It’s not often that we get a chance to interview someone who has bought and is now selling the same site through our marketplace.
That’s exactly what Ace Chapman and his partner have done and he’ll walk us through the gory details. From site selection, through due diligence, and expansion efforts – Ace and team have turned this website property into a cash cow.
If you’re at all interested in buying and selling websites for a living, this podcast episode is a must-listen. While we discuss the particular website purchased, we sidetrack into topics like comparing offline/online business investments and cover other industry-insider news.
Hope you dig it!
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“In the interest of building a long term brand you wanna protect your buyers” – Ace – Tweet This!
“There’s risk in every part of business” – Justin – Tweet This!
So – do you dream of buying and selling websites for a living? Have a story you’d like to share? Let us know in the comments!
Justin: Welcome to the Empire Podcast episode 127. While some prefer to either buy or sell through the Empire marketplace, others do both. In today’s episode we sit down with a previous website buyer who’s agreed to open the books on a site he purchased and is now turning around and listing for sale on the Empire marketplace. You can find the show notes and all links discussed in this episode at empireflippers.com/anatomy.
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 [inaudible 00:00:45] of an office cubicle. Check out the Empire podcast. And now your hosts, Justin and Joe.
Justin: Alright, Joe, so I think I figured out why it’s difficult for newbies to get into the buying and selling websites game.
Joe: Why’s that, Justin?
Justin: It’s just so much easier to do business with people that are in the industry, that understand the space. If they’ve done a bunch of buy and sell transactions before, they speak your language, and so Ace and I get into this a bit on the call today, it’s part of the interview for this, but it’s just really interesting ’cause we can kind of, you know, see where things are going and talk about problem customers or people we’ve worked with or problem deals that we’ve had, and we understand that one deal doesn’t make or break. It’s kind of like an aggregate, so you have to look at the big picture, and I think the industry insiders get that where someone who’s brand new to either selling their site or buying a site, they get really nervous, like, “Am I gonna get a depositor, are people interested in my site?” You know, like, “I don’t know, is this deal good for me? Is it a scam? How’s it gonna work out?”
Joe: Yeah, lot of nervous Nellies out there from the first timers for sure, and I understand, especially people are putting their hard-earned cash into something that may or may not work out, and it can be frustrating and overwhelming if you’re not familiar with the way things work. But, yeah, it probably puts up big barriers to entry.
Justin: What’s interesting, Joe, as brokers, should we focus on, because I think easy money for us, I’m speaking strictly from our perspective, the easy money for us is to focus on the industry guys and gals. The people that are already doing the buying and selling, it’s just an easier transaction for us, but I think that, and I think this is kind of where we’re doing well right now, is that we can really focus on the people that are new to buying and selling. Maybe it’s their first sale or they’re looking to pick up their first website. If we can have them trust the process that we use, then they can kind of get in, dig in, and find the sites they want, list their site for sale without any hassle, and we can kind of walk them through them process step-by-step.
Now, there’s some hand holding that needs to be done, but I think that we’ve got a process that makes that relatively easy, and I think there are ways we can tighten it up, but I think that’s a real value ad we provide.
Joe: Yeah, no, I think that’s great points, Justin, but I do think as you go up the value chain in terms of sales price, it’s gonna be more difficult to find first-timers who have half a million dollars to spend on a website.
Justin: I don’t know, Joe, I think you might be wrong on that, I think there are people that, especially when you talk about groups of people, that have the money to invest in these types of sites that haven’t done it before and they’d like to get involved, they’d like to be involved in this type of business transaction, they just haven’t done it. And so, they need the hand holding not in terms of doing business deals, they’ve probably done plenty of those, but in terms of the website purchase and transaction, they don’t really understand that process.
Joe: Yeah, I definitely think that I understand where you’re coming from there, and groups of good investors with some first timers involved, for sure, but I still think the nervous Nellie $500,000 guy, that’s gonna be very, very rare. It’s gonna be a hard sell, and honestly it may not be a great day for him, but-
Justin: It’s usually, Joe, ’cause you’re coming from the perspective of, it’s money. They have money, they just are more savvy with it overall. The guy who has a million bucks to spend knows more about money than the guy with $8,000 on his first-time purchase knows how to spend. Like he just knows more about it in general, right? And I agree with you on that, but I think the experience of actually purchasing a website, managing, running a website, taking it over, I think that’s a unique and separate skill set, separate experience.
I don’t know, I think you have a point in terms of the cash, in terms of someone who can manage their money and knows how to deploy their assets, but, I don’t know, I think there’s something specific about buying and selling websites and the experience there that we can provide help to. It’s interesting, though.
All right, man, so in this episode we actually get into, with Ace, we talk about his experience in working with other industry insiders. We compare some offline versus online purchases, he does a lot of offline business acquisitions, as well, and so he’s gonna talk a little bit about his experience there. We also talk about virtual real estate as compared to physical real estate, some of the advantages and disadvantages, and he had some really interesting things to say, so it was a really good conversation. If you’re at all interested in buying and selling websites, either a first-timer or an experienced person that’s been in the space before, you’re gonna dig this episode, I’m sure.
All right, man, time to pay the bills with your feature listing of the week, what you got for us?
Joe: This week, we have listing number 40167, it’s actually a package of two different sides both in the health and beauty niche, about skincare products and natural remedies. The cool thing about it is, although it’s monetized with AdSense, most of the traffic is driven through Pinterest, so that’s really a great way to diversify your portfolio in terms of organic search traffic, paid traffic, now you can get some Pinterest traffic in there as well. It comes with a VA, we’ll handle all Pinterest stuff, all the posting, and that expense is included, so there’s really not too much to do on an ongoing basis.
The site makes about $600 a month, and we have it listed for just over $12,000.
Justin: We’re gonna link to that in the show notes, of course, it’s getting about 50- to 60,000 page views a month, and the search engine traffic is pretty minimal, as you said it’s mostly Pinterest traffic. I heard something, Joe, that most Pinterest traffic heavily leans toward women, is that true [inaudible 00:06:22]?
Joe: Yes, absolutely, that’s why a skincare and beauty site is gonna do fairly well. Cooking sites tend to do well, those types of female-oriented niches do very well with Pinterest traffic.
Justin: Yeah, it’s interesting. I’m not a Pinterest guy myself, I think we have an account there, man, I put some Empire Flippers logos up or something, but personally I couldn’t stick to it and I really couldn’t see the benefit of it. I think if you’re doing a lot of the motivational images or whatever and the starting at the racetrack and get your entrepreneurial career s- like if you’re doing a lot of that, it makes sense, maybe? But I just couldn’t get it, man (laughs).
Joe: Yeah, you would think that sports would do pretty well because it’s a very visual type of thing, but it just doesn’t attract the kind of crowd that’s into sports. They’re not into pinning their pictures and following those pictures, it’s just not something that sports fanatics do.
So, whereas cooking people or beauty-related-
Justin: Cooking people? I don’t want to be cooking any people, Joe (laughs). No cooking people.
Joe: People who like to cook are more interested in looking at recipes and looking at the final product and kind of following that kind of thing, and that’s what Pinterest is all about.
Justin: Cool, and then for the seller, 40167 is the listing, we know the guy, like we’re buddies with the guy, actually, and he’s got a process for Pinterest that works. You’ve used, I think on our sites way back in the day, when you did some of the Pinterest stuff, so it’s pretty interesting. The process that he uses to get that traffic, continue that traffic, that’s gonna go with the sale, of course.
Joe: Yeah, he actually has a Udemy course on it, if you guys wanna learn more about it, but like I said it does come with a VA that handles all of that for you. So you don’t need to do anything as the owner, your VA would handle all of the Pinterest traffic.
Justin: All right, man, enough about that, let’s dig into the heart of this week’s episode.
Speaker 2: Now for the heart of this week’s episode.
Justin: Into our buyer interview series, we started this series for two reasons. Number one, we wanted to give sellers some insight into the minds of potential buyers, and number two, we wanted to give buyers a look at previous buyers’ success and failures. We hope these interviews are helpful for both sellers and buyers, but we’ve got our buyer Ace with us today to go through the site, the purchase, and to see where the website is at today.
Thanks for coming on, Ace, I appreciate it.
Ace: Glad to be here with you again, Justin.
Justin: Yeah, buddy, all right so let’s do a quick kind of recap on your transaction. This website was purchased July 16, 2014. The niche is medical education, and the monetization is QuinStreet, we’ve actually done quite a few of these websites. Selling price and the list price is $27,833.20, the gross revenue at the time of sale was 1600 bucks, just over, expenses were about $200 a month, a net profit was coming in at right around $1400 a month. So, that’s where we were at when you bought it. Let’s do a quick introduction, Ace, and tell us a little bit about your role in transactions and purchases, you’re not your typical buyers, so explain to us kind of what you do.
Ace: Yeah, so, just to go back to that sales price real quick, we actually ended up buying that one for closer to $40,000. It was kind of growing a bit at that point and had some re-negotiations, so we actually went above and we had to earn out at some things that we involved with that transaction, but just wanted to mention that in the negotiation process we actually ended up paying more than the listing price. But, you know, we’ll talk about it, it turned out to be a great decision.
So, in this deal, a lot of times what I will end up doing is, I work with business buyers, and so one of the reasons that I do it is because I can pick transactions and invest some money into those deals. So, I had a client that was interested in this business, I ended up investing some capital alongside of those buyers, and then in those transactions when I do that, we do have a network of resources and people that have different levers of experience, different types of experience, and so when we’re looking at a content deal we’ve got people that can help out with ever- we’re looking at an eCommerce deal, we’ve got people that can help with that, and so it gives the buyer of that business and opportunity to learn alongside, so it’s not like we take it and then we just do everything, they don’t know anything that’s going on, a lot of times they will work alongside our experts so they get to learn a little bit, lower their risk with our capital, and we kinda walk through the deal alongside them.
Justin: It’s interesting, so, you’re not just a traditional buyer’s agent, you’re also putting cash into the deal, you’re leveraging your resources longterm with the investment or with the asset, and working with the buyer, which, you’re a part-buyer yourself, and to get [inaudible 00:11:13], so really you’re a deal maker. I mean, you’re coming out of these deals, you’re taking a piece of the equity, you’re taking your resources, knowledge, putting it into it, and long term you’re working with the buyer to have a nice exit or get nice distributions out of the investment, that kind of thing.
Ace: Absolutely, absolutely.
Justin: So, I know we did an interview with you, you were on a podcast with us before, we talked about the Mogul approach versus the builder, why do you choose to buy sites rather than build them from scratch? A lot of people, they have a skill set of starting from scratch, getting them up to 1,000 bucks, or 3,000 bucks a month, and they’re great at that. Why is that not yours? Why have you chosen the bypath?
Ace: I think a little bit of it is looking at my skillset and kind of focusing on getting that skillset better and better and my skillset is probably what you described a the deal maker skillset, and it’s kind of pulling together different parties, putting the deal together, and in a structure that benefits everybody in the best way possible. Finding the great deals, taking things through our deep diligence process, and so that’s where I want to focus. And, you know, obviously I’m biased towards the deal maker skillset, you know I feel like that’s the skillset that has made the most people the most money in the history of mankind, is just being able to find deals, put them together, raise capital, all of those things that are involved with that.
So I really want to focus, just like Kobe should be focused on basketball and everything else should be taken care of for him, so I wanna focus as much as possible on that deal maker aspect of doing these deals, both on the buy side and like the transaction we’re talking about today, on the sale side, and make sure that we’re maximizing value both [inaudible 00:13:06].
Justin: This is an interesting buyer interview because not only did you buy the site with us but you’re also getting ready to list and sell the site with us, so I think this is a pretty good case in terms of it’s going through both hands of our marketplace, but it’s also interesting we’re gonna talk about what you did to the site, the changes you made, everything, but I think we got a pretty good grasp on where you’re coming from and where you’re coming in at the deal.
Why this site? Like, why did you pick this, one of the medical education space, what was attractive about this site to you?
Ace: So the very basic analysis, which, like I have a guy that takes deal through kind of these 90 different things that we check [inaudible 00:13:50], what that deal is, but that’s not as crucial, I mean it’s pretty easy to just determine, is this traffic based on the PBN or were they using some gray hat or black hat type of strategies.
What is important to me is kind of on a macro level, I don’t think people, when it comes to our deals on a macro level almost due diligence and basically the idea that a raise in tide will raise all ships, and so when I’m looking at a deal, I wanna see what’s going on in the [inaudible 00:14:28], in that chemistry in general, and this is one where we just saw there was an increase in interest in this particular thing, whether it was school, and just you know, more schools related to this offering things and so you could just see there was an increase in interest when it came to this particular niche. And so, like I said, one of the reasons it was growing at that point had less to do with some of the niche of things going on with the site and more to do with just, hey there is more demand for this, so I think a lot of people get so focused on, “Okay, how can I manipulate Google this way, and how can I do that,” and blah blah blah.
But, at the end of the day if you buy something where there’s just more money being spent in general, it becomes easy, even if your percentage of that market remains the same, you’re gonna end up growing.
Justin: So you’re thinking rising tide, you like the industry, you’re looking at Google trends seeing it’s going up, and we’re gonna talk a little about due diligence to the site, kinda get into the nitty gritty, but in general, you like the industry, you knew that it was going up and you wanted to be in the space because you wanted to get a piece of it. And even if you didn’t grow it you figured the industry’s gonna go up, I’m gonna make more money on this deal.
Justin: All right, so. That gives me a good idea on kind of why this site was particularly interesting to you, because of the industry it was in. Let’s talk due diligence. So, you know, what steps did you take to verify the accuracy of the information? So in terms of traffic, in terms of earning, how do you know that this wasn’t fake, that this wasn’t crap?
Ace: So, we have a process where we take all of the information and get access to Google Analytics and if they have social media, basically everything that’s going on with the site. One of the neat things that’s happened because of building this network of business spires that are all over the country here in the U.S. is we end up building a database of things to watch out for and tricks that people are pulling and that kind of thing.
We actually had a really interesting [inaudible 00:16:35] recently where we had a Internet dog-sitting network, and so here in the U.S. there’s this new thing where you have these little networks where people can go, and almost like an Airbnb, I guess-
Justin: For dogs.
Ace: It looks like an Airbnb for dogs, exactly. And so, we had a couple up in Portland that was looking at this deal and it looked really amazing, I mean, multiple, they were willing to sell it, [inaudible 00:17:08] making money, been in business two years, which are some of the things we like to see, but we get the most recent numbers before closing and … All these new expenses, there’s insurance and they’ve got some new tax stuff, and we’re like, “What’s going on?” It drove the profit down quite a bit, and we go back to the seller, come to find out in Oregon, basically the only thing I can think of is that the actually boarders went to the state senate and said, “Can you just do something about these pet sitting networks?” ‘Cause I can’t imagine that the legislation is just sitting around like, “Man, I wonder what’s going on with the pet sitting networks.”
But they came up with this legislation that basically required this new level of insurance and they had to treat the sitters as like employees and all these things that, this law had come into effect, and they were kinda hoping that we would close without getting that last little update-
Justin: How did you find that information?
Ace: So, we saw the numbers had changed, and that’s what made us go back and say, “What’s going on here?”
Justin: Why this new insurance expense, like what is the deal? And so that made you kind of second-guess it and go digging a little deeper.
Ace: Exactly, exactly.
Justin: Any time you’re in an industry or a niche, right, and you know it really well, so you know kind of what the legal situation is, you know what’s coming down the pipe, and you may see something coming that a new potential buyer wouldn’t. Because you’re in this space and you see that there’s legal ramifications coming up or whatever, so it’s a great time for you to bail out as you see this coming, and I think you see this with like the vape industry, that’s one of those right? Those types of industries that are kind of, they’re legal but maybe quasi or they’re just concerned that they won’t be legal for long. That can put a buyer at risk, for sure.
Ace: Exactly, and so we actually had a guy named Andrew who was in the program out in LA who came across a similar deal, was really wanting to close it, they were selling like one and a half times earnings, and we go back to the database, we see, hey let’s watch out for this. And that was really [inaudible 00:19:17], is California hadn’t passed it yet, but because we had that we were able to do some research and see that it was coming down the docket. So it hadn’t even been voted on, nothing, it happened, but we were able to avoid that deal because of that.
So, when we’re looking at something it’s just the standard things, but we’re building this database, so when it comes to these deals, this is what we wanna watch out for, when it comes to eCommerce deal, we just did a deal on a teeth-whitening business, and we wanna make sure that the inventory is coming from places where there isn’t a conflict of interest from the seller. So we had one of them where we found out that-
Justin: [crosstalk 00:19:57] make sure the seller’s not the manufacturer, kind of thing?
Ace: Yeah! Yeah.
Justin: Either a sister or brother or something (laughs).
Ace: Yup, yup, or they’re getting the kickback once you buy it or they know that that contract is gonna end, so that’s where I spend, you know, we just have a checklist for the normal stuff, and then where I’m focused is more of the long-term business risk of what’s coming down the pipe that could kind of cut the train tracks off a year from now.
Justin: How much looking into the broker do you do? How much looking into the seller, the individual seller, do you do? Or, is that important to you in a transaction?
Ace: It is. Who’re you’re dealing with is so valuable. And the broker that you’re dealing with is really, really crucial, so we’ve got a lot of great relationships in the industry, and I think that’s just a big part of having people that, especially if you’re gonna do these deals on a long term basis, you want brokers that are gonna go the extra mile and say, “Hey, here’s something to consider, here’s what to watch out for on this one,” and they’re just gonna spend a little more time because they know that you’re gonna do a ton of deals with them. But you also have brokers that are out there that I don’t think that they’re doing anything malicious, it’s just more buyer-beware.
So, just knowing how that broker operates, because there is an industry standard of, only list this kind of deal if it passes these things, and so you wanna understand what you’re dealing with, because you wanna be able to look a little deeper and pay attention to the little things. When I’m looking at a listing that says the business makes $100,000, and then I see the perspectives, and, yeah, they made $100,000, but that was in 2012, and they’ve made $40,000 in ’13 and ’14. You’re like, “Okay, you know …” You’re fudging this.
Justin: That’s like living on past glories (laughs). Yeah, it makes $100,000 thirteen years ago.
Ace: Exactly, but a lot of people will overlook that, “Oh, okay, well maybe I’ll just bring my price down,” and that kind of thing, but it’s not about that, it’s not about just that misrepresentation, it is the fact that they are willing to misrepresent anything. And I think that’s a crucial thing, just understanding conflict. You mentioned at the beginning, on this deal, this is a deal I could go out and sell myself, but I think it’s important to have intermediaries, I think you want that kind of independent person in between the two that’s saying, “Okay, yeah, I can, on a basic level, kind of vouch that this is what it is,” and so I’m willing to pay, you know, $10,000 because I think that that kind of thing is important.
Justin: Yeah, it’s interesting, we’re selling the site, which is definitely a site you could sell, but making sure you have people on the right side of the deal, and there is some protections there. It’s interesting though that you mentioned this, I’ve been conflicted about this a bit, I’m just now bringing this up, it’s a bit of an aside, but … you know, like brokers, a seller’s agent, some take the stance that, “Look, I don’t care to verify the information, it’s not all that important to me, I’m representing the seller, so I’m gonna get top-value on this, it doesn’t really matter to me,” like they aggressively protect their sellers. And I think, it’s an interesting position, I actually heard a broker say, “Look, I will do everything I can to protect my seller, and my seller is my customer,” and those are the people that were trying to help get the deal going.
I actually respect that position, I hear where they’re coming from, I think we’re probably more balanced in that we’re looking out for buyers and sellers? I think that we’re looking to protect both sides of the market, but I don’t hate the fact, you know what I mean? I see where they’re coming from and they have a responsibility to their seller to do everything they can for the seller, and so what do you think about that? Like, do you think that brokers in general should be balanced, do you think they should represent one side of the transaction?
Ace: I think a smart broker is going to be balanced. At the end of the day, you only have fiduciary responsibility to the seller, and that’s an industry-wide thing, so whether you’re talking about M&A Goldman Sachs or a small town business broker, unlike something like real estate, where the agent does have a fiduciary required by government responsibility, if they’re representing both the seller and the buyer, they have to be balanced.
And either the seller or buyer can come after them legally, if they feel like they were on either side of the quantum more than the other. For us, in this space, the government takes the stance that, if you’re playing in this world, and a lot of our laws unfortunately come from billion dollar deals, you know what I mean? So they’re really doing legislation for billion dollar deals, but it’s still the same for us who are buying and selling businesses, and what they say is, “Hey, if you’re looking to buy a business, you’re a big boy. You don’t need, what are-“
Justin: The hand holding, yeah.
Ace: Yeah, you don’t need somebody to be balanced, you need to go in and make that decision. So I think from a legal standpoint, you want to err towards the seller, but I think in the interest of just building a long term brand, you’re gonna want to protect your buyers because you get a bad reputation if you’re like, “Ah, screw the buyers,” and that’s what I like to work with is just people that have that understanding.
Justin: What’s really interesting, and I don’t wanna get too far off-topic with this, but with the JOBS Act and the fact that you can now crowdsource investments or at least we’re heading in that direction, I mean it opens up just a ton of opportunity, but it’s also taking $5,000 from someone who only has $15,000 in total to invest, and that’s a bit concerning, but like, how involved should government be in telling people what they can do with their money? I don’t know-
It’s a messy thing, it’s really interesting though. And you know I heard, there’s a startup podcast, I don’t know if you’ve heard it, with Alex Blumberg, used to be This American Life guy, it’s a really interesting podcast if you haven’t heard it, but he talks about this a bit.
Let’s get back to the site a little bit, or back to the deal.
Ace: Okay (laughs).
Justin: I love that stuff, but yeah, let’s get back to the deal for now. What would have kept you from purchasing this site, aside from obvious fraud, clear misrepresentation, like what could have popped up that you could have went like, “Nope, we’re not doing this.”
Ace: You know, I mean we almost walked away from the deal. And part of it was because I kind of saw, okay there’s this new interest and this trend was kind of popping up, and sure enough during the process the site started growing. And so we would go through one re-negotiation and then a couple days later it’s still growing, I think they were getting cold feet, “Maybe we need to hold onto this thing,” so we probably went through three negotiations, almost walked away from the deal, and that kind of thing.
So, a lot of it was just around agreeing to the right deal structure and what amount of [inaudible 00:27:09] and all that good stuff, and that’s what, if we didn’t get that settled, we almost did walk away from it.
Justin: It’s interesting whenever the deal’s getting done, if it starts to improve the seller starts to get, I’d say greedy, maybe that’s not even fair, they just start to see the opportunity and they’re like, “Oh God, you know, I should really get more from this site,” it starts to decrease, they’re like, “Oh God, I normally get less for this site,” right? So it’s just-
Justin: Especially the deals been sitting there couple of months and so you’ve got a trend and they start to see it go up and they’re like, “Maybe I’ll just hang onto it a little bit longer.”
So you’re in a position, too, that if it’s an issue that you like, you see it going up, you’re willing to pay a bit more, how badly did you want this site? I mean, you said you were willing to walk away, I knew you liked the niche, I knew you were interested in the niche. Up until what point, like if the seller would have come back with something outrageous, you probably would’ve walked, right?
Ace: Yeah, if they would have come back, but, you know, obviously I really liked it, I went about 13 above asking, so we wanted the deal. And I don’t know, I probably just because of the going back and forth kind of walked pretty close to where we were, where we ended up. But they did a great job of, they really deserved to get more out of it, so I definitely don’t fault them, I mean if you’re a seller and you’ve got somebody that’ll let you sell it, you know maximize it.
Justin: You’re in a good position. Let me ask you this, I’ve got notes in front of me that are saying that you initially offered $20,000 and the seller rejected it. Do you remember how that went down exactly?
Ace: I don’t, I reduce so many deals, but you know obviously I’m gonna try to get it low, so that sounds like me.
Justin: I saw you came in at 20 and the seller came back and was like, no-
Ace: “You’re crazy.”
Justin: It’s not making this much this month, that’s not gonna happen, and you know he really, yeah they were really thinking full price, and then I think you guys held off a bit and maybe you were looking at some other deals with some other buyers, came back to it and you were like, “Damn, I better buy-“
Ace: I gotta get this thing. I didn’t remember that, but yeah we obviously went from like 20 and with the earn out and everything went up to 40, so that was mad negotiation on Ace Chapman’s part, man. I might have been able to just get the 27 if I had done it without negotiating.
Justin: Was the earn out tied to the success, the improvements let’s say?
Ace: Yes, so that’s what we were able to do is negotiate a deal that basically had a watermark and that kind of thing.
Justin: That makes sense from their perspective when they see it start going up, they’re got a little FOMO going on and you can help kind of alleviate that by giving them an earn out on the success that you guys are able to add onto it, you know for the next few months.
Ace: Especially when you’re doing a watermark deal, ’cause it’s like, hey let’s work together, let’s figure out how we can get this thing as big as possible together. ‘Cause above this amount, you’re gonna get it, but I think in every deal is trying to come up with a creative way that gets the seller, not just willing to do the deal. I really like, and that was probably one of the more intense negotiations, I’m more of a collaborative negotiator than a combative negotiator, so I wanna sit on the same side as the seller and try to figure out, all right how do we make this win-win.
Obviously, I want a great ROY on the upfront cash that I put in, you want to get as much value out of this as you can, so how can we come up with a creative structure and make it so that you’ve got a lot of upside, I’m getting what I need out of the deal, and it can be a win-win.
Justin: Yeah, there’s so much value in that being able to put those deals together, kind of think around what the needs of the buyer are versus the needs of the seller and if you can get those deals done, as a broker or just as a buyer or a seller, if you’re able to get those deals done, you’re able to make a lot more money I think in most of your deals. In everything you do in business, honestly.
Justin: Could we have got more out of you? I was wondering that, would you have paid more for that site than you ultimately paid, do you think? Or was that about the limit? Not what you know now, what you knew that the time.
Ace: What I knew at the time, maybe a little bit more, but I think we kinda hit our limit was where we were at.
Justin: I don’t want you shooting yourself in the foot here and not taking notes here and I’m gonna go, “Next time we do a deal with Ace I’m gonna make sure he pays more,” no nothing-
Justin: But yeah I’m just trying to get a gauge and I’ve asked other buyers this too, where were you at, did you think it was a steal at the time, did you think it was about right for you, about right for the seller. It sounds likes like we’re-
Ace: No, I felt like for where it was, I think obviously looking back now it was closer to a steal, but at that very point I felt like, okay this thing is growing but I really felt like, all right, it’s almost double at this point, this is probably it. You know? So, I saw some things that led me to believe it was growing, but after that I was kinda like, okay it grew and we’ve paid for the growth. So I wasn’t terribly excited at that point, obviously would have been a lot more excited to get it for that initially offer.
Justin: Yeah, because you’re paying on where you think it’s gonna go, which is always a bit scarier [crosstalk 00:32:29]
Ace: Yeah, exactly.
Justin: What did you like or not like about the process once you submitted your interest in buying the site, in terms of what we did, in terms of what the seller did, like what do you think could be improved?
Ace: I think the toughest thing on that one, obviously, was having to go above list price. It’s a part of the game, I’ve been there before, I think it’s frustrating for everybody- nobody’s happy, I think the seller feels like, “Man, I really hate to have to go above what my list price was,” and obviously the broker’s caught in the middle, and the buyer’s frustrated that he can’t get it for the price that it’s listed at.
Justin: You think we can fix that by probably just updating the numbers quicker, making sure that early in the due diligence process you have a better grasp on the price, now obviously if it takes a month or a month and a half you’re kinda looking at it-
Ace: Yeah, that’s just part of it, yeah.
Justin: Yeah, if it takes longer, obviously prices are gonna change, but as long as you can get those updated numbers sooner, I think that would help you at least see where you’re at and either move quickly or take your time. All right, that’s good for you though, I appreciate that.
Let’s talk about taking over the site, now after you purchased, you done the deal and you were taking over the site, any trepidation on the transfer process? What was going through your mind at the time, what was going through your buyer’s, your other investor’s mind, like was there any concern about what you were gonna do with it?
Ace: No, ’cause, I mean, I’ve done about 60 of these deals, so at this point that part is just a process. It’s easy.
Justin: Was there anything with the site that wasn’t as you expected? I mean, you always, and this seems to be true but, whenever you do a deal you’re like, “Oh, I didn’t think about this,” or, “Oh, there was this,” right? Was there anything in particular that you remember with the site, that there were misstatements or inaccuracies or anything left out that you wish would have been included?
Justin: It was pretty straightforward.
Ace: Yeah, the guys, you know even after kinda going back and forth and you know, intense negotiation and all that stuff, it’s great when, at the end of the day you’re dealing with stand up guys that are a pleasure to work with and you know that you both kinda have a job to do and you do it. But no, the guys were stand up guys and we’re still in touch with them and that part, even just speaking to them and knowing, I think one of the things that’s of value is when you’re working, I really like working with sellers that are … I really prefer sellers that are kind of in the business of doing this stuff, even with you guys, we’ve done several deals where we’ve done deals with folks that are in the business of building or doing what they’re doing.
Ace: And it’s the same thing like we were talking about with the brokers, you wanna look at someone’s reputation, and when somebody does have a reputation to uphold, they’re gonna make sure that things are right, and so I really love the fact that the guys that we did this deal with, they are in the business or doing these, they plan on being in the business for a long time. They’re in the space, doing businesses and all of that, and so they have kind of their part of the ecosystem, which is building these things and growing them, and we’re in another part of the ecosystem, but as long as you have people that are in that ecosystem, it works really well and balances things out. So, no, there weren’t any surprises.
Justin: It’s another day at the office, right? It becomes really transactional because this is what we do. And from the seller’s perspective, from the buyer’s perspective, we’re all kind of in the game together. What’s interesting, and it can really throw the dynamic off is when you have one or more of the parties that are new, so you’ve got a new buyer who’s really worried about, I’m putting money up, like am I gonna get this deal, they’re really kind of checking in all the time. You have seller’s going, “Oh my god, am I sure, I have to transfer the site over, I haven’t gotten paid yet, what is this Escrow stuff?”
Justin: They’re really- “I need to get paid.”
Justin: And you’re like, oh my god these guys are-
Ace: I have to check myself sometimes, ’cause I work with a lot of first time buyers and it’s really amazing, some of the things that can come up in a first time buyer’s head as far as like, but what about this, and you’re like, “what? How could you, like what are you thinking? There’s no way that would ever happen.”
Justin: Yeah, like, “What if I send them money and they end up not sending me the site?” Well, like there’s no way we’re gonna screw you for $40,000. That would be really bad business. We wouldn’t be around.
Ace: I got this email yesterday like about this, we already talked about it, the wire’s about to go out and all that, he’s literally at the bank now, “What about this, and what about,” you know, “what if they don’t [crosstalk 00:37:18]”.
Ace: It’s like, I don’t even know how to answer that, it’s just not gonna happen. That’s the answer.
Justin: I sat down with one of our buyers, a high net worth guy, and we were having dinner and we were discussing it, and I asked him, and looking back this is kind of a foolish question, but I asked him why he wasn’t concerned his first time doing business with us, just putting a deposit down, how do you know that we weren’t going to keep the deposit or whatever and just really screw him over, and he was like, “Look, you guys have been in business a couple years. There’s no way you can operate by stealing people’s deposits, that’s just not gonna happen.”
I mean, you could, you’d have to be faking a lot of stuff to get my deposit. Like that’s a pretty long con, that’s a pretty trapped [crosstalk 00:37:59]-
Ace: That’s a lot of work.
Justin: Yeah, probably not worth it. I was like, yeah, no that would suck.
Ace: The really funny thing is people hear about the Nigerian scams and all of that, and it’s like, man that’s an email and a guy with an Internet connection over in Nigeria. It is so hard if you have a legitimate business to have any level of any scam going on in that business before you’re like rip-off report or whatever. So, yeah, a lot of people I think get nervous based on just not knowing.
Justin: Speaking of which, I know a girl who’s from Nigeria who does business online, and legitimate business, right, I’m like, oh my god that’s a rough sell, right? (laughs). “I’m in Nigeria, just wire me, just send me some money.” Like, that’s tough, man.
Ace: Banks will stop that stuff, man, like they don’t even want to send things to crazy countries.
Justin: We had problems, we had the worst problem sending money to a seller in Pakistan. It was the worst problem, like we sent the money and this poor seller, you know, he was a sweetheart, like you’re giving us the time we need, but we’d sent the money, and we were like, “No, we sent the money, here’s all the information,” and the guy was like, “No, I haven’t received it,” and we’re like, what this doesn’t make any sense.
Turns out something had got held up because, you know, it’s like a terror-funneling platform. It looks like we’re funneling money to terrorists or something, it’s ridiculous.
Ace: Yeah, it’s tough for those-
Justin: International business, man.
Justin: So, now we talked about you taking over the site, let’s talk about the growth or expansion, which I think for this site in particular is really interesting. What was your plan going into this, what was your plan regarding growth, you were you gonna build this out, did you have a plan or was it like we’ll figure it out as we go along?
Ace: I mean, a lot of our plan was to continue what was being done. You know, like I said, we were really focused on the fact that we felt like this aspect of the market was gonna grow and there was some increase in demand, but the great thing, and one of the things that I encourage folks to do is, when you’re working with sellers is to build a good relationship with everybody that you’ve come in contact with. And so over the last five years we’ve done a lot of deals with a lot of different people, and a lot of those folks have different expertise, and so we’ve had one guy who worked on the site that has a lot of expertise in, I don’t even understand what he did, you know he told me, and still don’t know what it means.
Ace: It’s like, some kind of thing that he did and we saw a little bump from that and it kind of goes back-
Justin: SEO related or was it like conversion-
Ace: SEO related. SEO related. But, it goes back to really being amazing at whatever your skillset is. So, if you’re somebody who is a writer, like really getting great at that, buying a site where you can leverage that and then going and finding other people who are really great at everything else, and they’re able to help you and having that trust relationship. ‘Cause it just is that people get overwhelmed, they get in a state of overwhelm because, gotta be an expert at everything, I gotta be the social media expert and I gotta know how to run a contest, I gotta understand how to do SEO, how to make sure my lead magnet is good, and all these outrageous things, and so you got this list of 100 things that is not even a list yet, it’s just in your head, and that becomes the source of overwhelm when you’re doing these deals. And so-
Justin: That makes sense to me, people like the builders, because especially if they’re starting off at a very low level, like just starting out, is that they feel like they kind of have to do all these things. It seems like it almost gets easier the further up the value chain you work because everyone starts to specialize. So you have people that are, I’m particularly good at ons- not even just SEO, I’m particularly good at on-site content changes in SEO and internal link building, and another person’s good at off-site link building, and another person’s good at like viral con- like, you know what I mean? They really sort of specialize in their industries and you can hire the right people that you need.
Ace: Yeah, exactly.
Justin: So we’ve talked a little bit about, you know it’s obviously grown, it’s done well for you, it sounds like your SEO guy did well, is there anything that you did to the site that just didn’t work? That was kind of, you tried it and it just wasn’t good?
Justin: Okay, it’s a pretty new site in terms of you buying it. So, all right, so let’s talk about- let’s talk numbers. So the site was at least one point when we were listing it, it was earning about 1600 bucks a month gross. There were some costs in there for content, so it was about $1,400 a month net, and that was based on a three month average. And this is a purchase, so where is it today?
Ace: So last month we did 4,700.
Justin: So 4700 bucks a month, is that net profit? Do you have any expenses included in that?
Ace: Yeah, we’ve got about 300 in expenses, it’s also too early to know how much and kind of the charge backs, [inaudible 00:43:09]. Adjustments, they just call it adjustments. Basically they’re taking money from me, so, but you’ve got certain amount in adjustments and all that. So, you know, I would say about 4,000.
Justin: About 4,000 a month in that problem, and you bought it at 40,000, which was an overpay, but that’s because of the kind of the trendline it was at. Right now, the site’s worth, if that’s right, if it’s about $4,000, we’re looking at 80,000. And this is only about seven months later, six to seven months later. So, you know, you made some money in the meantime, improved it, and then you’re gonna turn around and flip it. Like, that’s an interesting thing, why, and we talked about this a little bit before the show, why are you selling now? Why don’t you collect that $4,000 for another 12 months and then sell it, or see if you can improve it even further?
Ace: One of the main reasons is, I’m partnered with some clients, and on these deals the main goal is to get them some cash so they can go out and do their own deal, and so we’ve increased the value, now he’s gonna have more cash and he can go out and he’s got some experience, he’s gonna be more comfortable in the process, so we kinda walked the path together and so now we’ll exit and then he’ll move on to his next deal.
Justin: So, this is a pretty rosy picture. You and the buyer, it’s a big win, everyone listening to this is like, “Damn, that sounds pretty easy, I can go do what Ace does.” It’s not always the case, though, right? I mean, you do have some losses. So, I mean, tell me about some sites you’ve purchased that were just, it just didn’t work out.
Ace: There’s one in particular where it didn’t work out, and we’ve had some different deals and the great thing is when you look at the overall number, it is pretty crazy that more deals don’t blow up.
Justin: Yeah, ’cause the returns we’re getting, right?
Ace: Yeah. Yeah, I mean, when you compare the deals that blow up online to offline, it’s really pretty crazy. You know, the offline deals that we’ve been involved in, there have been a higher percentage of those that blow up than the Internet deals, which is-
Justin: [crosstalk 00:45:21] More moving parts, you think?
Ace: I think you’ve got more moving parts, you’ve got employees, you’ve got just dynamics, you just have a lot going on, and especially ’cause I’m really more thinking about deals that are comparable size-wise. So if you’re looking at offline businesses that are under half a million dollars and you think about that type of business, there isn’t … I guess going to zero for half a million dollar business could just mean that 10 percent decrease in gross revenues. Whereas, you know, it could be making net on net, you know if it’s grossing half a million, the net may be the same as $100,000 Internet business.
But you’ve got, for that $100,000 Internet business to go to zero, oh and $50,000 profit, it’s gotta decrease 90 percent of the gross revenues.
Ace: It may have 10 percent of costs. For that offline business, take it, where the owner’s taking home 50,000, you may only decrease the business 20 percent-
Justin: [crosstalk 00:46:29] And now you’re underwater.
Ace: – and you’re losing money. So it is, it’s really interesting, so we had a deal that was an affiliate deal, and it’s the dreaded email and phone call after about six months that this thing’s gone to zero. And it’s like, my goodness, let’s see what’s going on and let’s see if we can make some things happen.
Justin: What was the reason?
Ace: I think he got hit with a PBN update.
Justin: Yeah. What’s your biggest fear going into these website purchases in terms for like, taking it to zero or losing 80 percent or something, it generally seems based around organic traffic, because maybe that’s just most of the sites that we see?
Ace: Yeah, that’s the biggest fear, is something goes to zero. You know, the great thing is, in that case, what I tell people, and we’ve had two deals, that one was an Empire Flipper deal, we’ve had another- we’ve had three out of about 80 or so total that we’ve been involved in, another 30 where it wasn’t clients, we were just brokers, they weren’t in the actually program.
But, so the percentage really low, but we had three that have gone to zero, two of them have come back. The one that we did that Alex mentioned that was an Empire Flipper deal, we were able, again, and a lot of us having that network, so we were able to connect him with a past seller and pay him to basically kind of get it back. It’s at about half of what it was when he bought it, so it basically means that instead of, with the six months that he did get, instead of having a total 100 percent return in two years, it’ll be closer to a little less than three.
Justin: Which, still, I mean, even that is not bad-
Ace: It’s amazing.
Justin: Okay, so, Ace if we’re looking at this like on a macro level, it is surprising that so few deals blow up or go to zero or go close to zero, especially, I like your point about comparing it to the low margin off-site stuff, if you lose 10 percent and that swallows up all your profit and that’s effectively zero with your $2,000 gas station you purchased or, you know, $80,000 car wash or something, it’s very similar situations, so.
Yeah, I think the organic traffic issue is always concerning, I know that some people try to only purchase sites that have paid traffic, but there’s risk in every part of the business, so if you’re a paid traffic guy and other people are getting into the space and they squeeze your margin, you’re at risk there, too.
Ace: I don’t think there’s any way to avoid risk, I think that right now the margins are so good and so big that’s able to kind of overcome, I think as those margins get squeezed, I’m not talking this year or next year, but over the next five to 10 years, I think that’s gonna happen in our industry, and then I think it’ll be rougher. [crosstalk 00:49:19]
I think the other thing that you can do, is I’m just a big fan diversification. I mean, it’s old school, but having a diversified portfolio of deals allows you to kinda take those bumps and not be devastated. It can be dangerous to have just that single deal that, if something goes wrong, your entire network is gone.
Justin: Agreed. So, tell me, you know we’re talking, the site was earning $1,400 a month net, it’s up to, let’s say $4,000, maybe a little over $4,000 a month net, what do you think we at Empire Flippers can do in terms of brokering, in terms of offering buyers like yours good deals? Like, where do you think we could improve?
Ace: I think you guys are doing a great job. I mean, I work with a lot of brokers online and offline and your process, there’s always ways to get better, but at this point you guys have one of the most organized and simple processes for a beginner to just be able to follow and figure it out that’s out there. So, I’m a big fan of y’all’s process as it sits.
Justin: Wow, I set you up for that one, man, that was a real softball. “Yeah, you guys are, you guys are great.” (laughs).
Tell me about, like, if you had any final advice for buyers, or I guess for sellers that are considering buying and selling their sites on our platform, you know, what would it be specifically on, I guess, the buyer’s side. What advice do you have for new buyers looking to purchase?
Ace: I think getting on the phone and actually getting comfortable with sellers, I think we’re so used to doing things that are impersonal, so we’re just used to transactions so you go and you click a button and that’s it and you’re just trying to decide based on this information, do I wanna do this or not? I think that we’re in business and business is done between humans, and I’m just a really big fan, I’ve gotten on the phone with sellers and realize there were opportunities that I didn’t think about before. And so just, building that seller relationship has been really valuable for us over the last five years.
Justin: So, stop being Internet dark, stop hiding behind your landing pages and your Twitter accounts and get on the phone. Get on the horn, meet in person, right?
Justin: I hear ya.
Justin: Let’s, just a quick wrap-up here, site was bought in July 2014, medical education niche, monetized via QuinStreet, sold for just under $28,000, but you had to bump it to $40,000 because of some increases in the site. It was earning about $1,400 a month net, it’s now owning just over $4,000 a month net, and that’s at about a six to seven month time frame, and you’re gonna be selling it again with us here in the near future, I think I’ll actually put this interview probably on the listing page, so people can kind of get an idea on where it’s going and what’s been happening to it, I think people will appreciate that.
Anyone that wants to check out information about Ace, they can go over to acechapman.com, and on the podcast episode I’ll put a link to your site as well so people can check you out, man, so. Thanks so much for being on the show, Ace, I really appreciate it, it’s always fun talking to you, man.
Ace: Yeah, enjoyed it. Thanks Justin.
Speaker 2: You’ve bene listening to the Empire podcast. Now some news and updates.
Justin: Yeah, Joe, it was great having Ace come on the show again, man, the guy’s super sharp, I always have a great time talking to him, and I think he shares a ton of valuable information to people interested in buying and selling websites and our listeners.
Joe: Yeah, I love doing business with Ace, and I think we have a great business relationship, and you’re right, he’s a really cool guy, we got to hang out in Vegas a while when we were there in October and I’m looking forward to doing more business in the future with him.
Justin: Yeah, I’m a fan. All right, buddy, news and updates.
First bit of news, we’re making a final decision on our apprentice, but it’s taking a bit longer than expected, probably due to me being out for a couple of days this week with a nasty flu (laughs), that probably doesn’t help. But you and I are actually gonna talk after this recording and try to narrow this down and get this finalized, huh?
Joe: Yeah, I, you know, have people knocking down my email door asking me, begging me when we’re gonna make the decision.
Justin: [crosstalk 00:53:30] “Just let me know.” I understand.
Joe: It’s crazy.
Justin: I was out for a couple of days, Joe and I have been kinda in comunicado, we’re just getting back at it now. So we’ll have a decision on that soon.
Another update we wanted to make is that there’s been some changes over at centurica.com, that’s the company that offers the due diligence report for buyers, run by Justin Gilchrist over at flipfilter.com. Anyways, some of the changes are, well, one, they have a change in partnership or ownership. Bryan, the guy that worked for Flippa is now no longer a partner and then, I think Justin moved the other guy in the company up and they are now partners in the business. So that’s interesting, I think that conflict of interests was concerning to us.
Joe: Yeah, I think that was a good move on Jusin Gilchrist’s part, it’s good to see that they did remove that conflict of interest, and then like you said, I think that that was the right way for them to move the company forward. Also, they’re making the reports a lot less subjective and more, sort of, write down just the facts man kind of due diligence reports, which I think is great. You know, I think before there was definitely some things in there that were questionable, whether they were negative or positive, and now we’re drilling down on just giving the facts, which is what a true due diligence third-party report should do.
Justin: I think it’s weird for you to say, okay, I think this is a go or no go or green light, yellow light, red light, kind of areas, because you’re putting some value judgments on things that may or may not be right for that particular buyer. But at the same time, removing everything and having it just be the facts is, I don’t know, that’s a difficult, I understand their dilemma there, it is a bit of a problem.
I mean, I think maybe showing comparisons on how this one is compared to others, that they’ve done reports on would be fair. Like, here’s what this looks like and here’s the average on the rest or something.
Joe: Yeah but the problem with that is how would you compare it?
Justin: And is it good or bad? That’s the other thing too, right? Like does that mean my side’s better or worse?
Joe: Yeah, and we always talk about this too, Justin, something that’s just bad from our perspective may not be bad from some people’s perspective. They might think that that is what they want, they want a damaged property, they want a property that’s on [inaudible 00:55:47], they know they can get a good deal. So having these sort of things in your mind about the way people think about things is not really the way to go at it, it’s probably just best to give the facts, make it straight up, and go from there.
Justin: Cool, man. Now we’ve got some changes going on at Empire Flippers, too, you were letting me know, we’ve got some good stuff happening.
Joe: Yeah, some minor changes, people, visitors might see we’re improving a little marketplace listings, you might see some improvements to the blog, whatnot, just some minor visual stuff, correcting some of the stuff that was a little bit buggy before, so, keep your eye out for that, if you are having some problems with the pages, make sure to reload, not from cache and let us know if you do see something funky.
Justin: All right, buddy, let’s do some listener shouts, also known as the indulgent ego-busting social [inaudible 00:56:33] segment, we’ve got a five-star review from Eric, said, “Hey, just found your podcast last week and I think I’ve listened to 30 plus episodes. I’ve tried a few ideas on the Internet and failed or been cheated, listening to your podcast and looking around I’m encouraged to start again and buying a site on your marketplace later this year, I’m starting low as a newbie Norm or do-it-yourself Dave and then I’m building up later.” Well, Eric, I really appreciate it, I appreciate that you’re a fan of the show.
We’ve also got another one, a five-star review, says, “Good deal,” from ALH6728, whatever robot that is (laughs), said, “I got a $300 discount on Anton’s drop shipping cost because of this podcast,” that was the drop ship lifestyle interview we did where we were giving $300 discount on the program, so, appreciate that, ALH, (laughs) thanks for the five-star review.
Twitter, we’ve got a shout, Walking the Earth podcast, I was interviewed on, it was a really fun interview actually, it’s episode 60 over there, I’ll link to it in the show notes, but, yeah, Walking the Earth podcast is basically just talking to people that are nomads, that are traveling around, it’s less about business although they had quite a few business questions, and so I covered kind of our business and how it allows us to do the travel that we’re doing and we also talked about our personal lives and how we balance personal lives versus business and, yeah if you haven’t listened to it, buddy, I think you would think it’s pretty interesting actually.
Joe: Yeah, I’ll have to give that a check out, and by the way, thank you for all the five-star reviews, really appreciate that.
Justin: Well that’s it for episode 127 of the Empire podcast, thanks for sticking with us. We’ll be back next week with another show. You can find the show notes for this episode and more: empireflippers.com/anatomy, and make sure to follow us on Twitter at Empireflippers.
Joe: 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.
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