A friend of mine sent me an email today, asking about a Private to Private sale of a website and how to Value it. I enjoyed thinking about the dynamics of this and enjoyed answering his question; so, I (with his permission) anonymized the question and have provided my answer below:

Question:

My partners want to sell our project – basically the IP, the domain, and any related assets. Given that the site site is fully built but not yet launched (<10 uniques/day from 130 beta users), how should we go about valuing the sale?

My Answer:

“Deals” like these are insane to price, because the market for “fully built, specialized websites” is about as illiquid as it gets.

Valuation in this case can’t be priced by the market in terms of anything but what someone would have to pay to have the same thing developed. No one is buying your users or brand at this point… so they’ll buy the development effort you put in, and maybe pay a premium because of initial feedback from these users (i.e. product feedback from 130 users is more valuable than then “users” themselves).

Considering this, market dynamics will drive valuation according to 1) a prospective’s buyers interest in having exactly what you developed; or 2) competition between buyers who sorta want the same thing.

Since it’s unlikely someone desperately wants exactly what you have exactly the way you made it, competition is key to this private transaction.

So to answer your question… If you told me you know no one who’s strongly interested in pursuing a business like the one your site supports, I would tell you your valuation is close to zero (this was my case with BricaBox).

If you told me you had two people who were interested in pursuing this as a business, so much so they would have gone out and hired a firm to build it, I would say the valuation should be slightly higher than the cost of development from scratch.

If you told me something in the middle it would be something in the middle.

In fact, startups fail and succeed for every other issue besides money in the bank; and money in the bank is merely a byproduct of success or failure.

As I wrote about in my BricaBox postmortem, we failed because we failed to gain traction. We failed to gain traction because we didn’t have the right product and, even if we did, we didn’t execute well enough against the vision of that product. All of those factors, and factors of those factors, are the reasons we didn’t have money in the bank at the end of the day.

In fact, the presence of too much money can also be a reason for downfall. Go read one of the best postmortems I’ve ever read, where Roger Ehrenberg’s chronicles the downfall of Monitor110. In the post, Roger lists 7 reasons the company failed:

1. The lack of a single, “the buck stops here” leader until too late in the game
2. No separation between the technology organization and the product organization
3. Too much PR, too early
4. Too much money
5. Not close enough to the customer
6. Slow to adapt to market reality
7. Disagreement on strategy both within the Company and with the Board

Nowhere does Roger say “We ran out of money.” Instead, and aside from several other errors and issues, they had too much, which caused them to spend the money improperly. As I talked about in my own postmortem, how you spend money can be a huge source of problems for the company (my error was in spending the little money we had over too long a period of time, instead of going further in a shorter period of time). But again, not the lack of it.

Meanwhile, take success stories. I love the story of Blogger, where Ev Williams and team were dangerously close to running out money before Google bought them. Here was a company which started up with one vision and then had to make big cuts and even bigger product changes before they got traction. But they stayed afloat because they saved enough and moved quickly enough — and most importantly, learned enough from their first iteration — to come out with Blogspot and gain the massive traction which resulted in Google buying the company. (To hear more, listen to Greg Galant’s excellent interview of Ev on Venture Voice).

For me, the moral of the story is that it’s almost never about money. If you’re doing great things, you’ll find a way to stay alive. If you’re not doing well — which is totally okay, by the way — your company won’t be around much longer and you’ll have the opportunity to move on to new ventures. There are exceptions to this (massive, money-draining externalities like lawsuits come to mind), but from everything I’ve experienced and observed in the startup world, you’re best thinking less about money in the bank and more about what to do or not do to make sure your company deserves to have more of it tomorrow.

Back when I published “The cafeBricolage Manifesto,” I knew practically no one in the New York technology industry, or even New York City for that matter. Sure, I had been piping up for a few months the nextNY list, and I had been to two or three events, but aside from that, I wasn’t participating.

Boy, things have come a long way.

Reflecting on the cafeBricolage dream is not only a nostalgic exercise, but also a good marker for how far NY tech has come in two years. Back then, I wrote:

cafeBricolage would be the NYC incubator for start-ups, but it would be done in a way that NYC needs. Throw out your old concepts of an incubator, and think about this: a collective space, one part cafe and one part office, which could support up to a dozen small resident companies of various smallness, and work-space, geared toward the laptop carrying professional, embedded in a community cafe operated by the members themselves. Since we’re all tech people here, I say in in a way we can all understand: “It’s ‘co-working‘ meets ‘cooperative cafe‘ meets NYSIA meets ‘Digg’” (just kidding about the “Digg” part, it’s just something you have to say in a sentence like that).

While this dream never came to fruition, in the past two years many other dreams have.

New Work City, which grew out of cooperBricolage (which was, clearly, at least influenced by my cafeBricolage Manifesto) launched late last year, bringing a magnificent work and programming space to the New York tech and independent community.

Of course the Incubator at Rose Tech Ventures — the space I currently manage — has also launched in that time. In fact, I met David at the cooperBricolage launch party, where I overheard him talking about the early vision for our incubator. I offered to be the first tenant (as BricaBox back then) and soon thereafter my working relationship with David S. Rose and Rose Tech Ventures began. Now, we have a dozen startups under our roof, weekly programming, and dozens of community events throughout the year.

As these types of community energizing places have emerged, so have new community energizing times.

Last year we saw New York City’s first Internet Week, putting our industry on the same level of other great New York industries. We also saw the Web 2.0 Expo come to New York, making it clear to the industry elsewhere that New York City is a leading place to innovate and develop new technology. And this week, Social Media Week has kicked off its inaugural event, bringing the City dozens of free, community-led events about the area where tech and media are converging: a phenomenon New York City experiences like nowhere else.

What’s remarkable to me is that what’s emerged in the last two years is far richer and sustainable than anything I called for then. While the dream of a one-stop still has its benefits, realistically the decentralized-yet-interconnected nature of today’s New York tech industry sets the stage for futher and futher growth from places not yet imagined two years ago, like the newly-institutionalized NY Tech Meetup, its Community Committee, and the dozens of other new groups which have sprung up in such a short period of time, like Fashion 2.0, Ultralight Startups, and the Entrepreneurs Roundtable.

Looking back on these past two years invigorates me. On a purely personal level, they’ve been two years of tremendous growth. But on a community level, on the two-year anniversary of my involvement in this great thing we call “NY tech,” they’ve been two years of tremendous progress of which I am blessed to have become involved.

Onward and upward, New York!

“Was she being supremely Machiavellian? Or had she simply lost her mind?”
– John Hielemann, on Hillary Clinton’s final weeks campaigning

Today, I’m announcing my plans to close BricaBox, LLC.

This decision, which has taken place over the last few weeks, was as complicated as are my feelings about it. Nonetheless, I can tell you most of this decision revolved around issues of money, traction, team, and vision: the four essentials of a successful startup.

I think it’s fair to say that a startup deserves to live if it has good quantities of at least three of those four things, and BricaBox is now out of all but one of them.

Perhaps, even, it was out of them sometime ago — this is where that quote about Hillary Clinton comes in — and we’ve just been in denial.

Whatever it is, I’m going to take a tremendous amount of experience, lessons, wisdom, etc with me. And, over the next few weeks, I intend on blogging diligently about every aspect of this failure. I’ve taken extensive mental notes on these lessons, and I look forward to sharing them with you. I think this process will help me institutionalize these lessons for myself, and of course I hope you can learn something from them as well.

For now, I’ll give you a table of contents for what’s to come. Subscribe to my RSS feed to be alerted to when I post and see below for some teasers.

As for what I intend on doing next, you can be sure that it will be something entrepreneurial. A few weeks ago, I spoke to a few of the companies I admire most in New York (about joining their ranks), but realized quickly that I was not ready to take my hand off the entrepreneur’s tiller.

So, I plan on doing a mix of things: consulting for media and technology companies, launching some exciting small projects with my friends (soon to be announced), and exploring new startup opportunities.

Of course, with all these things, I now have the perspective of building and launching BricaBox — and I’m excited to put those lessons to work. Also, I bring with me my entire life experience, dating back to my first company (Westheimer Family Plants and Produce), building and running Brandeis Television, directing new media operations at National Public Media, and working with political organizations like David Pepper’s campaign for Mayor and now TruthThroughAction.org’s project.

I’ve realized that I’m a “new media mechanic” — one part technical, one part zen — so, if I can help you tune-up your online media operations, please let me know.

As for what I intend on doing with BricaBox itself, time will also tell. We’ll keep the site live for now. However, if there’s a media company in need of a proprietary platform to scale thousands of user-generated content websites, I think BricaBox could be of great use for them. Of course Open Sourcing is another option, though that would also require a certain level of interest from the community.

Last of all, I want to thank several people who made the experience with BricaBox wonderful (though there were countless who had a great effect on the experience): Thanks to the nextNY community for free business school and for the friendships; thanks to Evan Bartlett, Michael Galpert, Charlie O’Donnell (my biggest — always constructive — critic), Alex Lines, and to David S. Rose, for his mentorship. A big thanks goes to my dad for his watchful eye. Many thanks go to Gary Vaynerchuk for his commitment to my success. To Allen Stern of CenterNetworks, the great guys at Silicon Alley Insider and Caroline McCarthy of CNET, thanks for promoting New York Tech companies!

Thanks to Mike Hostetler for stepping into the technical lead when we were most in need.

And lastly, thanks to everyone who loved BricaBox like I did. We had some awesome users and fans, like Nichelle Stephens, Andrew Watson, Ari Greenberg, and more. Asking them to say goodbye to BricaBox hurts the most!

As I write the final words of this post, my mind is still coming up with reasons and ways not to do this; alas, it must be done — it is that time. Now, I get to look onwards and upwards. As I look at the table of contents (below) to my startup’s postmortem, I get excited about working on what’s next. The opportunities I have coming are incredibly exciting, and applying all that I’ve learned to the next Big Thing will make it all worth it. That’s for sure.

Postmortem Table of Contents (complete posts to come)

Companies should tackle Market Problems, not Technical Problems.
BricaBox was a solution to a technical problem I had. While it’s good to scratch itches, it’s best to scratch those you share with the greater market. If you want to solve a technical problem, get a group together and do it as open source.

Start with a real team.
There are a million things a startup needs to do and a dozen skill sets. If you get more people involved from the get-go, you can better distribute responsibility, and grow on the cheap.

Lightweight or heavyweight? Choose one. It matters how you spend.
Does your startup have a burn-rate? If it’s above $0, think about concentrating it and speeding up development. BricaBox was fed-but-anemic and and slowly roasting its cash. Do it again and I’ll concentrate those costs at the beginning. We would have had twice the product in 2/3 of the time.

When in doubt, build off Open Source.
One of the first questions I had to deal with, while building BricaBox, was why we weren’t modifying an existing Open Source solution, like WordPress MU. We were a CMS at heart, after all. Next time, I’ll give more consideration to building off and participating in existing Open Source project.

Go vest yourself.
When a co-founder walks out of a company — as was the case for me — you’ve already been dealt a heavy blow. Don’t exacerbate the issue by needing to figure out how to deal with a large equity deadweight on your hands (investors won’t like that the #2 stakeholder is absent, even estranged, from your company). So, the best way of dealing with this issue is to take a long, long vesting period for all major sweat equity founders.

More to come…

Currently, my best definition of “social content” is this:

“Websites where a group of people collaborate on a base of content.”

While I’ve thought about including a qualifier like “… using a common format” to the end of that definition, I think it’s pretty good right now.

Here are some examples of “social content” sites, so you can see the scope of this genre:

• Wikipedia is a “social content” website
• YouTube fits this bill
• Yelp is an example
• Scribd is a social content site for documents
• 43things is a social content site
• Digg is also a social content site
• Aviary is a social content platform

What’s your definition of “social content sites”? Have you ever thought of all these sites being under one genre?

Anyway, I thought that while we were all suggesting new board members for the bruised-up tech company we’re all coming around to love (I am), we should put all the nominations in one place and get some sort of intlligence out of them.

So, I turned to BricaBox.

Since BricaBox is like a wiki with social and data intelligence, I just replicated the Alley 100 People’s Choice and created this:

Yahoo! Board People’s Choice

Please join me in nominating your choice for the new Yahoo! Board. And, if you have any questions or concerns about BricaBox, please let me know.

Late Friday, I posted an item on the BricaBox Blog about a conversation I had with Fred Wilson about our company’s pitch.

Please head over there (you can also subscribe here) and let me know what you think about the “Ning for Content” pitch.

Also, if you’re interested, I created a “Best BricaBox Pitch” BricaBox.

I wanted a place for you to submit your best pitch for BricaBox and vote on other pitches.

Luckily I knew of a platform which could support that

One of the first questions he and others ask is, “Do we really need another how-to video site?”

My take is: yes… a few thousands more.

Part of our bet with BricaBox is that folks will want to create thousands of how-to sites, with various combinations of video, wikis, photos, etc, around verticals like “ways to tie your shoe” or “best yo-yo tricks.”

Of course our bet goes far beyond how-to video sites and wrapped around the larger concept of social content sites, where we think there will be tens of thousands of sites popping up over the next five years… though not necessarily coming form Barry Diller.

We see them coming from you.