In this session, you will hear from three buyers who are actively on the hunt.
Stacy is the creator of Her.CEO, a website that inspires entrepreneurs and shares website buying and selling experiences of her own and the Her.CEO audience. While still in a 9 to 5 job, Stacy got her start buying websites on Flippa, which is what allowed her to gain financial independence and break free from her corporate job. She now works for herself buying and selling websites as well as managing her current portfolio of sites. Stacy’s perspective is from the website buyer side, and she is happy to answer any questions related to the individual buyer perspective and what others in her position are looking for when purchasing a website.
Ted is a co-founder of engage:BDR, Inc. Ted serves as Chief Executive Officer & Chairman of the Board, overseeing all aspects of engage:BDR’s businesses.
In 2017, Ted took engage:BDR public on an over-subscribed IPO, which has yielded successful acquisitions and more than $50M in capital raised. Prior to engage:BDR, Ted was with MySpace.com from its launch, developing strategic marketing initiatives. Working very closely with founders Chris DeWolfe and Tom Anderson, Ted was responsible for launching the brand in its infancy. Also, Mr. Dhanik innovated the business development practice at LowerMyBills.com in its early stages through acquisition by Experian; he was an integral part of the early development and launch of the consumer lending program at NexTag Corporation, a competitor to LowerMyBills.com and LendingTree at the time.
Mr. Dhanik has worked for or been a partner at several other companies in the areas of business development, sales, and key managerial positions. Ted sits on boards or advises other tech startups and is an active mentor to Los Angeles-based startups.
Ted is passionate about remaining a thought-leader in the digital advertising industry. His writings are regularly published in publications including Ad Age, Forbes, Fast Company, AdExchanger, VentureBeat, and several other top-tier U.S. publications. He contributes to the development of industry standards and positive change, sitting on IAB committees including Anti-fraud Workgroup, Anti-malware Workgroup, Traffic of Good Intent Task Force, Programmatic Counsel, Digital Video Committee, Mobile Advertising Committee and Performance Marketing Committee.
Bryon is the CEO/Owner of Human Proof Designs. His company has been helping entrepreneurs start and grow online businesses since 2013. Bryon started his career in technology twenty years ago as a development engineer and spent many years providing technology consulting services for large U.S. based firms such as Microsoft, Accenture, Berkshire Hathaway, and Exxon. He started his first consulting firm 12 years ago and has since founded several online businesses. Bryon currently manages a remote team of 60+ professionals across multiple countries building and growing online businesses.
Q: Tell us what it is like to take a company public?
Ted: It’s very exciting. I’m a startup guy and going public means I am no longer a startup guy.
Q: What was the first thing you bought and did it work out for you?
Stacy: Unfortunately, the first thing I bought was not a success. Due Diligence is key. Make sure you get access to everything you can to verify it. Cross you i’s and dot your t’s.
Q: What are you looking to acquire and why that asset?
Bryon: Looking for opportunities where the site can be improved. Where can I save costs and where are there revenue opportunities that are being missed. It’s about finding those that have upside and can be improved.
Ted: I don’t want to inherit someone else’s problems. Accountability is key from the seller and looking for single points of failure and bottlenecks. Currently looking for Apps and websites with traffic either with or without ads.
Q: What do you want to acquire next?
Stacy: I’m looking for something that has a very strong brand. Not reliant on one source of traffic. For example, the website is reliant on Google search so if there is a Google update I want a lot of direct traffic so it won’t be as adversely affected.
Bryon: No blackhat practices. Give a lot of the information up front as we are buying 5 – 10 sites a month so we don’t have time for a lot of back and forth.
Ted: Just to add to that, there is this holy grail of organic traffic that doesn’t exist. A lot of the big sites out there it’s about content arbitrage and we love it. As long as you are buying traffic from the right places. Your only limitations are capital. We can grow a business fast just based on what media we are buying. That is where we think a business can grow. Being able to really demonstrate where your traffic is coming from. Demonstrate you know how to buy media.
Q: What do you think about conduct and how a seller should conduct themselves?
Bryon: Developing a personal relationship and get to know the owner. Develop a connection with the seller. Be realistic about what the market is saying it will sell for. A buyer will not pay 40x if they can only sell if for 30x in three months’ time.
Stacy: I agree with Brian and how the market sets the pricing. You do have to be able to sell at the same rate. Responsiveness is key as a seller.
Q: Is the expectation that founder and/or owners stick around?
Ted: I don’t want to buy anything where someone leaves. I’m not buying commodities I’m buying businesses that require people to continue to run them until knowledge transfer has happened. We set that tone from day one.
Q: Are you structuring earnouts?
Bryon: Typically if the deal is more than $20k we have some form of earnout that guarantees successful transfer or training that the seller has to participate in.
Ted: Just one thing to be careful of projections perspective because that is what your earnout is going to based on.
Q: What does a good deal look like?
Ted: I think it depends. I’m not in the business of repairing things. We tend to take things that are marginally losing money and optimize if through resources being removed. The bottom line is that our valuation is based on a multiple of EBITDA. We base it on that.
Stacy: When you can see something in the site that the current owner doesn’t. If you buy a site for 20x multiple, I look to earn that back in 10 months.
Bryon: The biggest one is financials. Lots of businesses we encounter are not tracking financials correctly. Likelihood is that if you don’t have clean financials, we will get it a discount.
Ted: Get a real accounting firm involved. These are tech businesses, so all your development can be capitalized and they go on your balance sheet and removed from your P&L. Now you are profitable. All the money you spent building the site is now on the balance sheet and removed from your expenses and that could be the difference between being profitable and a valuation standpoint. That is a big win I normally find.
Blake Hutchison is an accomplished entrepreneur and the CEO of Flippa.com. Prior to Flippa Blake was the general manager and chief revenue officer of Luxury Escapes and head of strategic partnerships at Xero. Blake was also the founder of GOOD44, a venture capital-backed specialty food marketplace helping small business owners target a new customer base.
50,000 online businesses have listed with Flippa in the trailing 12 months. Over 60,000 buyers. This is a dynamic and growing space.
BUYER INSIGHT #1 Content sites are, currently, king.
Content-based websites are hot. 51% of buyers, surveyed by Flippa, recurrently hunting for websites monetized by ads and affiliates. The benefit of these business models is that there is less volatile/seasonal revenue bass, less intensive and there is simple revenue-generating add ons readily available.
BUYER INSIGHT #2 – Experience
Buyers are experienced. Sellers are less so. 55% of buyers actively searching Flippa.com own 3 or more websites, whilst for most sellers, the experience of selling will be there first.
BUYER INSIGHT #3- Ready to purchase
Our buyer community is highly active and ready to purchase. 61% are in the market now and want to acquire within the next 12 months. There’s never been a better time to sell.
BUYER INSIGHT #4 – Deal terms
Buyers often want to offset some of the risk of the deal to the seller. 15% of buyers want to acquire on Seller Financing terms or a combination of cash + debt. The debt to be held with the seller. Seller financing provides cash flow and risk benefits to the buyer and allows buyers to get access to bigger deals without having to look to institutional/bank financing.
So when selling, being flexible and having knowledge in how to structure has never been more important.
BUYER INSIGHT #5- Distressed inventory.
78% buyers are looking for businesses that are somewhat underperforming. For buyers creating operational efficiency is a path to growth.
BUYER INSIGHT #6 Strategic vs Lifestyle
There is a 50/50 split for buyers looking to acquire for personal vs business/strategic reasons.
For every online giant like Amazon, there are several smaller online startups that have the potential to grow into a large multinational corporation. Unfortunately, the vast majority of these startups will end up being abandoned or failing before they reach their true potential.
A common reason why these failures happen is that the owner is unable to dedicate the time and energy it takes to grow an online business. So even if the creator of an online business has a great product or service idea and has developed effective business tactics to help get results, they might still end up selling their company simply because it becomes too much for them to handle.
This is the perfect chance for another entrepreneur to swoop in and purchase the online business for a low price. However, before they start putting in any offers, they first need to ensure that the business is worth it. Here is how someone can complete the due diligence steps that should be completed when purchasing any online business.
Look at the Books
Financial due diligence is a huge part of any business deal, especially when it comes to purchasing an entire business. One of the biggest components of financial due diligence is looking through the accounting books. This is done to ensure that there is nothing troubling or out of the ordinary.
There are a lot of potential red flags that could be located in the books. One of the main things they are looking for is trends or patterns in the records of revenue and profits. Ideally, the online business should demonstrate that they have been steadily climbing in both revenue and profits recently. It is even better if they have been doing so since they first started.
Some minor drops in revenue are fine because this is their trial and error phase at the start. However, it is a bad sign if they have not achieved steadily rising profits in the last few months. If a business does not have a model that allows them to get sustainable revenue and profits, then it could be that the whole thing is a house of cards that only needs one big shake-up to come along and completely ruin the business.
Another thing that should be looked at is the source of the company’s revenue. If it is all being directly achieved through one main product or source, then this is not good.
A business with only one single source of revenue is far more likely to experience major periods of financial hardship. However, if a company has diversified itself and achieved many sources of revenue, then, even if one of them ends up failing, they should still be fine by supplementing their profits from the other sources.
Check the State of Any Licenses
Many online companies obtain licenses for various products or other assets that only last for a certain amount of time. Therefore, it is important for the potential buyer to look at the company’s various licensing agreements. If they are temporarily licensing the rights to a certain trademarked item and this license is about to expire in a couple of months, then they need to ensure that the cost to renew it or the consequences of it expiring will not greatly affect the value of the business.
Confirm Ownership of Assets
Depending on the specifics of an online business, they could potentially have many different assets associated with their company. However, not all of the assets that they possess could actually be owned by the business itself.
For example, having any leased or loaned equipment or property will result in their worth being valued at far less. Therefore, it is important for entrepreneurs to take the time and look through asset ownership to confirm that the business fully owns any and all of their assets before committing to purchasing the online business.
Completing all of this due diligence will ensure you don’t get stuck with a lemon. To get started on finding the perfect online business to purchase, visit Flippa today.
Many entrepreneurs think that they will be able to launch their startup and find success within the first year. However, they are soon hit with the reality is that this almost never happens with an online business.
In the majority of cases, it takes much longer than that to achieve any measurable success. In fact, in most cases, it can take as much as four years before seeing any kind of significant revenue.
A lot of people do not want to have to wait this long to achieve success with their business. These people will either end up losing interest or funding long before they reach the one year mark. Luckily, there is a way to find success faster by doing one simple thing. By buying an already existing online business, entrepreneurs can help to jumpstart their startup success story by months or even years.
Thriving Customer Base
Finding and retaining customers in the online marketplace is the third biggest challenge that online businesses reportedly face. Therefore, when they are able to start with an already present customer base, it makes the challenge much less daunting.
Thankfully, if an online business is up for sale, that means it will have already been in full operation for at least several months. During this time, it should have gathered quite a few new and loyal customers. In addition to customers, it should also have a developed email marketing list. The entrepreneurs will take possession of both of these once they purchase the site.
Therefore they can focus a lot of their attention on things like improving products and altering the website layout. This saves them from having to spend a lot of time trying to entice new customers to visit the site.
Developed Social Media Presence
Considering the fact that 75 percent of customers use social media as part of their purchasing process, it is incredibly important for online businesses to have a strong social media presence. However, in order to do so, they need to make a lot of social media posts on all major platforms.
Developing fully fleshed-out Facebook, Instagram, Twitter, LinkedIn, and other accounts are something that takes at least several months to do but can often require years of effort. This can be easily circumvented by instead purchasing an online business that has already spent all of this time and effort creating engaging social media accounts.
Depending on how long the online business was in operation for and how large it grew to be, it could have a total follower count upwards of 1,000 people. This is something that can help put the entrepreneur a lot closer to achieving success with the online business.
Finding Successful Business Operation Tactics
When someone builds a company from the ground up, they’ll have no basis for what kind of tactics work. This is unless they have previously run an online business that is very similar to their current one. Having no frame of reference for successful business tactics will force them to do a lot of trial and error.
This can often lead to a lot of time and money being put towards something that then ends up failing. It is during this process of trying to figure out what combination of tactics to use that an online business often runs into financial problems that lead to it closing its virtual doors.
When you decide to buy an online business, a lot of the trial and error will have already been done for you. If the online business has grown to a point where you are interested in buying it, then it means that the combination of tactics that it is using must be at least mostly successful.
Therefore, it is very likely that you may only need to apply small changes to maximize the business’s performance. This will end up saving you a ton of money and effort and help you achieve success a lot faster. With all of these great benefits, it is no surprise that so many entrepreneurs choose to buy an online business. To buy some of the best online businesses out there for some of the best prices, then visit Flippa today.
These days, many of the most popular companies across the globe are entirely web-based, meaning all of their products and services are offered over the internet. Like real estate in the real world, websites are now thought of as investment opportunities with the potential for their monetary worth to grow substantially over time.
The marketplace for website transactions is constantly growing, with both buyers and sellers looking to get in on the action. No matter what side of the trade you are involved with, you will want to be sure that the website up for sale is a valuable property with strong technology behind it.
In this article, we’ll discuss several software categories that matter most when buying or selling websites. Upgrading to new tools will show a commitment to growth and stability.
1. Cloud Hosting and Storage
Image courtesy of Hello2Hosting.com
Today’s website investor is only interested in properties that are hosted in the cloud. They don’t want to have to worry about setting up and maintaining their own servers or managing a data center. With the cloud, those responsibilities are outsourced to a hosting provider and paid for at monthly rates, making it an attractive – and secure – model for many business owners.
To show your website in its best light, it needs to be optimized for speed and performance. If not, the value of the website can sink due to the fact that visitors are unlikely to spend much time or money when pages don’t load reliably.
Different cloud hosts specialize in different types of websites. If your property is primarily a blogging enterprise, then it makes sense to use a platform like Kinsta, which was specifically designed to manage the WordPress content management system and provides support for migrating WordPress content across hosting solutions.
The bottom line is that, depending on your present hosting arrangement, an upgrade in this area may significantly drive the value of your website up.
2. SEO Optimization Software
Image Courtesy of TemplateTrip.com
Website buyers want assurance that the property they are investing in has a good reputation and looks strong in Google’s eyes. This is what makes search engine optimization (SEO) so critical before and during website sales. Though not cheap, options like a subscription to Ahrefs or SEMRush should be mandatory.
Poor or inattentive SEO will leave the website floundering on the second or third (or worse) page of search rankings, meaning fewer visitors will find it and – all together now – driving down the value. A new website owner may feel forced to spend more on advertising to try to attract users and that expense is coming out of the sale price. Strong SEO metrics does the exact opposite, acting almost like free marketing and making the site a more valuable asset.
In the early days of the internet, improving SEO was as simple as researching good keywords in the content for search engines to index. With the considerably stiffer competition these days, more expertise is required and upgrading to a pricey keyword tool can help reduce the time and increase the effectiveness of the process.
3. Marketing Tools
During negotiations of a website sale, often the most critical factor is the marketing performance and related metrics. Buyers want to see strong return on investment (ROI) and conversion rates, which track how often the content results in a desired action by a customer or visitor – we’re talking about blog post visits, clicks, purchases, or email list signups.
Third party tools like Sumo can help to strengthen marketing efforts and make websites more appealing in transactions. It’s important to show traffic and revenue growth, as investors want to have confidence that any website they purchase is on an upward trend rather than flat-lining or dropping.
Website investors want to see modern, proactive strategies in place when it comes to marketing. Active email campaigns (which need their own tools to be done properly – MailChimp and Mailerlite are leading solutions), actively growing your blog, a strong social media presence, and content that includes video can make a property more valuable as it points to growth rather than decline.
4. Cybersecurity Software
Image Courtesy of LehighValleyChamber.org
Cybersecurity is no longer an esoteric topic reserved for high level computer science classes at the local university. The incredible growth rate of hacking attempts and successes has created an environment that forces any website owner to make security a priority or suffer the consequences. The bad news is that there isn’t much demand for a site that’s infected with viruses, malware, or has recently suffered a data breach.
The good news is that you don’t have to be a cybersecurity expert to put into place strategies that incorporate effective security software that make it harder for hackers to compromise the website. The three critical areas to pay attention to are firewalls, a virtual private network (VPN), and an anti-virus/anti-malware security suite. And don’t forget to install new updates as soon as they become available. The following is a quick review in case you’re not familiar with these security software tools.
Firewall: A firewall sets up a sort of perimeter defense that separates trusted from unknown traffic and filters out the latter. Actually, it does a lot more than that but here’s a quick rundown on why you want one.
Virtual Private Network: If the website collects or stores any sort of private data (and most do), recent GDPR regulations related to privacy make choosing a VPN any time you connect to the front or backend almost mandatory. The bottom line is that the encryption and IP address cloaking are an excellent defense against the rash of continuing data breaches.
Security Suite: There are a handful of effective choices in this part of the online security industry, any of which provide solid anti-virus and anti-malware protection. To choose not to use one is virtual suicide, particularly if you’re using trading software or working with sensitive financial data. With the average small business site being probed by hackers 44 times per day, an infection is almost certain if you don’t take this precaution.
5. Customer Service Software
Acquiring new customers is a great way to grow an online business, but unless you keep those users happy, you will not build a valuable property. The goal should always be to retain current customers and find ways to boost their activity on your website. Poor customer service will hurt a company’s reputation. Nobody wants to buy into a bad service experience.
When it comes to online stores and service providers, customers expect fast, accurate answers to any questions or issues they encounter. A tool like Intercom helps to funnel all customer communication into a single stream so that you can manage it from a central location. Intercom offers real-time chat solutions that can be easily integrated with your existing platform.
6. Activity Tracking Tools
When a website if first put up for sale, potential buyers want to see fundamental data about past performance. If key metrics like unique visitors per month are not available, then it is very unlikely that a deal will be done. So before trying to sell any online properties, make sure to have an activity tracking solution in place. The further back it goes, the better.
Third-party tools like Crazy Egg take care of most of the grunt work. You simply add a few lines of code to your website and let it track all of your visitor activity, making it one of the easiest software upgrades on this list. Crazy Egg also leverages machine learning algorithms to automatically make suggestions on how to improve your website performance and retain more users.
The Bottom Line: Essential Software Upgrades
Websites can be great investment opportunities. It’s like a store that’s open for business 24/7/365. But in order to take full advantage of this business strategy, you have to understand what drives the price of a website up or down. As we’ve just discussed, some factors include marketing performance, SEO metrics, and customer service reputation.
Like a house flipper, you want to seek out opportunities to boost a website’s value in a hurry. Upgrading the software behind a website can prove to potential buyers that there are significant growth opportunities. You don’t need to find the next Amazon or Netflix in order to make a nice profit on a website sale; you simply need to identify a property with high potential and strong marketing fundamentals.
When the average person thinks about building wealth they often follow what they’re taught in school and what their peers or family are doing with finances.
The majority of the time that means go to school, get a well paying job, save money, invest in stocks, invest in mutual funds, and retire one day.
This is a very well trotted path and if you’re interested in having an average amount of “wealth,” that is the safest path ahead.
However, if you want to build substantial amounts of wealth giving you and your family financial freedom, you will need to move off of the beaten path.
You will need to get comfortable with higher levels of risk, begin to understand the importance of cash flow, and do what you can to cover your expense with income generating assets.
I have never met a truly wealthy person that reached their financial independence by not taking risks.
All that being said, taking calculated risks are a healthy middle ground for smart investors looking for alternative asset classes.
Accumulating as much data as possible to support your investment into a newer asset class is the strongest approach to measure your risk.
With web properties like e-commerce, content sites, mobile apps, domains, SaaS businesses, and many others available on the Flippa marketplace now being considered a bona fide asset class for buyers and investors available data is in abundance.
This makes calculated risks easier.
Before I allocate any capital to a new asset, I always weigh the costs and benefits for both long-term and short-term allocation. These are the first three (of many) questions I ask myself before finalizing a deal for a web property on Flippa:
- How long until I reach 50% return on my investment with this web property? How long till 100%?
- If the web property fails immediately how quickly can my portfolio make up for the loss?
- What are additional revenue streams I can add to de-risk this web property?
By answering those questions and a few others I’ve weighed the rough costs vs benefits of NOT buying a quality web property at a fair monthly multiple of revenue. Asking basic questions like those builds confidence, helps with your mindset, and significantly de-risks the investment overall.
The majority of the time while doing my due diligence, I operate in worst case scenario. Dozens of other buyers and seasoned investors I’ve met over the years in this space do the same.
To give a rough average of the returns that can come from acquiring web properties, over the last 3 years, I’ve seen more than half of the web properties in portfolio yield a 100% return on investment (ROI) within 12 months of buying them, after expenses.
That level of return on investment is only available through taking risks on a newer asset class that other investors aren’t as familiar or comfortable with.
This would be considered investing off the beaten path.
Following what everyone else is doing will give you the returns everyone else is getting.
Taking calculated risks on web properties on Flippa using large amounts of public data has proven time and time again to outperform the majority of assets I’ve ever owned.
Investors I know and respect all take risks on alternative asset classes multiple times per year to test the waters with higher returns.
Fortunately, it’s still extremely early in the landscape of buying web properties and with Flippa you have the ability to freely communicate with sellers directly.
If you are searching for a way to change the trajectory of your life and accumulate true wealth, take a risk on by acquiring a small web property on Flippa to test the waters.
Spread your allocation out across multiple niches and business types, and make sure you’re collecting as much data as possible to de-risk your investment.
Also, be sure to have fun with the process.
Author bio: Steve McGarry
Steve is host of The Sound Money Podcast and spends most of my days talking about blockchain startups, dApps, coffee, and influencer marketing.