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WES S01E03: Where to Find High-Quality Deals

Justin Cooke July 28, 2015

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For anyone in the industry of buying and selling websites and online businesses, sourcing deals is absolutely the number one priority. Getting access to those hard-to-find deals can give a buyer a huge competitive advantage over everyone else. But how can we find and secure those rare bargains before someone else does?

In this episode of Web Equity Show, Justin and Ace discuss where to find high-quality deals. They cover some of the advantages and disadvantages of different places where folks can go to search for those great deals.  From buying direct competitors’ businesses and sites in parallel industries to the breakdown of top website brokerages, you will learn everything you need to know about finding the right deal for you. Don’t miss this episode!

Listen To The Full Interview:

What You’ll Learn From This Episode:

  • Justin and Ace’s advice for those who want to become online business brokers.
  • Why sourcing deals is the critical component of buying and selling online businesses.
  • Tips for strategic buys for your portfolio.
  • The pros and cons of buying direct competitors’ sites.
  • Why you should consider buying an online business in a parallel industry.
  • Why Ace got kicked out of a potential seller’s house during a dinner.
  • How to find the right broker for you.
  • How not to fall for “polished turd deals.”
  • The breakdown of the top website brokerages and their pros and cons.

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Featured On The Show:

 

Ace Chapman:                   People try to shop for a business the way they shop for other things and it’s a very passive process. If you want it to work, you need to treat it like work, do it efficiently. Try to come up with criteria and really make it a serious process.

Speaker 2:                           Buying and selling businesses just got a lot easier. Welcome to the Web Equity Show where thousands of successful entrepreneurs go to learn about buying, growing and selling online businesses. Your hosts, Justin Cooke and Ace Chapman share their real life advice, examples and expert interviews to help you build and grow your own online portfolio. Now, to your host, Justin and Ace.

Justin Cooke:                     In today’s episode we’re talking about where to find high quality deals and for anyone in the industry of the buying and selling websites and online business space, sourcing deals is absolutely the number one priority.

Ace Chapman:                   One of the things I focus on with my clients is having a massive amount of deal flow and getting access to those hard to find deals. It’s what can give a buyer a huge competitive advantage over everyone else.

Justin Cooke:                     You’re not going to close on every deal that comes across your table, so if you have more and more deals coming across your table, you just have more opportunities and you’re going to be able to pick the ones that are number one, the right fit for you, but number two, amazing opportunities. I think when it comes to finding these deals, creativity can be key, right? How can you make a deal happen when there doesn’t seem to be one there? That’s one of the reasons I love doing the show with you Ace, is because I know that you’re one of those guys that can find those deals, right? They can pull it out and make it happen. I think if you’re creative both in structuring but also in where you’re looking, there’s huge opportunities to be had and that’s one of the reasons we wanted to do the show today.

Ace Chapman:                   Yeah. One of the basic things that just at a gut level we realize is, when you’re looking at listings and it’s obvious that it’s an amazing deal, guess what? It’s going to be an obvious amazing deal to a lot of other people, so if you can get in and find those things about a deal that other people may miss, that can create great opportunities. Today we’re going to be covering some of the advantages as well as the disadvantages to all these different places that you can go to look for high quality deals.

Justin Cooke:                     Yeah, buddy, before we do that, let’s do some listener shouts. First thing I want to mention, if you’re taking the shower, you’re likely listening to us and what we have to say, please check us out and do you give us a review over on iTunes. It’ll really help us get more listeners and really help the show and promote it and give people that are interested in this more of an opportunity to learn and find out about it. Also, if you want to leave a question on our site over at WebEquityShow.com, we’ll answer any of the comments or questions that you have on the show. You can also leave a short recording and then we can actually put that recording on the air and get you on the show and get your questions answered. We really appreciate.

                                                All right buddy. We got a call on questions this week, it’s from Rehinol. I’m totally donking up this name, I don’t know how to pronounce it, but it’s Rehanol or Rihannol I think. He had a question and he was interested in working with us and he had a question about how would he go about becoming a website broker? I’ve had this question from other people too and I normally just send them to you and I go, “Yeah, go talk to Ace about that,” because that’s how you got started. You had a mentor that guided you and I thought that’s a pretty good place to send them. But to answer the question, I think if you get involved in a deal, whether you’re on the buy side or the sell side, you’re going to have a better opportunity to become a broker ultimately, but the best way to do it is to be a practitioner first, right? You can’t just start off and say, “Hey, I’ll help you sell your site, or hey, I’ll help you buy sites.” If you have no experience doing anything, one of the better ways to do that is just get started yourself.

Ace Chapman:                   Yeah, I think it’s one of those things where a lot of people think, “Okay, I’m going to be a broker. It’s a profession,” but just think about it for yourself. Would you want to work with a broker who didn’t have a history of doing deals? One is just, you bring that to the table with your experience and knowledge in the space that’s not just something you read about, but in addition to that, you’re going to be able to execute as well. It’s not just about the perception, it is about the reality of doing deals before you become a broker and having a track record, not just of maybe buying a single business, but of buying a few businesses as well as selling them as the actual principal, an operator, an owner gives you the track record to be able to go out and say, “Yes, I can represent you and help you sell or buy a business.”

Justin Cooke:                     Yeah, I think from both of us, if you want to get involved in the brokering of buying and selling of websites, the best ways to do that is to just get started on your own, do some buying and selling yourself and then I think the brokering opportunities will naturally pop up as you’re more and more involved in the industry. All right, man. Let’s jump into this week’s episode.

                                                When it comes to buying and selling websites and online businesses, sourcing deals is the critical component and that might be a bit surprising to some of our listeners. You might think that it’s, finding the buyers and the people that buy the websites and businesses that’s difficult, but it’s not. It’s actually finding the right deals and websites that people are looking to list.

Ace Chapman:                   Absolutely. That’s something that’s shifted over the years. It’s demand has increased. Four or five years ago that wasn’t the case and now it absolutely is the case, there’s a lot of people that want these deals and not a lot a ton of deals out there, so finding the right deal is key. Another part of that is making sure that you’re looking in the right place based on your goal and objectives. We get different kinds of buyers. There are people that are buying for strategic reasons. There are people that are trying to build a portfolio, others that want to flip or replace income. Based on what your goal is, you want to make sure that you’re looking in the right place.

Justin Cooke:                     That’s right. It really matters on your objectives, on where you’re going to look. You also have to understand that there are advantages and disadvantages no matter where you go. Right? We’re going to actually dig into some of those advantages and disadvantages, and all the different places you can look today, and we’re going to give a few examples on each of them as well.

Ace Chapman:                   The really exciting thing as a buyer in this space is that no matter what you’re looking for, if you can figure out what your strengths are and really hone in on your objectives, sometimes you can get a deal that everybody else thinks is a horrible deal that can be an amazing deal for you. As the old saying goes, “One man’s trash is another man’s treasure.” If you can focus on leveraging that, you can get some amazing opportunities.

Justin Cooke:                     Yeah, that’s a funny thing to me Ace is that, we’ll have one that, I get one buyer comes along says, “Oh that site’s a stinker.” Then we have someone else who comes along and goes, “Oh my God, I’m so glad you have this. It fits me so perfectly, blah blah blah.” They think it’s a steal and the other one thinks it’s a pile of crap. That’s really funny in this industry is that what’s right for you, maybe different than the next person. So there is no, when we talk about like the best sites or whatever, it’s pretty subjective. It’s going to be dependent on you and so will the place that you go to look, but we’ve got a bunch of examples, so we’re just gonna jump right in. The first place to look when you’re looking to buy a website or acquire a business is to look at your competitors.

                                                One of the great things about looking at your competitors is, well first off it could be an aqua hire, or maybe they have a team and process in place that you’d like to bring into your organization that you think you could help turn around or would really help you grow. You’re also buying up their customer list so they’ve got a bunch of other customers that would probably be interested in your product as well and you’re automatically bringing them in. You can improve the lifetime value of their customers because they’re now yours and your customers because you can now offer your products to them. An example of this might be a cat furniture company. Let’s say that I own a cat furniture company and I find a competitor that was looking to sell it to get out of the market. That cat furniture company I’m looking to acquire or is worth far more to me than just your average portfolio investor.

Ace Chapman:                   Absolutely. One of the things that I will mention is when we’re looking at a deal, one aspect of that strategic buy is being able to buy something that’s complimentary. The other thing is making sure it’s just complimentary to you. We just spent a lot of time clients walking through a personality test and skill set test because in addition to it just being complimentary to your business, it can be complimentary to just who you are as a person, but yeah, that’s so true.

Justin Cooke:                     Yeah. The other thing too, I think it’s important it is to find these deals, you’re going to have to stay connected to some of the competitors in your industry, right? You’re gonna need to know where they’re at. If they’re thinking about selling. This could be a little difficult though, because in a lot of industry, especially if it’s very competitive, they may not talk so much. If there are any industry standards or groups or whatever, or if you can get into some mastermind, well, find a way to work with your competition so that you can hear what’s going on and know what’s going on in their business, that’s helpful. Yeah. Another reason to stay connected to your competitors is you may want to exit yourself someday. If you’re connected to your competitors, they could be a larger company than you, or at least have opportunity and access to capital that would allow them to purchase you. That leaves the door open both ways. Right.

                                                I think when you look at competitors though, there are some advantages and disadvantages. I’d say some of the advantages would be that strategic buys can be extremely valuable. Because if you’re looking to make that acquisition, it’s so much more valuable to you than a portfolio of buyer that you’re going to be able to outbid that portfolio investor, right? Maybe they’re willing to go to two x or three x, the annual net profit of the business where to you clearly it’s worth four x or five x. You’re going to be able to outbid them and you’re gonna be able to win those deals. It also means that there’s not a lot of additional effort or output, you’re not constantly shopping for this side or that side and always out there looking. All you have to do is stay connected, maintain or grow relationships with your competitors. If you’ve got your ear to the ground on this, you’re going to hear about these opportunities.

                                                Some of the disadvantages, these deals are rare, right? You’re not always seeing strategic deals come across your desk, oh, I can acquire this company in my space. Oh, here’s another company I can acquire in my space. No-no-no. That just doesn’t regularly happen. The other thing is, is that competitors might not be so interested in sharing details about their business. Right? Ace, if I’m looking to buy up my competitor, they don’t know whether I’m looking to actually buy them or if I’m just looking for competitive information and metrics about their business.

Ace Chapman:                   Absolutely. I’ve done a lot of this offline and when you’re dealing with, in the offline world, people are really, really conscious of sharing their information because then a lot of cases everything that’s in their business and in the financials and all of that is tied into their personal finances. When they give you their tax returns, it’s not really a separate thing or a separate entity so it gets really touchy, especially when you’re dealing with a competitor that you know, and they know your personal finances now. That becomes a tough hurdle to get over. I’ve done several industries from sports to retail where we’ve gone out and taking over other competitors.

                                                The thing to remember is that while these deals are rare, one thing we know is that there’s an end game for every business and there are only two options. Either they’re going to go out of business, or they’re going to sell, and so the more that you’re networking and letting people know, “Hey, I buy businesses, I’d love buy your business. We want to buy all our competitors, just give us a call.” Then you’re going to be the first person that they go to because at least they don’t have to go to the market and have their information and all that stuff released to everybody. It isn’t a healing opportunity. I want to make sure that people don’t just totally disregard it because of those disadvantages.

Justin Cooke:                     Yeah. The worst thing to do is there’s your competitors looking to sell their business. They don’t know that you’re at all interested in buying and so they’re not going to reach out to you directly. They may, but it’s pretty rare. They’re probably going to take it to a broker. They’re going to try to sell on their own, and they might be missing a huge opportunity because that business is worth so much to you and at that point they’re out anyway. Right? They’re willing to get out of the business, so they’re looking to hand it off. They want to sell it, and unless you have some really bad blood they’re probably, okay. Do you ever watch the show, Silicon Valley?

Ace Chapman:                   oh, yes, that’s great.

Justin Cooke:                     There’s a great bid in that recently in season two where they go to one of the venture capital firms and they’re starting to get into all about their business, and they’re starting to lay out the details and the guys are asking all kinds of questions, and the tech guys are all fired up. They’re like, “Oh great man. Normally the VCs don’t ask these kinds of questions. I get to dig into the code and talk about exactly how it works and they’re all taking notes, like studious notes and they’re like, “Oh, this is fantastic.” It turns around. Yeah, they were stealing their company. That’s one of the reasons that people get nervous. I think with, I’d say startup companies where there’s a lot of programming, it’s really competitive, that probably makes it a bit more sense. Again, using the example of a cat furniture company, I mean, it’s probably not that big of a deal. You’re competitive. They’ll either buy you or they won’t, but it’s worth opening the door and asking the question.

Ace Chapman:                   Absolutely. It’s just the easiest way to grow when you look at being able to go out and buy a competitor and instantly add to your bottom line, leverage some of the things you’re already doing, then that’s just a powerful way. Like you said, you can afford to pay what they want in a lot of cases and not have to do a ton of negotiation.

                                                Another way to do this whole roll up strategy is to not go after your competitors, but look at parallel industries or complimentary businesses. We actually just did a deal with a couple clients that I invested in that we did with you guys. We bought from Empire Flippers. One of those deals was bought from you guys and another one was bought from FEI and combined they really compliment each other. An example of this is you already own an e-commerce business that sells dresses and it’s built a database of females that have bought the dresses and love them and has a great relationship.

                                                You go out into the market and you find another business that has a bikini e-commerce elements. They’ve built a list of customers and people love buying the bikinis. And so being able to buy both of businesses and cross promote is a huge, huge opportunity. We’ve seen it time and time again. We just closed that deal about a month ago with these two businesses and we’re already starting to see some absolutely outrageous results. That was definitely a case where we did no negotiation. I was like, “Okay, here’s the buys we’re getting and literally we’re on track to double the size of both of those businesses.”

Justin Cooke:                     You mentioned cross promotion and that’s something you can definitely do after you buy the business. I think that’s where you really get the value. One of the ways you can test through whether this is at all going to be interesting, you can dabble your toes in the water is by doing some cross promotion beforehand. Before you’ve either bought them or they’ve bought you, you can actually do some cross promotion and make sure that those audiences are aligned and then that’ll give you a really good idea on the strategic valuation for you. Right? How much is worth to you and your company.

Ace Chapman:                   Exactly and that’s where the key is. Like we’ve talked about at the beginning of this episode, the way the market is right now, there are a lot of buyers competing for deals. If you can figure out a way that that deal is more valuable to you, that becomes your angle to be able to close that deal and get something that you are going to be able to make more valuable. It’s not just saying, “Oh, go out and buy anything at any price.” You want to make sure that you know what the value is going to be on the backend, but you have some value that’s baked in beyond that portfolio box. That’s one of the advantages to doing these kinds of deals and taking that angle.

                                                Another advantage though is at the end of the day, those folks are a lot more likely to be willing to share information with you, to connect with you, even test some things. If it’s something that’s not necessarily on the market, you might even approach them with some joint venture opportunity and then mention that on the back end, “Hey, I’d love to buy your business at some point.” Unlike your direct competitor, that person that’s going to be willing to connect with you and do some deal or build that relationship long term so when they are ready to sell, you’re the person that they come to.

Justin Cooke:                     Yeah, that makes sense because a direct competitor might be a little sketchy to give you the information or share details, but someone on a parallel industry it’s not that big of a deal. In fact if you’re just approaching them as a joint venture, you both stand to gain from that and then you can have the conversations of buying them out or potentially them buying you out at a later day.

Ace Chapman:                   Let’s talk about some of the disadvantages. One of the disadvantages for this is that you do have to think creatively. It’s not as obvious as a direct competitor. You really have to be looking at the whole market and you have to be thinking about, Okay, what are all the angles that I can use to leverage this, is sometimes it’s not going to jump wide off the page at you, and you look back at deals or miss deals and realize, “Oh, no.” I’ve had clients that come say something like, “I should have jumped on this. Why did not jump on this?” You got to get used to when you see that opportunity, immediately jump in on it.

                                                On the other side is, other disadvantage is and it’s not that common. You do have to look at a ton of deals to find those opportunities where the two businesses might be able to compliment each other. The great thing is like I said, once you find that deal, the value to you is so much higher than it is to that portfolio buyer or standard flipper that you’re going to be able to outbid them and still make that a very, very profitable deal.

Justin Cooke:                     Yeah. What I like about this is that you’re right, that parallel industry is finding these deals. They’re not going to just, come across your desk every day either, but they’re much more common, I think than just trying to find the direct competitors. Right. Because if you’re creative as you mentioned, you’re going to find more parallel industries. If you’re thinking about your target customer, that avatar and you start thinking about what else they’re purchasing, what else they’re interested in, you can find very aligned industries to partially aligned industries that may still make sense. You can go a little further out than you can purchase a direct competitor, if that makes sense.

Ace Chapman:                   Yeah, it does.

Justin Cooke:                     All right man. Our third point I want to talk about a little bit in terms of finding deals would be the funnel, right? This is effectively like a processed search effort. This is something that Joe and I are trying out right now because we understand the value of sourcing these deals and finding the sellers. It’s really important to our business and so that we can grow. One of the things we’re doing right now is we’re setting up a process where we can have a virtual assistant search for specific keywords and then look through the organic search results for sites that meet very specific criteria. They have to have x amount of pages on their site. They have to be between this and this Alexa rank, they have to have these metrics in SEMrush, and so we can start to look at very specific metrics to see if we think that site is in the range of sites that we want to sell.

                                                Then what they do is they do a cold email, they will find out their email address, send them a pre-templated email and then any responses will then be leveled up to the next team member. Right. Someone that actually can come talk to them and talk to them about selling on our marketplace or potentially just selling us to us directly. We actually did this one time, Joe was looking for a site that we could purchase and contacted them with his email. I mean, the guy just looked at our [inaudible 00:20:22] and he was like, “Oh, you know what, I’m not going to take the offer you’re trying to offer me. I’m just going to sell in your marketplace.” So it wasn’t bad for us, we still got the deal, but we really wanted to buy it for cheaper. That wasn’t so helpful but at least we still were able to get the deal done. I think as a buyer there’s some potential here.

                                                One of the advantages is that it’s scalable, right? Maybe we were going to start off with us doing it a bit, making sure the process works and then handing on to VAs, but I can get 3, 10, 20 VAs on this if I wanted to and have them just scale up or scale down our deal flow, which is fantastic. That’s all what you’re always looking for is a dial you can turn right? That’s why people love paid Facebook traffic, or ad words traffic because it’s simply a dial. They turn it up, turn it down when they want more traffic, they want more customers, whatever. When we want more deals, we can just turn up the dial.

                                                Another advantage is that we can target the exact niches we want. If we’re looking for people who sell office desks, right? We can look for office desks. If we want people that sell ceiling fans, we’re going to look for ceiling fans, so in terms of like finding direct competitors or parallel industries or things that we know are interesting, we can target those exact keywords and find sites that sell that exactly.

                                                There are some disadvantages to this though. There’s a lot of back and forth that comes when you’re trying to convince someone to sell their site, especially when it comes to a reasonable price. You know this, Ace, you’ve been through this too, but you know it’s their baby, right? It’s their baby. They put blood, sweat and tears into it. They spent x amount of dollars getting the programming right or the design right, and there is absolutely no way they want to let it go for what it’s worth. You come in and you have to be the bearer of bad news, right? The bad news being, “Here’s what your site’s actually worth. Here’s a real offer. I don’t care what your sisters, brothers, mother told you, your site’s worth, this is what it’s worth.” It’s not good when you’re trying to negotiate and you’ve got to be that bad news bear, right?

Ace Chapman:                   Yeah, it is. It’s really tough. Some brokers will take the position of, all right let’s just put it at the online  market for whatever you want and not be that bearer of bad news, but the bad news is going to come at some point once it hits the market or before it hits the market. It’s better to go ahead and prepare them so that you can actually get a deal done and not waste the seller’s time.

Justin Cooke:                     Yeah. There’s also an opportunity to come across as sleazy here, and we’ve seen this from other people in the space where they’re emailing saying, “Hey, we want to buy your site, blah, blah blah.” Then they’re like, then they back out. Okay, maybe want to, here’s what we have. Maybe we can list it for you. Basically they’re just trying to acquire the site for their brokerage or that to list on their brokers site. It’s a sliding slope to sleaze on this. I think that’s a lot of alliteration, right? You get what I’m saying?

Ace Chapman:                   Yeah.

Justin Cooke:                     The other thing is, is that there are a lot of moving parts, right? You now have virtual assistants and they have got a process they have to follow and then they’re finding the right sites for you to get in that process. They’re finding the right sites and then they’re passing it up and then someone has to do some back and forth with them and then finally it gets to the point where you have potentials to buy this site. There are a lot of things that can go wrong. Whenever you involve people and process and you have more of that, it’s good for business but it’s just an additional layer of complexity.

Ace Chapman:                   It is, and there’s really no way around that complexity. You’re dealing with something that is a major asset for that person. There is no way around just personally touching them. I know for a lot of people are owning up that, that can be frustrating because you want to systemize the whole process and you want to make it scalable but the neat thing is compared to creating offline deal flow, this really is a breeze. When you’re dealing with offline businesses, they expect you to not only to do a call or email, but they want to come, want you to come in, and they obviously want you to see the business, they want to sit down with you. When it comes to scalability, I think some appreciation has to be happen in the fact that at least you can do all of this virtually. You can be anywhere in the world. Jump on the phone with that seller and give them the confidence that you’re the person to buy their business.

Justin Cooke:                     Ace, what have you done? Because you sit down with, with some of your customers just in person. Have you ever had a situation where you’re going to sit down and talk to them about valuation and what you’re willing to offer and they’re just mortified by what you offered, they’re like, they get angry or really frustrated in person, that would be uncomfortable.

Ace Chapman:                   Yeah. I’ll tell a quick story. Yeah, one just popped into my head. Obviously we’ve had people that are just disappointed and they did decide not to sell or whatever. But I remember I was buying an offline deal and I wanted to give the guy the offer. He decided that he wanted me to come to his house for dinner and we would discuss it then, he didn’t want to talk about it over the phone, he wanted to talk about it in person. I go over there with the guy who was my partner in the deal and we’re talking about the site, so we get in the middle of the dinner and he’s like, “All right, so what are you thinking about the offer?” I tell him my number and he just sits there silent. He didn’t say anything. I don’t say anything. Time goes by, I noticed that his face is getting redder and redder and then all of a sudden he just burst into a flood of profanities and tells me to get out of his house.

                                                Now, the neat thing about that deal was that he did end up sending his wife back to me about a month later and we actually ended up buying that business anyways at a lower price than the original one, because the offline world is a little different than the way it works on and not as much to me. We ended up getting that deal closed. But yes, that was absolutely uncomfortable. I get into the car and my partner is like, “Oh man, there’s no way we’re getting that deal.” I’m like, “Oh, let’s give him some time. We’ll see.”

Justin Cooke:                     Oh, God, that’s uncomfortable all the way around man. That’s outrageous because you’re in his house and like it’s just a completely non-starter for him, it’s like now he’s stuck. He’s got these guys in this house. I can’t believe he blew up on you though, man. How uncomfortable it was. It’s funny you got that deal done now.

Ace Chapman:                   Yeah, it was. Let’s talk about well, the easier ways to get deals, a little less work but you know, it has its advantages and disadvantages as well. That’s going out to website business brokers. Now we’re seeing more business brokers come to the market and there are different types of brokers that do different things, offer different types of deals. You have me that I really broker on the buy side. One of the unique things that’s fairly new to the market is Flippa’s Dealflow and they’re getting a lot better deals. I’ve been, when I first started it was just Flippa 2.0 but now you can see a stark contrast between Flippa and Flippa Dealflow, which is just a lot higher quality deal, a lot higher touch. You and I, Justin got to spend some time with Jane who’s running that aspect of Flippa in Vegas and really a great guy. Have you done any deals on Dealflow or been keeping an eye on that?

Justin Cooke:                     Yeah, we haven’t. I’ve looked there though and I’ve seen a few that I thought were interesting. We’re definitely keeping our eye on it. We reached out to Flippa to make sure that they didn’t really have any issues doing business with us, to make sure that was cool and they were fine with it. Yeah, I think we will end up doing some business over there. I’m not a fan of Flippa, it’s just so hard to find any good, the average market place, but Dealflow is okay and they get some deals on there that are doable for sure.

Ace Chapman:                   Yeah. I’m just not a fan of Flippa. I work with clients all the time that want to look at these Flippa deals as in just 99.9% of the time we’d get into the deal and we finally end buying, the issue and so it just becomes a thing where it’s like, okay, let’s look at your time, your time is valuable. The more time you’re spending doing due diligence on a nonstarter, it’s opportunity cost of time you could have been spending on something that was a real deal.

Justin Cooke:                     You know why I think is it’s because Flipper is cheap, right? They have much more inexpensive sites, sites you could buy for 1000 bucks. Someone looking to test it out, they’re like, look, I can buy a website for a 1,000 or $2,000 is really cheap. The problem is brokers won’t take a 1,000, $2,000 site because it’s just not worth their time. They have to do vetting, they have to make sure the site is legitimate and Flippa doesn’t do that. Right. They couldn’t do it on a 1,000 or $2,000 site either. It wouldn’t be worth their time. You’re more likely to have crappier sites at the bottom end of the market. I think that’s, it’s easy to understand why buyers are doing that. They’re like, “I just want to test the waters.” But I think you have to actually go above the weeds actually to get anything good. Right? Like that’s the problem.

Ace Chapman:                   Yeah, absolutely. Let’s talk about those crazy guys over at Empire Flippers. As you know, I’m a big fan of Empire Flippers. We’ve done plenty of deals with you guys and as you get into any of the brokers like Empire, Quiet Light, the thing there that they are doing is a lot of that front end work. Now they’re not doing all of the front end work. You still got to go in and do some due diligence and spend some time and make sure that the deal is the right deal for you, but you’re not spending time wading through the weeds or the trash or the crap, or however you want to put it, that you would going out and trying to look at deals on your own.

                                                There’s a little bit of a difference in the market. I know you guys, Justin and Empire trying to grow in and even do some larger deals. As of right now I think the market sees you guys as the smaller deals and there are a lot of really great opportunities. Quite Light has really built the brand and I’ve just doing deals with them since they started and came into business. It’s been interesting to see them build their brand as that million dollar, multimillion dollar place to do deals. We’ve done a couple of the larger deals with them, great people to deal with and that’s them, yeah.

Justin Cooke:                     Basically, Quiet Light is, they’re the market leader especially when you get into the seven eight figure range. They’re the ones who are getting done. You get above that and you’re looking at bigger companies, you’re going to private equity or whatever. Then I think that work great in the five and six figure range, right, so for those middle sized deals, that’s the market role we’re looking to fill. I think that fills a gap between straight up Flippa and Quiet Light like the market leader on the broker side.

Ace Chapman:                   Absolutely. Let’s talk about some of the advantages and disadvantages to working with a broker. One of the advantages is like I mentioned, you’ve got a little bit of high quality deal flow. You’ve got some sites that have been somewhat vetted and I’m quick to remind people that this is not complete due diligence. It’s not that the brokers, I don’t mean that this is a guaranteed deal, but they’ve done a little bit of that initial filtering just to make sure that the basic things are there, it’s not a complete and not a scam, that kind of thing. It can really help out there especially and the only way that that works is because this isn’t the case with every broker. There are some brokers out there that are openly buyer beware. There’s some that aren’t as openly buyer beware as we know, but there’s some that just say, “Hey, we’re going to list everything. It’s up to you to do your own due diligence. If somebody comes to us and they want us to list the deal and they’re going to tell us how much they say it’s making, we’re going to put it on our site. And if you want to buy that, then that’s up to you.”

                                                It’s the same in the offline world. You have some people that say, “Hey, I’m really gonna curate the deals that I’m willing to list.” You have other people that just say, “Hey, I’m not here to hold your hand. I’m not here to be your babysitter. You need to do your own work. I will list anything.” You need to understand what broker are you dealing with, look at the quality of all of their deals and then decide, okay, based on that, is this a broker that I want to do a deal with?

Justin Cooke:                     Ace, what are your thoughts on that? I know that some of the brokers, Quiet Light, us, Effie, we all put it through somewhat of a vetting process and we’re very clear about it. Look, due diligence is on the buyer. It’s always their responsibility. But when you’re a broker, you’re doing it both sides of the market so you gotta be cool on both sides. Right? It’s interesting to me that there are brokers out there that just don’t care. They don’t do any vetting. They don’t care. They don’t care if it’s a scam or it’s an amazing deal, they don’t care what the price is. They say, “We’ll list it and put it out there and see if someone buys it.” I hate that approach. I mean, if they’re representing the seller, can’t they do whatever they want and do what the seller wants? What are your problems with that? Is it harder to dig through the sites to find the ones you want? Is that the issue?

Ace Chapman:                   Yeah, I think you end up with more of a Flippa situation. It’s not to say that Flippa is a scam, they’re not doing anything wrong, but you need to understand when you’re dealing with Flippa, what you’re dealing with. The real downside then, and I guess my, I don’t even really want to say problem, but if I had a problem, my problem with it would be letting the client know where you stand. The real issue is somebody goes to Quiet Light or some of the guys out there that do a good job like the FBI or Digital Exits and that kind of thing go to these guys and then they go to one of the brokers that will just take anything and it’s like, “Hey, it’s your job.” They think that both of those are the same and so there are definitely some of those brokers that are getting deals done based on the fact that people think that they’re doing some vetting. We get calls all the time, unfortunately from people who go out on their own, they buy a deal from one of those brokers and it turns to crap and they don’t understand what happened.

Justin Cooke:                     Your point is just be clear, right? Just be clear on what, where you stand in the market, what your position is and then everyone can make decisions based on that.

Ace Chapman:                   Exactly. That’s one of the advantage. One of the other quick advantages is you do get some concise information. Both of us have dealt directly with sellers and it can be a nightmare. It can be an absolute nightmare trying to get clear information from a seller and they tell piece show, than you’re asking for, you send them a list of things, they send you one thing and then they send a question about another thing and then they send you another, and so it’s just organizing all of the information clearly and giving it to you. There is a lot of value there. Like I mentioned, when you’re going through this process as a deal maker, or a business buyer, your most valuable asset is your time. Anytime you’re spending time just trying to gather information is time that you’re missing out on filtering deals and trying to find the right deal for you. This is a huge time saver, that’s a huge advantage.

Justin Cooke:                     It gets weird when you start asking sellers for information over and over and over again. It keeps coming in like in the wrong format or it’s not coming in correctly. It’s like when you ask for, you meet someone for the first time, a guy or girl or whatever and you ask her name and they mumble it and you ask again and they mumble it off to the side and you’re like, at some point I just pretend I know their name. It’s like, okay, yes, so I’m m-m-m-m-m, whatever. Right? It’s like you’re trying to move on. We can’t do this as brokers, we actually need the information. It gets really awkward when you go back and you ask four or five times for the stuff. They’re like, “Why are you asking me so many times?” Like, “Well, why can’t you just deliver it in this format?”

Ace Chapman:                   Exactly, and Justin I used to be too hard on sellers, but I have actually chosen to work with some brokers over the years and being on the other side of that just because I didn’t want to broker the deal myself. I wanted to, like I said, save time. As you guys know, you guys have sold a deal for me and it’s like, “Hey Ace, we needed it in this format.” I was like, “Dude, just take this.” You don’t want to do all the works. You’re like, Urgh.

Justin Cooke:                     I know it sucks.

Ace Chapman:                   It does. Let’s talk about some of the disadvantages. One of the disadvantages is the whole polished turd problem. And what that basically means is you’ve got a deal that’s actually is a bad deal, but because you get it in this beautiful prospectus because all the information is in an organized fashion and it seems like it makes sense, you end up buying that business because it is packaged the right way. Like I said, that’s why the issues that I have with some of the brokers that don’t curate. Right, but it can be any broker. I mean, yeah. Just because everything looks great doesn’t mean you don’t need to do your own due diligence and go in as buyer beware. You can get into a deal because it looks great, but you open up the box and there’s a surprise, a little turd in there.

                                                The other thing is that you can’t target the niche industries as easily. We talked about some of those amazing strategies of going out and find a competitor or going out and finding a parallel business that compliments the business that you already own or that you want to buy. Those opportunities are tougher to find when you’re looking at the market and you’re limited by what’s on the market and only looking at those deals. Those strategies can be a little bit tougher to pull off when you’re working with a broker.

Justin Cooke:                     Yeah. We’ve had people to ask us. They’re like, “Hey, can you let me know when you get a laptop bag or accessories e-commerce site for sale?” I’m thinking, “Well, you’ll be waiting around for years, buddy. I don’t know if we will get one next week. We will get one five years. I have no idea. It’s a real gamble.” If you’re looking for a specific niche and a competitor or a parallel industry and you’re just trying to go to the brokers to get that done, that’s not going to happen. You’re going to have to be more of a portfolio buyer. Right? You’re going to have to understand that, look, I don’t care so much about the niche. I have a particular type of site, it maybe monetization I look at or that has to fit a particular profile, but it can’t be around a particular niche. If you’re trying to do that, it can be really difficult and you spend a hell of a lot more time trying to find the deals than it’s actually worth once you get it.

Ace Chapman:                   Absolutely.

Justin Cooke:                     I’m in fifth point, we want to talk about, our fifth place want to go is the marketplaces are the aggregators. I think there’s some value here and I’m going to talk about why. Some of the examples of this would be sites like BizBuySell, which also have a lot of offline businesses, but online businesses too. Sites like BizQuest which is they’re related to BizBuySell. Then the newer players, [inaudible 00:38:50] MarketWatch. What these companies do is they will aggregate from a bunch of different brokers. In the case of BizBuysell, a lot of online website or online business brokers will also list in addition to listing on their own marketplace or on their own site. They’ll also list on BizBuySell. You can search by broker, you can see from a bunch of different brokers, all the sites they have listed and you can use a whole bunch of different search parameters to find exactly what you want.

                                                The advantages here I think are that you get some of the benefits of brokered sites with the added bonus of just having a much wider selection. MarketWatch for example, you can go in there and deselect particular brokers. If I go, oh, I know the way these brokers, these brokers and these brokers operates, so I’m going to deselect them from the search and just search the rest of the listings. You’re going to get a much wider pool than going individually to each and every broker. I really like the search functionality and you can also request contact for specific niches. The ones I used earlier were where someone says, “Hey, I want any sites you have for sale.” In this particular niche or industry, you can actually do that with BizBuySell because they’re getting so many businesses listed that they may actually, it may take me four years to get the messenger bag e-commerce store. It may take them two months. You’ll have a better chance of that over at BizBuySell.

                                                Some of the disadvantages, you mentioned this before, is that there’s just no vetting of brokers. So if you’re unfamiliar, there’s really going to be some buyer beware there. And you may not have, because of the broker’s industry is just so fragmented, the principles that one broker operates under may not be the same principles of another broker. That’s problematic. I think you also have to dig through a lot of the junk to find the gems in the marketplaces. In BizBuySell there’s gonna be a whole bunch of sites that are either objectively crap or at least subjectively crap for from the type of business you’re looking for. Now they have search functionality, but it’s still a pain. You know what I’m talking about Ace, you’ve dug through some BizBuySell listing men. You even got people that dig through those for you now, but it’s still a pain man. It’s still a pain.

Ace Chapman:                   Yeah, it’s a lot of work. What people need to understand is that just nonchalantly poking around at brokerage site and BizBuySell and some of these other resources we’ve talked about, it can be a waste of time and so BizBuySell actually did a study where they took people who at the beginning of the year said on the scale of one to 10 they were a nine or a 10 that they were going to definitely buy a business that year. By the end of the year, only 5% of people hit, of those folks that said that they were not attending. A lot of other people said they wanted to buy one, but these people were not a 10, only 5% of those who actually ended up buying a business and a lot of it is because people try to shop for a business the way they shop for other things and it’s a very passive process. This process, if you want it to work, you need to treat it like work. Do it efficiently. Try to come up with criteria and treat it like, hey, I’m going to work right now. I’m going to spend two hours working through these, taking notes, focusing on deals, and following up with old deals I looked at it and really make it a serious process.

Justin Cooke:                     It is work. It’s not just window shopping because, and that’s something that I need to keep in mind. Honestly, sometimes I do window shopping, right? Yeah, I’m sure you do this too where sometimes you’re just strolling through. I’m not methodically looking, I’m not actually looking to source a deal. I’m just checking out what’s out there. Right. And that’s cool. Just know that you’re not actually looking for a business.

                                                When you look for a business, you’d have to have a particular process that you’re using to help qualify or disqualify these sites, and you’re working as you said. Right. I think it’s also important to remember if you’re going to spend 500 hours, right? More than 10 weeks of straight work looking for a business and you’re buying a $20,000 $30,000 site, I don’t know if it’s worth it. You know what I mean? For the value you’re going to get out of that. You spent so much time trying to find it and you just, it’s overkill. You have to keep your ROI and your time in mind, both the time you spent sourcing the deals and then the time you spend actually working on them and building them and growing them out. Which by the way, all professionals, we use all of these different tools, right? Some will use more than others because of our particular interest or our business needs.

                                                Our business growths are using all five of these different tools in places that you can go to look for. And the one you use the most is just going to depend on the position you’re in. Let’s say your business is going really, really well and you’re looking to start buying up some competitors, you may spend a lot more time looking at your competitors, networking with your competitors so you can figure out if they are at all prime for a sale. If they’re at all open to selling to you, and you may be spending more of your time in parallel industries because your industry is all messed up and no one talks to each other or whatever. You may spend more of your time looking at parallel industries and looking at the opportunities there. Just depending on where your business is at and where you are is going to tell you where you’re gonna spend more of your time here.

Ace Chapman:                   Absolutely, man, it’s so funny when you look at how you approach this process, what we tell people, “You want to treat it like you’re in the business of buying businesses.” If you’re in sales, you want to get as many sources of leads as you possibly can, this is sales. It’s just like sales. It just so happens that your potential leads are not people that are paying you some money, it’s potential leads for you to buy something that’s going to create income for you, so treat this process like you’re in the business of buying a business, not just poking around.

Justin Cooke:                     Yeah, buddy.

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.

 

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