WES S01E16: How We Would Start Over From Scratch
What would Ace and I do if we had to start over from scratch?
That’s the topic of this episode. We start off with the following conditions:
- No Clients
- No Connections
- $100K to invest
This is our LAST episode (for this season), but we’ll be back with you in the New Year – most likely February or March at the latest.
So – what do you think our answers will be? Have a listen – we might surprise you!
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Listen To The Full Interview:
What You’ll Learn From This Episode:
- Where would you start? What would be your focus?
- What are your FIRST few steps? (First couple of days/weeks)
- How would you put the $100K to work? (What would you spend it on)
- Where do you expect you’d be in 6 months? 1 year? 2 years? 3 years?
- How long until financial stable? Diversified?
Featured On The Show:
- Dane Maxwell @ The Foundation a Saas Business
- Anton Kraly @ Dropship Lifestyle
- FE International
- Quiet Light Brokerage
- Empire Flippers
- Amazing Selling Machine
Ace Chapman: I would definitely feel a lot safer putting that 15 grand and trying something than putting that 100 grand and not having any seller financing and doing the deal the wrong way.
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 Cook and Ace Chatman share their real life advice, examples and expert interviews to help you build and grow your own online portfolio. Now to your hosts, Justin and Ace.
Justin Cooke: What’s good? Web Equity Show, episode 16. I’m your host, Justin Cook. And I’m here with my co-host, Ace Chatman. What is going on brother? How you doing?
Ace Chapman: I am great sir. Excited to get into this episode. We got some neat questions and some big news.
Justin Cooke: Yeah man, some big news. Here’s the sad news, right? This is our last episode of the season. So we’re going to break this up into a couple of different seasons. Next season, we’ll be talking all about buyers. So the idea is season 2, is to be completely buyer focused on, starting from the very beginning all the way through the deal and then expanding and growing the site and looking at your second, third, fourth, 15th deal. So we want to basically have a body of work now we can point website buyers too and say, “Hey, these are our best tips, this is our best plan for website buyers. You go listen to this season and you’re good.” So I think it’s going to be really exciting. I think our listeners are going to dig at season 3. Again, would be sellers of course. And I think I really liked the format. I think it’s to be some fun. We’ll probably be back with new episodes in February, 2016 so that’s what we’re looking at right now.
Ace Chapman: Yeah, I think for people that are getting into this space and what we’ve talked about, is we’d get questions and both of us are talking to a lot of buyers. They’re a lot of people that are coming into the space that are completely new. They have no idea. Even just at the most basic level. So this would be an opportunity for us to start at the foundation of just the most basic knowledge and then, build into some of the more advanced strategies and be able to dig a little bit deeper into the specifics.
Justin Cooke: Yeah, we’ve got a lot of questions from people that are either brand new or they want to like share some information with someone, who is brand new and we don’t really want to cover that in our general episodes. It’s kind of really newbie stuff. But still, there’s a need for it. So I think if we can do that and then work up to the very kind of advanced level strategies later on. I think we’ll get some interest in that, people appreciate it.
All right man, enough about that. Let’s talk about what we’re talking about today, which needs to be really fun. How we would start over from scratch. So here’s the scenario. You have no connections, you have no customers, how would you get started again? And what would you differently this time around than you’ve done previously?
Ace Chapman: I know, this is an exciting question. I love it. When you told me about the idea for this episode, I started thinking about it. It’s like, wow, it would be way different today than the way I started, 16 years ago in my first website obviously. But I think the dynamics, even in the last couple of years in the market have changed quite a bit. And looking back, I think this will be a fun episode to walk through. I know some of the things you’re thinking about, I know some of the things I’m thinking about, I think people are going to be surprised at some of our ideas.
Justin Cooke: Yeah. I think they’ll be surprised by our ideas, and I also agree that the climate has changed a bit. So some of the things that you did 16 years ago, some of the things I did five or six years ago, it’s just not quite the same. And so there are some changes that need to happen, so we’re going to hash through that. I think it also puts us in the shoes of some of our listeners, right? They might have 50000, 100000, 200000 dollars they’d like to invest, but they don’t have the first clue on where to start. They don’t have the confidence that this kind of works, that buying and selling websites, can be a profitable venture. And so they’re hesitant, right? And so I get where they’re coming from. We’re going to try to break through that using our experience only.
Ace Chapman: Yeah. One of the things is we’re talking to people, we get a lot of those folks that are coming in, just like we talked about that have those initial questions and just very basic ideas. And a lot of people are just like, “Where do I go? What do I do? There are all these different business models, what should I buy? What’s my first step?” And so I think this will be a good primer for some of those folks.
Justin Cooke: So the idea is we’re going to beat each other up, right? I’m going to ask you the questions. We’re going to go through the process. You’re going to answer some questions and then I’m going to beat you up about it, man. I’m going to dig into a little bit and we’ll see where it winds up, see if we can hash out some value out of the deal.
Ace Chapman: Perfect. Perfect.
Justin Cooke: All right, man. Before we do that, we’ve got some listener questions. First up, we’ve got Sean Smith. He said, “Hey guys, I love your podcast. I have a question about capital structure for an acquisition. What percentage of the purchase price is a traditional lender, i.e bank, likely to finance a deal? Do they even look at online business acquisitions or does the buyer need 100% cash? How about you doing a podcast episode discussing the capital structure of some of the deals that you’ve worked on? That would be interesting. Looking forward to respond and keep up the great work, Sean.”
All right, Sean. Well, great question. Our seller’s willing to finance deals. I understand that especially as a buyer, you’re like, “Hey, I’d like to not have to put up all my own cash.” I’d say that you used to not be as likely that the bank would finance a online business or a website. That’s changing now, especially with like SBA loans, they’re opening up a bit. Now the requirements are still pretty strict and it may take months before you’re able to actually get your hands on that money, get your hands on the loan. But it is possible today.
Ace Chapman: Yeah, it is. I mean we’re seeing some deals, especially on the larger side. It’s kind of tough when you’re in between, but we’re definitely seeing some deals that are in the million dollar in larger range, that banks are getting comfortable with financing and even doing SBA loans on. When he gets up to the smaller deals, they can be quite a bit tougher. I think a lot of it is just sometimes subjective … subjectively looking at the deal and thinking like, “Oh man, is this … what is this?” And as we know, it takes a while to get used to these businesses as assets. So I think the banks will eventually come around. But we’ve done a couple of bank finance deals this year, which is a whole new thing.
Justin Cooke: Generally from a buyer’s perspective, it’s almost always better to get seller financing. So if you get the seller to finance it, a lot of times you’re not even paying interest on that. So it’s a really good deal to use seller financing. Now the question in terms of like what percentage you’re going to be able to finance, that’s rough, especially when it comes to seller financing, so normally you’re not going to get more than 50% of the deal finance usually. Now there are exceptions to that. Of course there’s some sellers that are open to 60, 70, 80 percent seller financing, but that’s a rare deal. You’re not going to see those very often and when you do, it’s normally for a very large business that probably has some level of problems in it.
Ace Chapman: Yeah, I would be really curious to hear from you. I feel like the percentage is going way down in the number of deals that are willing to accept on our financing, just as we’ve seen demand go up. Do you see that happening with the empire deals, where [inaudible 00:07:10] of those deals are getting some level or financing?
Justin Cooke: No, we see offers all the time, but it just doesn’t normally go through. It’s like, someone’s coming in saying, “Look, I want to give 60% up front and I want to finance the other 40% over 12 months.” You’ve got another person coming in and, “I’ll give you 90% cash.” I’m taking the cash. You know what I mean? So that’s … It’s pretty common and there’s a lot more buyers especially, sub 500000, there’s a lot more buyers out there. So sellers have their pick of buyers, really. And so it makes it really, really difficult for you to finance a deal. I would say that there are different … like the deals that you’re probably more likely to be able to finance are the deals that not anyone could buy.
So if there’s a very technical or a very specific knowledge required to take over and run the website or business, you’re going to have a better chance of that, because it’s simply like the buyer pool is limited, right? So if it requires a particular type of developers, so a developer that knows finance or something that might be a little more difficult, and if you have those skill sets, it puts you in a unique position. You have an advantage over the other buyers and they’re just simply won’t be as many. So you’d be more likely to get more seller financing than you would otherwise.
Ace Chapman: I definitely agree. I’m seeing that same dynamic in the market.
Justin Cooke: So we got another email from Russell Jones. Russell said, “I just listened to your latest episode. Great stuff as always, anyway you talked about currency exchange again, and I’ve been using a new app or a service that I love and think you just check out if you haven’t already. There’s zero fees and it uses the interbank rate. So it’s been costing me nothing to transfer cash from the UK to Canada. I could go on about it, but it’s much easier to watch the short videos on their website instead. That’s revolut.com r-e-v-o-l-u-t.com.”
He said, “By the way, I’m not affiliated with them in any way and I just changed my email address to this one, blah, blah, blah.” That’s regards Russell Jones. So I took a look at this really quick before I even mentioned this on the podcast, so there will be images, some crazy scam where people sign up for this to happen, if their money stolen, but yeah, no, they’d raised some money. They were on a couple of the tech sites and stuff and so there, it looks like a legit company. I haven’t used them. I don’t know anything about them, but it’s interesting. I’m going to check them out.
Ace Chapman: Yeah, I know that, that’s an issue that comes up with a lot of people. Nobody … when you’re coming into these deals, the last thing you want is to lose money because of having to do an exchange. So I checked out the site when we got this email, and look, it looks legit but I haven’t used it either.
Justin Cooke: You know what’s interesting, we always get questions about this from new buyers or depositors looking for [inaudible 00:09:42]. They go, “Hey, you know I don’t like you deposit process. I don’t want to pay a deposit and then you refund me the deposit or whatever and I loose. Paypal takes the fees and I lose out on the exchange rate and all that stress. So I’m really worried about that.” All right look, first off when you refund via Paypal, their fees go back into it so you don’t lose the fees and you don’t lose on the exchange rate either.
Ace Chapman: No.
Justin Cooke: So you don’t lose anything and the exchange rate goes right back to you, you get everything back. There is a slight exception though. There are a few local banks and we’ve seen this, I think from a couple of local banks in Australia where they do charge the money. So they did end up losing money on the deposits. Really rare. But there are a couple of banks that take money and it’s really, really strange. But yeah, it’s a local bank thing. Weird.
Ace Chapman: Yeah. I think that, what I tell the buyers all the time is that … and it’s becoming more of an issue now. Where we’ve definitely seen some of these deals that we get in a lot of cases from other brokers, where it’s really obvious that a couple copy catters come up based on the prospectus. And I’m in a lot of groups and I just see people talking to like, they’re sharing these prospectuses. They’re basically saying in the groups, “Oh well this will be really easy to copy and you could do this and that.” And I’m a very big fan. One of the reasons we’re even doing this podcast together is I’m a very big fan and believer in y’alls deposit process is just one more impediment to that kind of thing. So anybody that is short sighted enough to complain about deposit isn’t thinking in their own best interest.
Justin Cooke: Yeah. That’s so true. And so when I had people complain, it’s normally people that are brand new to watch and I’m like, “What the hell! Are you’re charging a deposit? It’s refundable and everything, but you’re charging a deposit to see the information on the site.” And yeah, I think they just haven’t thought it through. They’re so new that they’re like, “What? You want me to pay you money, put it at risk just to look at the information?” But if they think it through, they realize, look, I don’t want everyone and their mother, brother, sister, and aunt to be looking at this perspective. I don’t want to toss around circles of people who are saying, “Oh, I could recreate this business or do this or that.” I mean, yes, they’re going to be other depositors, but you want to limit that buyer pool or that potential copycat pool as much as possible. And the deposit helps do that.
A lot of the scammers are the kids in their mom’s basement that would recreate the sites, are the ones that don’t have, six grand to throw on a credit card. So those people don’t have access to the cash to even make the deposit. Keeps them out of even viewing the information. So I think that’s helpful. All right, enough about that. You ready getting this episode?
Ace Chapman: Let’s jump in then.
Justin Cooke: All right. So let’s talk about how we would start over from scratch. Again, the scenario, Ace, you were forced to start over. You have zero connections. You have no clients, and I’m giving you $100000 to work with. You can assume that you have that to invest in your business, whatever that business would be. And so there are some questions, right? And ultimately we want to see how you would rebuild your online business mogul career. There’s some questions I want you to answer. Number 1, where would you start? What would be your focus? Number 2, what are your first few steps? Number 3, how would you put that 100000 and worked? Number 4, where would you be in six months, one year, two years, three years? And number 5, how long until you’re financially stable and diversified? All right, first one. Where would you start? What would be your focus? How would you get this business rolling?
Ace Chapman: So I was thinking about this, a lot of, actually what we’ve talked about in the intro to this episode has come into play. We’ve seen, we’ve talked about the decrease in the number of business sellers that are willing to offer financing. We’ve seen a lot, huge, bigger demand from buyers and which is creating interest. And, I mentioned the groups where I see people talking about copy and businesses and all that stuff, and I’m getting invited in to a lot of these things, which is, it’s great that the industry is growing, but there’s some other dynamics that are happening because of that. One is that there obviously is a lot higher demand. So there’s a lot of money chasing fewer deals. And the really interesting thing, I think for years what I thought would happen was just multiple split increase.
And multiples have increased a bit, but I think multiples are still an amazing deal for what we’re getting to get that kind of ROI. What’s really happening is, it’s kind of like if demand went up for apples and as a very simple asset, you can go out and just increase the price and that kind of thing. But what if there were a bunch of rotten apples that were in there? And basically instead of increasing the price for the apples, you just start selling those rotten ones. And that’s basically what’s happening in the market overall. There’s not an increase in price, but there’s definitely a decrease in quality of deals and a huge decrease, like I said, in the things that make this whole space work. I mean, you look at hundreds of years of offline deals and the reason that whole thing works is that it’s just a standard, you’re going to offer a 50% financing or whatever, like we talked about wanting in this space.
But what’s happened with that demand is those kind of normal checks is not as much about the ROI as it is about due diligence checks as we’ve talked about in previous episodes. And so what we’ve had is a deterioration of, that kind of due diligence checks and deterioration of the quality of deals and people treating that brand new apple right off the vine, the same as the rotten apple and both of them are getting the same multiple.
Justin Cooke: Alright, you’ve set the scene, you’ve kind of laid the picture. You’ve said they’re more apples out there, but more of them are rotten. It’s a little harder to find the quality deals. So what do you do? What’s the deal?
Ace Chapman: So one of the things that I’ve never recommended in my life, but I think we’re at a point where this is a very strong seller’s market. I think it could be really valuable to gain the skill set if you’re looking at these online deals. Just gain the skill set of being able to build something. So, you could focus on looking at deals that are in a particular area. And number one for me, I would look at what deals are selling at the highest multiple selling with the shortest time on market and I would focus on that space. So I would still go out and look at deals in that space, but like we talked about, it’s going to be tough to negotiate and really get a really strong deal. So you’re learning about what people are buying and you are able to go and build a business in that space, that is going to be in high demand.
Justin Cooke: All right. So you’re saying you’re going to build. This is shocking for me from the guy that’s buying deals right and left. Who comes and goes, “I think I’m going to switch course. I’m going to start building from scratch.” So you’re going to start building sites from scratch. Now you did say you’re still gonna be in the market. You’re starting to be looking at, because all the crappy apples out there, the rotten apples, you’re going to try to build from scratch. Here’s what I like about that. I like the fact that you’re gonna be learning the skill sets that you’re going to need to expand those sites. So I think that’s a positive step. You have to start somewhere so you’ll learn those skill sets that I think is going to be really helpful, and so I think there’s some value there. I’ve got some problems what you’re doing too.
Ace Chapman: No.
Justin Cooke: Monday morning kicks off. It’s a new day. You’re starting from scratch. What do you do Monday?
Ace Chapman: So first of all, I’m deciding which path I’m going to go down. It could be as a SAS business, it could be as a drop shipping business and I’m also going to find someone has a system that’s been proven in that space. Because I still want to have some kind of leg up. So if it’s a SAS business, I’m going to go and learn from like a Dane Maxwell, The Foundation. If it’s a drop shipping business from Anton in Theme, if it’s a FBA or Amazon business, which those are great. I’m going to go out and learn from the amazing guys around Moran or Chris, what’s Chris’s last name? Who was at Rhodium with us? I’m blanking on it. But there are a lot of those guys that have created businesses in those spaces.
Justin Cooke: Alright. So you just gave me a bunch of courses. Which one are you thinking about? Would you do the FBA? Would you do the drop shipping side? It’s Monday. You can’t just look at them all. You’ve got to do one.
Ace Chapman: Well, so I’m just saying for the listener, they’re going to decide on the business that is in highest demand. I consider right now the SAS businesses to be in the highest demand and sell at the greatest multiple. And you’re able to get SBA like some … so those are some of the criteria that tell me I would go down that path.
Justin Cooke: So you’re going SAS?
Ace Chapman: I would go with SAS.
Justin Cooke: That’s the Dane Maxwell Foundation. You’re going to do the presale route, you’re going to do all that?
Ace Chapman: I would go down the presale route, but I would do a couple of things. In addition to going down the path of trying to build this … This is a very small portion budget wise, but I think it’s the most interesting aspect of my strategy. So we can talk most about it, but we’re only talking about 10000, 15000 of the 100000, so the lion’s share of my cash is still looking to buy something that’s in this space. So regardless, I’m spending 15000 with a ton of upside because if it does work, then I’m able to go and sell it. You could have something for three … and the way the market is right now, you’re going to have something for six bucks the SAS and sell it at a really great start price. But 85% of my money is going to be looking for a deal. But that 15000 has such a great upside because the 100000 can do so little in the market that we’re in right now, and if there’s just a ton of risk associated.
So what I think the biggest benefit is, is not feeling rushed to do a deal. I think in the market that we’re in there a bunch of people that feel rushed and there’s a lot of cash in the market and so people feel like, “Oh well I got to go and just spend this 100000 and then it sunk.” I get a lot of the calls from people who make mistakes after they’ve made them. So it’s balancing that risk with a little bit of diversification, so I would start with that process.
The other thing I would do is start to go to see if there are events, because I love the consulting for Equity Strategy. I do it with offline businesses and Internet businesses, where I’ve just partnered with a business and instead of them paying me to help in their business, they give me equity. So that would be one of the first things that I’m looking at on Monday. Where can I go to meet some other people in this space? And then I’m started on a course and I’m looking at deals that are out there similar to the one that I’m going to build.
Justin Cooke: Alright. I’m trying to process all of this. You threw a lot at me. Let me see if I got this right. So you’re looking to put $15000 into a SAS business that you’re going to start from scratch. You have $85000 in reserve and you’re still kind of passively, sort of actively looking for deals or opportunities that are out there, looking for the good apples. And then in addition, you’re going to do some networking and see if you could work your way into an equity position in a business that either someone else’s starting up or is still early ground. You’re going to take your knowledge and apply it to that. So you’re going to do some networking at some events, make some phone calls and see if you can just talk to some people. But you don’t know anyone, I’ve taken away all your contacts. So-
Ace Chapman: You’ve got to build that from scratch.
Justin Cooke: Okay. Where would you go to build from scratch for the networking? Who would you go? What events would you go to? How would you do it?
Ace Chapman: Yeah, so obviously whoever you’re studying with or whatever, I have to say, I’ve never taken Danes, or any of the courses we’re mentioning. So to all of this, should be taken with a greatest salt. It’s all projected. But I would go to obviously whoever I’m following their bands, I would go to any SAS related events because the most powerful thing you can do with that 85000 I think right now, the real goal of all of this, is that when you’re in a seller’s market, you want to get to the sales side as quickly as possible. So one way is to build, the other way is to find a business that’s already profitable. And then you could take some of your cash, get an equity stake, or do consulting for equity, which I’m a big fan of, and get a little bit of a stake. And then you’re driving that thing to be able to get it on the market and kind of leap frog.
So I’ve got … I think people think that, that whole strategy is a lot tougher. I actually earlier this morning was talking to one of my clients who’s overseas, who’s negotiated equity in deals in the US. You know what I mean? Without ever meeting the people or any of that. But at the end of the day, business owners are lonely. A lot of them are exhausted. They’ve grown this thing to a certain point and they would love, they don’t want us to really spend money, but to have somebody whose interests are aligned with theirs, that’s going to help them drive that business across the finish line. And especially if they’re interested in eventually selling is a very powerful strategy. And so-
Justin Cooke: I actually like that. I like when you talking about like the baby boomers and they’ve got these businesses, that they’re kind of tired with. They don’t really know what they’re going to do with them. They would like for someone else to take over. Maybe they have kids or whether they don’t have kids or their kids aren’t interested in their business and partnering up with them, to kind of get some sweat equity in the deal. I’ve always thought it is an interesting strategy. You’ve mentioned that in previous podcasts, but I’ve got to say, I’m going to beat you up a little bit. I don’t know-
Ace Chapman: I know you are. This is out of left field.
Justin Cooke: The wheels are turning [crosstalk 00:23:32] … about stuff. So let’s do this. So your first off, I’m not sure I liked the three prong approach. I like it because you’re diversified. You’ve got irons in the fire so if one deal drops out, you’ve got another opportunity. You’re not risking all your money buying a $100000 site. As you mentioned some of your clients has done in the past, you can be bad … I mean risky and you could lose it all. That’s dangerous. What I don’t like is the three pronged focus issue. Like you can be all over the place. You can be messing with … You’re trying to network and edge your way into an equity deal. You’re kind of looking around for deals. You’re trying to start a SAS business, which I’m getting to that now.
Starting a SAS business just from nowhere … I know you just talked to Dane and The Foundation guys and they’re some guys that had some really good success. They’re pre-selling SAS software that they set up, but there are a lot of guys that didn’t have success doing that too and that just seems like it’s a hell of a lot of work, building a SAS company now. Yes, when they take off and they’ve got like a nice little, up into the right hockey stick thing going on, even six months into the business, a year into the business.
Those things sell like hotcakes. But I think you’re ignoring or not seeing all the ones that fail the launch at all, that had no success. They try to pre-sell, it didn’t work, you know what I mean? They didn’t try to pre-sell, they tried to build some software. It took six months and it didn’t work. There are some costs that go into that outside the $15000. I don’t know man. Of the three, I like the SAS business probably the least. And I don’t like the split focus. So you’ve heard me, I’m not sure which. Let me ask you this. Which one do you think would have the best chance of success and which one would give you the return the earliest?
Ace Chapman: So at the end of the day, that’s the reason that the SAS idea represents 15% of the market. I think we talked more about it because it is interesting and it doesn’t take a whole heck of a lot of time. But the thing that is the most likely, and I don’t want to say easiest, but the most likely to give you a return is going out and doing the consulting for equity.
So when I have somebody, and I talk about my guys overseas or guys in the US, when somebody is starting from scratch, the easiest way to get from zero to income, is to do what we just talked about. Is to have that baby boomer who owns the business. It’s already profitable. They’re pretty much sick and tired of it. They’re looking for a lifestyle change, they’re getting older and nobody’s there, unlike the space that we’re in where there are tons and tons of buyers, there’s just nobody there. And so they’re willing to do deals where, you don’t necessarily have to go in and operate the business. Like I’ve got calls scheduled while I’m traveling all over the world helping these folks and I’ve got virtual assistants and all that good stuff, but we were really running it like an Internet business.
At the end of the day, you start immediately generating cash flow. So that’s where the lion’s share of the cash and the focus would be. But I think it’s worth because of the market that we’re in right now trying to build stuff. And I think the other crucial thing, and I wish that I could go back and really focus a little bit more on this and some of my previous calls. One of the reasons that I put a huge emphasis in financing and getting seller financing, all this stuff is talk about the risk of a SAS business. But I get calls from tons of people who don’t go through our process and program where I’m kind of reiterating, you can’t do deals like this.
You can’t pay all cash for the [inaudible 00:26:56] Duh, Duh, Duh. And there’s not a lot of talk at this point publicly about the riskiness of buying an existing internet deal without all of those proper things in place. And that’s the majority of the deals right now, are that way. So you talk about the risk of a SAS business that I would much … this based off of the feedback, I would definitely feel a lot safer putting that 15 grand. And trying something then putting that 100 grand and not having any seller financing and doing a deal the wrong way.
Justin Cooke: Yeah, that’s interesting. Like building tech at least, you know it’s built right from scratch. When you’re buying SAS companies, you’d be buying some broken ass tech where they’ve reached kind of their max and it’s a whole new redesign or they need to build the base up again from scratch. So That’s interesting. How exactly would you go about trying to get the equity deals? Like what would you say? Okay, you get on the phone with someone who has a business, whatever, and you’d get on the phone with them. What do you tell them to, “Hey, give me a piece of your business.” I mean, that’s a weird approach.
Ace Chapman: Yeah. So one of the very first things that I tell clients to do, just as far as, we do a lot of lead generation when it comes to these offline deals, but one of the easiest is, low hanging fruit things is when you join a Chamber of Commerce, it costs like a couple hundred bucks. And so, one of our 30 strategies is we just join a chamber. We say we are business buyers and when a clothing store joins a chamber, they send out a blast to every all of the members in the city. And, it’s a neat little thing like maybe they get a couple of customers but this is our 100% target market.
And we basically brand ourselves as people that are buying these businesses and it’s going to be … and most of those folks are older and all of them are 100% a business buyer. So literally for a couple hundred bucks you get in front of all of your potential clients are deals. In addition, you get an advocate in that chamber who will make introductions. It’s like, “Hey, I think this guy really needs to sell. He just had a heart attack, his wife trying to run them.” Just like all these little things that can come up through that single connection.
Justin Cooke: That is a slick tactic. I like that. In terms of deal flow, in terms of like getting yourself out there and starting to get connected. I really liked that one. That’s interesting.
Ace Chapman: Yeah. Yeah. So either a ton of those things you can do, but literally you can get deals just with that one.
Justin Cooke: Nice. Alright, so I dig it. I think you’re going to be a little all over the place. I think your SAS, but they all fail miserably. I like the connection stuff. I think you got opportunity there. And then I know you and I know your skill sets, so I know you’re able to find a deal with the 85000. So I feel very comfortable. I think you’re going to make it work. I think you’re going to worm your way into some equity deals on some old dudes looking to retire and then I think you’d be able to buy yourself, [crosstalk 00:29:44] at least your strategy if we call it that. Dude, at least it’s a lot better. I did this with Joe, my business partner one time. You know what he told me? He told me we did this on a podcast. He said, “I shit you not.” He said, “I think if I was starting over one way out, I would go and take money, is to write some of those like vampire romance books or some shit.”
He actually said this. I was like, “What in the hell are you talking about dude? You’re-“
Ace Chapman: Warming your way into a teenager’s pocket.
Justin Cooke: Exactly, what’s he doing? It was so funny. I’d beat him up pretty good.
Ace Chapman: Oh, that’s great.
Justin Cooke: Alright buddy. So my turn, I’m going to let you dig in to me a little bit here. So here’s the deal. What I really like in terms of getting this deal done, getting it started from scratch, here’s the route I would take. I like the idea of the Amazon affiliate to FBA model. So here’s the basic idea. You can buy an Amazon affiliate site that’s already out there. It’s earning money. So let’s say it’s earning, 2000, 3000 dollars a month. Let’s say $3,000 a month in net profit. I’m able to buy the site for let’s say 50000 to 60000 dollars. I bought it because I know that it’s a product that’s a really good fit for FBA, which is fulfillment by Amazon. Basically, there are people that have bought the products in China, ship them to Amazon warehouses. Amazon here is the customer service, they handle the shipping, they handle all the product stuff for a fee.
And so those guys are making a profit on the back end. So what I would do is I’d look for an Amazon site, buy the Amazon site, make sure it’s a good FBA fit. That’d be my only requirement. I would never requirement on niche or product or anything and then start sourcing that product from China. So I get my first batch over, do some testers, and then get my first batch over, set it up with Amazon, set up my product page with Amazon, and then change the links from my Amazon affiliate site to my product. In the meantime, I’d also be building some Amazon sites that are in the same or close to the same niches. So I can start scaling that up and selling both more of my own FBA product, but then adding new products to it as well and I think they are complimentary to the customer.
And I think that diversifies me a bit. I’m making the Amazon affiliate cash, on the deal that’s already proven. I know I’ve got a proven market because before I bought the site, I’m looking at what products those customers are actually buying when they get to Amazon, as long as, it’s a high enough percentage of the actual product that I want to source. Then I know that, that product is in demand. So I’d be able to basically double dip on my Amazon side. If I’m making $3,000 a month in profit on the affiliate site, that means if I met, 8% that means that it’s probably doing $40000 in sales. Maybe half of those $20000 or so is of the actual product. If I can get a 30% margin out of that or something, I’m looking at $6000 a month on the FBA side. So that’s my plan. I would do affiliate to FDA, a source of products. So what you got? Throw something at me.
Ace Chapman: Well, let’s go to the first few steps. I mean if you’re going to go out, you’re going to find this FBA deal. One of the interesting things that I always tell people is, it can be a tough thing to get super specific where you need to have affiliate deal, where it’s going to be a product that you’re going to be able to find and get licensed. And you’re going to be able to turn it into FBA and those margins are going to be big enough. And so, but let’s get to just your first few steps.
Justin Cooke: Okay, so the first few steps, you’re right, It’ll be difficult I think to find the right Amazon affiliate site. But I’m open, I don’t care about particular industry. It doesn’t have to be in the health industry and it doesn’t mean anything in particular. Obviously, it can’t be selling TVs. Like SONY TVs or something. Well, I’m screwed. I can’t FBA that shit. Right now I’m not manufacturing TV’s overseas. But if it’s chandeliers or foosball tables or something, probably something I could do. Foosball might be difficult, just shipping and everything, but I’d probably try and make it small to something that I could air freight over, so that I don’t have the lag time, that comes with shipping. It might be six weeks or eight weeks to get the product to Amazon. I’d want something quicker that I could do, shift the air so I could test through.
One of the problems with that is … So okay, first steps right, is I would start looking for an Amazon affiliate site, that’s a good match. So I’d start shopping all the brokers, you know, checking out Effie, Quiet Light, Empire Flippers, start looking for the right affiliate site, that’s a good match. And so I’d have to dig through quite a few sites, maybe 20, 30 sites to find the right listing for me, 20 or 30 Amazon sites. So it’d take me a bit, I can see it taking, one to three months. In the meantime, I don’t think I’d build out the affiliate sites yet. I’d want to find that first Amazon affiliate site that’s kind of my anchor and then build around that, so I wouldn’t want to start building affiliate sites willy-nilly because I know especially from the Burger side that, there’s a big failure rate in building sites from scratch. They may just fail the launch.
I may build them and they may get stuck in Google for a while, six months, a year, year and a half before they get any traction. So if I’m going to do that, I’m going to want to make sure I’m doing it in a niche, that I know is profitable because I already have a site in that niche selling those products. Does that make sense?
Assuming that I got the affiliate side and say within the first month, obviously I’d take that over. I wouldn’t change much on that Amazon affiliate site to start. I’d just look at history and look at how many of the particular products were sold, why some products are selling over other products, why that particular usually go to Amazon, buy that product over another, check out that the reviews for that one versus their competitors and then see what I can do to iterate on that and deliver a better product on my own. It would be a branded product so I wouldn’t just buy some no name product, I put you know, the Justin Inc brand on it and start selling an FBA. I probably take the course or at least torrent that shit or down or something that the amazing seller, the amazing selling machine or you know those guys. So I would get the course probably and go through that and then start hanging out with some of the Amazon FBA forms and figuring out FBA.
Ace Chapman: Yeah. I got to say, I’m sure the listeners are like, “I thought this thing was about buying businesses and here these guys are in both cases talking about building some stuff as well.” So I think that, that’s pretty interesting, but also indicative of the market that we’re in. The toughest thing with this is going to be finding that right deal, that has the right product. I don’t say a couple of months, three months, based on the unicorn shopping.
Justin Cooke: You think am unicorn shopping?
Ace Chapman: I think you’re unicorn shopping. I think it would be interesting to look around and see because it’s not just the deal coming on the market. You’ve got $100000, it has got to be the right size. Right now there’s nobody is really given owner financing. So it’s basically got to be $100000 or less.
Justin Cooke: No, I think I do probably like my range. I should have mentioned that. I think I’d probably be looking maybe 25000 to 30000 the lowest and 60000 to 65000 at the highest. And the reason 60000 to 65000 would be the highest, is because I need money for inventory. Those FBA businesses are cash hogs and I may screw up my first order and then be out of cash. So I need, maybe, I do a couple of testers to make sure the product’s good and then ship maybe $10000 a unit or whatever. And if that first order is shit, I need a little extra cash to be able to back myself up. So yeah, I’m pushing it a little bit, especially if it takes off, cause then I’m having to dump more and more of my cash from the business. And so that’s something I’d be pretty careful with, I think it’s cashflow.
Ace Chapman: Yeah. So that answers the $100000 question. So talk about how, where you talked about those first three months. Where do you expect to be six months, a year, couple of years from now?
Justin Cooke: So I think I’m struggling the first few months, right, until I get that anchor Amazon affiliate site of struggle. I’m not making any cash, but I did devote all my efforts to doing that. So when you said it’d be difficult, it might be, but I’m doing nothing else on the topic for the Amazon affiliate. So I’m pretty singularly focused. I think I start bringing in some cash when I get that affiliate site, a few thousand dollars a month, it’s not amazing. And then the real work is laid out for me. So I’m, at first it’s just [inaudible 00:37:54] for the deal, but then I got to learn FBA program, source this product in China, ship it out, get tested. So after the second month or so I’ll say I’ve picked up a site. The real work starts I think and the FBA business, I think I’m looking pretty good.
Assuming that I get the product, assuming it’s selling and assuming I can start, because I’m going to get sales through FBA as well. Right? So there’s going to be FBA sites there too, so I’m going to get those additional sales aside from the organic traffic, I’m sending in from the affiliate site and I’m starting to build affiliate sites that are supportive of that. They’re selling my FBA product as well.
I think it’s probably six to nine months before I’m starting to make some decent money on the FBA site and the affiliate site and maybe another three to six months, before those affiliate sites I started working with start bringing in the cash. One of things I like about this though, is I think that because it’s a much larger business and I’ve got organic traffic and I’ve got some Amazon searches that are happening, I think it’s a very diversified business eventually, and then I think eventually, I’ll get a much higher multiple on a sale of that business than I would an Amazon affiliate site, for example. I might get, 22, 24, 26 X where I might get 30, 35 X on this business overall. So not only is it getting bigger with the additional earnings, it’s getting bigger in terms of the multiple as well.
Ace Chapman: Well, I like FBA, I own an FBA deal. It’s a great business in the beauty space. The couple things that I think will be the toughest points. If you can make this strategy happen, it’ll be beautiful. The toughest thing is going to be number one, finding that deal that’s the right deal with the right product and the right price range that you’re going to be able to do. And I think the other part of that is FDA has become tougher. I don’t know if from scratch I would plan on, though, I think the strategy of selling to the traffic that’s coming into the site is great. I wouldn’t necessarily plan on getting much traction within FBA.
I’ve got a deal that’s been around for eight years and it’s really strong and we saw a lot of growth and all that, but a lot of the competitors are really stuck in, they’re kind of fighting each other like page for of the results. And I think it’s a lot tougher today. And that’s in market, it’s what we’re seeing in our market. It’s what they saw on the amazing selling machine market. A ton of people come to something and the opportunity starts to not be as attractive.
Justin Cooke: Yeah. There’s way more competition. Everyone’s trying to reach for that same piece of pie. The pie just isn’t growing fast enough for all the people trying. I totally agree with you. There are some definite downsides to FBA. I’m hoping that, that will be the gravy on top of the affiliate site earnings and then it’ll kind of like round it all out. But yeah, it’s … there’s risk, it’s risky business, right? I don’t know if it’ll work, but I liked the approach.
Ace Chapman: Yes. I like it as well. I like it. This was a great one. I hope people get some value out of this.
Justin Cooke: Yeah, me too. Alright. So that’s it. We’re done until season two, huh?
Ace Chapman: Yeah. A few months. I think both of us are going to be doing some neat traveling and playing around. We didn’t want to try to figure out, how to get this together and then we’re going to jump into from beginning to end. What it’s like to be a buyer and some of the things that we’re seeing in the market and how to navigate your way around it.
Justin Cooke: Yeah, buddy. That sounds good. We’ll see if we can sneak in a little minisode in between or something and give people an update.
Ace Chapman: Yeah. Let’s do it.
Justin Cooke: Alright. Till next time.
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