WES S01E12: The Mini-Mogul Business Model
There are plenty of first-time website buyers and sellers, but did you know that much of the business we do is with other industry professionals?
These Mini-Moguls run anywhere from a handful to hundreds of sites and even have virtual employees and teams to run the sites for them.
In this episode, we’ll dig into some of the profiles of these entrepreneurs and look at some of the pro’s and con’s to each model. If you’ve wondered what this might look like as a full-blown career choice, this is the episode for you.
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Listen To The Full Interview:
What You’ll Learn From This Episode:
- The Roll Up Strategy
- Portfolio Builders/Investors
- The Website Flippers
Featured On The Show:
Justin Cooke: I think, a small deal, getting your feet wet and you’re going to learn a lot just by doing it. You can’t eBook your way to success here.
Speaker 2: Buying and selling businesses just got a lot easier. Welcome to the Web Equity Show, where thousands of successful entrepreneurs go to learn about buying, growing, and selling online businesses. Your hosts Justin Cooke and Ace Chapman share their real life advice, example, and expert interviews to help you build and grow your own online portfolio. Now to your hosts, Justin and Ace.
Justin Cooke: Welcome to the Web Equity Show. This is episode number 12. I’m your host Justin Cooke and I’m here with my co-host, Ace Chapman, my partner in crime only. What’s going on, Ace? How are you doing buddy?
Ace Chapman: What is up, man? It wasn’t too long ago we were hanging out in Asia. I had to make a little detour, come back man, and now I’m headed back to Asia again. I’m getting a lot of miles, it’s fun.
Justin Cooke: Dude, you totally flaked out on me man. We were in Manila. We were having fun. We were doing lunch and dinner. We were doing drinks. Then, you just drop it on me like, “Man, I’m going back to New York.” I was like, “What?” You had a little thing, a little deal you had to go do and now you’re in Chattanooga. Then you’re coming back out to, we’re going to meet up in Bangkok. It’ll be nice to be together again. We’ll do some interviews. We’re going to talk to some really interesting people out here in Asia. There’s a big conference we’re going to next week called the Dynamite Circle Bangkok Event. It’ll be a couple a hundred people out there, location independent entrepreneurs, website owners, website buyers, website sellers, investors. It’ll be really interesting to talk to them. Yeah man, I don’t know. I’m a little hurt you just took off back for the U.S. man. We had you in Asia. We had you so close and then you take off.
Today, man, we’re talking about the Mini-Mogul Business Model. We get questions about this a lot. What does a professional in our industry look like? We do quite a few deals with industry professionals. The reason is, is because they come back and buy and sell deals regularly. Like, “Hey, so you’re an industry professional and there are others buyers and sellers, portfolio owners that are in that position.” We want to lay out what that looks like, what it feels like, what the different types are, and we thought that’d be interesting.
Ace Chapman: It’s something I think, when people are getting into this space, first of all, it’s just shocking that it exists for most folks. I talked to people all the time, it’s like, “Man, I wish I would have known.” Even people that are pretty big and the whole internet world and this idea of buying, this is never crossed their mind. The next question often becomes, well, who are the people that are professionals in this space and have been doing it and what are those examples? It is interesting because a lot of them don’t make a big fuss about it. It’s not huge internet launches and all of that. We’ll talk about why.
Justin Cooke: A whole bunch of people that aren’t public are just silently behind the scenes doing their deals. That’s probably the most common. For everyone that has a blog and a podcast and still, grants done, guys like us, I guess. For all of us, bunch of people that are just doing deals in the background. We want to highlight, their positions and what they’re doing and how they do business with us, how they buy sites from us and how you work with those people yourself Ace, and how you turn, I mean you work with buyers to become those people. You’re on the front lines in terms of building industry professionals, people that are buying and selling businesses on a regular basis. I think that’s cool.
We’re going to dig through your roll up strategy. We’re going to talk about the website builders, the portfolio owners, and even the flippers, the people that are buying and selling. There are pros and cons to each of these and we’re going to get into that. But before we do, let’s talk some listener love. We’ve got a new 5-star iTunes review buddy.
Ace Chapman: Yeah, 5-stars. I get excited every time we get one of these things it’s new to me. It’s like this is pretty awesome.
Justin Cooke: It fires me too. It’s just a sign that people will give a shit. It’s just really cool. Guys says, “Very helpful and insightful.” His name is G-R-J-V. I don’t know what that is, “As expected from these two a great show where you learn quite a bit about selling your website and plenty as a buyer as well. Keep it up, guys will.” Thanks man. Thanks so much for the review. On Twitter, we got Hank said, “At Empire Flippers would live a podcast or blog posts on how Apples ad block move might impact the Adsense sites, your broker, will it matter?”
I think, the truth is it’s going to matter, but it’s not a huge concern of mine. We don’t do all ads insights, number one, and then for this ad block problem, it’s not going to affect everyone. It’s a portion of a portion of an audience and so I see some publishers concerned about, I see some talk about it, but so far it just hasn’t seem to be a big problem. I haven’t seen a ton of earnings decreased because of it, what are your thoughts Ace?
Ace Chapman: I think, this will be a small flip. There are so many ways to monetize your site, even for the folks that this is going to affect it should a majority of cases be a still a small portion of even that. I don’t think it’s going to be one of those huge things, but we see this happen quite a bit. I like to let things shake out because there’s always this preemptive stress and worry when people announce things like this and sometimes it’s better just to let it shake out and see what happens.
Justin Cooke: You’ll get this with the Google updates, you’ll get this with Amazon changing their policies and their monetization methods and obviously we’re getting this with ad block stuff and we’ll see. As an industry, I don’t think it’s a huge worry. I don’t think it’s even a big worry. Now, I’d say that there are going to be some individuals some site and owners that probably take a hit. Some of them may be slightly big head, but I don’t think it’s a big deal industry wide.
We have another question from Ben Perry. He said, “I’ve reviewed quite a few deals including a couple currently on the table where there’s a long earning history, but the valuation is based on the past six months where the earnings were exceptionally high. As a buyer, I love laundering history, but basing the price in a recent serve largely kills the assurance of earnings or that along earning history conveys.”
He wants to know how and why we’ve arrived at six months as a standard timeframe for pricing. I think, it’s a really good question, Ben. The thing is that you have to have some framework you’re working with. Let’s say for example that the site has been around for five years and it’s gone through, let’s say a major jump in the last, 12 months, 18 months, and it continues to climb.
Basing it on a full 12 months of history, basing in terms of basing the price on a multiple of the last 12 months, history is unfair to the seller, especially if that site’s growing significantly. To the seller’s benefit, we want to make it on a shorter timeframe. The same thing goes if the site is in decline, right? You probably as a buyer, you don’t want to base it on 12 months. If the last four to six months have been a lot worse, you’re going to want to base on that shorter timeframe.
The second. So, that’s the first thing is that you want to track trends and the best way to do that is on a shorter timeframe. Even if you have all the history there for you to review. The second thing I’ll mention, is that any pricing strategy or valuation strategy is it’s all relative. In my opinion, a framework used to discuss price. We have a particular valuation method we’re using six months for example, when you come in as a buyer and you said, “Hey, I don’t like six months, I’m going to do it my own valuation on this.”
I look at 12 months, right? I’m looking at a 12 month history, but the multiple you’re selling it for or the price is still a multiple, that’s good for me so we can do business. You can get caught like arguing about like how long it should be valued, but as long as the multiple and everything still works out, that’s great. If it doesn’t, then you’re going to have to make an offer and then present your data based on 12 months of history and make your case.
It’s an easy way to work with a seller and discuss what the valuation should be in a framework rather than just, pissing them off and giving them some low ball offer. If you can say, “It’s 12 months and here’s my multiple and here’s my reasoning for the multiple.” They’re less likely to be defensive. I’d say definitely in the five and low to mid six figure range sellers get a little testy, they’re little, they’re proud of their sites, they’re happy with their sites and they, if you come in with a lower offer, you’ve got to justify it otherwise they’d get a little upset.
Ace Chapman: I think, there are two points about that. Number one is, hey, you’re free to make whatever offer you want. The other is, there has to be some starting point and they’re just arguments that things are both sides that can easily be argued as to why it makes sense for somebody to do, to look at it as the most recent six months for the buyer. It’s safe for you because if 12 months ago and they were killing it, three months ago they weren’t, that it can balance it out. Then for the seller there are benefits where it, “Hey, if they’ve had this 12 months or directory that’s growing, that makes more sense for them as well.”
Justin Cooke: You don’t want to do on either side, you’re only basing based on projections at least at this level, right? You’re talking a billion dollar companies shark rate, and for early stage startups shark. For this, these cashflow generating sites you want to be talking about, possibilities and projections and that kind of thing. Using a shorter timeframe is a way to get a more accurate picture of what it’s doing today. I think that’s helpful.
Second question, same guy, he’s wanting to know, “Do you know of any consultants who would give me a solid third party opinion of the deals I’m considering? Not a prepackaged solution like [inaudible 00:09:28], but just a one off consulting from someone who knows these deals cold?” For anyone who doesn’t know [inaudible 00:09:34] offers a third party report. It’s generic, but it does actually dig into the details and less specific site and it gives you a report, but it’s not the same as a consultant coming in.
I’ll tell you, in terms of having a consultant come in and give you their estimation on ideal Ben, it’s not common. The reason is, because most of the people that have that skillset are doing deals themselves. They wouldn’t bother reviewing yours, they’d rather just work on their own deals. Ace is, I’d say the exception to the rule. He’s actually acts as a buyer’s agent and works with people in reviewing deals and making sure they’re good to go and giving people some tips on what they should do. But, you’re not common Ace. I think, that role will be more common in a few years, but you’re on the bleeding edge there, I think.
Ace Chapman: Even for me, I came from doing this with offline businesses and I’d already been doing it for a while and then started to do some internet based deals. But, for the average person that is doing deals, I had already been doing deals for about 10 years and reached a point where it’s like, “I’d love to invest in other people going out and doing deals.” That was the birthplace of this whole thing. It’s tougher because in the internet space alone, it’s pretty neat. I mean, all this stuff is good, I hear a lot of guys that are out there figuring it out and make some things happen.
It’s also exciting that, we’re creating some of those people that are going out and doing deals. Prior to one of the neatest moments for me was looking through some form where they had this list of some of the people that are in the space and have done these kinds of things. Most of them are offline, like Dan Pena, who you had on your show is awesome dude. There’s Mike Warren who does some offline stuff and then it was me and then it was one of my students he was the number four. I was like, “Okay, that’s pretty cool.” That’s the goal is that we are creating the people that will be in those positions over time.
Justin Cooke: You wouldn’t just get on the phone with someone and say, “Hey, can I just talk to you or can I walk through this deal with you?” That’s not something you do. You have people that are part of a program that you work with and if they’re not in the program, they don’t do the deal.
Ace Chapman: Because, then the main reason is, you have to the foundation of knowledge and because I’ve done that a little bit and you just end up having to go all the way back to the basis. Make sure you’re on the same page because there’s so many assumptions. So yeah, we’d like to take people through the whole process. We’re both on the same page, and then we can really talk about deals.
Justin Cooke: It helps when you’re working on the same framework and you’re speaking the same language because it just makes that communication understanding a hell of a lot easier in business. We have another question, Chris Dismuke asked, “I’ve been following along with your podcast recently and it really helped me in my journey for a retail equity investor with minor web and tech experience to a full-fledged web investor, generating excellent cash flow from my website.”
It’s cool Chris, you’re one of the guys we were actually talking about an industry professional today. “But, with a couple of my web properties, I’m going to the point where my return on my time is just no longer attractive for me. I’ve outgrown the site. I’ve never sold a website before, but I’m considering doing so. Do you have any resources about the tax implications of buying and selling websites? For example, what if I bought a website in January for 25,000 and plan to sell soon, with an expected sale price of 50,000. Do I get taxed on the gain only like stocks or do I not get to deduct the purchase price off the web property?”
It’s a great question Chris. We’re actually going to have an accountant on the show soon and we’re going to make sure to discuss that question. I actually had an accountant over on the Empire Flippers Podcast where we talked about that a little bit and I’ll link to that in the show notes, but we’re going to have someone on here soon then we’ll get into that for you. My understanding is, and you know the salt, I’m not an accountant, blah blah blah. I’m giving my warning here, but my understanding is that if you buy in the same year and you sell the same year, then your tax on the gains only. You buy it for 25, sell for 50 your tax is only 25,000. That’s my understanding, Ace the same for you?
Ace Chapman: Yeah, that is my understanding, and I also am not an accountant.
Justin Cooke: Yeah, no advice man. No legal advice. No tax advice. Another question from Jim. Last one says, “Hey guys, been enjoying your podcast. I was wondering if you could share some tips for beginner looking to get started in all my business space. In addition, Justin, you mentioned an episode eight that you were raising some money for venture. I may be interested in the opportunity, if it’s still available feel free to send me some details. Keep up the great work guys.” Well, thanks Jim so much.
I can tell you we don’t have a podcast I think that is for brand new people like they are really, really new. I think, some of our earlier episodes, the Web Equity Show will be cool to listen to, but Ace and I were talking about this right before the show and we said we’re going to do an episode here in the near future, that is for people that are brand new. I think, one of the problems is because we’re both in the industry, we’re doing deals regularly and so we just … I think, even on this show, is we start to use lingo or start to talk about it as if you already understand. I think, maybe we should break it down a little more and we’ll do that in a future episode.
The other thing, in terms of raising money for our investor program, we’re not, that’s shut off or that’s closed up. We’re currently purchasing the sites and getting ready to start growing them out and building them out and we’d be tracking of results over at Empire Flippers if we open it up, that will be because that this first has been successful and it wouldn’t be until Q1 or Q2 of 2016. We’ll keep you informed on what’s going on there. All right. Ace, what do you think, man, anything else for Jim you’ve got?
Ace Chapman: No, I do feel like this show has been for more of the intermediate people as opposed to the beginners and yeah, I’d be so excited to get back to the basics. I think, the neat thing for us will be that this material will be out there for anybody who just, at the very beginning they’re thinking about this stuff and even some of the conceptual types of ideas around why? The why of going out and doing this. I’m excited to jump into some of the basics.
Justin Cooke: Yeah man, that’d be good. Before we get into this week show, I’ll just an admin note or a point of note. We talked about we’re going to do this beginner show. We’re going to have that and be able to share that with people. We’re also talking about breaking this show up in the season. We’re talking about having season to potentially be a buyer season, and we go from thinking about potentially buying a site all the way through the purchase and growing the site out. Every episode of season two would be focused on helping you buy the site from thinking about it all the way through the sale and actually growing the site out.
I think, that’d be a fun way to do it. We can make season three a sales process and I think it’d be a great resource. We can point people to I when they’re looking to buy a site when they’re looking to sell side and we’ll have all of our best tips and tricks in there. I think, it’d be really fun. We’re definitely, and we’ve got more episodes lined up, we’re going to continue with the show for now, but we’ll probably close it off at some point and open up a season two where we detail that process. All right man, you ready to get into it?
Ace Chapman: Let’s do it.
Justin Cooke: Today, we’re talking to the Mini-Mogul Business Model and this is actually something that you and I discussed on the Empire Podcast quite a while back, and I thought it’d be fun to do on the Web Equity Show as well. The truth is we have a lot of buyers that come to us that will buy one business, maybe two businesses ever, but a full, almost 50%, not quite, but almost half of our buyers are repeat buyers. Meaning they’re buying multiple businesses over the course of several years. We’re going to dig into that a little bit today.
Ace Chapman: I’ve found that, a lot of times people come in their thinking, “Okay, I’m going to buy a business and I’m going to run that business and maybe one day I sell it.” I think, once you get in and you buy that first business, I think it’s really the internet businesses that lend themselves towards owning multiple. I’ve used this strategy offline and it can get complicated. You got licensing and employees and just a lot of responsibility and things to deal with. With internet businesses, it’s a lot easier to use some of these Mini-Mogul strategies.
Justin Cooke: Do think you can diversify a lot better online because you could have eCommerce business online, you could have a lead generation business online and it still kind of all works together. If you try to have a car wash and then a nail salon and a dental clinic, that’s just difficult, right? It’s difficult with offline business.
Ace Chapman: Well, and you’ve got all these different types of diversification. There’s traffic diversification, one deal may be organic traffic, another may be ad-words generator, PPC check, another is social media, and then you have the diversification of where the money is coming from. You can build some really neat portfolios beyond just own a nail salon and then over here own a car wash which are in different industries and different economic cycles and all those things.
The other thing that I love is, what you guys do at Empire Flippers, which is looking at the type of deal and describing the person that’s going to be the right fit for that deal. You guys have things like the Newbie Norms or this deal is going to be great for the Lifestyle Larry’s, and you can apply that thing to building your portfolio as well.
Justin Cooke: Personifying the profiles, it was amazing hit of one of our shows. People loved it. They’re like, “I’m totally a Newbie Norms but I want to be a Portfolio Paul.” It was cool to see, such a great reaction to the personification. I think, it helps people understand the different profiles and where they fit in and who they are and what they want to be in terms of, buying and selling online businesses.
Today, we wanted it to cover some of the options in terms of the buying and selling profiles and the types of people that are doing this and looking to build online empires. We’re going to cover some of the pros and cons of the different strategies. You can determine whether it’s a good fit or not for you.
Ace Chapman: Let’s jump into the first one. I call this one, The Roll Up Strategy. With those who want to build their empire over time, they’re not in a rush, they want to get used to buy their first deal. Maybe they’ve never owned an internet business before. This is a strategy where you can buy that single business, get comfortable with it, and then use the income from that business to start to take over some other businesses. Maybe they’re strategic buys or maybe they’re what we discussed, some diversification buys, but you’re setting aside the income from that business and then when it basically builds up and you go and buy another.
Justin Cooke: One of these are, this is like a stepping stone strategy. You’re stepping on one, you step to the next, you step to the next. You start to build out an empire that way. I like this because it can be great for beginners. They want to get their feet wet, they want to buy an online business, but taking over 10 of them at once might be a bit much. They can stick to things that they’re interested in or that they’re familiar with.
As they get used to running that online business and make sure it’s a fit and they start to build people in process in that business, they can then leverage that people in process into other deals. It’s also, you’re going to need some capital to get started, but like you said, you can roll in some of the cash and the profits from that first business into the second one and that’s how you can start reaching up, business after business.
Ace Chapman: I feel like there’re couple benefits, like you mentioned, number one, the buyer who has that more longterm vision, they don’t have to immediately go out and buy either one large business because that can be a little terrifying as well. You mentioned buying 10 at once, but even buying the one business and you’re using all of your capital to buy that single business, that can be a tough first step for people who are looking to replace their income but they don’t want to take a tremendous amount of risk.
This gives that person the opportunity to dip a toe in the water, make sure that the business and the type of business that they end up buying, it’s even the right fit and get them used to buying and owning an internet business and then eventually start to buy some others. Knowing that when you buy this type of business, you want to make sure that you’re not stretching yourself and not only not stretching yourself financially, but you got to make sure you’re not stretching yourself time wise. Buying the right business here if you’re going to do this roll up strategy is really crucial.
Justin Cooke: This also avoids, I think the risks that come with using other people’s money, because that’s a riskier strategy. Because this is your first go round, you may not want to be borrowing from other investors to get this deal going. First of all, it might be difficult to raise that money this year first go round, but also even if you’re able to putting their money or risk and your first venture might be a bit rough. With this strategy, you can buy a smaller deal and build it up over time.
One of the problems with the strategy though is that first off you’re going to have some capital up front and then you’re going to have to put that capital away in that first business. You could have been using it elsewhere or on something else and that’s going to be a catalyst and be locked up, but not only is that capital going to be locked up, the profits from that first business are going to be locked up.
If you’re thinking, “Hey, I’m going to buy this first business or second business and then go chill on a beach in Bali and live on the profits.” That’s not going to happen with the strategy because you’re having to reinvest all those profits. This works best I think when someone has, regular income, either from their offline or other online business or their job or whatever, and they’re able to do this on the side until it hits such a critical mass that they’re happy with their empire and they’re ready to take it on full time.
Ace Chapman: One of the other things to keep in mind here is the biggest benefit to doing these types of deals is going out and buy a business where there’s some strategic angle that you can take. If you can get not just a great multiple, you go out and buy the business two multiple, two and a half, multiple. That’s great, you’re going to get an amazing return. If by virtue of maybe the traffic that you’re already getting or the database of customers that you already have in your current business, you’re able to do a promotion, increased the income and decreased that multiple to one, one and a half. That’s where this strategy becomes really powerful.
Justin Cooke: I think, stepping up from one business to another in totally different industries, that’s one way to do it. I think, already strong way to do it is to buy one. Let’s say you buy cat furniture, eCommerce site, and then next you buy a cat treat site, another eCommerce site or something or dog related site. Now, you have a pet site that you could add to it. If you stay in that niche, you can cross promote everything, you have additional products you can offer via email marketing to the other customers. You put those customers together and those three, four or five sites, you end up owning in a very similar niche worth a lot more together than they were individually. It’s a way for you to roll up those sites into a larger, more valuable asset longterm.
All right man. Let’s talk about the second strategy, which is the Portfolio Builder Investor. There are two ways that portfolio builders do deals, right? The first is, these investors bypass of deals and managing themselves. They take them over themselves or they hire people, put people in place to run those businesses for them. We have a lot of buyers that are in this situation. They’re looking for either more passive businesses, which everyone is looking for those or they have people in processes and place. They can take the ones that requires some work because they simply, turn their team onto their new business, work their magic. Then, buy the next one and the next one, and the next one, they build their empire that way.
The other way people can do it is they invest in deals that another owner runs. They are the investor and they’re getting 60%, 50%, 70% of the deal. The other person getting a much smaller piece, but they’re not putting in as much money or no money at all, but they’re the ones that are going to actually operate the business.
Ace Chapman: For the portfolio investor, there are a couple big priorities. Number one is diversification, which we’ve talked a little bit about and the roll up, but a lot of cases they’re buying the businesses pretty quickly. They’ve got a certain amount of capital, they’re not waiting on the income from that first business to buy the next, but they want to have a diversified portfolio. The second most important thing is that they want and above it all these thoughts about is preservation of capital. Those two really go hand in hand, but one of the things that I like about this strategy is when you’re doing these purchases and acquisitions from the standpoint of an investor, and it’s not the person that’s doing the roll up to just replace their income, then you can reinvest that money that comes in on a monthly basis.
You build this portfolio that is creating income, but the goal is to grow the portfolio. Most, if not all of that capital is going out and purchasing more deals and growing the portfolio. It’s this whole snowball effect of the more you do, the more income it generates, the more deals you can do. That’s a neat thing for the portfolio investor who doesn’t need to live on the income.
Justin Cooke: This is a really interesting strategy and there’s a real market for it too, man. With our company, we found there are a lot of people with way more money than time. They just don’t have the time to do all the work themselves. They’re looking for the passive investments or they’re putting teams in place or they’re looking for people to run it for them.
These are the investors that just can’t get involved in deals that require their time. Either they’re VPs or they own their own business or their time’s at a premium, but they’re willing to invest in these businesses and invest in sharp people that can run those businesses. I think, this investment strategy is really for people with, on that spectrum, the people with more money than time.
Ace Chapman: Absolutely. It becomes a thing where you’re looking at the bigger picture, and that can be fun. It’s like playing monopoly, you’ve got this big portfolio of deals and you’re running it and generating the income and trying to decide when you’re going to sell. A very strategic place to play in. One of the things that I do think is a con is that for these deals, you do have to have somebody that’s on the ground. It’s fun to be the portfolio guy that’s making these strategic decisions, but somebody needs to be involved in the day to day running and managing up these businesses, and there’s no such thing as a completely passive deals.
There’s stuff to do every single day to run that business, but when it comes to the very small things, a lot of times those are crucial for the business’s survival. More importantly, those are the things that can flip through the crack if you’re not paying attention to that business. Over the long haul, what ends up happening is you don’t have that strategic growth as far as paying attention to where is this business going to be a year from now. Even for the smaller businesses, you want to pay attention to what’s going on in the market? How are we ranking up against the competition? There are things that you have to take into consideration in order for there to be some longevity to these pills.
Justin Cooke: You mentioned it being harder to find these guys that run the business. I’m an investor, I’m looking for someone that will just run the business, will continue to grow it, earn a piece, but really I’m putting up all the money. Where the hell do I go to find that person? I’ll tell you where you don’t go. I’ve actually seen this, it was on the old Odesk, which is now, it’s called Upwork. There were ads out there that said, “Look, if you build a business, let’s just say for example, it makes $1,000 a month. You build a website for me, have it earn $1,000 a month. If you can prove that earns $1,000 a month over the next three months, then I’ll buy it from you for $2,000.” Well, that’s not going to work buddy.
I see what they’re trying to do there. They’re like, “Look, if you can build these businesses, I’d love to work with you or invest with you or buy these from you, but you’re going to have to be a little more risks than that.” Now, the thing is, is that it’s difficult because if you put an ad out there, everyone just say, they can do it. “Sure, I’ll do it. Yeah, you’re going to invest with me? Go ahead.” I think, that becomes difficult part. What would you say, Ace? If you’re an investor looking for someone to run these types of sites for you, where would you look?
Ace Chapman: Well, personally, I mean I can tell you just what I do. I love investing in other folks that are doing deals. A big part of what we do within the network is allow people to connect with you. I’d like you said, there are different people that have different goals and are different places in their lives. We have a large group of folks that are those VPs like you mentioned, and I know you guys work with folks like that and they’ve got cash, but they don’t have time.
We can connect those folks with the hustlers that are on the ground, they’re doing the deal, they’re going to pour their time and their life into running a business and it creates this win, win situation. One of the things that I wouldn’t do is invest my cash in a deal where the person running it didn’t have skin in the game.
Justin Cooke: You want to make sure that they’re involved, they’ve got the experience. I mean, not just some average show over the internet, sitting in his mom’s basement promising you the world. I think, a great way to meet up with people like this are through communities or obviously through your own network. If there are people that you know people or know people that do this, they connect with them that way. I also think, online communities or in person communities where you get to know people and learn their skill sets and find out what they’re working on. I think, that’s a great way for you to connect in person, in real life and see if there’s a way that you guys can work together on this deal. I’ve seen that be an effective strategy.
Ace Chapman: I think, the biggest key is, knowing that person and not going out into just pouring money to people that you have no idea who they are. It’s so interesting Justine, I know you can attest to this. We are at a space right now where there is a lot of excitement about buying deals and so people are doing pretty irrational things in some cases. You could have somebody like you mentioned with that Ad or somebody who you connect with on Flipper, you have no idea who this other person it is. They have no real track record and have a personality, and they convince you to give them a ton of money to run a business and that kind of thing is what I would probably advise against. But, I love that, going to events, connecting with other people that run businesses, like the type of business you want to invest and it’s powerful.
Justin Cooke: They got things like Rhodium Weekend, they got other like an online entrepreneurial community you can get involved in. I’d say, I’ve seen some crazy stuff going on, in the Warform. “Hey, I got, $50,000 who wants to come, work with me and build up a business or whatever.” Well that’s … you’re going to get a lot of crazy stuff. Have you ever checked out the forms over at Biz by SAL or anything? It’s amazing to me as you see these crazy deals, I think they got to be, 419 scams like the Nigerian Prince Scams or something. Because, they’re over there talking about it. “I’ve got $500,000, I’ll put in.” None of those are real, they’ve got to be all scammy, spammy stuff.
Ace Chapman: Yeah, of course. Then what usually I’m sure it ends up happening with those are, the first email is, “Okay, great. I’ve got this 500,000, just send me 5,000 first and I’ll wire right to you.”
Justin Cooke: Crazy stuff, man. All right man, let’s give him our third model, which is Flipping. Flipping businesses, and this has got a bad connotation over time, and so being part of the Empire Flippers, let me defend the flipping a little bit. Let me get serious here with the flipping. All right, so we’re not talking some kind of, two months, three months, you’re making a ton of money and it’s really easy or anything like that. This is active hard work, it requires experience, it requires serious investment of your time and money, but can also be, I think a quicker path to making more money.
It’s fairly high risk because you constantly got money at work and at play and at risk, but you’re also making faster deal. I’d say you’re looking at a minimum, probably of six months you’re going to have to hold it, but I’m more realistic strategy would be anywhere from 18 months to three years in a flip in an online business flip. What do you think it’s about, Ace?
Ace Chapman: I think, it can take some time. We’ve had some flips that have been shorter, but if you go in and you feel like, “Okay, I need this money in this short period of time, or I have to flip it within this period of time because of something, or I’m going to buy a house and that kind of thing.” The key to making flipping work is having that flexibility so that you’re able as the seller to be in the power position. When you need to sale, you have given up power to the buyer because you need their money. The real power and key is, whether it is six months, whether it is 18 months, if that person comes along and it’s a great price at six months, great. If you have to grow it and hold on to it and it takes 18 months, that’s great as well.
Justin Cooke: I think, it’s interesting, you know you mentioned, having the cell and being an awkward position because you really needed to cash. I think, it’s like that credit problem, where like if you don’t have any credit, how do I get credit? Because, I don’t have any credit. So it’s, hard to get it.
Similar with selling your business, if you need to sell your business, you’re going to get low balled and you’re not going to be able to sell it for you want. I think, the really interesting thing as strategy with this is to just always be in the game. My business is always for sale, it’s for sale today, for sale yesterday, it’s for sale tomorrow, I’m always on the market. You do that with all of your businesses.
All the businesses that you’re holding, the websites you’re controlling, they’re always for sale and you don’t necessarily need to sell them, but they’re up. Because, you’re in the space and because you’re in the business, like everyone knows that and so you can talk about it and let other people know that your sites are for sale or you got this one coming up or whatever and people are going to be interested. If people are looking for deals because they know you’re doing those types of deals, they’re going to come to you and say, “Hey, what you got? What are you working on right now? You got anything there might be a good fit for me?” So, just being open to it and always being on the market or having your businesses be on the market I think is a pretty good strategy.
Ace Chapman: Yes, I’m a big fan of that and a lot of the reason I’ve been that way for a while is because of what happened with my very first business and learning that lesson. Now, any business I own is always up for sale. Let’s talk about some of the cons with this strategy. One of them is this is not a good idea, if you’re a Newbie Norm to borrow Empire Flipper terminology. You need some experience, you can’t go out and try to start tinkering with your very first deal and not really know what you’re doing. One of the downsides to this is that a lot of people do feel like this is easy and so they buy even a smaller site. They’re always like, “You know, that this is a little $20,000 site. I’m going to go in here and I’m going to make these changes.”
I’ve just seen over and over where somebody gets in, they don’t really have the experience or the real expertise, but they read a blog somewhere, they’re like, “Oh, if you own this kind of site, you should make this change and change these features and blah, blah, blah.” They get in and start to do that, and the site, gets de ranked or they have this issue and all of a sudden they’re not making as much money or no money. They have no one really to blame but themselves, and so that’s one of the things to keep in mind.
Justin Cooke: Do you think we as an industry do a bad job at that? Because you said, they think that flipping is really easy and so, and that’s being sold somewhere. Someone is telling that it’s really easy to just buy and sell websites and you can just get in and do it, no problem. That’s not our message, I don’t think it’s that easy, it’s pretty difficult. It’s challenging, it does require some experience. For someone that’s looking to get into this, they’ve got the one side, they’re selling eBooks or whatever, telling them how easy it is and anyone can do it whatever. The other side they have us, we’re saying, “No, it’s not easy. You require experience.” But, they want to get started. They have no experience. They want to get started.
What do they do? You have to just jump in at some point. You have to know that your money is going to be a risk. This is a question as, to whether you should, do, a big deal for your first deal or small deal? I think, a small deal is better because you’re likely to make mistakes. Ace you made some mistakes in your first deal. We made mistakes for sure. I think, a small deal, getting your feet wet and you’re going to learn a lot just by doing it. You can’t, eBook your way to success here.
Ace Chapman: I agree. That’s the biggest danger, and I think that’s a lot of the folks that are selling, “Oh this is so easy, just go buy eBook and you can flip your way to millions.” They go in and try to take some of that advice. That’s absolutely, one of the things that I would stay away from.
Justin Cooke: One of the things, I think when you’re looking to sell your business, you’re looking to flip your business is that and when you’re in the industry, you need to make sure that your financials are clean. You need to make sure that your docs are in a row and that if you’re going to have the, I’m always open to self strategy, then you have to be always at a point where you could sell.
I think, that’s one of the things that, if you’re running multiple businesses, sometimes you let things slack, maybe your financials aren’t quite in order, they’re not in selling shape anyway. If you are planning to follow this strategy, that’s something you’re going to have on point and you’re going to have your team in place. You have to have your processes in place and your financials in order to where you are in a position you could sell at any time.
Ace Chapman: One of the things I would keep in mind with this, we talk about always being up for sale. The nice thing about that is every month that you’re in business and things are still going well, you’re increasing the value of your assets. That becomes more and more attractive if you sell at 18 months as opposed to six months, that becomes more attractive because of the age of the site to potential buyers. Especially, if you’ve been able to show a consistent growth trend.
That’s where I would put a lot of my focus and when you’re using this strategy and then when somebody does come, like you said, they’ve got the crystal clear financials, everything as far as due diligence is clean. You’ve been working and growing the business and it’s a little older than before. From that standpoint it is a simple strategy to go out and buy these things and grow them and sell them for more, but it’s not an easy strategy.
Justin Cooke: That’s right. You mentioned like just age as being a factor in terms of valuation and being more attractive to a buyer. Well, especially I’d say in growing industries, this is doubly triply true because just by being around and selling that product for a long enough time, every month that you’re out there, you’re going to get more people that have heard of you, more people that know you’re doing business.
Literally, if you don’t do anything else to grow it other than just sit there for six months, you’re going to have more customers. You’re going to have more people talking about your business and that improves valuation simply because you’re doing more deals. As long as you’re not, giving a horrible experience to your customer or something, you’re just doing more deals, you’re getting more experience and you’ve been around longer. Not just the age of the site, but also the fact that you’ve been doing business and people have had a longer time to figure out what you’re doing and find out who you are.
All right man. Let’s start wrapping this up. Let’s talk about a few additional strategies. I think, one of the important things is to think beyond the acquisition, your first business to think about which strategy you want to apply to your Mini-Mogul approach. Do you want to be the flipping guy, the guy who is very active regularly buying and selling sites, always looking for deals, having their sites on the market place, all the time? Are you more of the, portfolio builder investor or are you the investor that invests in entrepreneurs that have their own businesses and you just have your fingers in multiple pies? Are you buying passive deals and building a team for yourself? Are you looking for the role of strategy? Are you new and looking to buy your first one? Then, roll those profits into the second one, and the third one and continue to climb the value chain. You need to think about which approach or which strategy seems to fit in line with your goals and what you’re looking to do.
Ace Chapman: The very first thing is making sure that you’re clear on who you are, how much experience you have, which category of site is the best fit. Then, making sure when you buy a business that in terms of your longterm strategy, if it is roll up and that’s going to be a different site. Then, if you’re flipping and you’re looking for something with a lot of low hanging fruit and you can grow.
Being clear about your strategy is important, but leveraging that into the site that’s going to fit into that strategy is just as important. When you’re buying multiple businesses, like what most people, like you said, most of the folks I work with are buying multiple businesses. I know, like you mentioned over half the folks that you guys work with a buying multiple businesses.
One of the powers that each one of these is, the fact that you can diversify and that is just, everybody knows when they start marketing and everything, but it’s just a very simple principle that the more you diversify, the more your risks go down. Just like we talked about diversification is dynamic in this space. You’re talking about traffic diversification, income source diversification, obviously type of site diversification. Those are some of the things to consider as well.
Justin Cooke: I had also mentioned to you that these things are mutually exclusive. At one point you may be a flipper at another point you’re taking the investor approach. So, and there may be phases that you go through where you’re one more than the other and on certain deals and you may be, take on one role and the other. I think, it’s an important to understand the different roles, especially as you continue to grow out your online portfolio and become an online mogul.
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