Have you ever considered buying a website? Buying instead of building can be a big shortcut to online success. It could even be a passive income stream for you. How do you make sure that site is not a dud? My guest on this episode number 158 is serial entrepreneur, Chuck Mullins, who built his first profitable website way back in 1996. Chuck’s advice is highly sought after by both investors and sellers. He speaks at events around the world and in fact, that’s how I met him as we were both regular speakers at Affiliate Summit. I’m really excited to have Chuck on the show to share his wisdom. If you’re interested in buying or selling websites or perhaps even treating them like assets and portfolio, this episode is going to be a real treat.
Chuck, it’s great to have you on the show.
Thank you so much. I appreciate you having me on.
I’m excited to hear that you were listening to the podcast and you got some real value out of it. Could you share that before we start diving into all the cool stuff that you’ve been doing?
I was listening to one and I apologize I don’t recall the gentleman’s name but he was talking about drifting. I feel the past few years and maybe even longer, I felt that way where I was drifting. It was the motivator to get me going back and trying to change some things and one of those was to lose some weight. One of the businesses I bought was a Paleo site, which I’ve sold. I said, “Let me give this a go again.” It got me motivated. Now I’m back to my wedding weight, which is about twenty pounds down. I thank you for that. I’ve got three kids and it’s like, “I need to stop being unhealthy.” I appreciate you and that guy being an inspiration for that.
I learned about drifting. There’s a great book that is not as well-known as Think And Grow Rich but it’s by the same author, Napoleon Hill. It’s called Outwitting The Devil. One of the core concepts from the book is that the devil gets us by getting us into autopilot and keeping us there and to the drift. Let’s talk about buying, selling, building websites, creating assets or buying assets and selling those assets. They’re all digital. They’re all websites and domains. First of all, how did you get into this?
I started my first online business when I graduated from high school in 1996. I got my first computer and I started a website. It was either GeoCities or Angelfire, one of those guys back then that offered free hosting. I put up a little website in the education space. After a couple of months, somebody is like, “I’ll give you $10 if you put a link to my website.” I’m like, “$10, awesome.” I was in college, I don’t have any money. I grew up in a middle-class, single parent. It got me motivated. I kept going with it and somebody’s like, “I’ll give you $100.” I’m like, “$100, awesome.” Before you know it, I’m starting to get checks in the mail. Somebody offered me $1,000. I’m in college and I’m making about $16,000 a month off of advertising. It was blowing my mind. The whole internet bubble burst and all that ad money dried up.
I and two other guys pooled our resources and we started a membership site. We had seen somebody who was advertising on our site and was doing a membership site. We’re like, “Let’s give this a try.” In the first month, we made $60,000. This is power. I went to college, studied computer software engineering, but I never got a job. I kept doing the internet stuff. While in college, I started making a lot of money, more money than I knew what to do with. I was spinning it fairly frivolously but at the same time, I was still investing. At a certain point, I was like, “What do I do with this excess capital?” I started reading all the books. The first book I read that fundamentally changed the way I thought was Rich Dad Poor Dad. It’s a great one. It’s funny I talk to a lot of different digital entrepreneurs and they all say the same thing. That’s, for the most part, the first book that people read that fundamentally changed the way they thought.
I had the co-author of Rich Dad Poor Dad, Sharon Lechter, on my podcast, Get Yourself Optimized. We talked about the drift on that episode. She is the co-author and editor of the Outwitting The Devil book too. 70 years that manuscript sat without getting published because it was too controversial for the time. It’s like conversations with the devil and back then that was pretty scandalous in the 1930s. It sat there not getting published for decades. Sharon was given the job of editing it, turning it into a finished manuscript and then getting it published. It’s been changing people’s lives. She was a co-author of Rich Dad Poor Dad with Robert Kiyosaki, although her name is no longer on the book. They had a falling out.
I read that book and it shifted the way I was thinking. I wanted to start investing. I started looking at real estate and they talk about it in that book. I started looking at different things like laundromats. I was looking at self-storage facilities and all these different things, franchises. Nothing ever fit. I started trying to think of what I could do. I did a bunch of those investing things of that nature but I was not getting the returns that I saw with the internet stuff that I was doing. I’m like, “I bet you could probably buy somebody’s internet business.” Back then, people weren’t thinking of websites as an actual business. The first business I sold for somebody, we got an offer on it within 30 minutes of listing the business. It was near full price. I called the lady and shared with her and she started to cry. It was touching, I was like, “What’s going on?” For the first time, somebody told her that she was pretty. I asked her what she meant. She always knew she had a business but she didn’t think anybody else saw it as a business. When somebody offered her real money to buy it, it was like for the first time somebody told her she was pretty. She always knew she was pretty but it was a touching moment. It’s an emotional thing when you sell a business. I often tell people when you sell it, it’s like the steps of grief because you go through denial and acceptance and all these different things. People often forget or discount the fact that they’re going to feel these emotions when they sell a business.
When I started looking for businesses there were a couple different websites out there. There was Flippa.com, which is an auction site. I started looking at these little sites that were $100, $1,000, $2,000. I started buying these things. Back then I wasn’t seeing a lot of big deals. One of the first offers I made outside of some of those little ones with the education side I had, we were doing some conversion rate optimization. We purchased these trust deals from somebody. They were this garbage, no-name trust symbols that we put on our website. We added it and we’ve got a 70% increase in conversion rate on the site. They were these random little trust deals. We’re like, “There’s no way this is real.” We had a whole network of these sites, maybe eight or ten of them. We started one by one trying all the different sites and each one was getting anywhere from a 60% to 120% increase. It blew our minds. I went to that person who owned that site and I tried to buy it from them. They’re like, “We’re not interested.” I’m like, “I want to buy it. Name your price,” and they weren’t interested. That led me to start a company, which was SafeSiteCertified.org. I saw the power of what they were doing and figured I would create my own because they wouldn’t sell it to me.
We had hired and we have hired multiple people in the past to work on conversion rate optimization. This was early 2000s. Nobody was ever able to do anything. We had one guy that’s like, “Put all your form fields the same width.” It’s like, “We just paid you $6,000 to tell us to put our form fields the same width?” We hired another company and we wised up because we had been burned a few too many times. We said, “We’ll give you a cut of the upside but you have to achieve a 25% or 30% increase in order to get it,” and this is before we discover the seals. They’re working on one of our sites and they had us up a 20% increase. When we found those seals, we’ve got a 70% right off the bat and it’s like, “This is your job and you guys don’t know about this little secret?” They ended up never being able to hit their threshold, which is unfortunate. We found this one stupid little thing that increased our conversion rate so much. It was amazing.The first book I read that fundamentally changed the way I thought was Rich Dad Poor Dad Click To Tweet
Did they start doing that to their clients’ websites?
I don’t think we told them about it because they didn’t know about our sites. We figured, “Let’s try to do these things on our own sites and then compare it to what they’re doing.”
Was that something that is an anomaly? Are you seeing that across all your customers who are using Safe Site Certified?
It’s not an anomaly, it depends on the business that you’re in. That particular business that we saw that lift, it was because people thought the business was sketchy. It’s not a sketchy business. It’s all about the perception and how people were perceiving, “They’re going to steal my money.” When you put these little things on there, these trust indicators, it helps people overcome that and it increases the conversion rate. With a standard eCommerce business that seems trustworthy, you might see a 2% to 5% increase. The more that people doubt what you’re doing, the more it’s going to help. After that, we know what we’re doing. We’re going to test all these different things. We added the Facebook login button. This is a long time ago. Now it’s different but nobody clicked on the Facebook login. Nobody used it. By having it there, we got another 30% increase in conversion rate. People didn’t use it to log in but yet it was helping our conversion rate get higher. It was a membership site. It’s amazing what those little tricks can do.
You’ve got to have this mentality of testing and being willing to experiment all the time because this is a science. This is not something where you just set it and forget it.
I don’t even think that we put that on there as a conversion rate optimization thing. We put it on there because we thought people might want to use it. It turned out again back in the day nobody wanted to use it. Now, people are more accustomed to using it so it’s different. It was an amazing increase and we kick ourselves for not having discovered the trust symbols years before that.
Imagine if you weren’t tracking your conversion rate, so many website owners don’t even know what their conversion rate is or know how to track it. They’re flying blind. It’s operating a plane but not having any of the readouts or anything telling you how high above the ground you are or if there’s a mountain range coming or anything.
Another fun thing we did, it was a membership site but originally, we charged for a onetime fee. One of our billers said, “Chuck, what are you doing? Don’t charge $20 for a month, charge $20 a month.” This was back in the day. I’m like, “What do you mean?’” They’re like, “Change the words and rebill.” We got a 250% increase in the value of our customers by doing that. It’s these little things that are incremental but they’re not incremental. It’s huge wins.
You were charging a one-time fee of $20 and then you changed it to $20 a month?
Yes, we did price testing. Our original price was $10 and then $15, $20 and $25. The price that we landed on was $19.95. Price testing, conversion rate optimization, recurring billing, these are all things that people should be testing if they’re in a business that it makes sense for.
Whatever happened to that competitor that you emulated when they wouldn’t sell to you?
I honestly don’t know. It was such a no-name little thing that I wouldn’t even know how to find them now.
Do you have a lot of competition in the seal certification industry?
Yeah, there are a lot of people. What differentiates us is that I see some of these other guys and what they’re doing. The original one was Verisign. They were doing it way back in a day when they were selling domain names like, “Does your mom know who Verisign is?” “Mom doesn’t know who Verisign is.” Seeing a seal that says Verisign to me doesn’t mean anything to a person. That’s why we created Safe Site Certified. We’ve got PrivacyVerified.org and VerifiedSeller.org. These all resonate with people and touch on different points of the fears. Instead of using ABC.com, it’s something that somebody can instantly recognize like, “I’m safe.”
Do you find that it makes the most sense for a webmaster or an eCommerce site owner to use all three seals or just one or two?
It depends on the nature of their business, but generally all three.
What a great story of how you created these assets by seeing a market opportunity. You didn’t give up when the potential seller said, “I’m not interested.” You went off and built your own version.
It’s not something that I tell people to go and do. I much would have rather bought their business. Standing on somebody else’s shoulders is the way to go. Let somebody else develop, prove out the model, generate the revenue and then stand on their shoulders. Acquire from them, pour fuel on the fire and then grow it. I’ve done it a lot of times, starting a new business. Eight or nine out of ten businesses fail. Why do I want to be the guinea pig when I can buy something that’s already successful and then grow that?
95% of businesses ten years later do not exist. What are some of these metrics that you would look for to make sure that it’s a sound investment? When you stand on the shoulders of giants, they built something great and they have an asset that is making money every month. There are some multiples and things that you want to use in your calculations. There are some metrics you want to look at to validate the business model and the health of the business. Walk us through some of that.
Back in the day when I was acquiring much stuff, what I would always look for is something that when I looked at it, I’m like, “That business is making how much? How is that even possible?” I was looking for the piece of turd that I could polish into a diamond. Those are somewhat hard to find these days. When you’re looking at a business and you’re thinking about valuation, there are four pillars to the value business. One is risk. How much risk is there? Are they using a single sales channel? Do they have a single traffic source? If it’s an Amazon business, are they only selling on Amazon? Do they have an eCommerce component? Do they have recurring billing? If you’re buying a business and you have a single source of traffic, let’s say Google, and Google does a manual penalty on you, your traffic dries up tomorrow, what happens? They drop off a cliff. Unless you’ve got some money in the bank, how do you recover from that? You probably don’t.In any business, things can change overnight. Click To Tweet
If you’ve got a recurring revenue model where you’ve got members and you’re charging them monthly and your traffic dries, you still got that recurring revenue come in and you’ve got a runway that you’re approaching probably too quickly. Still, you’ve got some time in the air to try to correct. If you’ve got multiple traffic sources, then if one traffic source dries up, you’ve still got the other one. We owned an online shoe store back in the day and we were looking at acquiring another one. One-third of their business was selling shoes on Amazon. We got an email that let us know that something was going on, Amazon was making a change. One-third of that revenue of that old business was going to dry up overnight. We quickly decided not to purchase it because they didn’t want to adjust the price, represent the loss that occurred. What would have happened had we purchased that and then two weeks later that one-third of revenue dried up? It would have been painful but it wouldn’t have been necessarily catastrophic.
If that one-third had been 100% of the business, it would have been catastrophic. The entire business would have been gone overnight. There would have been nothing we could do about it. Having those multiple sales channels and multiple traffic sources, those are all things that are going to lower the risk and increase the value of the business. That’s why you see different multiples. It’s like when you’re thinking about investments in general, a CD is going to pay the least rate. Why does a CD pay the lowest rate? It’s because there’s no risk or there’s very little risk versus the stock market where there’s a moderate risk because there’s liquidity you can get in and out. You’ve got a little bit of a higher percentage that you can earn but you have higher risk too. With the internet businesses, you have a much higher rate because like any business, things can happen and things can change overnight. The reward is most businesses sell between 2X and 3.5X times the net profit of the business. If you buy it at 3X, then you’re making a 33% return. Where can you get a 33% return elsewhere?
That’s over the annual revenue?
Yes, and if you know what you’re doing and you can pour some fuel into that fire, it’s not hard to all of a sudden be getting a 50% return on your money. There’s risk involved and that’s why it pays so much. That’s why the reward can be so high.
Have you had businesses that you’ve bought that flopped?
Yes, something I recommend people doing is looking at Google Trends. Google Trends is Trends.Google.com. You could type in a keyword and it the shows over the history. How many years do they go back? It’s more than ten. It’ll show the history of that keyword and Google searches. How many people have been searching for that keyword? You can see all kinds of data and that of seasonality. It was that Paleo business that I bought. If you looked at that Google Trend, it was going up. We bought it at the exact peak. It wasn’t something that I could have seen but we bought it at the peak, and then it was the worst absolute time. All of a sudden, we buy it and then the trendiness of Paleo started to wean and start down. Luckily, we were pouring that fuel onto the fire and we were still growing it relative. It was declining but we were making up some of that decline with growth. Ultimately, it was heading down but not at the same rate as the trend. We ended up luckily being able to sell it to a competitor. I didn’t want to sell it. I had some investors in it. They’re like, “Chuck, we’ve got to get out.” I’m like, “I could turn this around.” My own ego was getting in the way and they’re like, “Chuck, we have to sell this thing. It’s going down.” I’m like, “I could turn it around.” You can’t fight the tide. The tide raises all ships and it also drops all ships. Fortunately, we got out and sold it to our competitor.
You can also compare multiple keywords to each other in Google Trends. This is a free tool. If you put two, three, four different keywords or phrases separated by commas into the search box in Google Trends, you get even better data back. You’re not getting hard numbers, you’re getting percentages. You’re seeing growth or decline over time but you’re also seeing that across multiple keywords.
If you’re going to buy something, my personal opinion is to stay away from trendy things. Like another one that you’d see a lot of people selling at the same time was forex. All of a sudden there’s a rush to get out of forex. A lot of people are getting out of the eCigs now. It’s a strong business. There’s a lot of money to be made but maybe that’s not a good example of trending. We’ve tried to sell a couple of eCigs. I sold one maybe but the market’s not there to purchase those.
It’s like Pokémon GO fan sites and stuff like that.
Another component of value would be growth. How much growth is there for somebody? How much opportunity is there for somebody? When you sell a house, you want to paint the house. You want to make sure the landscaping is beautiful, maybe change out a carpet. You do all these things that you should have done while you’re living there but you waited until you sell the house to do. Selling a business is the exact opposite because people buy businesses based on what the business has done in the last twelve months, not what the business is doing right this very moment in time. If you do all these things and make all these fixes, you’ve removed the opportunity. If you know you’re going to sell a year from now, then do all those things now. Fix everything. Make more money with the site. Let it grow because of the changes you made. If it’s based on a trailing twelve months, making all those fixes removes the opportunity from somebody else to be able to come in and do those things and also to see the opportunity. Part of buying something is seeing opportunity.You've got to have this mentality of testing and just being willing to experiment all the time. Click To Tweet
If there’s something that’s broken or something like that, then maybe you fix it. You don’t want to remove opportunity from a buyer. You want to let them see it. You want to highlight those opportunities. I always tell people, “Think about yourself and know what you’re willing to do,” because oftentimes when I talk to people, probably about 90% of the time I tell people, “You’re not ready to sell. Go fix these things and come back in six months or a year.” A lot of times people are like, “I’m ready to sell.” I’m like, “If you’re ready to sell, what are the things that you think are the opportunities and we create a marketing package that includes a list of all the opportunities?” A lot of times, it’s something that they’re not good at but a buyer might be good at. The next thing I would say is transferability. How easy is the business to transfer? Does the business rely solely on you? You would have a difficult time selling your business. You’ve got probably a great book of business. The business is you. How do you transfer you? I don’t think you can. Making sure that the business is transferable, having clean books, standard operating procedures.
Having the right structure too. When I sold my previous agency, Netconcepts, it was an LLC and I sold to an Inc., to a C-corp. That cost us a lot in taxes that wouldn’t have been an issue if another LLC bought us or if we were already an Inc., a C-corp.
Having the proper structure is certainly important. I will say though that 99% of businesses that are sold, they don’t buy the corporation. They buy the assets of the corporation. You want to talk to an accountant. Most people have LLC or chapter S Inc., not a C-corp. People often will buy the assets of the business and it makes for a cleaner break. It’s fewer liabilities. If you buy the corporation, you’re also buying all of their liabilities, their taxes and things like that. I tell people to set up standard operating procedures, written or get a Camtasia or Loom. There’s a bunch of different screen-sharing software. Record it. It doesn’t have to be a polished video but shows people the things that are a little bit more difficult to write. Show them how they’re done. This goes well for business in general. If you’re hiring employees, having standard operating procedures, having videos and tutorials showing how to do the different steps to make their job a lot easier. It helps you out significantly, especially if you have to replace an employee or transfer.Create an outline of things. Don't just dive in trying to write all the detail. Click To Tweet
Let’s say you’re going to train a new staff person. Always record that because that can go to the training library. You don’t have to retrain a new person if that person didn’t work out or if you hire a second person as you’re growing and you need more scale. Don’t rely on video as the training material. Turn that into a checklist and then use a tool like Process Street or SweetProcess and load that checklist in with its dependencies, the prerequisites and so forth. The person who’s operating the checklist and going through it has to tick the box before they can move on to the next thing. It won’t let them proceed to the next thing if there is a dependency there.
If you stop with the video, how often are people going to go through that video? They might watch it once, maybe twice and you’re like, “I saw that video six months ago. What was between steps two and four? Between this and that in the video, I walked through this and I have seen you haven’t been doing that,” and they’re like, “There was an extra step? That was six months ago you watched that. How can you possibly remember all?” Here’s another tip I learned from either Ari Meisel or Trivinia Barber. Both of those folks are amazing productivity experts and experts on outsourcing. They both were guests on Get Yourself Optimized. One or the other told me that it’s important to have somebody different taking the checklist, testing it and looking for the gaps, the holes, versus the person who created the checklist from the video. If the same person is looking for the gaps in the checklist as who turned the video into a checklist, they’re going to miss it. They’re not going to see the gaps. Whereas if you give it to somebody brand new who’s never seen that checklist before like, “Use this checklist and see if you can get from A to Z,” they’re like, “There’s so much stuff missing there. I couldn’t figure this out. I couldn’t figure that out. This was unclear.” That’s not going to be found if it’s the same person who watched the video and created the checklist.
Something I tell people is to create an outline of things. Don’t dive in trying to write all that detail. Do it like you’re writing a term paper. Create the outline and then fill in the outline with the actual steps for the SOP, the standard operating procedure.
What’s the fourth pillar?
The fourth pillar is verifiability. If I tell you I’m making $100,000, I have to be able to verify it. People often forget that they’re going to need to do this and you want to have clean books so keeping everything in QuickBooks. Most entrepreneurs, we gloss over that a little bit. People are going to want to probably rebuild your profit and loss statement using things outside of QuickBooks. QuickBooks, you’re going to generate a P&L statement and then somebody is going to look at your bank accounts, your merchant account statements, your Amazon and all these different things. You try to rebuild the P&L from those and verify everything. If you’re telling them one thing and the numbers are telling them something else, it’s going to be a problem. Things can be off by, “It’s $100.” Mistakes happen. I wouldn’t worry about that too much. Obviously, it needs to be verifiable, nobody wants to get scammed.
I have a bookkeeper. I have an accounting firm, a lawyer. You have to have that structure in place to not just cover your backside but also to show that you have legitimacy when you’re out there in the market trying to sell your company, your website or your assets.
I’ve had some good sellers and some pretty bad ones. The best ones say, “Do you know what this number is?” They’re like, “Yes.” They type in their computer and they spit out a report. Those are the best ones. They get the most money. They can get the highest multiple because they have all of that data people can dive in with.
What would be an example from your personal experience where you bought something low and you sold it high and you made a killing?
If I buy something that’s doing well, I don’t sell it. I’ve only ever sold stuff that hasn’t done well. I’m a strong believer in recurring revenue, setting things up and letting them go. I honestly don’t have any.
What would be an example where you’ve held on to it for years because it is such a moneymaker? What’s been the return percentage-wise for you?
I’ve purchased a couple of content sites that were pretty small when I got them and then added new content. I’m not out there getting links. I try to get into a niche. It’s a good niche that if I do a good job the links come in natural. As far as return goes, buying something for a couple grand and turning it into something that makes a couple grand a month.As a broker, it doesn't take selling a ton of businesses to start making some good money. Click To Tweet
Do you do that regularly, like every year you’re buying sites that you spend a couple grand on and within six, ten, twelve months, they are making a couple grand a month?
I’m not actively buying stuff these days. It’s a lot harder to find those smaller deals that are going to have those types of opportunities. If I were to buy something, the things I bought most recently are in high six, seven-figure range. I would say the market has definitely changed. It’s much more difficult to find those small diamonds in the rough. If it is something that’s in a couple of thousand to five-figure ranges, they’re probably going to be listed either on the brokerage side or Flippa. There’s going to be a ton of competition that drives it up to the real value of the business. It’s much more difficult to find those these days.
Let’s talk about the brokers and the fact that you are a broker now. How did that transition end up happening for you so you’re now part of Quiet Light Brokerage?
I started speaking at conferences about buying and selling businesses. At one of the first conferences, I spoke and someone’s like, “What are you doing? What are you selling?” I’m like, “I’m not going to sell anything,” they’re like, “Why are you even here?” “That’s a great question. I guess I’m trying to help other people see that this market is here.” As I started speaking, I started using it as like deal flow, networking and meeting people. Part of my speaking stuff, I started bringing in other experts. I started bringing in different brokerage companies to speak with me, and Quiet Light I was one of those brokerage companies that I brought in to speak with me at some of the different events. Pretty early on, they’re like, “Chuck, come work with us.” I’m like, “I’m doing all right. I don’t want to get into that. I’ve got my other stuff going.” After a number of years when I sold the Paleo business, I was spending 40, 60 hours of my time on that, all that time freed up. Then they reached out to me, “Chuck, are you interested?” I’m like, “Show me the numbers,” and I looked at the numbers and they made sense.
If I sell these large businesses and the commission is around 10%, it doesn’t take selling a ton of these businesses to start making some good money. I always thought if I was ever going to do something where I wasn’t truly being an entrepreneur, I always wanted to help people like an MBA consultant. I’ve never wanted to do the work of going out, finding clients and selling myself to them like, “I can help you increase your conversion rate. I could do that.” With the brokerage stuff, people are coming to me and saying, “Chuck, can you help me sell my businesses?” I’m like, “Yes, absolutely.” I got this wealth of knowledge and experience from having done it for many years for myself. The reason I ended up going with Quiet Light is they were what I consider to be the best in the industry. I had options to go to other places but they’re the ones that I wanted to work with.
There’s a bunch of them out there like Empire Flippers, FEI and so forth. I’ve heard good things about Quiet Light for sure. What’s the biggest differentiator would you say for Quiet Light versus the competition?
I don’t know them well. I’ve never worked with any of them. I would say the difference is that at Quiet Light is that we’re all entrepreneurs. Every single broker at Quiet Light has bought and sold their own businesses. We’ve all been in and done it. We have that experience to fall back on when something’s going wrong. With almost every deal, something happens. We have the experience of having done it ourselves to get through it.
What’s the process to vet a site or a business to buy and to sell?
As far as what we do to make sure our business is sellable, we’re not doing a full deep dive to tilt a train. That is the buyer’s job. We do try to make sure that it’s a legitimate business. We’re making sure that they’ve got good P&Ls. We’re verifying some of the information they give us and making sure that it’s a legit company. It’s not to say it couldn’t happen but you’d have to put in a lot of effort to get past us. We talk to many people that we can usually sniff out the people who are trying to be dishonest. For us, we don’t get paid unless we sell a business and we rely on our reputations. If I’m getting a weird sense about somebody or if numbers aren’t lining up, I’m going to tell them we can’t help them. We also have a new a-hole policy. If somebody calls me up and they’re being a jerk like, “I don’t need to work with you. Sorry, go find somebody else to help you.”
Specifically, what are some of the criteria that will help our audience to vet on their own, whether this is a good opportunity or not? What metrics are you looking at? Do you look at majestic trust flow, domain rating? Do you look at the traffic trend and similar web? What are you looking at to get a sense for the health of the business?
We’re not looking at the linking that much other than to make sure that they’re not doing anything too sketchy. We’re more looking at the numbers, making sure everything makes sense financially, how the business is growing, whether it’s shrinking, the different sales channels. Going back to a pillar of risk mitigation, making sure things are all making sense as far as the numbers, the different sales channels. On occasion, I’ll look at some of the metrics as far as SEMrush or something like that but it’s not all that often. From a buyer, they should be doing that stuff. That’s a matter of looking at growth and figuring out what the opportunity is for them.There are far more people looking to buy a business than there are quality businesses to sell. Click To Tweet
What is a marketing package? What does that look like? What does it contain? If I’m going to sell one of my websites, I’m going to need to produce that. If I’m a potential buyer, I’m going to get these from the seller. What is it?
The way we do it is we create a client interview. Client interviews are anywhere from 60 to over 100 questions. I will go into in-depth about their business. This is part of our due diligence because I ask such in-depth questions. I usually do it with a Google Share doc and I’ll list out all these questions. It’s like, “What are your sales channels? What percentage of your income is coming from this? Do you have any skews that represent more than 10% of the total sales?” It gets in-depth and asks these questions about their marketing. Why are they selling the business? What are the opportunities for growth? Anything and everything I can think of that might be helpful.
What I’m trying to do is to paint a picture of the business and to prevent us from getting a million questions about the business. I want to try to answer 99% of the questions that any business buyer would have before they ask it. Only get those couple questions here and there about the business that I didn’t think of. I try to work those into the next client interview that I do. We take all that information and then we turn that into a marketing package. What we’ll do is when we go to list the business, we’ll send it out to our list of buyers. We don’t send out the full marketing package, we send out a business summary. It doesn’t have any personally identifiable information about the business. When you read it, you get an idea for the niche it’s in and what it’s doing but you don’t know the domain. You fill out a nondisclosure agreement and then we’ll send you the full marketing package that lays it all out there, including profit and loss statement and things like that.
Have you ever had somebody try and go around you after they get enough detail about the business for them to know who it is and cut you out?
I haven’t. We’ve got that no a-hole policy. I only work with people that by my estimation are trustworthy and they respect what we’re doing with them. They see the value in what we’re doing. The whole marketing packaging and finding the buyer, that’s only the first step of selling your business. If you don’t have somebody involved who knows the process, it can easily fall apart once the buyer and the seller get together.
Where would it potentially fall apart?
In the contract stage where people are maybe being too aggressive about something and not understanding. Both sides on the contract have to be protected. Sometimes people want to make a contract one-sided like, “I’m buying it. I need to be 100% protected.” They’ll insist on things. You’ve got to back them down from that and be like, “I’m not a lawyer. I can’t give legal advice but it’s not going to happen.” I’ve had times where I was talking to the buyer’s lawyer and they’re like, “I’m telling him not to put that in the contract. He’s insisting that we put this in the contract,” and it ends up backfiring. They push too hard and the other side has to pushback equally hard. They ended up getting less stuff in the contract than if they had just had a contract that was fair to both parties.
Sometimes the deal is intractable. There’s no potential meeting for the minds because one side or the other is unwilling to budge.
We don’t see that too much. I would say that’s probably what happens if people try to go around you. We try to vet both our sellers and our buyers. One of the things I do oftentimes especially in bigger deals, we had a PE firm that comes in and they want to put an LOI day one before having anything. They maybe read the domain name and it’s like, “Slow down. You’re not ready to put a letter of intent in.” They’re like, “We’re ready.” The first thing we always make people do is to get on a call with the seller. We want the buyer and seller to talk. If they can’t communicate, the chances of the deal going through and closing is next to zero. You’ve got to make sure that they can get along.
Secondly, we want people to do the majority of their due diligence as far as determining whether they want to buy the company upfront. They’ll put a letter of intent in and then decide, “This company isn’t something I want to buy.” The point of doing the letter of intent and the due diligence that follows that is verifying the things that we’ve already provided. We don’t want you saying, “I didn’t realize it had only one sales channel.” That was in the marketing package. You should have read that. We’re trying to head all that off by making sure they read the marketing package, had phone calls with the seller and know what they’re buying. Once you pull the listing off the market, it hurts the listing. People see that it came off. They see you went under contract. When you put it back on, they’re like, “What happened? Why did it go back on the market?” You explain to them but do they believe you? Hopefully, but there’s that seed of doubt in their mind now.
PE stands for private equity firm. You’re referring to PE, insisting and going straight to an LOI or letter of intent. What does that letter of intent look like? Is it a typical two, three-page legal document?
Usually, it’s a nonbinding agreement where you’re laying out the high-level aspects of what the deal is going to look like. You have the letter of intent and then you have the asset purchase agreement. A purchase agreement is that document that gets into the legal language of like, “Here’s the structure of the deal.” The LOI is a coming together of minds like, “I’m going to pay you this much. I want this on the due diligence. I want these terms in here. It’s high-level of what the structure of the deal is. If we can agree on that, then we’re going to use standard legal business practices.” We draft up the APA from that. APA is an asset purchase agreement.Everybody’s looking for such a specific thing that it’s hard to find that exact right thing for one person in particular. Click To Tweet
That is how many pages typically, like several dozens?
On that Paleo business, my due diligence for buying that was I did a diet before my wedding. I lost over 30 or 40 pounds. The contract we negotiated while I was on my honeymoon, we went and did a 35-day honeymoon and went to Australia, New Zealand and the South Pacific 28-day cruise. While I’m on that, I’m using my cell phone to connect to magicJack the Wi-Fi on the ship to make phone calls because it was $0.41 a minute instead of $10 a minute to make phone calls. I’m calling my lawyer but it’s the exact wrong number of hours because when I went to bed, they were wake up or when they’re waking up, I went to bed. Everything took an extra day but that contract ended up being 160 pages. That’s ridiculous. Nobody should have a contract that long but there were a lot of complexities in the deal. The old owner was giving a percentage of the company so it also had an operating agreement. Generally speaking, most asset purchase agreements are five to fifteen pages.
I love your due diligence. You lost 35 pounds by using the diet yourself.
You want to make sure that it is legit and that you can get behind it. I don’t want to just make money. I want to make money something out of it. That was great and it was awesome because I needed to lose weight for my wedding.
Did you put a picture like a before and after on the website?
No. I don’t like to be a public figure and that type of stuff. I still had a long way to go so I didn’t do that. I should have and I probably should have used that as a motivation to lose a few more pounds.
There’s this thing called a forcing function. I interviewed Aaron Ross, the author of From Impossible To Inevitable on this show and Get Yourself Optimized. We talked about forcing function. I learned about this in the book. The difference between having a forcing function and not having one is the difference between you signing up for the gym because it’s your New Year’s resolution to lose some weight versus announcing to all your friends on Facebook that you are going to run the LA Marathon. That’s the forcing function because you will be embarrassed if you back out of that. You put yourself on the line there. Whereas signing up for a gym membership is essentially you decided to donate to that business until you get your act together.
I knew that and that’s why I didn’t do it because my vice is Coca-Cola. I love food. I love bread. I knew if I did that that I’d have to do it. I wouldn’t have a choice. I decided that it wasn’t worth it at the time.
Do you get a lot of repeat buyers who they buy a website from you from Quiet Light and they’re like, “This was a great deal, what else you’ve got?”
We get a lot of people like that. We have a lot of people who want to do that. Everybody wants to put it together a fund like, “I see what the returns can be. I want to put together a fund.” Problem is deal flow. Especially with something like the private equities, they’ve got a 57-point checklist. Having the specific business that meets their criteria is next to impossible. It’s more about having the right business that happens to work with a specific buyer. It’s often much more difficult for somebody to repeat buy especially if it’s in the same niche. Sometimes I’ve had where I sell somebody’s business and they tell a friend who is in the same industry. I can repeat sell to somebody because I’m selling businesses that are within a niche industry to a specific buyer. Sometimes people ask, “Are there buy-side broker?” and there’s not a lot of them because it is hard to find a specific business for a specific person. There are far more people looking to buy a business than there are quality businesses to sell. Problem is everybody’s looking for such a specific thing that it’s hard to find that exact right thing for one person in particular.
What would you offer as some advice, tips, tricks or whatever to our audience either buy side or sell side that we haven’t talked about already? Perhaps you present at conferences, you present at Affiliate Summit on this topic of buying and selling websites. What did we leave out that is a gold nugget given in your presentations?
Remember to value your time especially if you’re looking at a smaller transaction. If you’re buying a $1 million, $2 million business, time isn’t as important. If you’re buying something that’s in the $100,000, $200,000 range, make sure that you’re not just looking at the return based on the capital return like, “I’m getting a 33% return on my $100,000.” If you’re driven to put in 40 hours a week and you’re making $33,000 a year off of it, you just buy yourself a poor-paying job. It’s important to remember to account for your time. When you buy those bigger businesses where it’s making $300,000, $400,000, your time is less relevant.
From the sell side, I would say make sure that you start early. If you’re going to make some changes, make those changes. Allow them to mature so that you’re getting the value from those changes. Don’t wait. When you’re selling your house, don’t wait until the end to try to fix everything up. Do it early. Look into accrual versus cash accounting. When you’re selling an eCommerce business, accrual accounting is going to get you a lot more money because you’re accounting for the cost of the inventory at the time it’s sold. As opposed to cash accounting, if you buy $100,000 worth of inventory and you go to sell your business and you bought that inventory in January, it looks like you’ve got this giant dip in your profit in January. Your February, March and everything else has got high-profit margins and then it drops back down when you buy more inventory.
Most small businesses are running cash accounting and not accrual.
Generally, when you sell your business, you’re going to have the inventory. You’re sitting on $100,000, $200,000 inventory. You don’t want it to look like you made $200,000 less than you made. Doing the accrual accounting is only accounting for the cost of the inventory at the time you sell it. It makes your profit look much better.
How can folks who are interested in buying or selling work with you? How would they reach you?
Go to our website. We have evaluation forms. If you’re looking to get a valuation, you could fill that out. If you want to contact me directly, it’s [email protected]. The website is QuietLightBrokerage.com. I’m happy we do free valuations. We’re a firm that believes in providing value first and leading with value. We don’t try to sell you on anything. I’m not trying to close a deal when I talk to somebody. I do want to help people. If helping people means telling them that, “Don’t sell your business now,” I’m going to do that. I can hopefully sell your business in a year, two years, three years down the road when you’ve corrected all these things and now it’s worth double or triple what it was. We take a long-term approach and we’re low pressure, probably to our detriment.
Thank you, Chuck. This was a lot of fun and informative. If any of you our readers are interested in buying or selling websites, it’s a great opportunity. Talk to Chuck. If you have a business with an online component and you haven’t thought of it as an asset, you have a full-time job than self-employment instead of a business. A business is something that you can sell. It can stand alone without you going with it. Hopefully, you’ll take that advice and run with it.
Your Checklist of Actions to Take
☑ Be willing to experiment. Test out different trust indicators to increase traffic and conversion rate.
☑ Evaluate the risk before buying. Ensure that the website has multiple channels and multiple traffic sources. Chuck says it lowers the risk and increases the value of the business.
☑ Use Trends.Google.com and get insight into the history of keywords and Google searches.
☑ Stay away from trendy things. Look for the potential growth of the business over time then highlight those opportunities for the potential buyer.
☑ Ensure that the business I’m buying is transferable. It should have clean books, standard operating procedures, and proper structure.
☑ Secure my business’ verifiability. Have clean books by using tools like QuickBooks to keep everything and to easily rebuild my P&L statement.
☑ Communicate openly with my potential seller or buyer. Be clear with my intentions but also have an open mind so we can come to a mutual agreement.
☑ Do my due diligence. Understand what I’m buying by reviewing the marketing package and by talking to the seller.
☑ Value my time especially when looking for a smaller transaction. Start early and don’t wait to make changes. Chuck says to also look into accrual versus cash accounting.
About Chuck Mullins
As a serial entrepreneur, Chuck Mullins has started and acquired dozens of online businesses. He built his first profitable website in 1996 at 18 years of age. Although he still owns dozens of online businesses, he now spends most of his time helping others buy and sell online businesses as a Senior Broker at Quiet Light Brokerage.