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EFP 140: Case Study – Purchased Website Flops

Justin Cooke July 4, 2015

It’s easy and fun to talk about website purchases that doubled their earnings, paid themselves off in less than two years, etc.

It’s not so easy to talk about a purchases that didn’t work out so well – or didn’t work out at all.

Website Flops and What to Do After

We’ve done a couple of interviews with buyers post-purchase where things went extremely well, but today we’re sitting down with Nick Loper from SideHustleNation.com to discuss a not-so-wonderful experience he had with a purchase he made last year.

Nick agreed to not hold back and he dives into everything from his due diligence process to the aftermath. He bravely opens up and talks very frankly about the numbers. If you’ve been wondering what happens when a website purchase goes bad or are looking for a more cautionary tale, this is the episode for you.

Check Out This Week’s Episode:

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Topics Discussed This Week:

  • Introduction & Nick’s background with websites and online business
  • Due diligence and site selection
  • The buying process + handover
  • The site takes a turn for the worst
  • Site recovering efforts & what to do when things go bad
  • Lessons learned

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“Focus on one project at time and identify what the top 3 priorities for the next day.” – Nick – Tweet This!

“If the most likely thing is positive, and you can live with worst thing then maybe that’s a risk worth taking.” – Nick – Tweet This!

Buying a website or online business has risks and it’s not always rainbows and unicorns after a purchase. Big thanks to Nick for coming on the show and sharing his lessons.

Have you had a bad experience with a purchase? A good experience? Let us know in the comments!

 

Justin:                   Welcome to the Empire Podcast episode 140. Not every site purchased from our marketplace is a Cinderella story. While most buyers are happy with their purchases and many are repeat customers, today we wanted to highlight a buyer’s nightmare. What happens when your site’s earnings fall off the cliff? You can find the show notes and all links discussed in this episode of empireflippers.com/flop. All right. Let’s do this.

Speaker 2:           Sick of listening to entrepreneurial advice from guys with day jobs? Want to hear about the real successes and failures that come with building an online empire? You are not alone. From San Diego to Tokyo, New York to Bangkok, join thousands of entrepreneurs and investors who are prioritizing wealth and personal freedom over the oppression of an office cubicle. Check out the Empire Podcast. And now your host, Justin and Joe.

Justin:                   Buying websites can lead to massive returns, but it’s also risky. That’s one of the questions a lot of new buyers have. Just how risky is the business of buying and selling sites? Now, to give you a bit of background and give you kind of an idea or a range, the risk level falls somewhere between buying blue chip stocks or mutual funds, which has your money at risk, but it’s a very low risk, up to the high end of angel investing, which is very high risk. You’re putting your money in and hoping that one of the ten companies is a hit.

Buying and selling websites is somewhere in the middle range of that, and where it falls is going to be very dependent on your skillsets, on your ability to pick the right sites, on your ability to grow those sites, and lots of different factors. Right, Joe?

Joe:                        Yeah, absolutely. I think that there’s definitely some inherent risk, but there’s great rewards here, as well. Maybe not as much as an angel investor who hits that one out of ten home run, but there definitely could be a pretty huge payoff, especially if you’re able to grow a site and then flip it in a few years.

Justin:                   Yeah, I think the payoff is somewhere between two, because you’re not getting your eight percent or ten percent a year. It’s much higher than that, but you’re also not getting 50X on your investment, generally. So, yeah, the payoff, the risk, and the reward is somewhere in between the two. We were lucky to have Nick Loper from SideHustleNation.com come on the show today. He actually purchased a site from us that did not end up well. We’re going to get into that in the show and in the interview.

I’m really thankful for him to come on. Most people aren’t so happy to talk about failures like this. They would rather just be quiet and not really mention it. In fact, I found out about this through some other people that were kind of talking elsewhere, and I reached out to Nick and said, “Hey, man. How’d your purchase go?” He said, “Ah, not so well, actually,” and that’s when we started getting into it. I was like, “Hey, I’d love to have you on the show,” and he was like, “I don’t know what I’m going to say.” I was like, “Let’s just get into it, man. Let’s just talk about what happened and let that be kind of a warning and a lesson for others, that they can get some [inaudible 00:02:52] out of it.” He has a blog and a podcast, so he was happy to do it.

Joe:                        Yeah. I think that this is an interesting interview, and I’d like to hear it, as well, but it should be said that not every sale is going to be a success. It is definitely a risky proposition, and you shouldn’t be putting your retirement money or your life savings into these types of investments. With that said, I’d like to think that we definitely succeed more than we fail overwhelmingly, and this is something that may be a bit of an anomaly, or maybe a bit of his approach.

Justin:                   Yeah, this was a tough call to do, and we actually get into that, like where he thinks he made mistakes, where he kind of got sucked in that he shouldn’t have, and this is something I think will be helpful for our listeners, but we thought it was important to highlight both successes and failures. We’ve had several people on that bought a site from us then went back to sell it when it was doing much better. We’ve talked to buyers that were gracious enough to come on the show and explain kind of what happened with their purchase, and how they’ve improved it. I thought it would be great to kind of show the other side, and that’s not easy to do, because not a lot of people are as willing to talk about it. We’re hoping that this transparency allows you, the listener, to make an informed decision about the sites you’re looking to purchase.

Before we actually get into this week’s show, we have a featured listing of the week. Joe, whatcha got for us, buddy?

Joe:                        Today we’re talking about listing number 40241. It’s in the retail and wholesale niche. It has a drop shipping component and an e-commerce component, where people are allowed to [inaudible 00:04:18] their own drop shipping site that service the products that are on the retail side. So it kind of covers both categories. It comes with a whole bunch of employees, so the owner really has to just oversee the business. So a lot of the tasks required are taken care of. It makes about $26,000 a month net, and we have it listed at just over $520,000.

Justin:                   One of the things I like about this site is that it’s doing, in terms of revenue, almost $240,000 a month. I mean, there’s definitely some appeal. People are definitely buying these products. The net margins are just a little over 10%, so I think there’s probably some improvements that can be made there. When you mention drop shipping, they actually drop ship for other people, so they’ve got custom cloud-based fulfillment software that they created, where other drop shippers are listing and selling their products and their drop shipping for those publishers. It’s a really interesting business. There is a warehouse and there are employees included in the sale, and we did take an average of the last 11 months in terms of the sales price. I think this is really interesting. This is a full-on online business, and if someone’s interested in that, I think they should definitely give this one a [crosstalk 00:05:27].

Joe:                        Yeah. One of the other really cool things about it is it’s mostly dependent, almost a hundred percent dependent on paid traffic. So, really, scaling up your incoming customers is not dependent on Google, and that’s a pretty nice add-on.

Justin:                   All right, man. Let’s dig into the heart of this week’s episode.

Speaker 2:           Now for the heart of this week’s episode.

Justin:                   Thanks for tuning into our buyer interview series. We started the series for two reasons: number one, to give sellers some insights into the mind of a potential buyer; number two, to give buyers a look at previous buyers’ successes and failures. We hope these interviews are helpful for both the sellers and the buyers. We’ve got our buyer Nick with us today to go through the site, his purchase, and dig into the details. Now aside from being a website buyer, Nick’s also a well-known blogger at SideHustleNation.com. He’s the host of the Side Hustle Show, a podcast on iTunes with over 100 episodes and a hundred thousand downloads. Thanks for coming on, Nick. Appreciate it.

Nick:                      You bet. Thanks for having me. This has been fun. I’ve been listening to Empire Flippers for a long time.

Justin:                   Man, I really appreciate it. Enough love, man. We’ve got a sad story here, a sad deal. We’re going to get into all the details, but I don’t mind saying upfront that this is a deal that didn’t work out well for you, and we’re going to kind of run through all the details and get into it, but, first, I want to talk a little bit about kind of what you do over at Side Hustle Nation, what you’re all about over there.

Nick:                      Sure, so my entrepreneurial background was as somebody trying to build a business part time. I got a job out of college like you’re supposed to do, went the corporate route, and pretty quickly realized this is not for me. It was either just a cultural thing, for whatever reason, I don’t see myself climbing the ladder here. I’ve got to find a way out. Thankfully, I had actually been dabbling a little bit online prior to graduation in affiliate marketing, and pay-per-click advertising and all that stuff. So my original side hustle was this footwear comparison shopping site. It’s called shoesniper.com, actually in its very early days, it was called shoesrsus.net. It was essentially a price grabber or [inaudible 00:07:27] like Google shopping, but specifically for footwear. That was the vehicle that let me quit my job.

It was probably three years down the road that it actually happened. I finally got up the nerve to do it, but that was my escape vehicle. So with Side Hustle Nation, it’s about sharing that story, the stories of different experiments [inaudible 00:07:48] time business projects, interviewing a ton of other people who’ve got just a million-and-one ways to make this happen, everything from CraigsList to Fiverr to Udemy to Kindle to freelancing, all over the map, and it’s just been a blast. Side Hustle Nation is about two years old now and, like you said, it’s passed a hundred episodes.

Justin:                   Which is, while your podcast is great, but aside from just your blog or podcast, like the different side hustles you’ve been involved in are amazing. You’re all over the place. I was telling you before the show, you’re on Fiverr, you’re doing Udemy, you’ve got a membership course, you’re doing some consulting, you’re doing affiliate sites. How do you maintain focus with all these projects going on?

Nick:                      That’s a good question, because sometimes it’s really difficult. What I’ve been trying to do lately is focus on one project at a time, and then identify the night before like what my top three priorities for the next day are going to be. Whatever comes in my inbox, whatever other ideas may pop into my head, if it doesn’t align with those three, I have to put them off to the next day. So that’s been pretty helpful, and that’s been a habit just in the last six or nine months or so.

Justin:                   It’s almost like batching, right? As long as you’re focused. Because you lose something when you’re going from one project and you’re distracted over to the other one, and the other one. There’s a shifting gears process you have to go through that I think you lose something if you’re not at least focused for a period of time on a project so, yeah, that makes sense. Why buying and selling sites? What got you into that?

Nick:                      This is digital real estate, and the return on investment metrics or pay-per-returns, are too good to ignore. I know a lot of my audience [inaudible 00:09:28] very interested in it. I was interested in it. In fact, several years ago, a buddy of mine had the idea to start up essentially a little hedge fund, and we’re like, look, if you can buy a site for a 12-month multiple on Flippa, like holy crap, that’s a hundred percent ROI, that’s amazing. What if we could collect money? What if we could buy these sites? What if we could build a team? What if we could systemize this whole thing?

I don’t know that we ended up buying one site, because Flippa was just such a cluster, like what’s a scam? What’s legit? We got stuck in the mud big time there and never pulled the trigger on anything, because we were a little gun shy on what dollar figure we were comfortable investing there, but the idea has always been fascinating to me. That’s kind of, obviously, your content marketing, that worked off, because I’ve been listening to you guys forever, and it’s like, oh, now they’re a brokerage, okay, now I should buy a site from these guys, so I’ve been wanting to do it for a long time and never really … I would look at the listings and sometimes, back in the day, they were really, really vague, and it was like nonrefundable deposit, and I was like, “Ooh, I don’t know. I don’t know.”

Now I’ve gotten a little bit more information and, actually, in this case, had had a conversation with the seller pre knowing that he even had a site for sale. So had a little bit of trust there, and that was kind of what probably pushed me over the edge on this deal.

Justin:                   I forgot about that. We did a nonrefundable deposit on sites. That was aggressive. It’s an aggressive ask. A no-refund deposit, and we’ll give you the info. I can say this now, too, because we’re so far past that today, but that on the backend, we did refund people, or we let them roll it over to other sites and stuff, too. So on the front end we’re like, “Nope. Nonrefundable,” and on the backend we’re like, “Eh … ” Once they’ve proven that, yes, they’re definitely interested, they’re serious about it, then we’re much more flexible. Yeah, we were that rough upfront. I remember. That’s crazy.

Nick:                      It makes sense. On the lower end sites, you get a lot of tire kickers who are like, “[inaudible 00:11:33] I can go build this myself.”

Justin:                   So how did you find out about this site in particular? We were talking before the show, and I found out that you knew the seller beforehand. Now I knew of you, and I knew of the seller beforehand, as well, but I didn’t know that you found it through him.

Nick:                      Yeah. It was a weird case where we just happened to have a meeting or a conversation right around the time that the listing was going live, so I figured this is as much of a relationship, as much of a trust that I’m ever going to have with the seller, because it’s mostly anonymous before you put that deposit down. So in this case, had an idea of who they were, what their methods were, and all this stuff, so there was rapport and trust there that was, at least in my mind, that was helpful. That was a big deal to me.

Justin:                   Because you don’t know the seller. They could be just outright scamming you, they could be misrepresenting the information, so that’s an added layer of complexity, and you’re saying, “Well, if I’ve got that layer of complexity out of the way, I can look at other things at least, and I don’t have to worry about that, at least.” Right?

Nick:                      Yeah. Totally. Totally.

Justin:                   Now you didn’t have any particular interest in the niche. It wasn’t like you were like, “Oh, my god. A gun-related site. Let’s go do that.” That wasn’t your interest, right?

Nick:                      Yeah, obviously you have no interest in the subject matter, which I figured would make perfect case study, so there was two reasons to buy this site. One, obviously, for cashflow, like if I can invest and get a 60% return, that’s outstanding, that’s fantastic. So the selfish reason of cashflow, and then the other reason would be as a case study for Side Hustle Nation to be like, “Look. I bought a site from Empire Flippers. This is how much I put down. This is how much it’s earned. This is legitimate cashflow opportunity. If you have money to invest, here’s an interesting place to park it.” I figured that would make the perfect case study, because I didn’t have any prior knowledge of this niche, it’s just like going in completely cold.

Justin:                   Let’s talk a little about due diligence next. What steps do you take to verify the accuracy of the information? The earnings, the traffic, that kind of thing?

Nick:                      I had access to … So I monetize with Amazon Associates. I had access to the Associates report. I had access to Google Analytics. All that stuff looked fine. I guess I probably could’ve dug deeper into the numbers, but because we had that trust, I didn’t feel like he was trying to pull one over on me. On the due diligence side, the risks that showed up to me were like the time-on-site metrics were really low, the bounce rate was really high, and so as soon as I got this [inaudible 00:14:08], I was adding content. I was adding a lot of internal links to try and beef up that time-on-site metric, was adding a lot of video content, trying to beef up that time-on-site metric just to show Google, hey people are sticking around; people are finding this information valuable, and those efforts actually did make a decent impact on the numbers. I didn’t go from like 90 to 30, but at least they moved the needle a little bit, so I felt okay about that.

Justin:                   Yeah, if you can get people sticking on the site a little bit longer, if you can get them clicking on links and checking out the site, it’s going to overall make your visitors look more valuable, make them look more engaged, which is going to help. Let me ask, what were you looking for in due diligence that would’ve kept you from purchasing?

Nick:                      I don’t know. There’s a million-and-one reasons to pull the plug on a deal, and I don’t know what that red flag would’ve been for me. In hindsight, it’s easy to see like, oh, the site’s only six months old, the site’s only been earning for four months, or whatever it was. So all that stuff, it was a risky purchase, but anytime you’re looking at those ROI numbers, anytime you’re doing any type of acquisition like this, you understand there’s certain risks involved. I don’t know. If you dig into the analytics and you find out that 90% of the traffic is coming from some crazy [inaudible 00:15:26] in Russia that you’ve never heard of. I don’t know. That’s kind of a thing that would stand out, but nothing like that really caught my attention.

Justin:                   Obvious fraud, any major problems, any time you can catch the seller lying or misrepresenting something, it’s a clear sign that you should probably bounce from this particular site purchase.

Nick:                      Yeah, and it’s kind of a seasonal business, so I was hoping to take it around the calendar year until the next seasonal spike, and then resell it.

Justin:                   Let’s talk about the buying process a bit. How badly did you want the site? As soon as you took a look … This all went down, by the way, in April of 2014. You heard about the site from the sellar, checked on the marketplace, and within a week you had purchased, within a week of paying the deposit, you purchased the site. How badly did you want the site? And up until what point were you willing to walk away?

Nick:                      It was more of an internal debate, like my wife and I and kind of some of my mastermind group, we were talking about this, the risks, the upsides, and all this stuff. With this, and with any investment, I try and look at it from the perspective of percentage of net worth, and so it was earning about $500 a month. It had a sticker price of around 10K, which is probably the upper ceiling of my comfort level of how much am I willing to bet on this experiment? It was a percentage of net worth that I felt comfortable rolling the dice with.

That was the conclusion that my wife and I came to. We were hemming and hawing over the decision. We went back, we went forth. We’re like, “Okay. Fine. Let’s just do it. It’s not going to be a lifestyle change, if it all goes to shit,” and it hasn’t been. It was a little bit gut wrenching when six months later it did, and it’s okay. There’s still food on the table and all that stuff, so that would be part of it. Don’t make a bet you can’t afford to lose, but every now and again you gotta roll the dice. Otherwise, nothing can happen.

Justin:                   You’re not putting the kids’ college fund or your entire nest egg into it, so you’re like, “Look. It’ll be painful if it doesn’t work out, but it can be extremely profitable if it does. Let’s take a stab at it.”

Nick:                      Right. Yeah. Baby steps.

Justin:                   It’s been a while now. It’s been over a year since you purchased. Do you remember exactly what did you like about going through the process of submitting a deposit. Is there anything that you didn’t like? Is there any way that we could improve?

Nick:                      I went to put a bunch of it on a credit card, and I think it had to do something weird with PayPal to get that done. I don’t remember what the process was like to transfer stuff.

Justin:                   Yeah. You put the deposit on a credit card, then you had to pay like two separate PayPal payments. This is all pre Russian scammer days, too. So none of that’s available anymore. I know some people are complaining. They’re like, “Look. I want the miles. You’re killing me.”

Nick:                      Yeha, yeah. Totally.

Justin:                   I get it, man. I’m on the [inaudible 00:18:05] wallet. I’ve got all that stuff but, yeah, it’s not going to work. We have to take wires now, but, yeah. So it was a little messy. I know that there were three separate payments. Deposit on a credit card and two separate PayPal payments. We got that cleared up. We’ve got it down to a wire, now, unfortunately.

Nick:                      I thought that part was okay. Had ample time to do due diligence and everything like that. I might’ve had another call or two with the seller just to answer any questions or clarify anything. I thought that was okay.

Justin:                   When you were taking over the site, and this is when we were doing the transfer to you from the seller, how comfortable were you that you’d be able to hit the ground running with this one?

Nick:                      Well, one thing that was really cool, so I learned all about the eZon plugin, which I’d never used before, so it’s basically as simple as making one change to the affiliate ID, and all the links changed. So it was like that was super easy, because I never used that before, and if I was trying to sell site [inaudible 00:19:07] with all of the manual Amazon links that are in there, it would be nuts to try and go through and swap all those out. So that made it really easy, the transfer process.

Justin:                   Did you find anything in taking over the site, that was different than you expected? Were there any miss-statements or inaccuracies or anything left out that you wish would’ve been included?

Nick:                      No, I don’t think it ever earned the advertised earnings over the next six months, but part of that was seasonality, and that’s okay. One thing, it had a weird structure, like posts were set up as pages instead of as posts, so it took a little bit of time to get used to how the thing was set up inside WordPress, but it was not a huge deal. There was some content that had been published or taken down, so there’s some duplicate stuff that I was, “Oh, this is not even written.” None of that was super crazy.

Justin:                   So the content was a little squirrely, basically. Tell me about the earnings. You said it was earning 500 bucks a month when you bought it. What was kind of the month after you bought it, the month after that? Do you remember kind of how it played out?

Nick:                      It was probably in the 3 to 450 range, the next few months. Not insignificant earnings by any means.

Justin:                   You’re thinking, “Well, that makes sense because it’s a seasonal site. I’m going to own it, it’s going to go down a bit during the low season, and I really want to … I have to do well, but during the next high season, if you can make improvements to it, it’ll do even better.”

Nick:                      Yeah, yeah. Totally. I was like I’m going to add content; I’m going to try and do a little bit of rudimentary SEO to it, see if I can start ranking for some of these longer-tail key words, and cash in on the next high season, and then turn around and sell it again, where, hopefully, it had increased its value a little bit. Right before that season was about ready to pick up is when Google came down and [inaudible 00:20:58]. So the site relied heavily on PBN links for its rankings, and with their update in September, it basically got wiped off the map.

Justin:                   Yeah, let’s talk about that a little bit. So you bought it, it’s towards the end of April. Things were going along, low season, but then right around September something happened. When did you realize it? How long did it take for you to kind of catch on and go, “Wow, that’s like a hit”?

Nick:                      I’m so glad I didn’t check right … I actually did a TEDx talk locally, so I was just so messed up, so nervous, like elevated heart rate, couldn’t sleep. I’m so glad I didn’t actually check before going in to give this talk. When it was finally over I was like, “Okay, I can log back in and look at my stuff.” Then I found like, oh god, look at the Google analytics, look at the chart. Like, oh [inaudible 00:21:47] there’s no sales. All of a sudden the traffic is way down. So it was like I’m so glad I didn’t look before this presentation, because I just probably would’ve been just sweating and even more sick to my stomach than I was.

Justin:                   Got it, man. I know the feeling. We had something similar happen with a bunch of our sites back in 2013, and it was [inaudible 00:22:07] didn’t do it before your speech, but Joe and I kind of would check the stats, and we’re like, “Something’s off, man.” Then the next 24 hours, was just like deep diving. I’m trying to figure out what was wrong, and such a mess. You realized after your TEDx speech, thank God, that things were off. What was your initial reaction? What did you start to do?

Nick:                      I started looking around. Oh, was there an algorithm update this weekend? That’s what I found, like, oh, there was, and it was specifically targeting sites that were light on private football networks. Then I found something actually a month or two later that said, “Well, maybe it wasn’t a PBN update. Maybe it was just targeting relatively thin Amazon sites.” It was like, “Oh, okay. I don’t know. Maybe there’s something to that,” but haven’t done … I think I submitted like a reconsideration request, because the webmaster tools alert said, “thin content warning” or “thin content penalty.” It didn’t say anything about the private blog network. So I submit a reconsideration request and immediately get denied from that.

I haven’t really touched it since, because like we were talking about is like, oh, if the site has a $500 or you can really get it rocking, say it’s $800 a month or $1000 a month. That’s great, but I’m going to have to find a recovery specialist to come in to disavow all these links, to rework all the content, to build new links. How much is that going to cost? What’s my break even window on that? What’s the likelihood of success of that versus just investing that money either in a new site in a different side hustle, in something else completely? Opportunity costs with all that stuff.

Justin:                   Yeah, so the question comes down to, is it worth putting any more money into this for recovery efforts or should I put my money into something else, in some other project, or brand new project that I want to try out for Side Hustle Nation? I think that’s one of the things with … Joe and I talked about this for sites under 10,000. It’s like it’s a test site, but you’re not so committed to it that you’re absolutely going to just knock it out in terms of work; whereas, with larger sites, you might be willing to if it was earning 3,000, $4,000 a month, absolutely you would have done that. So that’s one of the struggles, it’s one of those, “I’m not sure it’s worth it. I’m not sure it’s worth paying someone to help me recover the site.” It sucks, man. I know the feeling, though. It’s miserable.

Nick:                      It hits you in the gut. I’ve been hit by Google before on my AdWords account, and it’s just like … It was actually the day after I quit my job with the shoe business. All of a sudden they [inaudible 00:24:42] the ad account, and they’re like, “Yeah, this is horrible. We’re shutting you down.” I’m like, “Are you kidding me? I just turned in the keys to my company car.” It happens. Anytime you’re playing in somebody else’s sandbox, they can take away the toys. So there’s always a risk in there. I don’t harbor any ill will toward the seller. I fully understood all of the risks and stuff involved, so there wasn’t … I don’t fault him in any way for what happened.

Justin:                   It’s funny, because this happened … This was in September 2014. This is when everyone was getting hit. You have niche pursuits, you have the [inaudible 00:25:19] guys, all of them are getting hit. I think one of the problems, too, was that they were PBNs, but they were more likely or more closely using public blog networks. Many of these were links that they were using for a bunch of their sites and for their students’ sites and for their … Like it wasn’t, they left the private out of PBN. Like it was pretty easy for Google to connect all these sites and just a ton of people got hit because of that, I think.

These are people that were publicly talking about how they were doing it. So with all those sites getting hit, yeah, that was a pretty rough time for everyone. So this site took a hit. You’re about six months in. You tried, you did the reconsideration request, but that didn’t do much for you. Looking back, is there anything that you wish you would’ve known before the purchase? What are the signs that you think you wouldn’t have gone for, and would you still have done?

Nick:                      Because the site was so new and such a short earnings history, I probably should’ve negotiated on price a little bit, just because, oh, this is significantly riskier than a site that has 12 months or 24 months of earnings history, but rookie mistakes.

Justin:                   Yeah, and we do this now. At the time, we were just doing everything at 20X. It was 20 times the net profit, and there were times where some sites would go for a little less because someone would offer less than the seller would take, but it was pretty close. We realized, though, that there are clear signs where like it’s not a fair valuation for every single site. A site has been around two years, for example, should probably be worth more. So that’s one of the reasons we included the valuation tool, and we’re starting to use that now for valuation. So some sites are going to be on the lower end, and some sites are going to be on the higher end in terms of multiples, and it’s based on things like how long they’ve been around. Do they have email subscribers? How many visits do they get?

So, yeah, I think that will be interesting and helpful for people that are looking to buy new sites versus older sites. Let me ask you though, would you have been as interested in a site that was, say it was six years old, but that it had no growth necessarily. It wouldn’t have the same upside potential in terms of growth, but the stability would’ve been something you’d prefer probably because of the multiple anyway, right?

Nick:                      Yeah. Absolutely. If it’s got six years of earnings history behind it, that’s fantastic. If you’re looking at it as a passive income asset, that’s great.

Justin:                   Yeah, for passive. I think for someone, and it depends on what you’re going to do with it. If I’m looking for a business that I can grow, I still don’t think that I’d want to do one … If I’m looking to buy, I don’t want to do one less than a year old, and especially now after all the Google updates that were happening in 2013 and ’14, I’d want one that has survived some of those, right?

Nick:                      Yeah, totally. You want to see a little resilience there.

Justin:                   Yeah. Go through a couple Google updates, then we’ll talk. If it’s gone through those … But I still want to see like a trajectory that shows something that I can buy and actually continue to grow, that’s kind of on an upward trajectory. It’s just interesting, like buyers have all different reasons. Some look for sites that have been hit. So let’s say that it took a hit in terms of traffic, or it’s been on a slow decline. They look for those because they know they can get a discount from the seller, and the seller might be more willing to negotiate.

Let me ask you this. What do you wish you could’ve done differently in terms of building the site out? Would you have spent more time on it? Do you think you could’ve made some changes to the site that might’ve improved it? Or avoided the update?

Nick:                      I don’t know if it really was a link building-based update. It’s hard to see coming in advance. So you wouldn’t want to disavow those links before they’re hurting you. I don’t know what I would’ve done differently other than negotiate on price or not buy the thing at all.

Justin:                   Got you, Nick. All right. Let’s talk about earnings. When you purchased it, it was a little over 500 bucks a month. Where is it today?

Nick:                      It’s been like around $40 a month so far this year.

Justin:                   Over 90% hit on monthly revenue, only about six months in.

Nick:                      Yeah.

Justin:                   God, that’s painful. Nick, it sucks, man. It’s just horrible. Let me ask you, like what could we have done better at Empire Flippers? Is there anything you think we could’ve done to help you avoid this? Or during the process overall, is there anything that we could’ve done to help you out better?

Nick:                      This is part of what happens, and you sharing the story is part of this. This is helping somebody look for these things going forward. Any time you’re plunking down that kind of cash, it’s a risky thing. Sometimes it’s going to work out, sometimes it’s not. In this case, it didn’t, and that sucks, but that’s okay. I know, it’s kind of painful. We’re like digging into the actual numbers of it. I never thought about it for six months and it’s kind of been off my mind. I don’t know. You guys, your primary responsibility is to the seller, so it’s really on the buyer to do their own due diligence, figure out what they’re comfortable with risk-wise, what their plans are for the site. So [inaudible 00:30:18] that.

It would be weird if you guys were coming in and being like, “Are you sure, dude? It’s only been around for six months. Do you really want to make this deal?” That would be like, “Okay. What do you guys know that I don’t know?” It would be kind of weird to have the broker come in and saying that stuff.

Justin:                   Right. I think that we can do a better job of not taking sites that are so new or making it more clear, but you knew that. It wasn’t that you didn’t know. Yeah, it would be weird if we’re like, “I don’t know. I think this one’s better for you.”

Nick:                      Yeah. If I didn’t know the seller, I probably definitely wouldn’t have done it, but I don’t know. I guess I was itching to make a deal, to have the case study and we had some idle cash sitting around for years, it seemed like an interesting [inaudible 00:31:08] experiment to try and deploy some of it.

Justin:                   What really sucks, too, Nick, is that this doesn’t happen on a regular basis, so other sites do well, some of them just kind of hang in there, some of them go to crap. I wish you would’ve got a win first. It’s typical for …

Nick:                      And then I could advertise Empire Flippers on Side Hustle Nation.

Justin:                   I know. Well, the promise, too, is that like it happens to everyone that’s in the business. So the people that are regularly buying and selling sites, they get duds, they get sites [inaudible 00:31:37] crap, whether it was done originally, or of their doing sometimes, too, right? That wasn’t the case with you, but they make changes to it that hurts the site, or whatever, but to have it done on the first deal you do, I mean, it’s painful. It’s like you’re not sure that you want to jump back on that horse.

Nick:                      I know. I’m a little bit gun shy now, but I’m sure I’ll get there eventually.

Justin:                   All right, man. Well, thanks so much for coming on. Let’s talk a little bit about, kind of a wrap up. You did a deposit in April, the sale was completed the same month about a week later, bought it for just over $10,000, earnings at 500 bucks a month. Today earnings are at about $40 a month. Quite the hit. It was an Amazon site. It was less than six months old, I think. You knew the seller, which it sounds like that might’ve been working at you, too, because you’re like, “Oh, I know this guy. I know how he built the sites.” It’s ultimately a Google update that hit a ton of people back in September 2014, swallowed this one whole. Any last bit of advice you might have for sellers or buyers who are listening to this show?

Nick:                      Yeah, just like to reiterate on the buyer’s side, look at, when you’re evaluating risk, and this comes from a book called The Ten Distinctions Between Millionaires and the Middle Class. Just ask yourself these three questions: What’s the best case scenario? What’s the best thing that’s going to happen? What’s the worst case scenario? What’s the most likely thing? If the most likely thing is positive and you can live with the worst thing, then maybe that’s a risk worth taking. I’ll leave you guys with that.

Justin:                   Awesome, Nick. Thank you so much, man.

Nick:                      You bet.

Speaker 2:           You’ve been listening to the Empire Podcast. Now some news and updates.

Justin:                   Alright, Joe, let’s get into the news and updates. First bit of news we got is, we’re trying to put together our first package in the investor program. Our first investor, there was a single package for that investor. We’re now pulling, or trying to pull several investors together so that we can get a diversified portfolio of sites. The idea is that the more money we get from multiple investors is that we can get larger sites, and we can get more diversified sites to help diversify against things like organic traffic, [inaudible 00:33:46] and that kind of thing.

I think it will help mitigate the risk factor a bit, and then will allow us to target, I think, some larger sites that would be too risky for a single investor.

Joe:                        Yeah. I love this idea. This really makes the investor program very attractive, I think, in terms of finding the right side. If we can do that and pool the investors’ money, it will make for much better portfolio.

Justin:                   Yes. So this is still private. We’re still testing through this. We really want to see where things shake out by the end of the year. If all things are going well and we’re continuing to expand it, then we’ll probably open that up in 2016, but we just wanted to give you an update.

Next update, June was I think, or pretty sure, our best month ever. So the best month ever at Empire Flippers, we did a ton of deals. We’re still putting the numbers together on everything, but it looks really good for us.

Joe:                        It really does. I would say close to breaking a half million dollars, which is a big month.

Justin:                   Yeah, man. Another bit of news, for anyone who is a fan of this podcast and likes hearing us talk shop, I’ve got a new podcast that I’m working on with our buddy Ace Chapman. Ace Chapman’s a friend of the show, been on the show a couple times in a couple of interviews. I talked to him about doing a podcast a while back. He agreed, so we’re going to do a podcast about buying and selling websites and online businesses. That should be getting started here in July.

You haven’t even listened to the show, Joe. You’ve seen a couple of the intros/outros, but you haven’t listened to the show, so I’m excited to put that out to see what you think, man.

Joe:                        Yeah. Definitely looking forward to that.

Justin:                   All right, man. Let’s do some listener shouts, also known as the indulgent ego-boosting social [inaudible 00:35:19] segment. First up, we’ve got Andrew on Twitter that was responding to Ace Chapman. Said really liked your interview on Empire Flippers. Hope things are going well. Thanks, Andrew. We liked Ace, too. That’s one of the reasons we’re doing a new podcast with him. I think he’s great. I think he’s going to love podcasting. We’ve have some fun together doing it. In Zendesk, the last seven days, we’ve had 22 tickets that were rated either positive or negative. 19 of those were positive, 3 were negative.

In one case, there was someone worried about losing money. So they pay a deposit and then when they get refunded, they’re refunded back at a rate that caused them to lose a couple hundred dollars on that $10,000 deposit. That seems really odd to us. We discussed this with PayPal, and they’re saying they refund in the same currency in the same amount, so we’re going to look into that. No one should be losing money on a deposit based on foreign exchanges. I don’t know, man. That’s a weird one, right?

Joe:                        Yeah. It is a really weird one, and I’ve called both Stripe and Paypal, and they say unless it’s their local bank or local credit card that’s charging them a fee for that, there is really nothing that they can do about it. I imagine there are probably some very small banks in these foreign countries that when they see these types of incoming transactions, they charge something. Unfortunately, there’s not really much we can do about it. I’ve only seen it twice in all the transactions we’ve ever done: once in India and once in Australia, but definitely consult with us if you see it in the future.

Justin:                   Yeah, it’s really weird. We’re going to look into this guy’s situation more and try to figure out what’s going on there. We also got a great mention over on business.com. We were featured as one of the new market frontiers. It was a blog post talking about new investment opportunities and what’s going on, and people looking to stash their cash in different places. You might want to take a look at buying and selling online businesses. It’s a really good mention, and I appreciated it. I think it is interesting. We are, I think, on a frontier, and I think there’s a lot of opportunities opening up in this marketplace.

Joe:                        Yes. Sounds really cool. I’ve checked out that article. That’s it for episode 140, the Empire Podcast. Thanks for sticking with us. We’ll be back next week with another show. You can find the show notes to this episode and more at empireflippers.com/flop and make sure to follow us on Twitter at Empire Flippers. See you next week.

Justin:                   Bye-bye, everybody.

Speaker 2:           Hope you enjoyed this episode of the Empire Podcast with Justin and Joe. Hit up empireflippers.com for more. That’s empireflippers.com. Thanks for listening.

Discussion

  • brian says:

    since buyers aren’t represented it would be great to have some type of free buyer “course” or series of tutorials on how to evaluate a site that buyers could take before putting down a deposit so you would have more “Savy” buyers and would probably reduce some buyer headaches that you might have to deal with

  • Bill Rowland says:

    Well that sucks for Nick, but this was a great story.

    As a wantrapreneur, what I took from the story was:

    – look for a site at least 12 months old
    – avoid sites with PBN links
    – don’t risk money you can’t lose

    Finally thanks for covering the downside of buying a website too.

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