Hours != Value: What Makes a Small Software Project Sellable?
Tackling the “I spent X time, so it’s worth Y price” fallacy.
One unfortunate mistake I see engineers, developers, and founders make when they are looking to sell a project is estimating the value of the project based on the time and money they’ve put into the project.
“I spent X time, so it’s worth Y price” fallacy
“I spent 600 hours building this AI-powered CRM project. All it needs is just a little marketing.”
At a cheap rate of $50 an hour valuation for my time, I’m selling this project for $30,000 as the minimum price.
Because that’s what it’s worth.
No, it is not.
Time Invested != Value
Acquirer’s, unfortunately, don’t value the time and money put into the project, they value the cashflow, customer list, and asset value. Among many other things.
Knowing how long it took to achieve those levels and the effort it required is interesting, but it doesn't go beyond that.
But, if the project has zero revenue, no customers, and no social buzz, it’s not really worth much. It doesn’t matter how many hours were spent coding up the project or hourly rate.
Actually, it could worth less than zero because it has accumulated technical debt that a new developer would have to maintain to keep the project moving forward.
Unfortunately, that’s trying to sell something that would cost a buyer money to maintain it while delivering the buyer nothing of value in return.
What if Time Invested == Value?
Still unconvinced? Then let’s keep the thought experiment going.
What if the developer put in another 600 hours into this project before selling?
Does that double the ‘value’ of this project that makes $0 and has no customers?
Of course it does not.
Why not just work on the project for 10 hours and say “as one can see, with another 590 hours this is going to be worth $30,000. So I’ll just sell it now for a little bit less than that price.”
Are All Zero Revenue Projects Worthless?
These two projects were a learning and passion affair for him and he likely had no idea how much time he’s spent on bringing them to life.
He never commercialized them and had no plans to do it in the near term, yet he and I both agreed that the two services contained value.
Well, it’s simple. Because they had traffic, backlinks, loyal users, and a customer base that trusted his solutions worked and would be available for free in the future.
Those attributes held value for me. It’s wasn’t the time he put into the project, but the output that came from that time.
Hours && Results > Hours && Code
Hours && Results > Hours && Code
Results > Code
Please don’t make the mistake of believing the value of a project is the time put into the project.
That is not how valuations work on the small or large scale.
If the project has some cash flow and customers, then that’s what the value is based upon. But if it doesn’t, then one might be able to justify a price by demonstrating non-monetary value like Pablo’s projects.
But if hours worked is the only currency, it’s very hard to make a convincing argument that hours worked equals any sellable value.
If that were true, I’ve got a mountain of bad code to sell that earns nothing, costs $40 month to host, but can be had for the low, low price of $150,000 any day.
😜 😜 😜
As always, I could be wrong, so reply let me know your thoughts!