money.

You know over seven figures again, i i was the 100 owner at the time and uh being able to see that amount of money hit. My bank account all at once. I have no debt, you know never took on any debt with the company, it was.

It was a good day. I’m, not gonna lie uh, it was a good day. I still worked from home and i basically walked downstairs and talked to my wife and said: well, it’s done, i’ve sold it and i took her out to a nice dinner and that’s, how he celebrated Um, it was a hard decision.

I i will be honest that i struggled a lot. I talked to so many people, my dad, my brother, my wife business associates several sleepless nights because i had a couple of employees and i knew i might have to either let them go or they would have to go with a new company and they may or May not like working with the new company, so it was stressful, but i i believe that i made the right decision, and so now i want to talk a little bit about what happened.

Next, i won’t dive into the process of hiring lawyers and negotiating price and all of those details, but i will share one detail that i left out here is that i actually only sold eighty percent of the company and so up until now.

I have been still a twenty percent owner of long tail pro, but i have zero operational responsibilities. I am not involved in the day-to-day responsibilities. I don’t, make any decisions for the company um anything like that.

The reason i kept 20 because i felt like there was still a lot of upside and i wanted to take advantage of that upside and so after the company was sold, uh wired investors. They wanted to do some promotion on their their blog and, if you may have been following along, you may be familiar with this story.

If not, you can can google, it um just some short commentary here they did some things in the first. I don’t, remember what it was two or three months, because long tail pro was the first acquisition of wired investors.

They wrote up, you know they did some things of longtail pro that that increased conversion rates and they sort of extrapolated okay. We’ve increased the conversion rates here, and the value per subscriber has gone up this much.

Thus we can project. Over the next year we’ve increased the value of long tail pro by you know 2x or i don’t, remember the exact amount, but it was a little bit uh sensational and again extrapolating out and they wrote this big blog Post and i kind of felt bad because it it made me, look bad, it looked like hey.

These guys could come in and double my company after just a couple of months and uh, but i worked with them in in a way because i had just gotten a ton of money from them, and so i didn’t tell them to take That blog post uh down and um, but it i kind of felt like i’ll, be honest.

It damaged my reputation a little bit in terms of my own business savvy. It made me look not that great. But what did i care? I mean? I just had the hugest payday of my life um, but over the next um year or two, it became very apparent that the changes that they had made wired investors made did not you know, double the company um at all, and so they actually went back and Changed that blog post and so it’s, been an interesting ride.

Um. I will just say that long tail pro uh actually did continue to grow a little bit in the first couple years, but it ‘ S definitely stagnated uh, but it is still a very solid company. Like it’s, i can’t share the exact numbers, but it’s.

It’s, still a very healthy six figure a year revenue business. I mean it’s, you know doing really really well, and i’m impressed with a lot of the changes, because wired investors did have a difficult task of taking it from a desktop application to an online version, and they did that.

There was lots of things that happened um and it was so tough for me because i couldn’t answer to the customers and say you know hey. I got your back because i no longer had any operational control, but if we fast forward now until about a year ago, wired investors decided to sell longtail pro again, and so there actually is now a new owner of longtail pro and they took over.

In about january of 2020, so they’ve, had it uh roughly 10 to 11 months now, and what did that do for me? Well, not not a huge change other than you know. It’s, a change in ownership. Again, i still don’t have any operational responsibilities.

I still do currently own my 20, and so i should clarify that over the last four years since i originally sold long tail pro, i have been getting uh quarterly payments, which is pretty nice. I’m, not going to lie kind of get 20 uh bonus check or you know just the recurring earnings every month and but i do expect in the next 12 months to be paid off completely.

So i will no longer have any ownership percentage in long tail pro whatsoever. You know after the next 12 months or so so that essentially brings us up to date with where long tail pro is today uh. But where does that actually leave the company itself? So longtail pro is still actually a very strong company.

Uh it’s, doing well. It’s profitable. It’s, earning money and uh. The new team that just bought the tool i’m actually optimistic that they’re gonna make some really nice improvements to the software tool.

They’ve, already made uh some decent improvements. There just different things: the the rank tracker is improved, the core keyword, research functionality is improved and they’re. Tightening up some loose ends that have been um with the online version of longtail pro for a little while, and so i’m, really actually quite excited about the future of the software tool itself.

I likely won’t, have any ownership percentage going forward? I don’t really do anything with the tool other than every once in a while. I’ll, say maybe every three to four months. I do actually hop on a consulting call with the current team and i walk through and give my advice, my tips and any strategies that i might have, which i think they’re still appreciative of, and so it’s been a Long journey uh, when i look back it’s now, actually been 10 years since i started long tail pro it’s a long time ago that i came up with the idea back in 2010 and launched the software tool, and here We are now at the end of 2020.

I still have a very small ownership percentage and but it’s been sold twice. Now i sold it once and then wired investors sold it again and the current company that owns it. I don’t know how much of their plans i’m supposed to go into other than uh.

They are likely going to wrap it up. They they own other companies and software tools. They’re likely going to package. It all up – and i think the dream and hope someday is for them to be publicly a publicly traded company which would be cool if someday, i could say, hey longtail pro is part of a publicly traded company.

So we’ll, see it’s been an amazing journey, it’s been life-changing, and i’ll. Just say that, even though i’ve had a huge payday with longtail pro. I still am ambitious. I still have new ideas. I’m, still excited to go out and build new software tools.

In particular, i’m working on link whisper right now, which is done very well, and i actually do believe that link whisper has as much potential as long tail pro had as well. And so i’m, going to see where i can take it.

Link whisper has been in existence now for about a year and a half, and i’m, very excited to see what happens over the next two to three years and beyond, to see where i can grow it, and so that’s. Where i am in my current business, that’s, the full story of long tail pro there’s, a lot of little details.

Of course that have happened since i sold the company, but because i’m not involved directly with the day-to-day operations, i didn’t want to dive into those too much other than i’ll. Just say that there’s, certainly been some bumps along the way there’s been a lot of new competitors come along the way, but longtail pro is still after 10 years a great tool.

I use it personally for keyword research tool as a keyword, research tool. Still i use it as a rank tracker almost daily. I’m in there checking where my rankings are and much more it’s, a profitable company, and so i feel very good about that that i was able to start something uh that has employed lots of people.

Now at this point – and i see a good future as well for the company – so there you have it – that is the full story of longtail pro. I hope you have enjoyed this episode and kind of listening to me. Re hash, the history a little bit of the software idea that i had 10 years ago.

So if you have an idea for a software tool, i definitely think it’s, a great business, a great avenue that you can go down. You can make a life-changing amount of money, no guarantees, but certainly, if you put in the effort, if you stick with it and if you truly come up with a good idea, this solves a real problem.

You can be successful at it. So thanks again for listening.



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