EF Staff

November 24, 2015

Have you been dreaming of starting your own business, but aren’t sure where to start? Most people think starting a business means coming up with a new and unique concept, then building it from the ground up.

Truth is, that’s not the only way to get started. You can buy a business that already has traction and has been through many of the early growing pains that come with starting a business from scratch.

Empire Flippers works with business owners every day – ones who’ve built a business from scratch and are looking to sell, some who want to expand their current business by adding a new website to their arsenal, and those who are interested in buying their very first business.

There is no right or wrong way to come into business, but there are advantages and disadvantages to your approach.

Start a Business or Buy One – Which is Right for You?

Build Vs Buy

Starting your own business is a great way to build your dream job based on your passion or expertise. It gives you the opportunity to tap into your creative side, work on something that means a lot to you, and allows you to share your knowledge and unique experiences on that subject with others.

There are so many reasons why starting your own business could be the right choice for you. For starters, you can literally build the exact business you want. You will have final say over your brand voice, the team you work with – should you choose to hire employees/contractors – the hours you work, the services you provide and more.

Perhaps one of the most understated benefits of starting out on your own is that you will understand all the intricacies of your business. When you do it all yourself, you get to know your website, how your sales funnel runs, what is required in terms of technical and customer support and all those other little details that make you appreciate what you have built.

That being said, there are some distinct disadvantages to building your own business.

By far, the greatest risk of starting your own business is investing your time and energy into an idea that has not been validated and has the potential to fail.

This is not your Field of Dreams. The saying, “If you build it, they will come,” doesn’t apply here. You can spend weeks, months, and even years, creating a website with products and services, but that doesn’t guarantee you will get visitors or customers.

When you start your own business, you also have to build a customer base, even though you don’t have brand authority or a reputation to back you. You will have to learn to market your new business, how to sell yourself, and ultimately, you will have to prove that you are worthy of their time and money. With zero traction, this can approach can be challenging.

Should You Try Buying a Business Instead?

Buying A Business

If the pressures of starting from the bottom feels like too much, then buying a business may be a good option for you.

Not all of us have a vision or passion that we want to infuse into a brand new business, but that doesn’t mean we don’t want to be our own boss. This is when buying a business becomes a path worth considering.

Buying an existing business takes some of the initial start-up struggle out of the equation. How?

Simply put, the initial business owner has done most of the initial/major legwork for you. They have built a customer base, created a model that has proven profitable and established systems, policies, and procedures for managing that business.

When you buy, your business already has a solid foundation, so you can focus on improving and growing rather than spending valuable time and money in those early stages. You’re buying traction that can take months (or years) to flesh out.

This might also be a better fit for your skill set. If you’re coming from the corporate world, you might be more familiar with growing a company rather than starting one from scratch.

No surprise here, but there is a catch – buying a business involves a bigger financial investment than starting your own, and it has some downsides too.

Firstly, the initial investment needed to buy a business varies. For example, the Empire Flippers marketplace values websites based on a multiple of the websites net monthly profit, which means that if you are buying a site with a $10,000 monthly profit, it will cost around $200K – $300K. Not all have the cash to pull the trigger on a site like that.

On the flip side, it is much easier to get financial backing for an established business than it is for a startup because people tend to look kinder on businesses that already have established net worth.

Outside of the wild-and-crazy VC’s in Silicon Valley, you might be hard-pressed to find an investor willing to throw money at your “idea”. An established, proven, and profitable business model is much more attractive to your average investor.

Above we mentioned that starting your own business gives you invaluable insight into the behind-the-scenes details of your business. To an extent, the opposite is true when you buy a business.

We have seen cases where the buyer was looking to make “passive income” and completely underestimated the amount of work it would take to keep the current website generating its monthly net profit. It doesn’t help that sellers often downplay the actual time they spend working on the site. This isn’t to be malicious, rather it’s a matter of not properly accounting for their time.

You see, the misconception is that once a site is profitable, you don’t have to put any more work into it. This is not the case for the vast majority of websites out there. The work may be sporadic, but it’s definitely not as passive as the stock market, for example.

Successful websites maintain profit or continue to grow based on the amount of effort you put into it. Affiliate sites still need fresh content, ecommerce sites need good customer service, and these things do not happen with a laissez-faire, “passive income” attitude.

Additionally, when you initially buy your site, it may take time to gain traction again, because oftentimes, the seller has left the site somewhat inactive. This means you need to inject it with even more time and effort just to get the ball rolling again.

Unfortunately, first time buyers who buy a business based on this misconception often end up re-selling that website and losing money on their investment.

Whether you choose to start from scratch or buy your business, plenty of time, energy, and money will end up going into it. Businesses take nurturing to grow, so as long as you walk into it knowing this and are ready to dig in your heels, you stand a really good chance of running a successful business.


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Discussion
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  1. […] or concept to monetize a site, we really wouldn’t recommend you build a site from the ground up. As I’ve said before, this is not the Field of Dreams; “If you build it, they will come” just doesn’t happen in […]

  2. […] both the advantages and disadvantages, tell me, would you rather buy a business or start your own from scratch? Share your thoughts in the comments […]

  3. Sebastian says:

    Do you have any blog posts or podcasts about finding various sources of capital to buy websites? For example will angel investors, banks, vc’s lend money to a prospective buyer like myself, to buy the types of websites listed on Empire Flippers? And if so, do they generally want a prospective buyer to put 10 – 20% down of their capital or something like that?

    • Justin Cooke says:

      Hey Sebastian,

      You can get SBA loans to buy websites and online businesses. That wasn’t much of an option only a few years ago, but they’ve opened up a little and it’s possible.

      Your best source of financing will always be the seller. You can negotiate really competitive interest rates (if any at all) and can usually finance 20-40% of the business (Or more for $1M+ businesses, sometimes)

      For more on raising, check out this podcast I did with Ace Chapman:

      http://webequityshow.com/podcast/ep-8-raising-capital-from-investors/

  4. Consultant says:

    I think it is a major risk to build or buy a website that monetize by relying on Google organic search, or through affiliate commission. They can shut you down with a blink of the eye.

    I had a small website that post deals and monetize with affiliate commission. I had this website since 2008…I never had any problem…in fact I haven’t add any new content for years. I always manage to get some traffic thru Google organic search, and made some money every month through affiliate commission.

    Tonight, I received an email from Google claiming that my website is “pure spam” and they shut me out of their search engine by applying “pure spam manual action” on my site. That means a Google employee reviewed my site, and manually took action to shut out my site from its search.

    It is a cautionary tale for anyone that rely on Google organic search for traffic.

    Begs the question…is it possible to have a successful online business or website that has 0% Google affiliation? No Google organic traffic, no Google adsense, no Google analytic, etc.

    • Justin Cooke says:

      Ouch!

      Yep, we’ve dealt with penalized and deindexed sites before too. A big risk and a real PITA when it happens to you.

      There are risks even for sites that don’t rely on Google organic traffic though.

      Whenever you’re relying on someone else’s platform to do business they’ve got you in a risky place. Best to diversify that risk across multiple platforms. (Or at least diversify the sites you have in your portfolio)

  5. Consultant says:

    Thank you for this bit of advise. Super helpful…especially with regards to buying a website.

    “Whether you choose to start from scratch or buy your business, plenty of time, energy, and money will end up going into it. Businesses take nurturing to grow, so as long as you walk into it knowing this and are ready to dig in your heels, you stand a really good chance of running a successful business.”

    p.s. Would you consider a smaller investment minimum amount on your next investment pool? I want to invest with you to earn passive income while participating in the venture to learn.

    • Justin Cooke says:

      Thanks!

      I don’t think we’ll be lowering the minimums for the Investor Program. If anything, we’ll be raising them to put together more cash.

      It’s just easier for us to deal with less investors with more money. That may change at some point, but it’s the path we’re taking right now.

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