WES S04E10: Your Questions Answered

We’ve come to the final episode of the fourth season of Web Equity Show. To wrap the season up, we’ve decided to spend this episode answering questions from our listeners.

We cover a wide range of topics that listeners sent in via our voice recording tool (Speakpipe) on the site, email, and Twitter. From making offers to financing strategies to finding operators and more, this episode is packed with our advice and there’s something for everyone.

Thanks for supporting the show and we look forward to seeing you back in Season 5!

Digging the show? Please do stop by iTunes and give us a review when you get a chance – we’d really appreciate it!

Alright, let’s dig in…

Listen To The Full Episode:

Direct Download – Right Click, Save As

What You’ll Learn From This Episode:

• Optimal business sizes for investors
• Timing on when to invest and how to go about it
• How deal financing strategies have changed over the past 5-10 years
• Buying businesses with no credit or bad credit
• Making the first offer on a business
• Raising capital to buy websites
• Finding operators to run site purchases
• Selling Facebook Groups or Instagram pages

Featured On The Show:

• Empire Flippers
• Zendesk
• Slack
• Hubspot
• Favorite Podcast For 2019 w/ Jean Galea
• Web Equity Show Season 2 Episode 7 – Understanding Deal Structuring
• Web Equity Show Season 3 Episode 8 – Deal Structuring For Sellers
• Web Equity Show Season 4 Episode 7 – Operating Structures
• Dynamite Circle
• Dynamite Jobs
• Deal Makers Weekend
• Ace Chapman
• Ace Chapman Youtube Channel

Episode Transcript

Justin Cooke:
It’s never been easier to build to or run an online business than it is today.

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.

Speaker 2:
Your hosts, Justin Cooke and Ace Chapman share their real life advice, examples, and expert interviews to help you build and grow your own online portfolio.

Speaker 2:
Now to your hosts, Justin and Ace.

Justin Cooke:
Welcome back to another episode of the Web Equity Show. I am Justin Cooke, I’m here with my co-host Ace Chapman. And today, we are wrapping up a really dense season. This is Season 4, Episode 10. The last episode of Season 4, and we are answering your questions.

Justin Cooke:
This season’s all been about covering large portfolio deals, looking at both the buy and the sell side, and there were a lot of questions from you, and we’re happy to dig into those in this episode. Yeah.

Ace Chapman:
I feel like this season we dealt a lot more with where we are. And one of the things that’s been interesting to watch, and you guys will see in the questions today, is that the market is maturing. The level of questions that we’re getting now is so far beyond the questions that we got just a couple of seasons ago, so it’s really cool to see how fast things are kind of maturing as a market.

Justin Cooke:
Yeah. Season 2 and 3, some of the questions I can answer just super easy. The answer was really clear to me. Some of the questions from this season, I mean, these are things that we’re dealing with now, right?

Justin Cooke:
So, we just don’t have all the answers, and things are happening, like no. So like, I can tell you how some of these funds are getting set up. I don’t know if that’s the best structure to use, right? Because it just hasn’t been proven yet.

Justin Cooke:
So, well, some of these things, time’s going to tell. We can kind of, we’ll answer the best that we can in what we’re seeing today, and we’ll try to let you know whether we’ve seen this working, or, you know, we think this is the best solution and it just hasn’t been proven out yet.

Justin Cooke:
Before we get into this, or before we get into this episode, it’s been a while. I wanna kind of hear what’s going on with your business, Ace. You know both, on a personal level, ’cause I’m not really sure what you’re up to. And then for our audience, obviously, I’m sure they’d love to hear what you’ve got going on.

Ace Chapman:
Yeah. So, the market is evolving. Both of our businesses are growing and evolving. And on our end, one of things that’s changed quite a bit is that we are, obviously, this year, going public in August. It’s something I’ve talked a little bit about publicly, which is exciting. I can’t get into a ton of the details. We’re in kind of a 90 day period with the FCC to get approved.

Ace Chapman:
And then, yeah, here in a few months, we’ll have a publicly traded company that’s a group of deals, which includes a business that we did with you guys. So, that’s gonna be really exciting.

Ace Chapman:
And then, the other thing that we’re doing a lot of is, since we started … You know, I started a small fund years ago. Then, created a larger fund. And now we’ve kind of seen the evolution of, you can start a fund, grow the businesses, and create this portfolio, take a few of those businesses, or all of them, take them public, and after having those years of auditing and all that within the fund.

Ace Chapman:
So, it creates a really cool opportunity. And now we’re getting aggressive, we’re starting a few more funds, we’re partnering with some people to create some funds, and so, we want to get a little more aggressive about it. But now that we’ve proven this strategy out, to do it more.

Justin Cooke:
So I got a ton of questions here, actually. But, let’s work backwards. So, I know that you’ve been talking, on interviews and stuff, a lot about how … Explain to people how to set up funds, right? And that’s been kind of a purpose of yours. And there are other models, like I followed the Harvard Business Review Model, that’s one way people are setting up funds and then doing it.

Justin Cooke:
But you’ve been like on a mission to get people to set up funds. What’s your upside there? Like if someone just starts finding investors and raising the funds, like what do you … I mean, I get that grows the market, but what do you get out of it?

Ace Chapman:
Yeah. So what we know is that, you know, with these businesses, it takes a portfolio. I was actually listening to a Warren Buffett interview the other day, and he did this two hour long interview.

Ace Chapman:
And one of the questions that was asked by the interviewer is, she asked him about a bunch of the businesses that are in his portfolio that aren’t going well and are losing money, and what his plans are, what he’s gonna do with those. And he was talking about just having a portfolio. The key to all of this, where it becomes even more crucial with the size of businesses that we buy, but even when it’s a billion dollar business with professional managers, with the best exports in the world, and it’s the oracle himself doing the due diligence, Warren Buffett.

Ace Chapman:
Some of those deals are gonna go bad, and I think it’s one of the things that is a disservice in our space is that we’re not preaching enough about the importance of diversification. Because when you look at just the statistics, no matter how smart you are, a lot of these deals aren’t gonna go well. And so when people feel like, “Oh, I can just buy one of these, and now I’ve got a salary for life.” That is not the smart way to do this.

Ace Chapman:
So, I think that, number one, it really is just a thing of, this is the better way, even if you’re the oracle himself, you have to have diversification. And we say the same thing play out in our portfolio, and I want to invest in other peoples’ funds. And so, if I want to grow, we can only buy so many businesses.

Ace Chapman:
We were just talking in the pre-interview about some deals that I wanna get done, but we can only digest, you know, we’re closing four deals this month, and we can only do so many deals. And so, one of the ways to grow is, obviously, what we’ve been doing, which is grow our capacity.

Ace Chapman:
A couple of years ago, we couldn’t do four deals in a month. But, the other way to grow is to partner and invest with other funds. And it’s what you see in Wall Street. You know, private equity funds work together, they’ll have a lead that’s on the deal, it creates more diversification and more opportunity for everybody.

Ace Chapman:
And so, what I’m trying to create, and what we’re creating with our network and the people that are kind of going through our process with us, is this ecosystem where we’re all doing deals together.

Justin Cooke:
Yeah, okay. So, limited capacity and resources through your team and your current investors. You’re saying, “Look, there’s more deals to be had out there. If I get other people running it, I can do a little Ace Inc. Diversification by putting some money to the funds, putting some expertise into those funds, and getting a piece”.

Ace Chapman:
Exactly.

Justin Cooke:
Gotcha. Okay. And the second thing I wanted to ask you about is, taking the company public; that is an amazing amount of hassle. An amazing amount. Like, why are you bothering? How does that make any sense?

Ace Chapman:
Yeah. The real key there is multiples. I … And it’s one of those things five years ago, if you would have told me, I would have said, “Hey, maybe when I’m older,” and you know. It’s just like a bucket lit kind of thing, taking the company public.

Ace Chapman:
But, as we were going through the process, and you know, one of the things that does happen is that, these are that kind of opportunities that come up when you’re managing a fund, and when we’re approached by the investment bank. We were, “Like, okay. This doesn’t make sense.” Just all of the bad press around going public, and the cost in all of that.

Ace Chapman:
And, I’ll be talking more, go into a lot of detail, but suffice to say that, the multiple that we’re getting at this point is just, makes it worth it.

Justin Cooke:
Yeah. Yeah. I can see that. Okay. And so, it’s one of those things, I mean, we’ve talked about this where, if you are wrapping deals up, right? And then selling kind of a larger package, I mean, obviously, that’s a way to get a better multiple in the exit. But another way to do it is to go public.

Justin Cooke:
I do want to talk to you about this more. I’m going to drill you about this more. Maybe we can reserve this, either for a future Web Equity, or Empire Flippers’ podcast or something, but I want to hear it when you’re able to talk about it.

Ace Chapman:
Yeah, yeah. And I wanna hear some more about Empire Flippers. But yeah, we’ll definitely dig into this, and once I’m out of, kind of, this quiet period, this is something that I want to, you know, just like with the private equity funds and help people … I wanna kind of help people do this and invest in their deals.

Ace Chapman:
But, yeah. Let’s hear, what’s Empire been up to?

Justin Cooke:
Yeah, so, I mean, Empire Flippers, one of our main focuses for 2019 is systems, right? So, as this works … We kind of have a very fairly pretty front end. It looks nice, outside looks nice, the listings look great. But on the backend, it’s a lot of piece meal. It’s Zen Desk mixed with Slack mixed with HubSpot.

Justin Cooke:
So we need a central source of truth, and so we spent a lot of time building out an internal database that will do a whole bunch of things for us. But, right now, we have this database, this platform, and we have it internally for our team, and so it’s making things a lot easier. It’s giving us really in depth helpful reports. But it’s all backend stuff.

Justin Cooke:
And so, our goal is to release this publicly in 2019. Then we’ll do a whole bunch of things that will let us be able to give the right deals at the right time to the right buyers when they’re looking for it. Eventually, a longer term goal is to help people find operators. It’ll be maybe multiple investors on singular deals, or multiple investors or multiple deals as parts of packages.

Justin Cooke:
But effectively, we want to build a platform that, I think, hasn’t been seen in our industry yet. And it’s really building for the future. I think it’s to help portfolio buyers, it’s to help individuals that are looking to invest in deals, kind of match up with operators that are looking to run them, and you know, help people work out deal structures that I think will make sense.

Justin Cooke:
So, this is kind of where the industry is going, I mean, this is kind of what this season was about. And we’re doing a lot of work, I think, on the backend to kind of set up a platform that will help with that.

Justin Cooke:
And it will be launched by, well we’re hoping, we’re gonna get the first version out in 2019. And then probably a more robust version by the end of 2019 or early 2020.

Justin Cooke:
But in addition to that, I’m working on a book right now. You know, the idea is that, we need to grow the pie. We need to make the pie bigger, and the best way to do that is to kind of educate people that aren’t familiar with the industry. And so, I’m working on a book that I think will help do that; will help reach people that have money that are looking to invest, just aren’t really sure how to get into the online space.

Justin Cooke:
And then we have a course, I think, that should be launching Q3 or Q4 of this year, kind of an add-on to the book. If people are interested, they can then take the course. And I wanna take people that have money, but no understanding on how to run an online business. And I want our course to be able to give them the basics to where they can run an online business.

Justin Cooke:
I mean, I think that would be so helpful for our industry. Take someone who has money and they don’t have the skills. We run into these people all the time, where they wanna buy an online business, we’re like, “Look. You just gotta come back to us with more skills.” And like, “Well, where do I go?” And I just kinda like send them off to friends of ours that run online courses, or that kind of talk about affiliate or FBA businesses. I’m like, “Look, they’ve got some good stuff. And come back to us.” And that just seems like an inefficient way to do it.

Justin Cooke:
So, if we can say, “Look. Soup to nuts, here’s how you would buy and take over and FBA business.” I think that will increase our buying pool, and I think really help the industry.

Ace Chapman:
Yeah. I could see that being something that you can give people as well once they buy the business. Maybe they have enough understanding that they feel like, I can probably figure this out. But when you can lay it out, and that’s kinda what we do when we sell a business and we’ve got all that SOPs in place. But just even having that general information, this is how this whole thing works. That’s exciting then.

Ace Chapman:
I also did get to have a quick sneak peek at the platform that you guys are building, and I have to say, I’m super excited about this. It’s been a long time coming. I’ve seen the growth and improvement in the systems that you guys are pulling together to make things work. But man, I am super excited about this new platform.

Justin Cooke:
Yeah, me too man. I’m really excited that Joe has put out his blood, sweat, and tears until we got our VP of engineering changes. He’s really been spearheading it.

Justin Cooke:
So, yeah. We’re putting time, effort and energy into this and we’re really excited to be able to share it when it’s ready.

Ace Chapman:
Yeah.

Justin Cooke:
So that’s it man. Let’s get into some listener questions. Before we do that, I just wanted to mention a bit of listener love. No new iTunes reviews, but we did get on a favorite podcast list for 2019 with [Gene Galaya 00:12:50]. I’m gonna put a link to that in the show notes. But thanks, Gene, for your love for Web Equity Show.

Justin Cooke:
All right Ace. Let’s get into listener questions. Some of these are voice recorded via SpeakPipe, and so we’re just gonna play those for you, and then kinda answer the question. Others came in via Twitter, Email, and we’ll just kinda like run through those and rock it out.

Justin Cooke:
So let’s start with Simon.

Simon:
Hi, this is Simon. A question I had for you is what’s the optimal size of an online business? Assuming that you’re an investor, you’re looking to buy cash flow positive businesses, at what stage is the right size business? And how much is it cash flowing on a annual basis? How many people do you need for that? I know that there are equity firms there that are investing between $250,000 to 2 million in a single domain.

Simon:
But what, in that range let’s say, what’s the optimal size in terms of the functionality of the teams, the productivity, and the dynamism to manage a remote workforce, and then the actual operational issues of technology, the server, and the marketing which is needed to run the site.

Simon:
So, in short, what is the optimal size of an online digital business today?

Ace Chapman:
So, one of the things about this question is, it’s gonna depend a lot on you. It’s gonna depend on your budget, your skills. What type of site do you want to buy, are you interested in?

Ace Chapman:
So, it’s always tough to answer some question like this, which are, number one, really more of an opinion and personal desires. And then, if there’s just a lot that’s general about the question.

Ace Chapman:
But, let’s go ahead and jump in here. What are some of your thoughts on this Justin?

Justin Cooke:
Yeah. I mean, just as kind of a basic or base level, I would be very careful buying anything with less than $1,000 of monthly cash flow as a solo investor. Obviously, it wouldn’t be for a portfolio business, but even like a single investor, anything less than $1,000 a month or less in profit is not gonna be worth it. And that’s at a minimum.

Justin Cooke:
I’d really look for kind of $3,000 to $5,000 as a minimum. That would be my choice.

Ace Chapman:
And then, you know, if you’re somebody that’s coming to this with a larger amount to invest, even buying something that’s in that $3,000 to $5,000 range might be tough if you’re gonna buy a bunch of ’em.

Ace Chapman:
So let’s say you’ve got a million dollars, and you wanna buy several businesses. I would go a lot larger and have fewer deals in the portfolio, rather than have ten different sites and you’re only generating 50K a month, and you’re trying to keep up with all of those.

Ace Chapman:
So, for the average person, what I see is their goal is just to cover their monthly expenses. And that’s what they come into in this space. So, that’s gonna vary for a lot of people. And we talked a little bit earlier about the importance of diversification.

Ace Chapman:
So, if it is a situation where you can cover your expenses with a single deal that has diversified traffic, and diversified sources of income, that becomes interesting. Or if you can cover your monthly expenses with a couple of deals that are in different industries and have different business models, that’s a way to kind of cover your butt as well.

Justin Cooke:
So, we talked about minimums. Let’s talk about sweet spots, right? So, I really like the 300 to maybe 1.2, 1.5 million [vilation 00:16:15] range. That’s normally somewhere between let’s say 10 to 40, 50 thousand dollars a month in profit.

Justin Cooke:
What’s good about this position is you might have an employee, or a couple of VAs or contractors, and you’re gonna have some basic SOPs in place, but they’re not very well defined, right? So it’s not well done. There’s a lack of structure there, and there’s some economies of scale.

Justin Cooke:
If you’re buying multiple businesses like this and putting them together, you’re going to be able to apply skillsets on your team, and actually knock out some of the employee costs across the businesses.

Justin Cooke:
So, you know, for a, this is your average million dollar business making, let’s say 30, 35 thousand dollars an month, you might, you know, one, or two, or three employees, couple of VAs in there. And if you have five of those, you don’t need that 15 employees, you might need like four or five to run all five of those businesses.

Justin Cooke:
So, you’re able to consolidate costs in terms of employees, and you’re able to, I’d say hire for skillsets that are fantastic. So let’s say that, for whatever reason, these businesses require a designer. Well that might not make sense, for business one out of the five, to have a full-time high quality designer. They may have to contract that out or whatever.

Justin Cooke:
But you got five of these businesses, it might make sense for you to hire a full-time high level designer to work with all five businesses. And that makes sense.

Ace Chapman:
Yeah. I think that makes a lot of sense. And hopefully for Simon, this gives you a bit of a few different ways, based on your budget and where you are, to decide, “Okay. Am I in that $5,000 range? Am I buying a million dollar business?” But those are some of the things to think about, and you can look at your budget and kind of decide which strategy makes the most sense for you.

Justin Cooke:
Awesome. Well, I hope that helps, Simon. Great question, man. Really appreciate you calling in.

Justin Cooke:
Next up we’ve got Alexander from Germany.

Alexander:
Hey Justin and Ace. Alex here from Germany. Thank you very much for doing this great podcast.

Alexander:
So, I’m 22 years old. I’m a business partner in a medium sized affiliate website. And my question for you is, when is the right time to start getting some experience in investing in online businesses, and how should I do it?

Alexander:
So, keep up the great work, and bye-bye.

Justin Cooke:
Awesome question Alexander. Well let me just start off by saying, it’s never been easier to build or run an online business than it is today. Today is the absolute best time, in my opinion, to get started. Tomorrow’s going to be better, the day after that’s going to be even better. But getting started today in terms of investing in online businesses, I think is a great time.

Ace Chapman:
Yeah. I would actually disagree with you just slightly there, Justin. I feel like, you know, right now is the best time, and yesterday is a better day.

Ace Chapman:
So, a little bit of this comes from just the same thing that financial advisors tell us is, the sooner that you invest, the better. And they have those graphs, where, it’s like, “If you invest $100 today, and you start doing $100 a month, then it’s going to turn into this in 20 years.”

Ace Chapman:
If you just wait one year, then it ends up being some crazy amount, like 30% less, by just waiting a year. And as we’ve seen in the funds, and you know, some of the deals that clients are doing, the quicker that you can start to generate income and then re-invest that in other deals, the better. So, that’s coming from a financial standpoint.

Ace Chapman:
What a lot of people actually do is, they start investing after they’ve kinda done something on their own, and they’ve tried to build something. I think this is valuable for a couple of reasons. Practically, you understand the value that that seller is giving you when they are selling you a business that’s actually making money because you’ve tried to make money and you’ve seen how difficult it is, so you come with that respect.

Ace Chapman:
And then, in addition to that, you understand more about how that type of business works. So you’ve got some skills.

Justin Cooke:
Yeah. One of things I’ll say, you know, Alexander mentioned he’s 22 years old, and I don’t know his exact financial situation. You know, he’s got a business partner that built and affiliate site.

Justin Cooke:
What we see a lot, particularly from like younger people, is they will kind of grow up a few sites, and then build them up, and then sell them. And then build up a couple more sites and sell them. And they kind of like get into a rinse and repeat process, and really start to, you know, bank some cash.

Justin Cooke:
And once they’ve done that a few times, they’re sitting on a larger stock pile of cash where they can start to deploy that money into industry assets they can purchase, and improve, and add their unique skillsets to.

Justin Cooke:
So, I don’t know your position exactly, Alexander. But that is not a bad strategy. I’ve seen that work very successfully, where people build up and then sell a few of these assets first. Build up the war chest, and then start to deploy it after they’ve had a few successes there.

Ace Chapman:
Love it.

Justin Cooke:
All right, next up we’ve got Michael. Let’s hear you’re question, buddy.

Michael:
Hi Justin and Ace. This is Michael [Vidislovski 00:21:12]. Amazing podcast. I like that it’s suitable for beginners, but you also have valuable advice for experienced buyers and sellers. I’ve even recommended it to many clients and friends who wanted to learn about the industry.

Michael:
I have a question. You deal a lot with investors, funds, and raising capital. Ace, how has your strategy regarding financing deals changed in the past five, ten years? And Justin, same question from the Empire Flippers’ perspective and your clients financing methods.

Michael:
Thanks and looking forward to the next episode.

Ace Chapman:
So, that is a great question, Michael. Great to see you on and connect, I know we’ve a chatted a couple times.

Ace Chapman:
You know, one of the keys that we have evolved over these last ten years … Actually the first time raising money for me for a deal, Justin, was 20 years ago. This year I’m gonna be 39, man, and raised the first [crosstalk 00:22:11]-

Justin Cooke:
You’re getting old, man. You’re an old man.

Ace Chapman:
It’s hard to realize. It’s hard to … What?! It’s been 20 years? So, you know, over the course of these last 20 years, things have evolved quite a bit.

Ace Chapman:
And, one of the things that I learned early, early on was that if you want to track investors, it’s easier to do it if you’re building a relationship before you need the money. And now we’ve kind of created that into, or we turned it into a marketing funnel. It looks really similar to a marketing funnel, where we don’t allow anybody to come and invest with us, for a lot of reasons.

Ace Chapman:
We don’t want the headaches of having somebody who invested in a deal and they don’t really understand what’s going on, or what it is. And so, well, you know, it’s interesting, we actually throw up a lot of hoops that have to be jumped through to be able to invest with us. And what we do along that same time period is educate them about how this whole thing works.

Ace Chapman:
And just like you mentioned with something that you guys are gonna later; the best investor, just like the best buyer for you, Justin, is an educated investor. And so, that’s the job that we feel like we have to do. And so that’s what that funnel looks like, and kind of my biggest tip to work with investors, is teach them.

Justin Cooke:
Yeah. I talked about this at the top of the show. You know, the course we wanna work on, or we wanna launch this year, a lot of that is basically training buyers and sellers on our process so that it’s a much easier and smoother transition when we actually go to do business. I mean, they know how it works, they know how we operate, they know what the process looks like. So I think that will really help make for smoother transactions.

Justin Cooke:
So, get back to Michael’s question, I think we’ve seen a lot of partnerships and group funds though 2018, and through 2019 as well, looking to make purchases, right?

Justin Cooke:
In terms of what we’re looking at from Empire Flippers; you can expect some sour financing on deals above $500,000. That’s typically the case, and so, on the byside, you should always ask for it. And we’ve a massive interest in SPA loans from buyers, but those are not always available, or not always easy to get. Particularly requirements around having to be a U.S. company, having enough tax returns, that kind of thing.

Justin Cooke:
There’s some real opportunities for financing for non-SBA deals. So, if people wanna come in with hard money, or put money up to buy pieces of these businesses, you could have a field day in terms of people that interested in doing business with you.

Justin Cooke:
All right. Next up we’ve got Eli. Eli, happy to have your question.

Eli:
Hey Justin and Ace. Love your show, love your podcast, love to listening you guys talk. Been learning a lot from listening to your podcast. But I have a question.

Eli:
I know someone can get a business with no money down, but can someone get it with no credit as well? Or if they have bad credit, or does that not even matter?

Eli:
Thanks guys. Love the podcast. Keep making great shows. And I’ll look forward to hearing that question. Have a good one.

Justin Cooke:
All right Eli. So, the fact of the matter is, acquiring a business with no money down is technically possible, but it’s rarely no money up front to the sellers. And I wanna be very clear about what that means.

Justin Cooke:
So, when you hear no money down, first off, the thing that comes to my mind is those crappy infomercials. “No money down. Buy this house,” or whatever. That’s … it sounds like that. But that doesn’t mean is no money to the seller on an exit. You’d never get a seller to do a deal if that were the case.

Justin Cooke:
And so, I know Ace talks about no money down, but Ace, explain the backend of that.

Ace Chapman:
Yeah. The key here is, no money down does not mean no money to the seller. So, it was really interesting, I used to do a lot of deals, it’s a little bit easier to do offline businesses just because, you know, I put together this sheet at one point that goes through 101 different types of financing that exists for offline businesses, from A&R Financing to Equipment Leasing; all of these things.

Ace Chapman:
When it comes to internet businesses, those things just don’t exist. So, you’ve gotta really figure out where you’re gonna raise that capital to be able to give that seller. But, when you’re talking about no money down, it doesn’t mean the seller is accepting no money.

Ace Chapman:
The other thing where we’ve transitioned is, and it’s kind of interesting because, you know, I mentioned Warren Buffett earlier, but he went through the same transition where he was like, “Oh, wow. This is cool. I can get this business,” that’s, you know, not a great business, it’s actually headed towards going out of business, which is what the original Berkshire Hathaway was, it was textile company that was literally going out of business. But he could get it for so cheap, and he was like, “Oh, wow. I can get this awesome thing for so cheap, and it’s making money.”

Ace Chapman:
So that was the same way that I was when I was doing no money down deals in my early 20s. I was like, “Oh, wow. This is amazing.” The truth is, after you do that, the same way Warren Buffett has, you realize, “Oh, wow. Getting a business that you get as creative as that with, sometimes it’s a lot bigger headache than it’s even worth.”

Ace Chapman:
So, you end up in a situation where you have to do a lot more work, it’s a lot bigger headache, it’s a lot more risky. And so now what we prefer is, just go out and raise the capital and get a really strong great business with a great brand that’s gonna be around for a long time. And even with those it’s gonna be risky, but you’ve decreased your risk so much, and it’s gonna be a lot easier to run a great business.

Justin Cooke:
Most of this is set up off the sweat of your hustle, right? So you’re out there networking, you’re setting up a deal over here, you’re bringing this person to the table, you’re setting up this call, bringing these people together, trying to set up the deal. And none of that is gonna require a credit check. I mean, this is wild west, man. This is cowboy country. That’s where we’re headed, it’s like honestly, right?

Ace Chapman:
It is.

Justin Cooke:
I mean, you’re not applying at the bank. You’re not going in with your application hoping they don’t deny you ’cause you’re 20 points low on your credit score and give you a crappy interest rate. That’s not how this works.

Justin Cooke:
I mean, you’re hustling man. You’re setting up deals with other people, Eli, and generally people aren’t running your credit. Now it depends on what you’re doing. I mean, if you’re trying to go public, your company public, well yeah, they’re going to dig in you heavily, on all different types of things. That’s different.

Justin Cooke:
But, if you’re just trying to hook some investors together and build out a fund, you’re generally not going to be running or showing your credit report.

Ace Chapman:
Exactly.

Justin Cooke:
Hope that helps. All right. Next up, we got Shawn Smith. Shawn, what you got for us?

Shawn S.:
Hi Justin and Ace. My name is Shawn Smith, and I’m in Chicago. First, I wanna thank you guys for creating this podcast and creating this awesome content that people can learn from you guys about how to acquire businesses.

Shawn S.:
I’m in the midst of potentially acquiring a business with my partner. It would be our first business, so it’s really exciting. And, we are just kind of like trying to figure things out.

Shawn S.:
The question I have for you guys is, what should should our first offer be? Because, the owner has the asking price, but we’re wondering what our offer should be.

Shawn S.:
All right. Well, thanks so much for listening, and I hope to hear from you guys soon. Bye.

Justin Cooke:
All right Shawn. Great question, man. There’s a saying, it’s “You miss 100% of the shots you don’t take.” So, it’s always worth asking for a deal if you can get a deal. If you can get some money off of that sticker price, it never hurts to ask. Or does it?

Justin Cooke:
Let’s talk about the scenarios where it may hurt you. So, the way we operate Empire Flippers is, if we get a below list price offer, so the business is listed for 1.5, you come in at 1.1, 1.2. You know, a seller’s reasonable about doing a deal there. We’re gonna take that and shop that to the other interested parties to see if they’re willing to increase the price to get closer to list.

Justin Cooke:
So, the problem with trying to get a better price deal is, that often brings other buyers to the table when they know what the seller’s willing to sell for, and then they’ll start negotiating against you. So, I’ve seen, and Ace, I think you’ve lost deals this way, right?

Ace Chapman:
Yeah.

Justin Cooke:
But I’ve seen people lose deals where they offer below list. Now, that may make sense if list price is, you’re just not willing to go that far, then it makes sense. And if someone else gets it, then so bit, right? But just know that, by offering less than they’re asking, you’re likely to have some level of competition there.

Ace Chapman:
Yeah. It’s such and interesting thing ’cause what you’re measuring is, how bad do I want this? You know? And that’s gonna determine a lot of how much you’re willing to offer. And if you’re nervous about ticking off the person on the other end, which is a story that I’ve shared in another episode, where I, you know, made a seller super upset. They actually accepted the offer, but then sabotaged the business after, or at least tried to sabotage it.

Ace Chapman:
So, those are some of the things to keep in mind. I am also big believer in, “You miss 100% of the shots you don’t take,” so, I would prefer to just give a really strong offer that is obviously gonna be in your favor because you’re the person making the offer. And if you’re happy with that, than that’s the most important thing.

Ace Chapman:
The other thing I would be aware of, just kind of in a general sense for the listener’s is, in any offer that you’re making, understand that we’re in a situation of multiple [crep 00:31:43], where multiples are going up across the board. And some businesses really do deserve those higher multiples because they’re just working. I think, in general, all multiple are going to go up in these next couple years, but you just want to pay attention to the actual business that you’re buying.

Ace Chapman:
Just because all the SaaS businesses are selling at a four multiple, and somebody’s like, “Oh, well this is what they sell for.” Or maybe your business partner’s like, “Oh. I saw this business in bids by sale, and it’s just like ours, and it’s selling for this high multiple.”

Ace Chapman:
You wanna look at, okay what are the differences? What are they bringing to the table, because every one of these deals is unique. This isn’t like the stock market where you’re just saying, “Okay. I’m gonna put this amount of money in this industry. This is the average multiple range that things trade at, and that’s what I’m gonna buy at.” But, you know, they don’t have to run those businesses.

Ace Chapman:
So, understand what you’re buying compared to the market.

Justin Cooke:
It’s funny that you mentioned multiple crep. There’s other scenarios, and we’re dealing with this now, so I’m not gonna mention any names, obviously. But we had a deal where, seller had the deal, buyer, basically was making full list, was gonna pay the deal. The seller didn’t want to do the deal because right at the beginning of the next month and knew that his price was gonna go up, and so wanted it repriced, got it repriced, went up a bit, and said, “No, I’m not selling for that discount.”

Justin Cooke:
It was like, I don’t know … a couple of points off or something, right? Not a huge deal, but a couple points. And just … seller was stuck and like, “No, I’m absolutely getting this with the new price increase.” And that wasn’t great. We ended up working on a deal, and we’re in the process of getting that one done.

Justin Cooke:
But yeah. Sometimes you have a seller that’s just like stuck on it, right? So, only a couple days difference, you know, price gets updated and it’s increased. So, if that business was continuing to go up in value, any kind of wait or delay can cost you.

Justin Cooke:
I think we have a scenario with, a similar one, Ace, where you ended paying, I mean, it was over a few months, and you ended up paying considerably more. But I think it just wasn’t the right time for you to buy, so you had to wait a couple months and you end up paying more for it, but you saw the value.

Ace Chapman:
Yeah. And that’s an interesting point, too, is, one of the things that’s interesting with that is that business was on a trajectory upward. And, honestly, I’m willing to pay more for a business that’s got the right trajectory.

Ace Chapman:
And so, those are some of the things that you’ve gotta consider when you’re looking at that unique deal. You know, you could have two things, and that’s why that’s the perfect example. You could have two businesses that are in the same industry doing a similar type of business, and you’ve got one that has a really great trajectory up, and you should pay a higher multiple for that one versus the business that is stagnant.

Ace Chapman:
So, you know those are some things to consider.

Justin Cooke:
I wanna give Shawn some specifics. I feel like I gave him some platitudes. Yeah, you missed 100% of the shots you don’t take, get a deal. That’s just kind of vague.

Justin Cooke:
So anyway, I was listening to this. All right Shawn, here’s my though process. Think about, like there’s gotta be some price at which buying that business is an absolute no-brainer, right? A dollar, or whatever, like something really low.

Justin Cooke:
And just continue to work your way up, work your way up in your head to where it’s still a no-brainer. At the very tippy top of that range where it turns from no-brainer to, “Oh, you know … okay.” Like that top of the range no-brainer, I think, is a pretty good place to start.

Justin Cooke:
So, I don’t know where that is for you? I think it’s gonna be business to business. But you might have, let’s say, a $600 deal, and you’re like, “I would buy this no question at $400,000. I’d buy it no question at 450.” Above that, 450 to 500, that’s in the range where I’m like, “Eh.” Well maybe 450’s a good place to start, right? A no-brainer for you would work.

Justin Cooke:
So, if you’re wondering if you have to come back with a number, I’d start there. Also, for anyone else who’s wondering about this in terms of how to structure an offer, go back and listen to Season 2, Episode 7. For buyers, we talk about different ways you can work out different deals. And then Season 3, Episode 8 for sellers, I think that’ll be helpful.

Justin Cooke:
All right, man. We got am Email from Gunner. I had a question. One thing I’d like to hear, and this is what he said in the Email: One thing I’d like to hear discussed more in depth in the Season for me, I’m considering doing [inaudible 00:35:55] feature raising capital to buy websites.

Justin Cooke:
What are the different ways that operators go about setting up deals to acquire online businesses? Specific percentages that sweat equity would buy you, how to convince investors that you’re the guy to run the business, do you need to put in some of your own money? These were a couple of the issues off the top of my head that I’d love to have you discuss on the show.

Justin Cooke:
What do you think Ace?

Ace Chapman:
Yeah. So, I’ve always felt like it is important, it’s crucial. I’d never ask for money when I didn’t already have skin in the game. And, you know, in a lot of cases, just more skin in the game. And it’s something that I’m always up front with, and kind of lead with, where it’s like, “Hey, I’ve got $100,000 in this deal. We’re looking to raise another 100. Are you interested, or not?”

Ace Chapman:
And so, you wanna come to the table with something, I feel like, besides sweat equity, and that’s why I love your idea earlier, Justin, of whether it is borrowing the money or whatever, or it’s doing something like going out and buying a small site. Whatever budget that you have right now, doing a deal, growing that business.

Ace Chapman:
And that’s a lot of what we do in our program over the couple of years is like, “Hey, let’s just start with something small. Let’s get you some experience. Let’s grow that,” and now you’ve got a history of, “All right. I’ve done these four deals over the last year, and here were the results. And now I’m doing this other deal, I’ve got some cash as well that’s in this deal”.

Ace Chapman:
So, not only do I have the experience, not only do I have a track record I can show you, but I also have some cash to bring to the table. And that kind of thing helps a pitch tremendously. And so, that’s always … When someone’s looking to create a fund, that’s what we start working on immediately, is, “We’re gonna help you build this brand, and this story, and this track record together.” And sometimes we invest in those initial deals together to get them that background.

Ace Chapman:
But I think if you’re serious about raising capital, I think a lot of people think about raising capital as in, just like everything other get rich quick scheme that’s out there. It’s like, “Oh, I just want somebody to give me money,” and it’s funny, I have people that will contact me about raising capital.

Ace Chapman:
I’m like, “What are the secret words? What are the words that you use to convince them to write the check.” I haven’t figure out the secret words man, so you have to go somewhere else for those.

Justin Cooke:
Yeah. No secret words. I think, [inaudible 00:38:30], I mean they wanna see track records. So in terms of whether you’re gonna be the best operator, I mean, what do you have in your history to show them that this is something you have been successful with in the past and can repeat.

Justin Cooke:
They’re looking for rinse and repeat processes, and if you have that and you have that experience and track record, that’s gonna help sell you.

Justin Cooke:
If you’re looking to bring in an operator, someone who does have a track record, generally what I’d do is, I’d wanna make sure that they’re putting in the sweat equity. I wanna give them as little up front as possible. I want their gains to be on the proven success of the model, right?

Justin Cooke:
So, I want them to really kind of hit their stride and get their gains once things are working. Keep in mind, though, though someone’s putting sweat equity in, let’s say they’re putting in their own work, their own team, their own skillsets. You want them paid enough along the way to stick with it.

Justin Cooke:
What you don’t want is someone who isn’t getting paid initially, and isn’t able to devote the time or the effort to it. They’ve got other projects they’re making more from, and so they kind of abandon your project as an operator. That could a dicey situation. They realize that the future promise may be able to pay off, but they’ve got something more immediate, and they turn their head to that.

Justin Cooke:
So, make sure they’re getting some kind of cash. You know, kind of like, I’d say cash flow, out of the deal to make sure they’re continuing. But they only get real gains, real earnings, should the project be successful, if that makes sense.

Justin Cooke:
I also recommend checking out Season 4, Episode 7, where we talk about operating structures. We talk about the investor operator structure, we talk about the multiple investors with and operator, investor loans, private equity funds, things like that.

Ace Chapman:
Yeah. That episode, we go into a lot of detail.

Justin Cooke:
Got another Email from Robert M. Just to give some background, he said,

Justin Cooke:
“I build my websites, and I’ve got two up and running that are providing a decent return. I’m using the same operator for both of the sites, but I’d like to get another operator running my next investment. I’m not dissatisfied with current operator, but I’d like to have more than one operator on my web properties so that if an operator has some disruption, I can make a seamless transition to a different operator.

Justin Cooke:
I’m making my investments anti-fragile. Question. How can I find additional operators to run my future sites? My ads on oDesk, Craigslist, and Monster have not proven fruitful in finding quality operators. Thank, Rob.”

Justin Cooke:
And he sent over his LinkedIn profile so that we can see he’s legit and not just some random dude. Well Robert, thank you, man. Thanks for the question. I think it’s really interesting.

Justin Cooke:
I’ll tell you, I totally get where you’re coming from, putting out ads to operate these sites. Your businesses might not be as effective. The most effective way we’ve seen them doing it, and they start by this quite a bit, and we can talk about it, but it’s through networking.

Justin Cooke:
So, Ace is hustling man. He’s doing his Dealmaker’s Weekend and meeting people in his audience, and kind of adding people to his team that way. You do conferences, like we do, for example, the Dynamite Circle Conference in Bangkok. We’re gonna do the Dynamite Circle meetup in Austin coming up this year.

Justin Cooke:
So, there are conferences where these entrepreneurs and want to preneurs, and people that kind of want to get involved in the game and have some experience but maybe aren’t out there doing it on their own where you can actually meetup with, and interact with, and have beers with, and do business.

Justin Cooke:
That’s some of the best ways we’ve found. Another thing, I’m gonna give my buddies a plug here, but the guys from Dynamite Circle have job boards called Dynamite Jobs. It’s getting a ton of traction. They’ve really built this thing up. And, if you’re gonna put a job out for high quality people out of their audience, I’d take a look at Dynamite Jobs. We’ve gotten a few hires out of it. It really attracts high quality candidates. To me, it’s much better that the oDesk junk.

Ace Chapman:
Yeah. I would say don’t even waste time for this kind of thing with oDesk. oDesk, Upwork, all that’s a great place to look when you’re looking for something really specific. When you’re looking for a Facebook ad person, when you’re looking for a SCO person. And in both of those specific cases, I still would be very hesitant and make them jump through a lot of hoops before I commit.

Ace Chapman:
Because even with those positions, it’s just better to network. When I think about my operators, the great majority, and it’s funny that you mentioned it because I gotta get on the ball and do another one, but, with my top three businesses, including the 5 and a half million dollar business we bought, that deal in particular, the deal came from somebody who I spent time in person with at Dealmaker’s Weekend.

Ace Chapman:
The other guys that are helping them run that business, two guys are running that business, were both at a Dealmaker’s Weekend. And then I look at just the businesses that, especially businesses, actually, that I’m thinking about it, Justin, the businesses that have done well, the operators that have done the best have been people that have been at Dealmaker’s Weekend. And I don’t know if that’s a result of anything that they actually learned there, but just, or just more of a show of commitment.

Ace Chapman:
And so, when you go to these events, what you have there are people that are taking time out of their life. We’re all busy, no matter who you are, you think that you’re super busy. They’re taking time out of their life, they’re taking money out of their budget, and they are traveling, spending money on airplane, hotel, all that, to spend time in person with other folks. And that just says a lot about the person.

Ace Chapman:
So, I just think that, man, you’re not gonna find them through job boards at all. You gotta get out there and get in person and meet folks.

Justin Cooke:
That’s funny that your most successful deals are with people you’ve met. Is that correlation or causation, right?

Ace Chapman:
I know right. It’s interesting.

Justin Cooke:
Yeah. It is interesting. Anyway, I really appreciate the question. We got another question from Jason Twitter. Do you guys sell Facebook groups and/or Instagram pages? If not, do you know a reputable place that does.

And the easy answer is no, I don’t know a reputable place that does. But we don’t sell Facebook groups or Instagram pages stand-alones. We will include them as parts of businesses that are making money through other things.

So, I mean, just selling one social media account, and generally, that’s against their terms of service, and if you’re selling a business that have those pages glued to them, that’s okay. But if you’re selling it just as a stand-alone, you’re generally breaking terms of service.

Ace Chapman:
Yup. You can’t do this, so by the very fact that it is against the terms and conditions, if somebody’s doing it, they are not reputable.

So, let’s talk about where you can get these deals. The best place is actually Facebook and Instagram. So, when we see this all the time, when we buy a business and it comes with a really large following, you start getting Emails from people that want to buy those accounts.

And, you know you can do that, really on an individual basis of approaching them, if you know what niche you’re interested in buying an account in, you can just do a search, and then just start approaching them individually.

And then we’ve actually bought, we’ve only done this one time, but we bought, just because they approached us about selling. They had a great following, and we ended up buying and Instagram account. The other one, we had somebody that was interested in selling a Facebook group that we really wanted to buy in the political space because of the business that we own, and the negotiations fell apart. It may still happen.

Bottom line is, you’re gonna have to do the work. Go out there. Approach folks, talk to ’em, build relationships. And eventually, you know, when they’re ready to sell, they’ll contact you.

Justin Cooke:
All right Jason, hope that helps. And for all of our listeners, that’s it. We’re gonna go ahead and wrap this episode up, and this season up. So, Ace and I are gonna take a break. We’re gonna be back with a Season 5.

We’re not exactly sure what we’re gonna do about that, we’re actually gonna talk about that after this call and get a sense of what we want Season 5 to be and where we wanna take the show.

If you haven’t done this already, please head over to Web Equity Show.com and drop your Email and we’ll shoot you out an Email when the new show launches, so you’ll be ready for Season 5.

In the meantime, Ace, where can people find you?

Ace Chapman:
You can hit me on Twitter. Ace.Chapman. And Instagram is the same at Ace.Chapman. If you have questions or wanna reach out, feel free to shoot me an Email as well, and that is Ace@AceChapman.com.

I am doing a series right now on YouTube that’s all about some of the things we talked about today: raising capital, putting it into a fund, and you know, just how … One of the things that was important for me when we started the Private Equity Fund was that, I could still run it and it’d be a lifestyle business.

It’s also the same, even as we’re going public, I wanna be able to travel. I wanna be able to have the same life, and I’m definitely not going to be in some corporate office turning in every day and managing a bunch of people sitting in cubicles. So, just a little bit about what that looks like.

Justin Cooke:
Yeah. We get that question from, you know, it’d be the people in our audience, or customers, and definitely our competitors try to exploit that, you know, “You should get an office. You’d make more money. You’d be a real company if you had an office.”

Nah, man. That’s not how I roll. That’s the Empire Flippers’ way. That’s not our style. I love to travel around. We have a distributive team. We have people all around the world. We have great coverage. And we enjoy ourselves. Like we actually enjoy working with the company.

So, yeah man. We’re gonna keep doing it our way. You keep doing it your way. And hopefully our audience will do the same. And you can find me on Twitter, obviously, at Empire Flippers. Shoot me a message over at EmpireFlippers.com or on the Empire Flippers podcast.

All right buddy. That’s it for this Episode and for Season 4 of the Web Equity Show. If you’re listening to this, we appreciate it. Please do drop us a review on iTunes. Let us know what you think and we’ll give you a shout out on the next season.

Justin Cooke:
Thanks for sticking with us and we’ll see you in Season 5.

Speaker 2:
Thanks for listening to the Web Equity Show. Now is your chance to be a part of the action. Go to www.WebEquityShow.com/gift and send us your business acquisition or exit question and have it answered on the show.