I asked Jock to come on the podcast and discuss some of the insights that he has on buying and selling websites. You see, Jock has been buying and selling websites for his own portfolio for a long time.
In addition, he is a website broker selling websites for his clients through his company, DigitalExits.com.
This interview definitely focuses on buying and selling more established websites. The type of sites that Jock and his team work with tend to be valued at $100,000 to $5 million.
So, if you are ready to up your game and start buying or selling larger sites, this interview will have plenty of great tips for you.
Podcast Interview Notes
Below I've included the majority of the questions that were asked during the interview. However, I did not document the full answers, these are more like cliff notes. To get the full value from the interview, please listen to the podcast.
How did you get started as an entrepreneur?
I've always been an entrepreneur. My parents owned businesses and so I got started early.
I use to buy and sell garden plants, run BBQs, and have always hustled
What was your first business that allowed you to live off the income full-time?
Probably when I was in University, I had a personal training business that made enough to pay rent and food.
What is your business now?
DigitalExits.com is an online business brokerage that helps people selling their business find buyers. Every once in a while he does work with people looking to buy sites.
What's the price range of sites that you are usually selling?
Usually between $100k to $5 million. Most of the sites they sell fall in the range of $100k to $1 million.
How did you get started in the brokerage business?
I bought an Adsense in late 2008 for about $15,000. I held onto the site for 9 months and then sold it for $20k.
Now I've been buying and selling sites ever since.
In 2011 I did my first brokerage deal.
My family owns a business valuation company. So, I already had that skill set to understand the accounting and valuation side of the business.
What's types of sites are worth more?
The difference between the smaller and larger sites is that one is not yet a business and the other one definitely is a business. A $5 million site is going to have its own LLC, operation manager, etc.
Sites in the $1million to $5million range are typically going to be software businesses or eCommerce sites. Sometimes we have service based businesses that get up to that valuation.
Typically a drop ship site is never going to get to $1 million valuation. The margins and scalability are just not going to be there. In addition a content based site is not usually going to get to a $1 million valuation either.
Are you looking to buy any sites yourself?
Yes, I'm looking to buy a new business. We've been looking for the past year and a half. I'm actually about 3 weeks away from closing a deal on a business I'm purchasing.
What are elements of a good deal? Particularly for larger sites.
I start with my own criteria. I want to buy a very specific site.
- For example, I wanted something that had monthly or yearly recurring income.
- I wanted the business to be at least 5 years old.
- I wanted it to be in a market that be around 10 years from now.
- I wanted there to be some opportunity for growth through SEO.
- An existing team in place running business.
- At least 10% yearly for the last 3 years.
I'm happy to sit on my cash for a year in order to find the right deal. Because you make your money when you buy, you know you'll make more money when you find the perfect deal.
Why buy a business in the first place? Why not just create a new business?
Some businesses are better to start than to buy. However, you need to make sure that the economics work out.
In the majority of cases, I'm a fan of buying because I'm good at it. And economically it's usually in both terms of time and money a better ROI.
What's the process of finding a good business to buy?
I use broker listings to cheat. These listings give you a good idea of the market: margins, profits, and types of sites that are good.
These listings can lead you to related products in the niche. Then you can go out online and hunt for sites that are necessarily for sale.
Contact the owners and try to get on the phone and make them an offer.
How do you improve the value of a site once purchased?
Try to improve the conversion rates. That's the number one thing I look at.
I try to increase the rankings for product pages. For a software business, I try to improve the ranking of the primary keywords. So, its not about blogging; it's more about acquiring links to increase the rankings.
How can you make sure that you are getting a fair price?
You look at what the market is paying and then make a judgement based on that. Value is derived when a transaction occurs.
Let's use real estate as an example. If a house is selling for $300k to $340k. So, if you buy the house under $300k you are getting a good deal.
What are the standard multiples for buying bigger sites?
For a large business, like a corporate transaction; you'll use a discounted cash flow method.
A business in the $100k to $5million is usually going to be a multiple of seller's discretionary earnings. A seller's discretionary earnings is what they take home at the end of the day.
The multiple is typically going to sit in the 2 to 3 times annual net income. The reason its higher than the Empire Flipper guys is that there is typically less risk with a larger and more established business.
What tactics do you recommend for contacting people that don't have their websites for sale?
You can basically just email them and try to get them on the phone. When you get website owners on the phone, they will likely give you more information about their business rather than just through email.
Are you looking to just flip the business that you buy?
Yes. I come with a private equity mindset. After I've added the value to the business that I can, then I will sell it.
What other ways do you grow a business that you purchase?
I look for massive levers.
- Conversion rate optimization
- Selling more of the high margin products
- Increase sales
- Decrease costs
How do you go out finding a buyer for a large property?
If you are selling in the sub million dollar range; using a broker is going to be the best route. However, if its getting larger and can be acquired by a small private equity or other company; it might makes sense to engage a small mergers and acquisitions company.
Unless you can sell the business strategically yourself, you are most likely going to get the best price by going through a broker.
How does Digital Exits bring in buyers to look at your listings?
Its actually very easy to find buyers. There are lots of hungry buyers and very few sellers.
We rank for keywords in search engines; so SEO brings in potential sellers. We speak at events and get referrals as well.
What else should we have covered?
I think the main thing is having the mindset that you can't find a great deal in a weekend (unless you are just spending $1,000).
If you make a bad deal it's going to take a lot of time and energy to get that capital back. So, you need to take your time in finding the right deal. Look at all the downsides before you ever make an offer.
Where can people follow along with you?
Digital Exits Podcast on website and iTunes.
As always, I would love to hear any thoughts or questions that you might have about the interview.