October 30, 2015

The Dangers of Selling under Non-Disclosure

Back in the summer I sold one of my small SAAS apps that had around 100 paying customers. After trying a few private channels someone recommended I try selling the app through a broker. I had sold a few apps on Flippa before but nothing of this value and I wanted to see if I could get a decent valuation for it. So I decided to use the broker and the sale went through without a hitch.

One of the conditions of the sale was that I had to sign a NDA (non-disclosure agreement). The broker told me this was fairly common practice and, as I had personally witnessed the sale of a much larger WordPress company under the same conditions, I didn’t think too much of it. Admittedly it wasn’t the ideal conditions to sell the app under but if I wanted to sell the app at a decent price this was a small compromise I was willing to make. Or so I thought.

The NDA prevented me from making a public announcement of the sale. So after the app had been transferred to the new owners I thought that was the process complete. However back in September the app went down for a couple of days. Customers, understandably, started to complain. This frustration was multiplied when we had to inform customers that we couldn’t help as we were no longer responsible for the app. This left us in a awkward position where we could do nothing to resolve the situation. Some irate customers even accused us of trying to scam them. Not good.

Thankfully I managed to get in touch with the new owners and the app was back up again shortly afterwards. However the damage had been done. Seeing customers publicly scold you is a hard pill to swallow, especially when it is justified. So what did I learn from this unfortunate situation?

  1. Don’t sell your app under a NDA if at all possible. I understand why buyers like the idea, especially when the brand of the app is linked to the owners. However if things do go south then inevitably the seller is left holding the ball and dealing with a damaged brand. I don’t see myself ever selling under a NDA again.
  2. If you must sell under a NDA, tell your customers up front. My biggest mistake was taking the NDA’s policy of not announcing a public sale to mean that I couldn’t inform my customers that things had changed. Even if you can’t name the new owners you should at least tell your customers the app is “under new management” (for example). Not doing this will make your existing, and potential future, customers not trust you as much.
  3. Don’t leave your business details on the site. This only adds to the confusion. If customers still see your name in the footer of the site then, as far as they are concerned, it’s your responsibility to deal with it.

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