EFP 98: Is Your Online Business Defensible?

How easily could your website or business model be copied and what would that do to your business?

We get asked by listeners why we don’t just publicly list all the websites we have for sale and our answer always comes back to protecting the buyer. If we shared the information publicly, we’d be creating a ton of competition for each buyer from copycats and others looking to recreate that success from scratch.

Inevitably, the next question goes something like, “If the websites are that easily copied, do they have any real value at all?”

It’s a fair question and one we attempt to answer in this episode.

Learning the Different States of Defensibility

We’re going to look at the “Spectrum Of Defensibility” when it comes to profitable websites and online businesses. We’ll point out some examples from our own sales and also from guys like Pat Flynn at SmartPassiveIncome.com and Dan Norris from WPCurve.com.

We’re not sure that defensibility should be your first concern when you’re going through the process of niche selection, but we do think it plays a factor in how you scale your business. We think you’re going to dig this episode…

Check Out This Week’s Episode Here:

 Direct Download – Right Click, Save As

Topics Discussed This Week Include:

• Whether you should start building an “asset” or “cash flow” for your first business.
• When and why higher defensibility isn’t always best for you.
• The gap between a “township” and a “fort” business – can it be overcome?
• Looking across the businesss defensibility spectrum.
• How to build a bigger moat around the castle.
• Gamification with Helpdesks and support teams – does it hurt customer experience?

Mentions:

• EFP Ep. 97: Cash Flows Vs. Assets
• Help Scout article on dangers of gamification
• Wired article on gamification and customer service
• Leave an Empire Flippers Podcast iTunes Review

Spread The Love:

“It can be more expensive to build assets from the start. Try cash flows instead” – Justin – Tweet This!

How defensible is your website or online business? What do you look for in terms of defensibility when acquiring assets? Leave your stories on SpeakPipe or shoot us a comment below.

 

Speaker 1:

Welcome to the Empire Flippers Podcast. Are you sick and tired of gurus who have plenty of ideas but are short on substance? Worried that e-book you bought for 17.95 won’t bring you the personal and financial freedom you long for?

Speaker 1:

Hey, you’re not alone. Join thousands of others in their pursuit of [niche 00:00:19] profits without the bullshit, straight from your hosts. Justin and Joe from Empire Flippers.

Justin Cooke:

Welcome to episode 98 of Empire Flippers Podcast. I’m your host Justin Cooke and I’m here with my business partner extraordinaire, Joe Hot Money Magnotti who’s just staring at me across the table. What’s up buddy?

Joe Magnotti:

What’s up everybody?

Justin Cooke:

We have a great episode line-up. We’re gonna be talking about whether or not your business, your online business is defensible. We’re actually gonna call this the defensibility spectrum. We actually talked about this in a recent blog post where we discussed deposits and hiding URL’s and that kind of thing. We’re going to get into that in a bit, I think it’ll be really interesting, you’re going to dig it.

Joe Magnotti:

We have a nerdy little analogy for you too.

Justin Cooke:

We do, we definitely do. We’re rolling it out, man.

Justin Cooke:

Alright, before we do that, buddy, let’s cover our new five star podcast review. It says “Balls to the wall business advice.” It’s from Matt at Business and Bootstrapping dot com. “Justin and Joe, love your show. So much more than just [inaudible 00:01:14] sites. Loved having you on my Business and Bootstrapping podcast and would definitely like to get you and Hot Money on soon. Keep putting out great content and building a business empire. In terms of the latest episode, would you advise trying to build an asset or a cashflow first, as a business?”

Joe Magnotti:

So it was a review with a question.

Justin Cooke:

A review with a question, so he’s asking us a question. So Joe, would you build an asset or a cash flow? I think it really is going to depend on your position. Do you have enough cash coming in? Sometimes it can be more difficult or it can be more time intensive and expensive to start out with an asset, and so I think if you’re cash strapped, building cash flow is the quickest way to support yourself and get up to speed. Then you can work on either switching that into an asset or building an asset in addition to that.

Joe Magnotti:

The first thing that came to mind for me as well was a cash flow, but I could see how someone with a full-time job, that’s making good money … that had extra time on the side and good money in the bank that they could spend on building an asset, maybe building an asset would be the way to go. I also think that if it’s your first rodeo, building a cash flow might not be a bad situation too, because at least you get to see some of your work pay off a little bit.

Justin Cooke:

I think a job is a good point, Joe. If you have a job, maybe looking at the asset and the longer term build is required, but if you’re needing to hustle, you’re needing to support yourself, get that cash flow or two up and running and then you can worry about either expanding that into an asset or building an asset on the side. If you want to hear more about cash flows and assets, listen to episode 97, cause we dig into that in depth.

Justin Cooke:

The other update we had is, we have lots of action on the marketplace. We’ve got deposits, we’ve got requests, we’ve got offers. We’ve got deals happening, buddy, we’ve got deals.

Joe Magnotti:

I have been on the phone with tons of buyers and sellers, putting dealt together, making things happen.

Justin Cooke:

Hot Money.

Joe Magnotti:

We’re even talking to sellers. We’ve been getting applications approved, denying some, and getting the right deals in front of buyers so that they get the right assets they want to buy.

Justin Cooke:

We have the most sites for sale, I think that we’ve ever had on the marketplace, over 400 thousand dollars [inaudible 00:03:24] the sites, with over 20 thousand dollars of net profit from these assets. That’s really interesting, that’s really inspiring and encouraging, and I hope that we can continue to put out that many quality sites over the next few months.

Joe Magnotti:

I think a lot of them are coming to sale in the next two weeks too, so I’m expecting some big wires and I’m very happy the way things are progressing.

Justin Cooke:

Alright, enough about that. Let’s get right into the heart of this week’s episode.

Speaker 1:

This is the Empire Flippers Podcast.

Is Your Online Business Defensible?

Justin Cooke:

Alright, buddy. The question on the table today is: Is your online business defensible ? This really comes about from several questions that we get from potential buyers, peers, other people in the industry. The first question is: Why do you need to hide URL’s on the sites that you list? Why are you hiding some of the URL’s? Our answer … there are several answers, but I think one of the big ones is that some of the sites could be easily, or potentially easily, copied.

Justin Cooke:

If someone had all the information and we put it in front of wide audience and say, a couple thousand people reviewing, there’s a very good chance that we would get a bunch of the copy-cats and we’d have some of problems that we had, and other sellers were having on [Flippa 00:04:33], where it’s totally public and then you get 10, 15 copy-cats that pop up after the auction, which really puts the buyer at risk, not the seller. The seller’s fine, they don’t care, they sold the site, but now the buyer is having to deal with all of these competitors. The follow-up question to that is: if some of these sites are so easily copied, do they actually have any value? That’s one of the things we’re going to cover today.

Joe Magnotti:

I love that question, because obviously it’s a balance, that’s why it’s a spectrum of things. We’ll get into that in a minute, but it’s definitely something to consider when you’re buying a site … the pro’s and con’s of anything, and defensibility is one of those things.

Justin Cooke:

When I was putting this together, I was thinking about this, and my first inclination was that it was a level … so you have level one, level two, level three … and I think that’s kind of the wrong way to look at it, especially when you talk about the advantages and disadvantages, the opportunities, the upsides and the downsides all across the spectrum. There are some major downsides to having a very defensible business, and we’re going to cover all of that. I think it also depends on where your skill set is. If you’re going to be purchasing an asset, you’re going to be purchasing a website, you need to determine what you’re going to be able to actually take on. That’s going to be very specific to what you’re able to accomplish … to how much time you’re able to devote to it, to what you’re able to do or what you want to learn, and we’re going to cover a bunch of that.

Justin Cooke:

It’s also important to remember that what’s right for you today … the right kind of asset purchase for you based on this defensibility, may change in the future. You may find that you prefer a particular type of asset that is more or less defensible because there’s more or less opportunity with that asset.

 

1. The “Small Village” Business

Justin Cooke:

The first example … we’re going to get into this … is the small village business. To put this in Game of Thrones terms, because we’re huge Game of Thrones nerds … Joe, I was asking him for what the small village business would be, and he said before the show, this is Craster’s keep. If you’re not familiar with the show, or you are … it’s north of the Wall, it’s the guy that has all the women in his little house or whatever, and it’s really at risk … he’s hanging in there, loving his life, and he sends all the male babies that he’s popping out, off to be eaten by the monsters … I guess that’s the best way to put it.

Joe Magnotti:

If you don’t know the show, it’s definitely not a very defensible position. He’s out in the middle of the wilderness with him and all of his wives, he’s the only male guy, and basically a bunch of people come in … well, I won’t give it away, no spoilers, but … yeah. We should probably define what we mean, in our terms.

Justin Cooke:

We’re going to cover all this, definition, examples, upsides and downsides.

Justin Cooke:

First the definition for the small village business. This is usually, not always, a business that … or a website that’s six to 24 months old, so it’s relatively new. This type of website can easily be recreated with a minimal spend, both in terms of time, effort, energy, money … it’s not that hard to copy. There’s probably limited complexity to the monetization. We’re talking like, simple ads or a fairly simple lead-gen that’s not very … it’s not varied, right? It’s not very complex. In terms of earnings, this small village business can range anywhere from 10 dollars a month up to several thousand dollars a month, so it’s fairly wide ranging. I’d also say that the traffic sources are going to be a bit more limited. You could have organic, social, or paid traffic, but the keywords are limited and targeted. Think for example, there is a bit of paid traffic that’s only a couple of keywords, kind of like our [inaudible 00:08:09] type business traffic.

Joe Magnotti:

I would say it’s only one of those traffic sources, right? That’s the key thing to remember there. It doesn’t have multiple sources … it can’t fall back on something else.

Justin Cooke:

It’s also true that these types of sites generally have basic or limited content required. You don’t need full on crazy content marketing or experts out there writing amazing content, there are fairly basic content requirements.

Joe Magnotti:

These types of sites, I don’t think the content’s going to win any awards, it’s going to pass most of the tests for Google, but it’s definitely not going to be something that people are going to come back to again and again.

Justin Cooke:

For examples on the small village type business or website, we’d be talking about things like the Ad-sense sites that we started creating, right? The smaller, niche Ad-sense sites that are primarily content based, that are based around Ad-sense only. It would also be … another example of these types of sites would be a very product centric type, Amazon affiliate site. It’s not even niche or industry Amazon site, it’s around one or two particular products and it’s very keyword heavy, targeting those very specific keywords, and fairly limited in the keyword reach.

Justin Cooke:

The upsides to sites like this is, they take significantly less time or money if you want to get started, or if you want to run them. Also, the difficulty level is extremely limited, someone could purchase this site and start running it from scratch; it’s really straightforward.

Joe Magnotti:

Something I thought about … which we didn’t talk about before the show, Justin, is … another great advantage of these sites is their flip-ability, if that is a word-

Justin Cooke:

Because so many other people can take it over and run … that’s a major determinant in whether or not you’re going to be able to sell the site and get value out of it. If you ever do want to sell the site, could someone else take it over? How much specialized technical requirements or knowledge is needed … and there’s very little with these types of sites. These small village type businesses don’t require technical requirements or specialized knowledge.

Justin Cooke:

There are some downsides though … big downsides. A big downside would be that they can be highly vulnerable to competition. You can have other sites that start quickly outranking you, that take you out. They can have erratic traffic or earnings, because they’re earning … let’s say this one’s earning 70 bucks a month, it could go to 40 dollars the next month or 120 dollars the next month, and it’d be really difficult to run a larger business where you have lots of costs … let’s say it’s 15 hundred bucks a month, or something, and you’re dropping to 600 dollars the next month, and 18 hundred the next … it’s pretty erratic.

Joe Magnotti:

It’s hard to be very predictable, no matter how much research you do and how much data you have in the past, it’s hard to really say: is that going to be reliable in the future?

Justin Cooke:

Great for someone with very few skills, maybe you’re just starting off, you don’t really know how to run these sites, this is going to be a better option for you … not so great if you’re really worried about your vulnerability to competition, or you can’t handle the swings. Another, I think, upside to this is there’s some real growth opportunity, because it’s really, really early … you haven’t gotten through the hump though. It depends … if you just want to grow it with basic content, that’s fine, but there’s a whole hell of a lot of work if you want to turn this into a branded site, for example. That becomes a much more difficult proposition.

Joe Magnotti:

The other thing that’s a pretty good advantage too, is that you can run a lot of these sites. We’ve done that before, we had literally thousands of them in our portfolio at one time.

Justin Cooke:

Cause you’re not putting a lot of love, effort or energy into one particular site. You’re not married to a site, which you are going to be married to some of these other sites we talk about in a bit.

2. The “Township” Business

Justin Cooke:

Let’s get into our second example, Joe, which we’re going to call the Township business. This is some obscure shit right here … I was asking Joe before the show … I was like, “What’s kind of like a township in Game of Thrones?” And he’s like, “Dude, Mole’s Town.” Mole’s Town? What the … so apparently Mole’s Town is the little town where you have Northerners come in … the bald guy that eats people comes in and they just slaughter the villagers, right?

Joe Magnotti:

Right. It’s the little town that Castle Black feeds on … kind of supports Castle Black-

Justin Cooke:

Oh yeah, they got the brothel, right? Is that the town with the brothel?

Joe Magnotti:

Yeah it is.

Justin Cooke:

This is the kind of town where you might have some sheriffs in town that kind of maintain the peace, but some marauding army comes in and you are just decimated … you’re in trouble.

Justin Cooke:

So these … getting into websites, to define this a little bit, we’re talking about websites that are probably one to two years old, here. The effort to recreate this would require a light effort … it would be a little bit of work. Someone who’s just starting off might not be able to do it, but many other’s could. There’s going to be some light complexity to the monetization. It might have Ad-sense and Amazon, it may have a couple of different CPA offers on the site. These can range anywhere from, let’s say 100 dollars a month up to several thousand dollars a month. You’re going to have moderately complex ads or lead-gen process for these types of sites.

Justin Cooke:

The traffic sources … you’re going to have, maybe a little bit of diversification, but you’re definitely going to have more diversified keywords targeted, so it’s going to be a wider ranging spectrum. You may target several different, higher volume keywords or sometimes you’ll see where they target a lot of geo targeted keywords. It’ll have your main keyword, and then … Atlanta Georgia, and stuff, so people searching in geographic areas can find your content.

Justin Cooke:

I think a good example of this would be some of the more complex Ad-sense sites you’ll sometimes see on our market place, where they are making a couple thousand dollars … 500 bucks a month, 800 bucks a month … they’re Ad-sense sites, but they’re targeting more of a niche than a specific product or a very specific keyword. You also find that these are more nice focused, Amazon affiliate sites … so, not the product centric, it’s more kind of like the entire niche or industry, and it covers a wider range of products in that industry.

Justin Cooke:

Sometimes you’ll find sites that are, maybe a bit more personalized and not necessarily cloned … you’re not going to find the copy cat sites here, they’re going to have a little bit more personalization, maybe a slightly better looking brand, but they’re not particularly branded.

Joe Magnotti:

I don’t think you could pump these out factory style … hundreds a month, type of thing.

Justin Cooke:

You’d have to have a different team. I think these are not where … you’re going to have to do a whole bunch of brand ambassadorship to these, but maybe you’ve had a logo done, you’ve kind of made it look a bit better.

Justin Cooke:

I think on the higher end … a higher end of this type of site, the township business, would be something like Pat Flynn’s Security Guard Training HQ, that’s a pretty good example. It’s a more complex Ad-sense site, effectively, and it also has a slightly different monetization in that they have a job [inaudible 00:15:03] that kind of thing. It’s still, I’d say … toward the left side of the spectrum.

Justin Cooke:

Now, there’re some upsides to these types of sites. These sites are going to have more expandability and they’re going to have improved monetization options over the small village type sites. These have already proven themselves that they’re able to expand outside of a singular product, they’re able to cover a more wider ranging industry. These can be great if you’re looking to purchase, because you can then continue down the long-tail value chain, in terms of geographic content, in terms of expanding to other product focus in the industry, via Amazon products or something like that.

Joe Magnotti:

I would also say too, as an upside, they require a limited amount of effort to run, or they can be passively earned [crosstalk 00:15:51]

Justin Cooke:

This is still someone that’s relatively new. Maybe they’ve been around the block … they’ve built a couple sites or they own a couple sites themselves, but they don’t know a ton. They can take a site like this over, and I think, build it up.

Joe Magnotti:

I think that’s why the vast majority of sites that are flipped out there on the internet … in general, not just on our marketplace, but just anywhere … I think fit into this category, because you see a lot of sites trying to be bought and sold in this category.

Justin Cooke:

Has some downsides though, Joe. It’s definitely still quite vulnerable. These aren’t sites you’re going to want to post over a bunch of forums and say, “I own this site and here’s how much it makes,” because you will end up with a bunch of copy-cats. It’s not that difficult. Maybe a brand new person couldn’t copy you, but there’d be plenty of people that could if you start blabbing about this site on the [warrior 00:16:38] forum.

Justin Cooke:

It’s also, I think, harder in this position, to move up the spectrum or move to the right of the spectrum and try to compete with branded companies … because you’ve got this site that’s kind of … it’s getting some traction in the industry, and just in terms of traffic, and not branding or whatever … but now you have to convert this to an actual brand. I think that’s going to take a whole bunch of work.

Joe Magnotti:

I think you can definitely expand this site in terms of content, like we talked before, going into more geographic locations or just adding more content in general … doing whatever … but yeah, you’re right, moving up the value chain and changing the direction, in terms of going further to the right … it’s going to be harder … a lot harder.

3. The “Fort” Business

Justin Cooke:

I think there’s kind of a break here, between this township and the next one we’re going to talk about, which is the fort. It seems like you can make the township pretty big, but once you get to the fort level, you’re going to have to bring in some guards … you’re going to have to put in some protections. Let’s talk about that, buddy.

Justin Cooke:

The third example is the fort, and to continue the Game of Thrones reference, we’re going to mention … this is similar to Winterfell. It’s got some fortifications, it’s got some able-bodied men and women to defend the town-

Joe Magnotti:

But still vulnerable to attack.

Justin Cooke:

It can be still be taken [crosstalk 00:17:51]

Joe Magnotti:

Burned to the ground.

Justin Cooke:

Let’s talk about this. These types of websites or businesses are one to three years old. They take a bit of effort if you wanted to recreate these … your brand new person, someone that’s been around the block just once or twice probably isn’t going to be able to recreate these as easily. I think there’s a moderate amount of complexity to the monetization, so you’re probably going to have either multiple sources, or your going to have … there’s going to be some drop shipping involved, [we’re 00:18:19] going to have to get on the phone and have suppliers. They may include things like job boards or CPA offers in addition to some of the other stuff.

Justin Cooke:

in terms of earnings, these sites can range anywhere from several hundred bucks a month, up to tens of thousands of dollars per month, so it’s pretty wide ranging … could include things like advanced Ads or lead gen, it could include things like basic to moderate product as a service companies … or productized service companies, that kind of thing.

Justin Cooke:

Some of these sites in the fort section will also have multiple traffic sources, or they’ll have heavily diversified keywords, and they may have some targeted or limited brand awareness, so they’ve actually built it around a brand in their industry and it’s fledgling, but it’s got a bit of a brand.

Joe Magnotti:

You’ll see, that’s the first time we’re starting to see this in our spectrum here. We’re starting to see, finally, multiple sources of traffic, maybe a mixture of paid and free, maybe some brand awareness where people actually go there, repeat customers, especially for the productized service types of businesses … but limited.

Justin Cooke:

To come up with some more specific or concrete examples if you want to check this out, on the lower end of this type of this area of the spectrum, I would say look at Food Trucker dot com, that’s Pat Flynn’s site, and his niche site dual 2.0, it’s food trucker, T-R-U-C-K-R dot com. I think that’s a pretty good example. I think you could look at our recently sold outdoor sporting site, a drop shipping site. I think that’s pretty good example of this fort type business.

Justin Cooke:

Moving up the earnings in the fort section, I’d say look at websites like Ben’s Authority Engine dot com. That’s more of a productized service where he offers podcast editing, there is some brand building there. You can look even further up than that, something like WP Curve dot com, with our buddy Dan Norris, who’s crushing it. They’ve got great growth potential, but you’re seeing … he’s noticing a bunch of copycats that are coming out, especially because they talk about … they have income reports and that kind of thing, and you’re seeing that it’s not that difficult to create. It takes a bit of effort, especially if you want to do it right, but there are people popping up because … some of the reasons … it doesn’t have some of the things that the fourth and fifth examples are going to have.

Justin Cooke:

In terms of upsides, these types of sites generally have heavy expansion opportunities. You’re starting off with a brand, and you can, really I think, grow it out. They’re also, I think, too difficult for newbies to copy or recreate. The real copycats, the real people that are looking to copy websites, they’re at the lower end. They want the low-hanging fruit, the easy to copy, high earning sites. They don’t want to mess with … dealing with anything that has to do with a brand.

Joe Magnotti:

Yeah, but I think a huge upside of this type of site is that, if someone’s selling this type of site, most likely they didn’t have the money to invest in the brand and the marketing, or maybe the experience to get it to another level … I almost see a WP [rine 00:21:19] tracker like this, where we had the audience, we could take it, we could expand it, we know what we could do with it. For buyers out there that are looking to utilize their skill set and maybe their war chest, this is a great opportunity for them.

Justin Cooke:

I think that these can also act as a job replacement site. If you are looking to quit your job, you’re looking to move full-time online, you’re moving into the range where you can do it with a website like this. This is the one that can replace your job, I think that’s pretty cool.

Justin Cooke:

It does have a moderate to advanced content requirement. If you look at, again on the high end, WP Curve [inaudible 00:21:57] they’re crushing it, putting out a ton of content, even Food Truckr … Pat obviously puts a bunch of content … he hires writers to do it, he also has a podcast … so yeah, these sites do have some content requirements.

Justin Cooke:

Some downsides, is that a serious competitor can just crush you like a bug with cash and a bunch of effort. They can do that because they have the cash, they have big teams and they can crush you.

Joe Magnotti:

Or maybe buy you.

Justin Cooke:

Or buy you too, that’s another opportunity, they want to buy your audience and your brand before you get big and can really compete with them … so why not just buy you out quickly while you’re young.

Justin Cooke:

Another downside … and you talked about this before the show, Joe … is that, all the work required, man. This may actually … it’s an upside, in that you can replace your job, and its a downside, cause you’re replacing your job.

Joe Magnotti:

Especially if there’s not a lot of cash involved … you’re seeing something with a net profit under two thousand dollars a month, and it requires a good deal of work [crosstalk 00:22:55]

Justin Cooke:

To grow. Maybe it doesn’t require that much work to just maintain, but if you want to really build this thing out and make it something, you’re going to have to put some time in … some real work.

4. The “Citadel” Business

Justin Cooke:

Alright, to continue on, let’s look at our fourth example. We’re going to call this the Citadel business. We’re going to compare this in Game of Thrones to King’s Landing, man. We’re moving in there, man … we’re at the Iron Throne now.

Joe Magnotti:

Yeah, well, pretty hard to take, right? But, has been taken before. It’s possible to take down or recreate these types of businesses-

Justin Cooke:

It’s not easy.

Joe Magnotti:

But it’s not easy.

Justin Cooke:

You’re going to have to have a little mini army with you. Let’s look at this. We’re looking at websites or businesses that are probably one to five years old. It’s going to take some heavy effort if you want to recreate this. This is not for the faint of heart, or the newbs, this is going to … you can do it, but it’s going to take some work.

Justin Cooke:

There’s moderate complexity to the monetization … this is not as important, it can actually be really simple, it’s going to depend on other factors here, more I think. It can include examples of advanced drop shipping where you have a customized product that they do drop ship for you. You’ve got multiple suppliers in the drop shipping arena … it could include productized services of course and it could actually be source product to yourself [inaudible 00:24:13] you’re bringing it from China, the US or elsewhere.

Justin Cooke:

In terms of earnings, these sites can range from a couple thousand dollars a month all the way up to tens of thousands, or possibly even a hundred thousand dollars a month. This is a pretty wide ranging spectrum in terms of earnings.

Justin Cooke:

Normally these are going to have multiple traffic sources, and they’re going to have light to moderate brand awareness in their niche [crosstalk 00:24:36] people have heard of them in the niche.

Joe Magnotti:

And you’re definitely going to have returning customers, returning visitors, direct visits- [crosstalk 00:24:44]

Justin Cooke:

People searching for your brand name and not necessarily just the products that you offer, there’s people out there looking for you.

Justin Cooke:

Even more so than the previous, the fort businesses, these citadel businesses are going to have really advanced content marketing and brand growth strategies. It’s going to be much more complex, whereas the third example, the fort, I think that could be done … Pat Flynn’s doing it with Food Truckr, but he does involve other people, so you can do some third party stuff there. I think it’s harder in this fourth example, with citadel businesses, you’re going to really want to be involved directly or it’s [inaudible 00:25:18] making a ton of money where you can afford [crosstalk 00:25:20] marketing.

Joe Magnotti:

That’s part of the thing of these really defensible businesses … is, normally the information is so complex, that unless you talk to it directly and personally, no one is going to be able to substitute that. That’s why they are so defensible, cause no one can just say, “Oh, I want to learn a lot about that and start a blog on it.” It doesn’t work that way.

Justin Cooke:

You can’t just hop in.

Justin Cooke:

I think examples of this … on the lower end, in terms of earnings, I’d say a site we sold not that long ago called [Rave Aid 00:25:49] which is the Rave Hangover pills … I think that’s a pretty good example of the citadel type business. I’d also say, a business that … we know the guys who created it, [Manal 00:25:59] where they sell the travel bags. They’ve got a great story, their marketing was on point, they had an awesome Kickstarter, and they’ve been crushing it. I think they’re a good example of a citadel business.

Justin Cooke:

On the higher end, I think you’ve got companies like Virtual Staff Finder, Chris [Tucker’s 00:26:13] virtual staff finder, where he’s got podcasts out there, he’s got really good content about it [crosstalk 00:26:19]

Joe Magnotti:

Again, it’s a productized service right, which you would say, well why can’t- [crosstalk 00:26:23]

Justin Cooke:

He’s got major internal processes … it’s not that easy to find that virtual staff. He goes around and is offering them coffee and free rides and donuts … city to city and meeting them and getting all their information [crosstalk 00:26:37]

Joe Magnotti:

But the uneducated, the uninformed might think, “Hey, why couldn’t any old outsourcing company do what Virtual Staff Finder does?” The complex processes that he has on the back end, the internal marketing he has going on to try to find the best virtual staff here in the Philippines, plus all the authority that he has on the front end, with the marketing. It’s going to be pretty hard for some random Indian or Filipino run call center to break into that, I think.

Justin Cooke:

I think you’re right, that there’s a lot of behind the scenes going on with Virtual Staff Finder, that someone just looking to recreate it … that doesn’t see that, wouldn’t know. It is re-creatable, but I think there’s just a whole lot of work that would have to go into it.

Joe Magnotti:

He’s got a good headstart on you, basically.

Justin Cooke:

Yeah, a really good headstart. I think it’s similar for our business, I think we fall into the citadel business for Empire Flippers, where we can be copied, but it’d be much more difficult. I think you couldn’t do it just starting out without some skills and advanced knowledge … and we definitely got a lead on you, so you’d have to do some catching up.

Joe Magnotti:

Yeah, I mean, just convincing sellers to list with you is … it’s a struggle for people that have a name in the industry.

Justin Cooke:

There are something upsides to these types of businesses. All the hard work in getting traction or brand awareness in their niche or industry … that’s already been done for you. If you’re looking to buy these types of sites or businesses … they’re on their way, so they’ve already got that traction that’s so hard to get early on in a business … in a branded business, it’s really difficult to get that traction and that kind of industry attention.

Justin Cooke:

I also think that these types of businesses, generally, can watch and learn from their competition without as much fear. Everyone fears the competition a bit, you’re always worried about it, but I think you’re in a bit of a stronger position and you can learn from some of the things that the newcomers … the people that are looking to recreate or improve on what you’ve done … and you can actually learn and implement some of their strategies or processes into your business.

Joe Magnotti:

Agreed. I would go a step further and say, not only does this come with full time work, but it comes with full time income. If you are looking to purchase one of these kind of sites, then that’s … this is totally, not only a livable wage, it’s beyond that. It probably makes enough to give you a very comfortable lifestyle.

Justin Cooke:

You got people and stuff … generally. That gets into some of the downsides, actually, is that there’s a heavy learning curve if you’re going to buy and take this over, and it’s probably not … okay quick, transfer the site to me, I’m good. I’ll buy it, I’ll roll it out … No, it’s going to be a slightly longer turnover, and you’re going to have to get up to speed, especially if you don’t have the industry understanding, because there may be some industry knowledge requirements that are going to be required for you to buy this type of asset or buy this type of business.

Justin Cooke:

There are also some specialized skills, so it’s unlikely that you’re going to have every skill required to take over and run one of these types of sites, you may have to reach out to contractors or … either through your internal team, or reach out to third party contractors that can help you grow it out. For example, if you’re buying Manal … some of the stuff I think we could keep running, but in terms of the product manufacturing, we wouldn’t have that, we’d have to hire someone on board. Same thing with Rave Aid, I think, Virtual Staff Finder … there’d be some people that we’d have to bring on board to help us with that.

5. The “Castle” Business

Justin Cooke:

Alright, man, our final example … our fifth example. We’re up to the Castle business. We’re talking walls, we’re talking moats, we’re talking drawbridge, we’re talking armies inside … this is the defensible position, and in terms of Game of Thrones, we’re going to mention, this is the Northern Wall. This is the Wall, buddy. [crosstalk 00:30:17] you’ve got scythes swinging down … it’s crazy.

Joe Magnotti:

Only an army of a hundred thousand people can even attempt to break this down.

Justin Cooke:

These businesses are generally, let’s say, two to ten plus years old. They are virtually impossible, except for the most experienced, to recreate. They can be recreated and they can be taken down by startups and upstarts and that kind of thing, but they’re much more difficult.

Joe Magnotti:

I don’t think the solo entrepreneur is going to be able to take this down.

Justin Cooke:

No.

Joe Magnotti:

This is like … someone would really have to put a team together and say, we’re going after these guys.

Justin Cooke:

Usually. There are some surprises, but that’s typically the case. Generally these have super focused monetization with very clean, clear funnels, ways to get people back, email marketing campaigns set up … and or, they’ll have well diversified revenue streams. They take a more holistic approach to their customers, they’ve already thought about lifetime value of their customers, and they supply other products and services and fulfill other needs of their current customer base. They’ve already moved down that value chain with them … supporting them pretty widely.

Justin Cooke:

These business typically will make ten thousand to a hundred thousand or more dollars per month, and they’ll include things like source products, they generally have branded products … it may include something like a marketplace … think of like a really early Air B&B type thing … wide ranging offers for target customers, so they’re really holistic in their approach to their customers.

Justin Cooke:

The traffic channels … they’re going to have a bunch of different traffic channels, and they may even have anywhere from moderate to major media coverage. There’s going to be moderate to heavy brand awareness in their niche. If you’re in their space, you’re probably going to know who they are.

Joe Magnotti:

I could also see it being [inaudible 00:32:04] when customers think of the product or service that they offer, that’s immediately the place they go.

Justin Cooke:

In terms of content, they’re going to have deep and popular content channels, everyone’s going to … in that space, is going to know them, probably their peers look up to them … they are top dogs in that area.

Justin Cooke:

A lot of times these businesses are going to be highly technical, or they’re at least going to have really well refined IP or processes in place. They’ve iterated on these processes over and over again, it’s been years coming, where they’ve really refined and perfected their process and their intellectual property.

Justin Cooke:

Some examples on the low end … its funny calling them low end here … but for this type of business I would say Smart Passive Income dot com is a castle business. It is The Wall on the lower side of the scale in terms of earnings. I’d also say an example of this would be a company like [Mixergy 00:33:00] Andrew Warner’s Mixergy, who … he’s done an amazing job at building up his brand, but this is definitely more of a castle.

Justin Cooke:

On the high end, you’re going to have companies most of you have probably heard of, Moz dot com, I would say is a high end of the Castle. You’re going to have companies like Zen Desk dot com, which are major businesses. These are boss … they’re really- go ahead Joe, you’re going to recreate Zen Desk, good luck. But the thing is that there are … there are people that are out there … I think what’s interesting is that when you’re at this level, sometimes … and this is an upside I think … is that you’re resistant to most of your competitors. You might even encourage competitors because it’s good for the industry. It helps the industry as whole, and because you’re a leader in the industry, if the industry grows you grow. As a market leader, as the industry grows you grow.

Joe Magnotti:

Yeah. When the pie gets bigger everybody has a bigger slice of the pie.

Justin Cooke:

If I have one of biggest slices of the pie, I want that pie to get huge.

Joe Magnotti:

And then you know … it’s always like … you always have customers that you want to be able to send somewhere else because you don’t do exactly what they want. You want to encourage competitors, maybe you could make a deal with competitors … say, “Hey these low end guys or these super high end guys are outside my target audience and I’ve decided to push them over to you.”

Justin Cooke:

There are some downsides for anyone looking to buy this type of business, is that they’re awfully expensive. These types of businesses generally command higher multiples. We’re not talking 20 X net profit, we may be 30 X or maybe 5 years, depending on how stable and how long term the business is and how their future looks.

Justin Cooke:

They also require teams that have real expertise. You’re going to have experts … expert customer service, you’re going to have expert programmers, you’re going to have expert marketers on these types of teams.

Joe Magnotti:

We’ve never sold one of these sites, but I’d like to take a shot at it.

Justin Cooke:

It’s be fun … fun, right?

Justin Cooke:

They’ve got real people process that are really refined over the years and they are crushing it there. The problem for a buyer though is that you’re stepping into this team … and to me … I think … difficult to get up to speed as a buyer.

Joe Magnotti:

It’s not for the faint of heart. You’re definitely going to have to bring in either your own team or learn their team-

Justin Cooke:

Or know how to build teams [crosstalk 00:35:18] know how to expand those teams-

Joe Magnotti:

You’re going to have to be a manager, you’re going to have to be the executive level kind of guy.

Justin Cooke:

Another thing too, is that there may be less growth opportunities with some of these businesses. I’m not saying that any of these businesses we mentioned particularly have that, I’m just saying that if they’re fairly saturated in that niche … they are the top dog and they’ve reached the end of the market … that’s one of the reasons they’ll promote the industry, is cause as the industry grows they grow too … but if they’re already fairly well saturated, unless they have a pretty good entrance path into related niches or industries, then they may not see the kind of growth you’re going to see if you bought, for example, a fort type business or a citadel type business, that’s going to have more growth opportunities that the castle.

Justin Cooke:

Alright man, we’ve really covered the spectrum, all the way down from your small village business, the Craster’s keep, all the way up to the castle type businesses, which is the Wall in Game of Thrones. I really think it’s interesting … depending on your skill set and your familiarity with these types of businesses on which one you should be looking to purchase.

Joe Magnotti:

Yeah, and don’t discount any part of the spectrum, really don’t. Keep your mind open. Just because something is not defensible doesn’t mean it’s not a good business to buy or to build [crosstalk 00:36:33] Just because something is super defensible doesn’t mean it should be your target, you really gotta think about the pro’s and con’s.

Justin Cooke:

I think this is interesting too … Well shouldn’t just everyone start off … shouldn’t they just build a castle? Why even mess with the township, why even mess with the small business? Shouldn’t everyone just build a castle? What would your argument be to that?

Joe Magnotti:

It would be resources. In order to get to the castle, you have to go through the township phase. I think if you want to transition to that castle, you have to kind of figure out the township phases first. More than that is, if you have a skill set and you have a situation that’s properly set up for township businesses, then owning multiple township businesses is probably the way for you to go.

Justin Cooke:

That’s what you’re good at and you can knock those township businesses out … and you really know how to expand them, why not play to that strength? I like what you’re saying about … the castle businesses are resource intensive and you might not be able to start with a castle business. I like how you’re talking about playing to your strengths or your skill set … maybe it’s the fort or the township or the small village that you need to start with.

Justin Cooke:

Another interesting point, I think, is that … what if you have a five percent shot at making this castle business successful, or you have a 70 percent shot at building the fort business and making that successful, and they’re pretty close to the same opportunity, or whatever. Why would you not go for the one that is easier for you to get into, not just based on skill sets, but based on where the market is and that kind of thing?

Joe Magnotti:

Look, if you’re the angel investor who’s got 20 different businesses going on … I understand, sure that’s great for that guy.

Justin Cooke:

I still think [crosstalk 00:38:14] I think [inaudible 00:38:15] right though, it’s not just a money thing, it’s not just resources. If I’m the … I’ve got a hundred million dollars I just want to play with, it doesn’t necessarily mean-

Joe Magnotti:

No, could be time too, as a resource.

Justin Cooke:

Yeah, yeah, but it doesn’t necessarily mean that the castle’s best for me … again, going back to your skill set point, I may be better off with fort type businesses. Those are the ones that I can just crush, that I get a ton of return on … yes, eight out of ten fail for me, but those two I can make huge winners, and that’s my win.

Joe Magnotti:

So they look for forts.

Justin Cooke:

Anyway, on the spectrum … one thing we left out, Joe … Apple, Microsoft, Coca-Cola … these businesses aren’t even on the spectrum, they’re way over to the right, we don’t care about those businesses, we have nothing to do with those businesses. I’m not interested in those businesses … they’re cool, whatever, but [crosstalk 00:39:00]

Joe Magnotti:

They don’t even fit into our analogy.

Justin Cooke:

I don’t even think about those guys, it’s just ridiculous.

Joe Magnotti:

It’s crazy talk.

Justin Cooke:

Crazy sauce. Those aren’t even registered on our spectrum … if you’d like to do a podcast and talk about it or have any questions or anything about that … those types of businesses or the businesses we discussed today, please leave a note in the comment.

Justin Cooke:

Alright man, enough about that, let’s give them our tips, tricks, and plans for the future.

Empire Flippers Round-Up

Speaker 1:

You’re listening to the Empire Flippers Podcast with Justin and Joe.

Justin Cooke:

Alright everybody, we’ve been revamping some of our processes, our procedures, and definitely our support team and Zen Desk, and we’ve done a whole bunch of training with that recently …. I’ve been looking into gamification … seeing what we can do. I thought that’d be kind of fun to have badges and different challenges you can unlock. We could do IMAX 3D movie tickets, we could do special island getaway for two … we could do really fun stuff for our team that are doing something amazing work and really starting to catch on. I thought that’d be really, really fun, and a cool thing to bake into our business.

Justin Cooke:

I reached out on Twitter and I asked a couple different companies … one of them was Help Scout, one was Groove, one of them was Zen Desk … who we’re currently using … about gamification, that sounds like a fun thing to add in for your support team.

Justin Cooke:

Two of them got back to me and said, “Yes, we have that.” I started deep diving … you know I do these deep dives … I deep dove into Zen Desk [inaudible 00:40:20] we use them, and there were a couple of options. One of them is Play Vox and the other one is Red Critter, weird names, I know. They do some really interesting stuff in terms of gamification with these badges, and you can create your own custom giveaways and rewards and stuff … it’s pretty fun. As I dug a little deeper though, I realize, it’s really difficult to offer rewards and incentives to customer service teams without absolutely creating some loopholes that are bad for your customers.

Joe Magnotti:

Yeah, you know I thought about that too. When you shot it over to me, not only did I find the set up kind of technical and hard to do, but also thinking about the rules we could do … they could be gamed, for lack of a better word, and you could just use the rules to your advantage instead of using it for the spirit of the thing.

Justin Cooke:

If you do it on basic things … so, time to first reply or being able to close a ticket in a certain amount of time … what if we have agents that are just trying to close tickets out too quick? The customer needs more questions or there’s more discussion to be had, and they’re trying to just close tickets so they can get their trip or whatever. That doesn’t seem like a good idea … they’re trying to get back to them too quickly and they miss things because they’re trying to respond quickly … that’s bad for customer experience.

Justin Cooke:

It’s really hard to incent something with rewards and not have it bite you in the ass, based on … it’s really difficult. Even if you look at things like … if we incented our team to bring in more sellers and websites to be vetted, that’s problematic for a whole bunch of reasons … they start passing sites that shouldn’t pass or whatever, that’s problematic … getting deals done … they start doing this hard sell, or omitting information from potential buyers so that they buy, that just seems like a really bad idea to me.

Joe Magnotti:

Yeah, I just don’t see see any ways around it, and also … I don’t know, a little bit of the manager in me, the old corporate school guy in me says, it’s work, they call it work for a reason. I understand you’re trying gamification, you’re trying to make it a little bit more fun and I get it, but at the end of the day, I think it might play little bit too lightly on some serious things, and some customers might not appreciate that.

Justin Cooke:

Yeah, but we do reward people. They’re not going to work for you for free. They’re not just going to come … “hey, I just love my job so much,” or whatever, you pay them.

Joe Magnotti:

No, no, that’s not what I’m saying. What I’m saying is, when you make it a game on the back end, suddenly you’re starting to say that it’s not as valuable as it used to be.

Justin Cooke:

I want to do it for the movie tickets, and not because I really want to help this customer … that’s scary to me.

Justin Cooke:

Yeah, I don’t know how we’re going to do this. I was thinking maybe … one way to do it is to look at the team as a whole, and if they’re hitting certain KPI’s, then we can do something for them as a team … I think that’s interesting, cause that involves collaboration. I don’t necessarily want to pit customer service agents against each other either … in a sales environment I get it, but I’m not so sure in a customer service [inaudible 00:43:17] I dealt with this before in a call center, and it was a bit easier, I think, than it was trying to do it this way. It was a little bit clearer than it is here.

Joe Magnotti:

Yeah, you gotta be a little bit worried about competition, especially here in Asia, right? Cause they want to save face, and then the guys on the bottom don’t feel like they’re looking up towards the top, they don’t feel like they’re being pulled up, they feel more like, “Well, I’m just the worst one in the group.”

Justin Cooke:

Of the three that I tweeted, all three of them got back to me right away, which is pretty cool … of course they’re customer service, that’s what they do … but Help Scout sent me a really interesting article, it’s on Twitter, you can check it out, I’ll put a link in the show notes … but it talks about how it might actually be bad for customer experience. What I was finding out before I even read that article, when I looked at what Zen Desk was offering, I started realizing, and reading that article kind of made it crystal clear. There’s another good article on Wired and stuff, where it talks about how this may be bad … it was just really interesting overall.

Justin Cooke:

Alright, that’s it for episode 98 of Empire Flippers Podcast. Thanks for hanging with us. Make sure to check us out next week and on Twitter at Empire Flippers, and we’ll see you.

Joe Magnotti:

Bye bye everybody.

Speaker 1:

You’ve been listening to the Empire Flippers Podcast with Justin and Joe. Be sure to hit up Empire Flippers dot com for more. That’s empireflippers.com. Thanks for listening.