EFP 158: Navigating The Dips

Justin Cooke

June 16, 2016

You’ve hit a bit of a slump in your business. Your numbers are off, you’ve had a failed product launch, or you’re getting negative feedback from your customers in some shape or form.

The question: Do you continue to push through the dip or is this a sign that you need to bail out now and do something else?

Seth Godin’s “The Dip” tackles this issue in some depth and is the impetus for today’s show.

What Do You Do When Your Business Takes a Dive?

There’s no easy answer here and we won’t even attempt to answer it for you in this episode. What we will do, however, is share three specific dips in our business, talk about how we dealt with them, and then share some of the lessons learned as a post-mortem.

These struggles were quite raw in the heat of things, but we’ve had some time to reflect and wanted to share our stories and insights with you. If you’ve struggled with dips in your business I think you’ll appreciate this one.

Check Out This Week’s Episode:

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Topics Discussed This Week:

  • Mortgage Company
  • Niche Site Process
  • Investor Program
  • Final Thoughts

Mentions:


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Spread the Love:

“Be wary of the partnership death spiral.” – Justin – Tweet This!

“If you’re so myopic in your view that you can’t see the bigger picture you’re going to miss opportunities.” – Justin – Tweet This!

“Knowing that you will likely come through on the other side stronger is I pretty powerful.” – Justin – Tweet This!

Have you made it through some dips in your business? How did it feel? Did you push through or bail out to do something new? Let us know in the comments!

 

Justin:                   Welcome to the Empire Podcast. Episode 158 in Seth Godin’s book, The Dip, he describes the laws that come with being an entrepreneur and gives warning signs of advice on how to deal with those challenges dips. In this episode, we’re going to lay out three dips we’ve had in our own business. We’re going to describe the thought process in the middle of the Dip and give you some after the fact insights on how we got through it. You can find the show notes and all links discussed in this episode of empire flippers.com/thedip. All right, let’s do this.

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

Justin:                   Joe, you and I were talking a couple of weeks ago about everything that was going on in May and I told you that it felt a little bit like a setback. I mentioned there was this kind of awkward feeling that I hadn’t felt in a long time and you mentioned to me this is something you deal with all the time. You’re regularly going, “I don’t know. there’s problems in the business or there’s this or that.” You kind of feel like we’re on the edge all the time. I hadn’t heard that in honestly in months. My question for you is like this felt like a bit of a dip to me and I was wondering, do you think that different entrepreneurs are partners in the same business experience dips differently? Do you think that like if I feel like the business isn’t doing well, you can be feeling like it’s crushing yet, how does that work?

Joe:                        I definitely think that can happen. Let me preface all this with … I haven’t read the book, but I think I can get the concepts just by what we were talking about before the podcast. I do think that people are going to look at things from different angles. For me, I’m a more anxious person and I think that plays with my head a little bit more. I have to be aware of that, but definitely week to week, sometimes even day to day if I’m getting too myopic about it, it can really sap my energy and my emotional state if I’m not careful.

Justin:                   It’s tough from a sales perspective too, right? You’re dealing with the sales where you’re like, you’re ER about it, things are going bad, right? Then you have to get on the phone and you’re like, “Yeah, check out this business that it’s great and you should buy it.” That makes it more challenging. It’s the sales guy, when you’re like not feeling good about the business. It’s great when we’re not on the same page there because there’ve been times where I’m just really bombed or negative about something and you come in with your analytical “Justin, let’s look at the numbers and things are going well.” It kind of makes you feel better about everything and then I can do that for you. I’m like, “Dude, we got this going on. We’ve got a ton of stuff IN your ER. I can override your erism.

Joe:                        My erism. That’s something you should definitely coin. No, I think that you need to have that, maybe not diametrical opposite kind of connection, but it’s good to have a little bit of differing opinions on stuff if you’re both thinking and doing the same thing all the time, that’s necessarily, you’re going to miss opportunities or possible circumstances where you should make changes to your business.

Justin:                   It sucks when we’re both in that ER spiral, right?. We just start talking about, I’m like, “Yeah, this really sucks.” You’re like, “Yeah, you didn’t even think about this.” We’re like, “Whoa.” We egg each other on into the depths of despair. It’s funny though. I think even you’d have to admit that the dips earlier in our business, earlier in the entrepreneurial careers were much deeper, were much more scary than they are today. We have struggles or whatever. Now, we run into periods that are rougher than others and they’re not as bad, right? It’s more like a missed opportunity or that’s a big one for us. It’s like a missed opportunity. We didn’t capitalize on this as well, didn’t execute as well as we could have or we’re chasing the wrong idea, right? That’s kind of where we’re at now. But before it was like, “Oh my God, our business is going to pull it out, or are we going to be broke?”

Joe:                        Yeah. I mean, late 2010, early 2011 was a very rough time for us. I think possibly to the point of almost giving up, right?

Justin:                   Yeah. We’re going to get into that. It’s one of the dips. We actually have three dips that we’re going to go through and we’re going to look at those impactful dips in our business. I think, the million dollar question here for our listeners is, “Am I going through a dip that I should persevere through or am I going into a bottomless hole that I’ll never get out of?” I wish I had a clear answer to that. There’s just no way. The funny thing is that, it’s much easier to talk about afterwards than it’s during, right? For at least two of these scenarios, we’re pretty far away, so we can talk about it with relatively clear hindsight but hindsight is a bit skewed in that we chose a direction and I’ve come out the other side, we don’t know what the other direction would have held for us.

Joe:                        Yeah, there’s no control group, right? I mean, it’s impossible to know what the other decision would have led to. All you can say is where you are at today. I think there’s some sort of philosophy or some sort of a well known name for this type of problem. I mean what can you do other than to say where you’re at the time was the right decision to make?

Speaker 2:           Yeah, I think it’s survivor’s bias, right? When you get through something, and you look back and you’re like, “Yep, that was the right decision”, but you don’t know. Giving that advice to everyone always in that position is a bad idea because you don’t know the specifics about them. You don’t know that you necessarily chose the right path. The other path could have been much better for you. We’re not going to get into the philosophy all that much. Well, we will describe kind of like our feelings and thoughts going through it, why we made the decision we made, and what we thought the outcomes were based on that decision.

                                Hopefully, these stories are helpful for other entrepreneurs that going through the dip, if you as a listener are going through this, I think this would be a helpful episode for you and we’d love to have you share your thoughts either privately or via email or you can share it in the comments on this episode. All right. But before we do that, let’s do the featured listing of the week what you got for us?

Joe:                        We’re talking about listing four zero five three three, this is an eCommerce business. I’ll say it’s an eCommerce business in the gift snitch. It’s not actually giving physical gifts, although they do get a placard, let’s just put it that way. The company provides a dedication service, which is normally gifted defense or family. Definitely something I could see you buying for Fathers’ Day, Mothers’ Day, Valentine’s Day, that sort of thing. Very interesting product to say the least. We have it listed for $266,000 and it’s making a net profit of about 9,200 bucks.

Justin:                   I think my family might have been a customer of this, either this or another one like it. My mom bought something like this for her sister, and this was years ago, and she was telling me about it. I thought it was a little cheesy, but I dunno. It is Kind of cool. It’s a cool idea. I think the business is interesting. It’s been around for quite a while. It’s got quite a bit of history and it’s definitely an interesting and unique niche. If you’re looking for something like that, I think this would be a good pickup.

Joe:                        Yeah, I think that it’s definitely the type of thing that a lifestyle Larry could run or someone that’s really looking for a business to not only replace your income but be their primary business. They do nothing else but this. It would be a fun and fascinating business to talk about and have that you’d proud of to own this kind of business. It’s not the typical type of niche business and not to just anything wrong with that, but this is more overriding and something that could be made a broader business.

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

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

Justin:                   All right, man. Our first dip. Let’s talk about it. It was our mortgage company and we’re going way back, Joe. We’re talking-

Joe:                        Oh, boy.

Justin:                   We’re talking about 11 years ago, man. We’ve been doing business together for 11 years. That’s a long time.

Joe:                        It is. This is definitely the most painful one to probably discuss because-

Justin:                   Well, it was the most painful period for sure, but is it the most painful discuss now? I kind of look back on it with amusement. Honestly, more than anything else, it’s not painful to me now. It was deeply painful to me at the time. But we’ll get into that. We got started in the mortgage business, so we’d done mortgage just previously. We just started as a business between me, you, and a third partner in 2005, right? We were working through another broker that had a bunch of licenses in other states to do mortgages, home loans, equity lines of credit. I get people into homes, have them refinance, a lot of refinance, and the market was really big.

                                We were doing loans ourselves and we said, “Look, if we really want to grow this company, we need to start hiring people.” We put together processes for basically bringing on contractors to work with us through our licensing and our platform to do these deals. We would take them from other brokers. We would take people that have experience and we would kind of bring them in and have them do deals with us and the market was hot. We were making good money and we were feeling like we were entrepreneurs. We were feeling like we were building a business that was going to last.

Joe:                        Yeah. But in hindsight, honestly, the business model had some real fundamental flaws to it.

Justin:                   Well, let’s talk about that. One of the problems … And this wasn’t a flaw to the business, but in 2006 we ran into the problem where the third partner wasn’t participating in the business at the level. Either you or I were except with and that’s putting it nicely. He just dropped out, right? Was doing other things just not focused on the business. It put us-

Joe:                        And expected to be paid.

Justin:                   Yeah. Well, IT put us in a weird position, right? You were like, “If he’s not going to do anything and why the hell should I do anything? We’re all getting equal pay.” You were kind of at the mind, “Well, I’m going to drop out.” Then I was like, “There’s no way I’m doing this all on my own.” I started off, and we had this race to the bottom of no one really working on it. Looking back, this was a pretty hot time in the market. This is like the last time that it was hot, and we were kind of dropping out on our own because of our own problems in the company, and so this was really frustrating.

                                We had a trip planned to Thailand at the end of 2006 and it was maybe like the middle of 2006 this really started happening. We all went to Thailand together and it was not a comfortable, right? We were on this trip plan and we were going to have lots of fun and we were all not cool with each other and what was going on and we said, “Well, we still got this plan. Let’s kind of make this. We’ll make a kind of our last route. Maybe we’ll get back to business when we get back.” But I think you and I both knew that it was dying.

Joe:                        Yeah. I mean, absolutely. It just goes to show you that you have to be very careful with partner selection and your friends are not necessarily the best ideas for partners and you have to have some sort of agreement in place in order to exit people from a partnership. If we had had an operating agreement in place where you and I could have voted the third guy out and he would have had no say over it, then that would have been the best way to have us continue in the business.

Justin:                   Well, we ultimately did that. But tell me more, Joe, about how you were feeling heading into like October, November of 2006. Where were you at? Were you like, “We’re going to do this kind of trip and try to have some fun together, but it’s over?”

Joe:                        Yeah, I was thinking, I think, more short term than that. I was trying to clear my mind of any future planning because the future just didn’t look bright, especially when we talk about the market turn and lenders tightening and that kind of stuff that was happening in 2007. When we got back, any sort of planning we had made would have been useless anyway.

Justin:                   Yeah. We get back, it’s in January and we kind of deal with a third partner and that works itself out where we laid on the law and he’s like, “I’m outta here.” He takes off, and now once you and I, and maybe we could have turned the business around. I don’t think so because around that time it started changing for mortgages. Now, the financial crisis didn’t hit for a while, but the mortgage industry had definitely changed. They were tightening up hardcore on loans. It was much, much more difficult. We were getting the valuations, but previously housing prices were just going up, and up, and up and they weren’t.

                                In fact, some had gone slightly down, and so there’s no equity in the house to refinance or take loans out of. Let’s just know that you can’t squeeze blood from a turnip, right? It was a really awkward spot and we’d had our own business and we had these experiences and we tried to take these skills around to other mortgage brokers saying, “Look, we’ve run teams, we can put this together for you.” We found someone willing to take a stab at it with us. With these new tighter restrictions, we were just failing miserably.

Joe:                        That time I remember it very clearly of us going around to all of these mortgage offices and offering our services as managers. If we had done that in the beginning, it probably would have been better than at the end, right? That was the way we probably should have approached it, more of a joint venture with somebody that had some infrastructure that we could leverage rather than try to build our own infrastructure, which we didn’t have any capital to do.

Justin:                   There’s a time, Joe, where we were commuting, it was like a little over an hour or something. We were driving down to this office. It was a little crappy office in a very nice part of town, very wealthy area. We were going into this office and we had our little corner of the office and we had some people working for us doing calls and stuff and we had a bunch of deals on the board that we’re trying to knock through it. But like a bunch of them weren’t closing were getting rejections from the nurse and we were just doing this every day.

                                We were working 10, 12 hour days in the office and then doing the hour, hour and 15 minute commute back and forth. It was rough, dude. You and I were not good psychologically. I wasn’t good financially. We were broke. It was rough. Remember, that was the time we were driving where you were chatting with our girl in the Philippines about some VA stuff she’s done for us or that you were chatting with her and we realize you were on a windows mobile phone or something, right? This is the way back in the day and I’m driving, you’re chatting with her on some instant messenger while we’re driving and we’re like, “Wow, this is the future.”

Joe:                        Yes. If we had only found a way to leverage that right there, that would have been an impetus for a whole business.

Justin:                   This was before owed us. Before even a lot of like virtual assistant kind of companies or even a lot of SMB outsourcing companies, we did end up leveraging that later and we remembered how important that was. But like, yeah, that was interesting. When we realized that was done and we just shut that down, and I was in a bit of a hole man. We were forced to shut the whole thing down. I was broke, you were close to broke. I think you had a little bit of savings.

                                But we were in a bad state and I went and looked for a job. I’m here thinking I was such a failure and I just feel horrible, but we didn’t have any other options, right? We were forced to close it down. We were out of money and we just didn’t see a viable path to continue with where the market was at. I think that was a big determination for us too. It’s like even if we’d have had the money to continue, we probably would have just blown it if we could continue to just blown it because the market was so bad that I don’t think there’s much we could have done.

Joe:                        Yeah. With all that negativity though, what are the lessons that we can learn or we could tell other people not to do it?

Speaker 2:           Yeah. One of the lessons is, be wary of the partnership death spiral, right? We talk about this all the time where if you’re all going to equally paid that deal and someone’s working less than the other, you have to be very wary of the fact that you get resentful. You need to be aware of your feelings on the whole deal and understand there’s the ebb and flow, right? This will be times three business partners doing less and you’re doing more and it needs to kind of bounce around. It needs to be kind of trade off there. If you’re not feeling resentment, you need to bring it up right away and you’d better have a partner that understands that and can work with that, right?

Joe:                        Yeah, no, totally agree there. I think that anybody who finds in that situation death spiral, you need to find a way to exit out of it quickly.

Justin:                   Another lesson we learned, I think from this whole experience was that market turns like turns in the market, provide opportunity. If you have cash or access to cash, that’s king, right? With this market turn in the mortgage industry, in the real estate industry, there’s a ton of money to be made and we didn’t capitalize on it because we didn’t have the cash. We weren’t in a position to really do anything about it and I don’t want to be in that position again. If I’m on the inside on a market that is going through rapid change, I want to be able to take advantage of that.

Joe:                        Yeah, and I think you have to have a bigger view. That was probably the other problem is our view of the mortgage market place was so small. We just saw it from only a loan officer’s point of view. I think if we had had a broader overview of the market, we might’ve been able to take better advantage like I think we do now in buying and selling space online.

Justin:                   Yeah. I think that’s a really interesting point. If you’re so myopic in your view that you can’t see the bigger picture, you’re going to miss opportunities. As badly as things were going in the mortgage industry, that’s how good things are going in the online business and website industry in reverse that they’re improving. That’s a good point to us, Joe, is that we need to see that bigger picture.

                                What are the nine figure private equity groups doing? Where are they at and how do they view the market and where are they focused? Because that’s kind of the bigger picture view of where we’re going. I think that’s interesting. The other thing is that … and we didn’t get into this much when we were talking about this, but we brought on contractors as loan officers that were doing the loans. We gave them huge splits or commissions or percentages of the deal and left them to their own accord. Yes, they kind of use our process a little bit, but we just said, “Look, we’re better because we pay them more.” That was a really silly thing to do at the time. We should have paid them less and given them more support.

Joe:                        Yeah. To be clear here, we’re hiring salespeople basically as contractors, commission only sales people. I think that while contractors work for small companies on an operational sense, I mean, it’s always better to have employees, but if you can’t afford them or don’t need them full time then contractors can work on a sales side, commission only sales people, you wind up attracting kind of the lowest of the low salespeople to make good salespeople happen, you need to provide them with some sort of base salary and support in terms of leads and other infrastructure so that they can go ahead and make good commissions and then make the company more money.

Justin:                   You want them to have good upside, but we were giving them all upside and I think … Look, if they wanted to just go be entrepreneurs and be totally on their own, they could do that. I mean, the reason they would want to work with us is because of support. We could have given them leads, we could have better supported them. I think we’d have made more money out of the deal. I’m not sure that our business would have survived, but it’s definitely a lesson we can take to other businesses and have, right?

Joe:                        Yeah.

Justin:                   All right man. Let’s talk about our second big dip. By the way, we’re giving three, we’ve had a lot more than these. These are just three that I think are particularly interesting to our listeners and I think we have good lessons from them. The second one was our niche site process and specifically the EMD update that happened to our business. I think it was October, 2013. To just give some backstory for anyone that’s new to the podcast or whatever, in 2011, 2012 sites, we were building these small niche websites, AdSense based websites that were targeting very specific keywords and these had great ROI for us.

                                I mean, we’D create a pay 50 to 60 bucks to have a site created with our outsourced labor in the Philippines and cheap content. It would make on average 200 bucks, 300 bucks, we get in return on every site. Now, a bunch of them were losers, but somewhere big winners will make 1000 bucks a month, so that really kind of worked for us. We started scaling up the business, we started scaling up the team, our processes and things were going really well. We the Horizon, the future was bright.

Joe:                        What I really loved about that business was I felt like we own the factory and we own the sales channel. From end to end-

Justin:                   Soup to nuts-

Joe:                        … soup to nuts, we had everything. That was really compelling for me because it felt like the first time we had ever really had that in a business.

Justin:                   You use that a lot I remember you used to say that all the time. We had just coming off our outsourcing company, where was our main focus and we were just a third party provider to them and we didn’t get all of that. We didn’t get the sales, we weren’t doing some of the operations and so we felt like we’re missing out on having a real business. We were just a support business, right?

                                We felt like we had a real business soup to nuts with this. We were cruising along, we’re scaling it up, we’re really happy with where we’re at. Then we woke up in October, 2013, and found two thirds of our traffic and earnings disappeared overnight. I remember what happened or I think I have a vague memory. I think you’re the one that told me first. We woke up the next day and you said, “Oh, Justin, something’s wrong. There’s something wrong with our earnings.”

Joe:                        Yeah, because I’d check the AdSense account every day and then you see that the AdSense account is off by two thirds. How could that be? Then you start checking Google analytics, the sites-

Justin:                   What was your initial thought when you saw that. Were you like, “We’re screwed.” Or we you like, “Oh, something’s broken.”

Joe:                        Something’s broken. From a technology standpoint, maybe it’s a-

Justin:                   Codes.

Joe:                        … a bug in the system code, we got hacked, the hosting’s down, that kind of stuff.

Justin:                   As we dug into it, looking for problems, looking for any kind of mistakes, was there a point at which you realized, “Oh shit, that money’s gone.”

Joe:                        Yeah. No. I think it either was you or I on social media we realized that a lot of people were announcing some sort of update from Google had happened because other people were experiencing the same dip.

Justin:                   Yeah. We got other people asking about it, and so we were just giving them a kind of basic answer because we really didn’t know, right? We were digging into it deeply, and I think a couple of days went by and we saw it hadn’t bounced back. We thought, “Oh, maybe there’ll be a correction or something.” We thought hadn’t bounced back and just 65% of our earnings and our traffic were gone. We said, “Wow, okay, we’ve got to tell everybody. We’ve got to give every once a week.” We really dove into active as much information because we wrote a post about the EMD update and that was a tough one to cover because we were in the depths of like, “Oh my God.” Because we were thinking about how much value we lost, right?. All those earnings, like how much money was lost. It was a bunch.

Joe:                        Yeah and especially the brand too. The brand AdSense flippers, it’s hard to say it with a straight face if you can’t sell AdSense sites anymore or the AdSense sites you just sold last week or no longer earning, right?

Justin:                   Yeah. I don’t know if our listeners probably heard of the concept of imposter syndrome where especially as a new entrepreneur, but I think throughout your career there’s always times where you feel like, “I’m faking it. If people only found out I’d be screwed.” Or like, “I’m not really an entrepreneur. I don’t have a real business or whatever.” There’s a confirmation of that for us. They were like, “Okay, there’s some problems, but we’re doing pretty well.” Then this happens and we’re like, “Yep, okay. I guess we were bullshit. I guess this whole thing sucks.” This confirmation of imposter syndrome where we’re like, “Oh, I got that was-“

Joe:                        Yeah. But ultimately, it did wind up being very good for us.

Justin:                   Let’s talk about the decisions we made. We changed our process. We said, “Look, there is something in our process at the broken. The way we’re building the sites, the keywords retargeting and the things we’re using. It’s just not working, so we need to change that.” We started changing the way we built sites and we need to build sites differently and we kept learning. We were like, “Okay, back to the drawing board. What do we need to learn new about these types of sites? We want to build them.” Then ultimately, this led to the decision to allow others to sell on our platform.

                                You remember we had that conversation while things were going really, really well, Joe? We said-

Joe:                        Yeah, no.

Justin:                   We said-

Joe:                        I actually remember.

Justin:                   We said, “Why don’t we have other people sell on our platform alongside with us?” We seriously considered it because we had both buyers and sellers reaching out to us saying, “Hey, I’d love to sell with you. You guys have more sites.” We were like, “This would be great.” We started thinking about it like, “Look, we’re going to get a small percentage of the value of the sites so with us. What if people start buying their sites more than they buy ours? That would be like cannibalizing a moneymaker for us, which is selling our own sites.” We said, “You know what? That’s pass an idea.”

                                Then after that hit and after creating new sites was less profitable than it was for us previously in terms of ROI. We revisited that. We were like, “Okay, well, now we don’t have a huge cash cow ROI machine. That’s okay. It still makes it a little bit of money. It was less risky, we thought to have other people sell on our platform.

Joe:                        Definitely. It was the catalyst for change I think, and a good change at that because we wouldn’t be where Empire Flippers is today without that EMD update, so thank you Google.

Justin:                   Thank you, Google. That’s painful to say. Let’s talk about some lessons to be learned. I mean, one of the things is we’re building on someone else’s platform both in terms of like SEO and the SEO game, rebuilding on Google’s search platform. In terms of monetization, we’re building on AdSense and the thought was at the time, “Look, let’s double down. This is really working, this is good.” But that does come with risks, right? By not being diversified against just organic traffic, by not being diversified in our monetization, you run the risk of being slapped one way or the other, and that’s exactly what happened to us on the organic side.

Joe:                        Yeah, definitely on the product that we were building side. But on the marketing side, I think we were pretty diverse and that’s what allowed us to kind of transform the company into something different and that worked out well. Keeping your options open and trying not to lock down too much, especially early on it I think is the positive lesson to be learned here.

Justin:                   I think also we were relying on tactics, business tactics, and tricks more than we were business strategies. The tricks of using an EMD are getting quick rankings or whatever that waS like a shorter term trick that I wasn’T a long ball play. We realized, “Look, we’re in this for the long haul. We are with our brand in our business, so why are we building sites that don’t have kind of a long BALL, the field as well?”

Joe:                        I think if we had learned to build better sites right from the beginning, the EMD update wouldn’t hurt us, but we would have had more sites that survived and we probably would add more valuable sites to sell people afterwards.

Justin:                   All right, man. Our third dip is much of our recent … We’re going to be talking about our investor program and so we’re still on the middle end of this and so the lesson learned probably quite aren’t as clear. We haven’t had as much time to reflect but we’re going to get into it anyway. In 2014 we put out a podcast, a titled want to work with us and we described an early version of what we thought our investor program would be and we ask people for interest we want, we were just basically judging feedback as seeing is there’s something our audience would be interested in and it was really good.

                                It was really positive. We’ve got a lot of positive response to people saying, “Yes, I want to invest in a portfolio sites. Yes, I’d love to have you guys run it for me.” But we delayed it because in 2014 we were still trying to get away from our answers company. We were selling that. We had a bunch of other like we’re offering services and stuff. We were like trying to get away from that, and we were really trying to grow the broker. It was there. It was kind of like hanging around the back of our minds. We didn’t really move forward on it, right?

Joe:                        Yeah. No, I think that we were always a little cautious about getting into it. We were worried that it was a distraction, that it would suck away from the brokerage, other issues of their problems.

Justin:                   In 2015, you said, “Look, I think we’re in a good position to roll this out. I think we can finally get this done. Let’s start turning those wheels, man. Let’s drum up intro, see who’s understand and see if we can move forward.” We had quite a few conversations with mentors, with peers at that point and thought we had it pretty well locked down subduing like a single site. We’re going to do a portfolio sites, we’re going to have multiple investors, we’re going to target higher net worth guys rather than a crowdfunded approach, and we went through all these different iterations.

                                We wanted to keep it small for the first raise. We said, “Look, we don’t know how that’s going to go. We don’t know how well we’re going to do with that. We don’t know what the return’s going to be. We have an idea and we think it has a huge upside but there’s huge risk too, so let’s start small.” We raised $800,000 and start getting it started where I started picking up sites and taking ownership of them and building them out. It works slowly because a lot of times it’s like a 60 day delay before you get paid for the work that you did. Those are off slowly the first couple of months, but then it started rolling in and the earning start coming in and we started realizing, “Okay, I think this is going to work.” This is toward the end of 2015 we were like, “We’re onto something here.”

Joe:                        Yeah. I really thought that we had solved the problem. One of our business problems with the brokerage is that you always start at zero on day one. I was really excited for empire flippers for that bar, and then I was also excited for these investors who … they have more money than time and they really want to get into the online space. We have a solution for them now too. It seems to be this just like great combination of two things coming together that were perfectly aligned.

Justin:                   Until it wasn’t right?. We’ve learned from our previous mistakes. We said, “Look, if we’re building on multiple other people’s platform, we need to diversify a bit, we need to protect the portfolio.” We did that. We diversified across Amazon, across paid traffic, and organic traffic and AdSense. We thought we had pretty diversified portfolio, and then we had a bunch of things hit. This is in 2015. It was actually early 2016 is when this started happening and we had a bunch of things happened. We lost our ad words account.

                                For one of our larger sites, that paid traffic platform was virtually gone for us. We tried to sign up for another one. It didn’t work. We tried bing traffic and that didn’t work. That was bad, but that didn’t crush us. We’d be okay there. Then we lost our Amazon account, right? That was pretty devastating because some of our Amazon sites had taken off. They were growing and doing even better. We had this Amazon account that was growing and growing. We lost the ad words, but we’re fine. Amazon’s doing well. We lost that. Then insult to injury, that was bad, right? That puts us in a bad spot. Then we lost a primary affiliate for one of the large sites in the portfolio. They removed us from our platform and [inaudible 00:31:16] your business there re bill rates weren’t good enough.

                                We’d to look for another affiliates there and they weren’t converting as well. Just overall, it was all these three things, these three major things broke our diversification safety net, right? Basically, this gave us a 70% hit to earnings and crushed us. When this all started happening, Joe, how were you feeling when this … You were happy in December, 2015 and early 2016 when this started happening? What were you thinking?

Joe:                        I just felt like it was a huge suck on my ability to stay focused on our primary business because not only was it taking my time and energy emotionally, it was draining because it was just one piece of bad news after another. Being able to pick yourself up from that and deal on a successful side of the business, it’s tough. It’s tough.

Justin:                   I was really disappointed because even from back in 2014 and the first time we did that podcast all the way through 2015 we’re raising the money. I see this as being huge, right? I see it today as been huge, but I saw it just being huge and finally dipping our toes and something that I think is going to be $1 billion industry. I was like, “Yes, this is awesome for us.” I saw the exit opportunity for us and for the investors. We had investors that are fired up about it. We still have a bunch of people that are fired up about it and really like the model and I mean it’s tough.

                                I want to blame it on third parties, right? I want to say we had bad luck, but I can’t just put it on that, right? I mean we had execution problems too and in a learning curve. I’m still gutted by advantage yet. I can’t it tell right now. I’m really frustrated with how this played out and here’s another really bad thing Joe. We were in the middle of raising more money and getting people on board to do this and-

Joe:                        Well, not just raising money, Justin.

Justin:                   No, no, no.

Joe:                        We had money in the account.

Justin:                   We had money in. We were good. We had taken a hit, but it was still fine. The returns to investors were fine and we were okay. We had gotten a bunch of committees from … I think we had $1 million wires on the way from people that were coming in that week and we were looking at another two million or so, to million more. We were thinking somewhere between three and five million we’d raised for this next round. We’d receive $300,000 in the bank when the Amazon account … We got really bad news and we were like, “We got to shut this down.” I think it was like a day or two before we actually did it, and we got together and we said, “Look, what are our options.” This is in April.

                                This is just a couple of months ago. We said, “What are we going to do? Here’s where we’re at.” I think we’ve got to shut this down. We said, “Is there any other way around it? Is there anything else we can do?” No. Our best option is … Because if we raise money and they were sucking on a cycle, we have to buy sites, we have to find sites, we have to take them over and we’d leave our initial investors out in the cold and we might just be scaling a broken model, right?

Joe:                        Yeah. I think a lot of people reached out to me personally and thanked me for being mature about it and not proceeding with the next round. I think we actually gained a lot of goodwill, at least, privately from everyone that I spoke to about it. That’s the good news there. That’s the-

Justin:                   That’s good. We decided, “Okay, screw it, we’re done, we’re out.” Let’s go back to the original portfolio and fix it and it sucks. Honestly, it hasn’t gotten any better. I mean, we’ve done a ton of things that we’ve been communicating that with investors, but it just hasn’t gotten better. We’re still in a bad spot, so we’re at least six months away from re scaling this out. Our decision ultimately was the [inaudible 00:35:07] raised and to start doing the hard work to turn the first portfolio around. We’re keeping out right now, but I think if we’re going to do this again, and that’s an open question, we need to rethink our strategy and we should take our time to relaunch with the new process, with whatever it is that we’re going to do, however, we’re gonna approach us. We need to take our time and make sure we’ve got things fixed in the first portfolio before we can move forward.

                                In terms of lessons learned, I mean, this is still a work in progress, but the first one is that disaster scenarios happen, right? We had a diversification strategy we thought was not just adequate but prudent, and it got blown to smithereens when we had multiple issues from different areas come at us and cause problems. So-

Joe:                        Yeah. I’m reminded of the book Antifragile we definitely weren’t looking at it that way.

Justin:                   That was painful. The other lesson. I know I’m still confident. I believe, in my core, this would be a huge market as and be a huge industry of billion dollar plus industry and so it’s worth taking our time to get this right.

Joe:                        Yeah. I think the biggest thing, the biggest lesson, we can learn on this point is from an operational standpoint, make sure you have your ducks in a row so you can support what sales and marketing has done for you.

Justin:                   Did you Feel like we didn’t have our operational ducks in a row on this one?

Joe:                        I mean, I thought we did, but looking in hindsight we didn’t. We didn’t have enough resources completely dedicated and solely dedicated towards running this portfolio of businesses. That was the message.

Justin:                   [inaudible 00:36:37] at the team, right? That’s specifically like we have an account manager solely dedicated to the portfolio. We have a team of VAs that work dedicated.

Joe:                        Not dedicated, but I mean those, those VAs are VAs that we use for other things as well. I think either having a joint venture with a “partner company” that runs the sites for you or having a team of diverse skill sets because the other problem I think we had with the portfolio manager is he’s very good at one or two things but not good at a broad set of thing. You either need multiple guys like him that one guy is a paid traffic guy, and other guy is a content guide, the other guy is this guy. Or you need someone who has a more broad diversification base and is a good manager of other people. We didn’t put that in place beforehand.

Justin:                   Yeah. Okay. I might agree that from my perspective. I’m not entirely sure what that would have changed things though. I’m not sure how that would have changed things, but I mean, we still got to work through. The third lesson that we’re learning is that it could still go either way, right? Either we’re going to be a broker or provider for people that are building out these portfolios and raising investments and we can do that.

                                We can be a provider for them all day. We can source deals, they can buy from us, they can sell through us and we can be a provider to the market or we participate in directly by having a portfolio and investors on our own. That’s an open question as to what we’re going to do. I’d imagine I want to take another stab at it, but I’m not yet. I’m still shy. I think we still have some things we need to do with our original portfolio to get the investors back on track. So-

Joe:                        If we never do another raise, Justin, the one thing that I’ll pull out from this is the connections that we made in going into this type of market, other type of an investment portfolios and having a degree of respect for them in running these types of sites. It makes it easier for me to talk to them as a broker because I’ve been through their struggles that they’ve been through.

Justin:                   Yeah, that’s interesting. You can communicate with them better and understand where they’re coming from. That’s probably viable as a sales guy for sure, right?

Joe:                        Yeah.

Justin:                   All right, man. So let’s talk final thoughts on all three of these things. I mean, the first one is the million dollar question, which again, we didn’t answer, but for our listeners, do they get out of the dip, do they bail on it and start digging a new hole? Or do they keep on keeping on, do they keep persevering with the dip that they’re it and try to really break out the other side? The best way, I think for me to approach that question is for me to look at what happens if it ultimately fails?

                                Let’s say three months from now, six months from now, 12 months from now, it’s going to be a complete nutter failure. During that time from here to then, am I honing skills? Am I learning anything new? That’s going to help me in a future entrepreneurial journey or in my career or am I making connections or learning new things that are going to help me grow? If I still have that to where it’s going to be a positive experience than it might be worth pursuing, I think that’s not the only piece, but it’s an important factor for me and trying to decide whether I’m going to do that.

                                If on the other hand, I’m just continuing down a path of doing the same things I already know, I’m not learning anything new, it’s just like trying to tweak my way to turning this around, then that’s probably a good time for me to get out.

Joe:                        Yeah. I like that way of looking at it and I think that’s a really good thing. I mean, you can look at the three centers that we set up that we definitely had some positive lessons to be learned even from negative experiences. At the same time, I’ll add one caveat and that’s if it’s an overwhelmingly negative experience that’s emotionally draining you and you just can’t divert energy elsewhere then exiting yourself from the situation would be a good idea even if you are learning some skills now.

                                Don’t be a pussy, but at the same time, you have to be able to say, is it worth it because I can’t even bring myself to sit down and do work every day because it’s so negative.

Justin:                   That’s true. I’d say the experience of going through these dips makes us stronger entrepreneurs and specifically the mortgage company, right. Joe? For me at least … and you can tell me how you felt about it, but I thought this was so horrible and I just felt so bad and so low that I didn’t know what I was doing as an extra business. I thought maybe I’d work a job. I thought I was just career wise screwed. Within not even a year later, I was feeling much better. I was working for a company, but I was a manager in that company, I acted as if I own the company. I felt very strong about my position. It’s funny to see what a year of turnaround does. When we didn’t talk about it, I remember when he closed the office in the Philippines and how bad that was for me. I remember talking with you on the balcony of the office and just feeling so down about the whole thing, remember and like-

Joe:                        Yeah, the outsourcing office in 2011 that we closed down February of 2011. I think that’s another good low point to talk about. But it’s these types of low points that if you get through them and you learn something, that it makes the peak even higher because you know where it’d come from?

Justin:                   That part where I was telling you, I was just so depressed about it. It wasn’t that big of a deal for you, the office and you didn’t like it, but like that wasn’t a sticking point for you as it was for me. From that point, and I forget the … I think it was 2011. From that point, it was I think two years later that I almost with a smile on my face and I kind of grabbed your arm in a meeting or something. I was like, “Dude, you realize we’re never going to have a job again. We’ll never have a job again.”

                                From feeling really down about closing our office and wondering, “What are we doing? What kind of business do we have here?” To coming to the realization that I’ll never have to work some office job in a cubicle ever again, that’s only two years of turnaround. Things can turn around off the quickly and as deep as that whole fields during the dip, knowing that you will likely come through on the other side better is, I think, pretty powerful.

Joe:                        Yeah, that’s good advice.

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

Justin:                   All right, man. Let’s do some news and updates. First off, I should mention that we’re changing the way we handle deposits for FBA businesses. If I’m looking or buying an FBA business from us and they pay a deposit, it was kind of crappy. They would get an email that says, “Hey, you are also like amazon.com and it says we can’t disclose the exact product, but you can set up a buyer seller call and you can talk to the seller and they can kind of give you more information.” That was about it. We got feedback from deposit are like, “Look, I don’t need the whole Shebang, but I need more than that.” We decided, “Look, we can add a bit more.”

                                Let’s talk about approximate costs, let’s talk about size, let’s talk about how many skews there are. We put a lot more of those details and the deposit or tickets. We’re still not giving you the exact product wait until a buyer or a seller call, but enough, I think a bit more to where people can make more informed decisions about whether or not they even want to set up that buyer seller call.

Joe:                        Yeah, I think it’s a good change to make. Again, it’s only for Amazon FBA businesses.

Justin:                   That’s right.

Joe:                        That’s the only thing we’re changing here because it is kind of unique business style approach and model and we have to approach the deposits a little differently there.

Justin:                   Yup. Then another bit of news is kind of inside baseball, internal stuff. I’m heading to Europe, man. I’ve never been here before. My girlfriend and I are going, we’re doing Barcelona, Paris, we’ll be in Prague, Venice, and Rome and we’re doing that from June 10th to July eighth. We’re doing some crazy travel.

Joe:                        I mean, as a guy that lived in Rome for about two months, I tell you that it’s a great city. The history there is amazing. The architecture is awesome. You’re going to love the Vatican even as not very religious person. It’s an amazing thing to see.

Justin:                   Yeah, I’m excited. Some of our guys are in Europe right now. They’re going to be hanging out in eastern Europe. Mike V might come to Barcelona to hang out for a bit. There’s an event there that’s planning to go to. I’m excited to meet a bunch of people. I know some people that are out there. If you’re in one of the cities or around those cities between June 10th and July eighth reach out to me on Twitter or something.

                                Let me know and I’ll kind of give you my schedule and we’ll see if we can meet up for a beer or lunch or topics or whatever and I’d love to meet up. We’ve also got the boys, the two new guys heading to you man. I’ve been working with them for the past months to hear they’re gone. We’re sending the two of them to Manila, getting them into a place there near you in the fort to work closely and you can teach them a little sales side of business.

Joe:                        Yeah. Time to crack the whip.

Justin:                   Oh my God. Those early morning Joe Calls and meetups and oh my God, they’re in for treats.

Joe:                        Sure. Yeah, they’re going to be here in about 12 hours. It’ll be interesting to show them another slice of life here in Southeast Asia living and working in the Philippines.

Justin:                   Beat them up good man. All right, buddy. Let’s do some listener shouts also known as the indulgent ego boosting social proof segment. First up, we’ve got William Wallace. I like William Wallace. He says, “Empire Flippers, it’d be awesome if you all did a blog post or provide some kind of info around the tax implications of selling.”

                                William, I can tell you we have, so we did an interview with Mario who is now our CPA, but we interviewed her about buying and selling businesses and I’ll put a link to that in the show notes and we did it both for the Empire Flippers Podcast. We also did it for Web Equity Show and I’ll put both of those links in there in case you want to hear a bit more about. They’re slightly different and probably worth listening to you, but he’s a super sharp dude. If you have any further questions you can definitely reach out to him and he’ll be willing to help you out.

                                I got another mention from Genius Link, awesome and super comprehensive posts by Empire Flippers breaking down the Amazon associates program. What Genius Link is referring to on Twitter is the Wednesday post We’ve been putting out for the last, I thing, for weeks now and we’re putting out these posts that really describe and rate down different business website monetization and process, right? We did the Amazon affiliate program, we’ve done Amazon FBA, we’ve done info product, we’ve done other affiliates, we’re doing the AdSense model.

                                We’re looking at all these business models and monetization strategies and describing how they make their money, giving examples of it and then talking about it from a buyer and a seller perspective on what to look out for, who it might be a good fit for, and they’ve been really popular with our audience. If you haven’t checked those out, I’ll put a link to those in the show notes. You can take a look at those as well. I think we’ve got another three or so articles coming out in that series and they come out everyone’s side.

Joe:                        Yeah, those articles have been really popular, so thank you for the Genius Link guys. I know that their product is really cool as well, so check that out.

Justin:                   We got a couple of mentions on blogs. There’s an awesome guide that’s selling a large content site over at the Fat Stack’s blog with Jon Dykstra is a guest post Greg wrote it and it is in depth, man. It walks you step by step on exactly how to prepare and how to sell a large content sites. If you’re in that position, I’m going to link the show notes there. Definitely worth reading. I thought it was a super post from our new guy, Greg.

Joe:                        It was a long one too.

Justin:                   It was long. A lot of words, but it’s in depth and useful so he does not like blathering on. It’s helpful. We’ve got a great mention by Neil Patel, Britain, neilpatel.com. He mentioned our evaluation tools, great legion opportunity on his site. I appreciate that. Neil is a awesome marketer. He’s a great entrepreneur, run some really interesting businesses, so it’s nice to get recognition and a mention from Neil Patel.

Joe:                        Nice for Neil to mention that and recognize that rather than some of the Facebook comments that we’ve had that didn’t exactly love our valuation tools.

Justin:                   You’re funny with that. I’m snarky. Sometimes they get Facebook comments and they’re like, “Your business is worth what someone’s willing to pay for it.” I’m like, “Okay man. Yeah, I haven’t heard that before.” I get on there, I say, “Look, the question is what’s someone willing to pay for it?” That’s what this valuation tool us, right? Yes. Well, the business is worth what someone’s willing to pay for it. This one answers what they’re willing to pay it forward based on our experience.

Joe:                        We could do a whole podcast episode probably on that valuation tool. A lot of thought and effort went into building that and it’s not just a lead generation tool. It is providing valuation-

Justin:                   We use it internally. We use it internally for valuations. It’s not like, “Yeah, yeah.” That’s the price our business sells and we sell a huge percentage of business we list, so it just pulled out of our butts. But yeah, some of the comments we get on Facebook … I don’t know, man. It’s almost as bad as YouTube comments. You look at some of the YouTube comments. Not ours in particular. We don’t have a big YouTube audience, but usually commoners are the worst … I don’t know. The random paid Facebook traffic is pretty bad too.

                                All right man. That’s it for episode 158 of the Empire Podcast. Thanks for sticking with us. We’ll be back next week with another show. You can find the show notes for this episode or more at empireflippers.com/thedip and make sure to follow us on Twitter @EmpireFlippers. See you next week.

Joe:                        Bye, bye everybody.

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

 


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Discussion
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  1. Steve Blundon says:

    Amazing episode guys. Losing your Adsense account, AND your Amazon account? Most people would just lay down and admit it’s not their cup of tea. After all that, you’re still smiling and doing business. Just goes to show the level of risk you have to be able to live with, and be able to overcome when the chips are down.

    Cheers to you.

    Steve B.

    • Greg Elfrink says:

      Absolutely Steve.

      No one said internet business is easy, nor without its risks. However, the reward is also amazing. So when these things happen to you, you just got to keep going and keep plugging away :-)

  2. Danny says:

    Thanks for posting such an honest podcast about the troubles with the investor program. The first step in becoming better is facing the problem and figuring out how to improve.

    Online businesses are so cheap (20 to 30x monthly profit) because of the risk involved. If you can figure out how to manage and reduce that risk, the investor program could become very big.

  3. Eugen says:

    Hey guys,
    Great episode, I’m sure it wasn’t super easy to do.
    One quick question about losing your Amazon and Adsense accounts. I haven’t ever lost mine so I’m not sure how that gets fixed, but isn’t there a way to use some backup accounts – at least until the main ones get sorted out?
    Cheers,
    Eugen.

    • Andrew says:

      I’d also like to hear more about that – what caused the loss of the Amazon account and has it been possible to restore it?

      (Enjoyed the honesty of the podcast – another good episode!)

    • Justin Cooke says:

      Thanks, Eugen…

      We lost our Amazon affiliate and AdWords (Not AdSense…did we say that?) accounts. We’ve been up and down, left and right with setting up additional accounts (as instructed by the Amazon team), contacting nearly everyone at Amazon via customer service, working back-channels with lawyers, etc. We still have a channel in the works and we need to get resolution with that before we can go into some depth on what happened here, but whether we can or can’t get some resolution here, we’ll be detailing everything just as soon as we’re able.

      • Andrew says:

        Hi Justin,
        You did say Adwords. But if you could tell us sort of vaguely why you ran into trouble so that we can avoid doing the same thing? I’m looking at buying one of your Amazon sites that would be a huge investment (for me) but would be worried if they were capriciously banning sites.

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