CEO of Empire Flippers, Joe Magnotti shares the last numbers on deals and revenues and describes his processes for hiring and managing a remotely distributed team. He also talked about Empire Flippers’s scoreboard, valuation tool, new platform login, and how they are setting the bar in the industry and what the future might hold.
GUEST BIO:
Joe Magnotti has a background in engineering and spent the 90’s at a startup in San Francisco before moving onto the mortgage business. Now Joe spends the majority of his time in Manila, Philippines. Like the rest of the Empire Flippers he enjoys traveling often with frequent trips to the rest of SE Asia. In his free time, he enjoys boxing, basketball, and playing poker. He goes by “Joe” — only his grandmother calls him Joseph.
Connect with Joe: Linkedin | Email
Visit Empire Flipper’s Website
QUICK LINKS:
*Users will have to email [email protected] before October 8th to get access
SKIP TO THE GOOD PARTS:
00:27 – 02:12 – Empire Flippers in numbers
02:47 – 03:21 – Main business expenses
03:55 – 08:14 – Hiring process + tips for a globally distributed team
08:14 – 09:58 – Average deal lifecycle in Empire Flippers Marketplace
09:58 – 10:57 – Deals at Empire Flippers
11:33 – 13:39 – Dealing with Transparency: Way of the Future
14:14 – 26:34 – Selling Business on Empire Flippers
26:30 – 31:01 – Buying Business on Empire Flippers
33:05 – 36:28 – Making Post-sale changes
37:27 – 38:32 – Buyer qualifications
38:53 – 40:53 – Tips for Buyers
41:01 – 42:53 – What’s coming ahead for Empire Flippers
SHOW TRANSCRIPT:
Michael Bereslavsky 0:14 Hello listeners. Today we have Joseph Magnotti, the co-founder and CEO of Empire Flippers. Hi Joe.
Joe Magnotti 0:24 Hi Michael. Thanks for having me on.
Michael Bereslavsky 0:27 Thanks for joining us today. So as usual, we love to dive into numbers just from the beginning. And I know that Empire Flippers have been more open about the numbers than most. So, I’d love to know what is your current revenue? Or what are some other numbers you can tell us?
Joe Magnotti 0:47 Yeah, I mean, we do our quarterly reports. And those reports are available on our blog. So, if anyone wants to see our numbers at any time, they can see those top line numbers right now, but through the end of August, you know, we’ve done in total sales, we’ve done almost $30 million in business, and that’s through 190 different sales. So, you know, we have a lot of volume going through Empire Flippers, and a good amount of revenue as well, that equals about almost $4 million in fees. Our goal is to do 6 million this year. So, we are on track. And I think, you know, we’re growing quite well, we’re about 40% over where we were in 2018. So that’s a good number. And as you know, we made the Inc. 500 list for four years in a row now, and that’s been a great achievement.
Michael Bereslavsky 1:44 So, in 2019, do you expect a higher revenue than 2018?
Joe Magnotti 1:50 Yeah, we expect to be about 40% bigger.
Michael Bereslavsky 1:53 So, what do you expect to be the total this year more or less?
Joe Magnotti 1:58 Yeah, I mean, total sales volume in terms of like the size of the deals that we do will probably be around 45 million and then our commissions, our total commissions will be about $6 million.
Michael Bereslavsky 2:12 Alright, so the revenue, like what Empire Flippers makes in total from commissions and listing fees is about 6 million.
Joe Magnotti 2:21 That’s correct.
Michael Bereslavsky 2:22 And are you profitable? Are you going to make some profit on that?
Joe Magnotti 2:25 Oh, we’re going to be very profitable. We’re a bootstrap company. Justin and I, my business partner, own the business 50/50. We have no debt; we have no investors. So, staying profitable is important for us. Otherwise it comes right out of our pocket. Our margins run about 38% so you can do the math there yourself. We do pretty well.
Michael Bereslavsky 2:47 Nice. And what would you say your main expenses are? Would that be for employees or marketing?
Joe Magnotti 2:55 Definitely employees. It’s a labor-based business, it’s a service-based business, Michael so that’s going to be the number one way of, you know, having a lot of payments going out. Our major expenses are employees but there’s a reasonable expectation that you’re going to have to have a good number of employees. We have 60 employees right now. And if you’re going to be a white glove service and a high touch environment, you’re going to need that number.
Michael Bereslavsky 3:21 Yeah, absolutely. So, you just recently crossed 60 employees. And I recall seeing that you put a freeze on hiring, is that right? Or are you still hiring now?
Joe Magnotti 3:32 We are hiring to replace and expand a little bit right now. We had that hiring freeze in the beginning of the year. But we have loosened that up a bit. And we’re looking to hire more in Q4 as we go into 2020, because we expect a larger expansion in 2020.
Michael Bereslavsky 3:48 Yeah, that seems to be the best way to go about it. We always have to be on the lookout for good talent, right?
Joe Magnotti 3:55 Yeah, I mean, you know, when you lose people and you’re in this kind of business, you have to replace them quickly. And so, we definitely have an HR machine that simply sits there and hires people. But the good news is our turnover rate is fairly low. And, you know, we’ve never had to lay people off or reduce the size of our company in any way because we’ve had constant growth.
Michael Bereslavsky 4:17 Yeah, that’s great. And are most of your employees now are in the Philippines?
Joe Magnotti 4:22 No, most of our employees are Westerners who are spread out throughout the world. Now, we don’t have a centralized office, but we have, you know, many people living in America, some living in South America, some living in Asia. We do have a number of Filipinos that work for us, roughly 20. So about one third of the staff is Filipino, they’re in the south here in Davao City, and they handle frontline low-level customer service and some basic number crunching, stuff like that, that we need help with. But the rest of the staff is westernized.
Michael Bereslavsky 4:54 Nice. And I’m curious, how do you hire? So, you have this remote company and mostly Westerners all over the world. Do you have like a centralized way to hire people that we go through a certain system? Or do you get most people from referrals from your existing employees? How does supposed to work?
Joe Magnotti 5:17 Most of them come directly to us, our brand and our reputation. And obviously, the offer that we give is pretty good. We give worldwide health benefits. We allow people to work from anywhere, very competitive salaries. So, if you combine all those things plus an interesting fun place to work. And a lot of people you know, want the job. So, we typically, when we put a job post up, we get about 100 applicants.
Michael Bereslavsky 5:41 Wow.
Joe Magnotti 5:41 So, you know, if we’re only hiring two or three, we can take the cream of the crop.
Michael Bereslavsky 5:46 Yeah, that can be exhausting. We were hiring for a position earlier this year and we had about 85 applicants. And it’s really a long process to interview everyone, to review resumes, and we tried to have a couple interviews with each person.
Joe Magnotti 6:01 Yeah, so the secret to that, in my opinion, is to have a YouTube video. So, every applicant needs to have a YouTube video. If they don’t have a YouTube video, they go right to the trash.
Michael Bereslavsky 6:12 Yeah, we do that for some, like we do for positions that kind of require the person to be, you know, more engaged. But for some more technical positions, I found that many people just don’t really like that, they don’t feel comfortable. Like someone who is going to be in support, you know, doing WordPress migrations.
Joe Magnotti 6:32 Right. Yeah, and I understand what you’re saying. And that’s why I think you got to clearly explain that in the job post. So, if they read the job posts, they understand why the video is so important. Look, we get an overwhelming number of applicants, we can’t interview everybody. If we have a two-and-a-half-minute video from you, we get a little bit of an idea of who you are, so please submit that. And that usually works out fairly well and is a good sort of first way for us to filter from everybody. From there we go through a second round of interviews, and then perhaps even a third round of interviews before we make our final decision.
Michael Bereslavsky 7:06 Okay, so first they upload a video on YouTube. And then there is an interview like, what, like 15 minutes an hour and then the second interview?
Joe Magnotti 7:14 Yeah, so not only do they have to upload a video, but they have to answer a number of questions. So, there’s a survey and a form that they have to fill out along with their video. And that gives us a good idea of who we’re working with. The first round of videos is a quick intro interview, it’s about 15 minutes. And we’re usually able to clearly make sure that they can meet the requirements, you know, do the job, that sort of thing. Make sure that they understand what kind of job they’re getting into. And that disqualifies a lot of people there as well. The last interview would be, you know, 45 minutes to an hour and that’s really for the small core group, when you’re trying to make a decision between, you know, five or six people when you have to hire two.
Michael Bereslavsky 7:56 Yeah, have you used any process for hiring something like top grading, or did you just design your own?
Joe Magnotti 8:03 We designed our own. We use Google Sheets, and we just track everything in there. And the survey flows directly into Google Sheets via Google Forms. That works out really well for us.
Michael Bereslavsky 8:14 Nice. So, continuing with numbers, what’s the current sort of average time for people to sell their websites for Empire Flippers?
Joe Magnotti 8:23 Yeah, that’s a very interesting question, Michael. I mean, the straight answer is the average deal is on our marketplace for 42 days. And we actually have a scoreboard which I’ll give you a link to that will show you all these numbers in real time. It pulls from our database and puts up all those numbers.
Michael Bereslavsky 8:40 That’s pretty good.
Joe Magnotti 8:41 Yeah, it’s very good. Now that does not include the vetting time and the migration time. Those are additional. A couple of weeks for vetting where we have to get all the numbers right, we have to make sure that we get the pricing right, and then maybe a couple of weeks for migration. So, all in all, you know, usually we can sell a business from first contact and submission to all the way to getting the money directly in the hands of the seller in three months.
Michael Bereslavsky 8:55 So, let’s say if I have a business, I am enlisting like today, and then there is a process of vetting and then you know, you have to check everything, compare, and the entire process until I get my money. That’s going to be about three months, four months?
Joe Magnotti 9:24 That’s correct.
Michael Bereslavsky 9:25 That’s, that’s not bad because I remember seeing some data, I think data that you published last year, it said something like four or five months.
Joe Magnotti 9:35 You know, we’ve got a lot faster, we’ve gotten a lot better. And I would say that the deal size is really dependent on determining how quickly people get paid out. So, for instance, a $50,000 business sells a lot faster than a million-dollar business. And that’s something that we have to make sellers clearly understand. But when we’re doing an average, you know, saying three to four months is pretty good.
Michael Bereslavsky 9:58 So, you mentioned you have, what, about 200 deals this year? So, like, how many deals do you usually close every day or every week?
Joe Magnotti 10:07 Yeah, we do between 25 and 30 deals a month, maybe a little bit below that. I think our average this year is about 23, 24 a month. But you know, we did have a couple of months were we only close 17. So, they brought down the average a little bit. Our goal was to do a deal a day, you know, 365 deals, but that’s a lot. I don’t think we’re going to hit, we’re going to achieve that. But we’re going to come close, we’ll definitely do 300 plus.
Michael Bereslavsky 10:34 Yeah, that’s pretty close. And what’s the average deal like? Is it about 100,000 or more?
Joe Magnotti 10:40 Yeah, the average deal size is on the rise, every year it’s been going up and up. In 2018, it was about $111,000. This year, it’s up to $152,000. It might even go higher as we go into Q4 and close out some larger deals.
Michael Bereslavsky 10:57 That’s pretty good. So, I know that you’ve been publishing number for quite some time now. And it seems that people love it, especially in this industry that everyone is being very secretive about everything.
Joe Magnotti 11:09 I think it’s really important to be transparent in any business, but especially ours. So, we want to make sure that people know how many people we have working for us, what our general revenue numbers are like, you know, we don’t talk exactly about expenses because we don’t want to be giving away the whole shop. But yeah, we definitely can talk about general numbers and where our revenue and most of our money comes from.
Michael Bereslavsky 11:33 So yeah, it looks like it’s been very helpful for marketing to create a more positive image of Empire Flippers, especially compared to the competition. So, I’m curious, how did you originally decide on that? And did you find that to be really helpful in marketing in general?
Joe Magnotti 11:51 Yeah, it’s an interesting question. When we started out as AdSense flippers, we used to do monthly numbers and that was a big thing back in the early 2010s. I don’t know if you know, but a lot of bloggers and online business people were talking about their monthly income report. And so, once we, you know, transported the company into Empire Flippers and really started focusing on our marketplace and connecting buyers and sellers. We started to do a quarterly report, because we thought it was interesting to keep those numbers going. It does help a lot with marketing, because people trust and understand us. They know that we’re not hiding any money or hiding deals or saying that we’re off marketplace deals, you know, we can really rely on the data that we’re putting out there.
Michael Bereslavsky 12:36 Yeah, it seems that transparency is just becoming more and more popular lately. And it’s changing many different industries and businesses.
Joe Magnotti 12:45 Yeah, I think it is. And I think that this is the wave of the future, just like I think remote teams and you know, being able to have distributed teams, we just did a podcast a couple weeks ago in distributed teams. I really think that you know, this is the wave of the future. Just like transparency is too because it’s kind of critical in order to build trust in a niche and become the authority in order to know that.
Michael Bereslavsky 13:09 Yeah, absolutely. I think it’s great that you’ve adopted this approach and it looks like some people in the industry are starting to copy you. So, we had an interview with Blake, the CEO of Flippa, and Flippa is not very open about the numbers. But I’ve definitely noticed in the past year that they are kind of pushing more towards trying to be more front about things as well and sharing kind of more details. Looks like you are driving that push in the industry, so that’s nice.
Joe Magnotti 13:39 Yeah, I mean, we try to be first in the industry, definitely, we want to be the leader and we want to be out there you know, we were the first ones to come out with private listings. You know, before that, if you’re on Flippa, you had to reveal your URL. We were the first ones to do it the other way around, especially by making sure that people had to place a refundable deposit before getting all of this information. That was a big push for us. And so, we think that a lot of the initiatives that we’ve talked about and we’ve pushed are the way to go. And it’s good to see that someone like Flippa is coming along for the ride.
Michael Bereslavsky 14:14 Yeah, absolutely. So, let’s get a little bit more into the process of how it works with Empire Flippers. And I’m actually curious because we haven’t used Empire Flippers yet, on either side. So, let’s say that I am a first-time seller, and I want to sell a business, let’s say like $200,000. So, can you explain briefly how it would work? So, I submit an application, right? And what happens next?
Joe Magnotti 14:40 Yeah, so you submit your application, there’s a form that you will go through that will ask them normal questions, and then that form will create a ticket in our Zendesk system that our vetting team will follow up on. Our vetting team will take your numbers and begin to create a P&L that will have all the numbers in there for you and it’s a normalized P&L, so our buyers are very used to seeing a P&L in the same format, all of our businesses use the same format. Instead of having, you know a format that comes this way, a format that comes that way, a prospectus is this way, all of our listings use the same format. And that’s very valuable to our buyers. But our vetting team fixes that up for you, our vetting team does that, all of that is there and ready to do hand holding through the entire process. The next step is pricing, it’s to make sure that the pricing is good for you. Our vetting team, again comes with the pricing, we use our valuation tool in order to make sure that we do get accurate pricing, it’s not just a marketing ploy, we actually do use a valuation tool in pricing, because we think after having all this data that we do have valuable pricing data. There is some back and forth there, of course, some sellers think that their business is more valuable or less valuable. Maybe they want to sell quicker. So, they’re willing to do a less price. Some want to, were willing to wait longer so that will do more of a price. And our valuation tool gives ranges and I encourage your audience to go ahead and check that out.
Michael Bereslavsky 16:09 So, let’s see. So, first, I submitted the application and I add my numbers, and also probably some screenshots or videos, right, right away.
Joe Magnotti 16:18 Yeah. We’re going to verify all that information by getting back to you and asking for proof of that revenue, correct.
Michael Bereslavsky 16:24 So how soon would you usually respond to a client that filled out the application, will it be quickly?
Joe Magnotti 16:30 Yeah, you’re getting the first response within 24 hours.
Michael Bereslavsky 16:33 Okay. And then I submit, so I’m going to send some approves and videos and screenshots, explaining how things work. And then the next step you mentioned is evaluation, when do it happen, like a week later or so on average?
Joe Magnotti 16:47 No, it’s going to happen, they’re going to get back to you within a couple of days. And keep asking for more information if there’s anything not clear, if there’s anything that we need to build out that we don’t understand. For larger, more complex businesses, just have a call and my team will go through that with you, and answer everything and kind of a live interview. So, after that vetting stage, we move on to the sale stage. And one of the first things we do is we do an interview with you. That’s for public consumption. We’re one of the only brokerages out there that does what we call the seller interview, which is something we put on our listing page, again, our buyers love this because they can hear directly from the sellers mouth exactly what they’re talking about and what went into it. We hide the URL, we hide any private numbers so no one can figure out what the actual business is, but it does review that in this interview with the seller. So that’s the first part of the sales process. And the next step would be for the listing to go out to you know, all of our hundred and 20,000 people on our email list. We go ahead, we tell them at 10am, Eastern Time on every Monday, everyone gets all the new listings at the same time. We think that’s very valuable in creating a marketplace because it’s fair, it’s balanced. Once we do that people will express interest either through refundable deposit or buy a VIP code. And our sales people will follow up, will set up a buyer-seller conference call. The buyer-seller conference call between the buyer, the seller, and an EF employee will always be there to hold your hand throughout the entire process. There might be some negotiations back and forth after that call, we’ll agree on a price, the buyer will pay us and Empire Flippers will hold on to the business. And then our migration team will come in and actually move the business from the seller to the buyer. And once that is complete and revenue is verified, then we go ahead and release the money to the seller.
Michael Bereslavsky 18:36 Okay, so let’s go a bit into details. First of all, what happens if I don’t like the price, let’s say you offer the price about 30X, and I want 60X, I think my business is amazing. What’s going to happen?
Joe Magnotti 18:50 Yeah, so if you’re in the vetting process, and you say I want 60X, and that’s outside of our valuation tool range. So, we have two ranges, we have what we call our absolute range. And our typical range, we like to keep our pricing within our typical range, because we know it’s going to sell in a reasonable time period. But if you’re willing to wait longer, or you need to sell very quickly, you can use the absolute range. But if 60X is even outside the absolute range, we won’t do business with you. Unless you’re willing to be flexible and come within that pricing, we’ll simply say sorry, we’re not willing to represent you because the business will never sell at that level. And we would be honestly doing a disservice to our buyers, because we’d be overcharging them and no one’s willing to pay that.
Michael Bereslavsky 19:32 So, if the price is too high, you would just refuse to list it, right?
Joe Magnotti 19:36 That’s correct.
Michael Bereslavsky 19:36 And that’s what happen often?
Joe Magnotti 19:38 Does not happen often. We do reject about two thirds of the business that come our way. But most of that is not because of pricing problems. Most of that is because people think that they make $10,000 a month, but they only make seven, when you go through all the numbers. You know, people may have other things that, we don’t do any porn or gambling at Empire Flippers, anything illegal, unethical, like hacking or anything like that. So, all those kinds of sites that may use something like that, we’d have to reject those, obviously, outright scams are going to be rejected. But most of it now is discrepancy in the numbers, they say, you know, I make $10,000 a month, the proof that they provide only provide $7000 a month. Now they’d rather work on the business, seller rather, work on the business and get it up to 10,000 rather than sell it 7000 out of a lower price.
Michael Bereslavsky 20:26 Yeah, we found that happens a lot. Like a lot of people come to us as well and say we have a business which makes $10,000. But once we actually look at the numbers, look at screenshots, it’s maybe just three and a half thousand dollars per month or something like that. People always assume it makes more, and people often don’t take expenses into the account. So how do you deal with that? Do you have many sellers that come to you and they just say, I don’t spend any money on it or I don’t put any time to it? So how would you check that?
Joe Magnotti 21:00 Yeah, well, that’s another great question. And the thing is because we’ve been doing this so long, and we have so much volume, we know the right questions to ask for each type of business. So, you know, if you have a content business, and you say, well it doesn’t cost me anything? Well, no, you have hosting, you have a domain name, it costs you something. Do you add any content every month? I mean, these are questions we know to ask, we know to go through. And we know to make sure to put on the P&L. So, our team is very familiar with this kind of stuff. If we’re working with a physical product business, you know, we’d say okay, what are your cost of goods sold? How much you’re paying your supplier? Can you provide us an invoice that shows how much you’re doing that for? These kinds of questions are very, very important to verify that the expenses are correct. And we think it’s a key part of the process.
Michael Bereslavsky 21:44 So, if I’m saying that, you know, I write all the content, I do all the backlinks. Are you going to kind of calculate how much it would usually cost and then have that as expenses? Or would you just add kind of more.
Joe Magnotti 21:57 If the owner does it himself, no, we wouldn’t use that as an expense. But we would say though, is you’re working so many hours a week that you’re going to get a lower multiple. So that’s how we adjust for owner hours. If you’re doing everything yourself and you’re working 40 hours a week, you’re going to get a very low multiple. And honestly, it’s probably going to be very hard to sell your business because nobody wants to buy a job, right? Where it does get interesting is where somebody says, Oh, I only use, I only work five hours a week. And we have somebody else come in and say, there’s no way you could do that in five hours, you need 20 hours to do that. And that’s where we start negotiating. And we start working and seeing if there’s some way to work out a deal.
Michael Bereslavsky 22:40 Yeah, that happens all the time. Absolutely. So that makes sense, that sounds like a good system. And as a seller, I understand that I would have to sign an exclusive agreement. Is that right?
Joe Magnotti 22:51 Yes, you have to sign an exclusive agreement for six months with us. And like what we were talking about before, if the average sale time is three to four months, this gives us enough time with a little leeway in order to make sure that your listing is sold.
Michael Bereslavsky 23:04 And is there some kind of leeway? Can it be shorter, or is six months the absolute, like the minimum?
Joe Magnotti 23:13 No, it’s definitely the minimum. And it’s a requirement to list with us. And the reason is because if we’re going to go through this entire vetting process, and then we’re going to go through this entire sales process and negotiate with buyers, and do all this marketing of your listing, and then all of a sudden you pull the listing and go somewhere else. You know, we’ve spent a lot of money and a lot of time and effort and energy on that, we should be compensated for that.
Michael Bereslavsky 23:35 Yeah, have you had that happen? Like if I listed a website, and then suddenly, another buyer that I was talking to before decided to accept an offer? So, I understand that I would still be liable for being the commissions, right? Is that something that happens sometimes?
Joe Magnotti 23:50 It’s very, very rare, Michael, because here’s the thing, most sellers find our service valuable enough to pay the percentage, right? I mean, most sellers don’t want to migrate the business from their server and their stuff to the other guys server, they don’t want to be in charge of that. They’re afraid they’re going to mess it up. So, they love the idea of us coming in and doing that. Yes, you sign in an agreement that says even if you find the buyer, you owe us the commission. That is correct. But I think we provide enough value that we close that buyer, because here’s the thing you got to think about, even though you know that buyer outside of Empire Flippers, now that it’s listed on Empire Flippers, it might have motivated him to buy it, right? And now that he’s getting, you know, a P&L and a nice pretty format. He’s getting a nice listing page, describing everything. He’s getting all these other services. That’s the real reason why he went ahead and pulled the trigger, not because he knew you beforehand.
Michael Bereslavsky 24:46 Yeah, it makes sense. And so, the next step you mentioned is a seller would have to talk to some buyers potentially? Like how many, how many calls would I need to make as a seller? Would there be like 10 different calls with other buyers, so probably just one on average or two?
Joe Magnotti 25:04 On average, you would probably take three or four buyer-seller conference calls. But again, there is a wide range, you know, the smaller deals go so quickly that most people don’t even want to do a call. They just know, they buy it, you know, under $30,000 list price, we can’t hold on to the businesses more than 24 hours, they just, people buy them so quickly. But when people start to get into the six figures, especially the mid six figures, and seven figure deals, people want to talk to the seller, and that’s understandable. And you should expect to have you know, a couple of phone calls with different prospects and maybe even an additional call for negotiation and details. But the great thing is because we’re actually the broker and not just the marketplace at Empire Flippers, we’re able to provide a person to be on the call with you and represent you as the seller. So, we can make sure, we do a prep call, we prepare you the things to say, things that not to say. How to stay away from certain, you know, dangerous situations. And you know, know more about the buyer before going in. We do a whole presentation for you. We prepare something a slideshow that has typical questions and numbers so that the buyer can be walked through a process.
Michael Bereslavsky 26:16 Nice. So, you act as a broker for the seller. So, you generally protect the seller’s interest the most, is that right?
Joe Magnotti 26:24 Correct. I mean, we have a fiduciary responsibility to the seller, that’s for sure, we represent the seller in the end.
Michael Bereslavsky 26:30 Okay, that’s great. And in terms of buyers, so if I’m a buyer and I go to Empire Flippers, can you describe the process. So, let’s say I see a listing that I like, on one of those Monday newsletters, so I understand that first, I would have to submit a deposit, is that right?
Joe Magnotti 26:47 Well, a refundable deposit, that deposit cannot be used by the business. And if the business is sold to anybody else, the deposits refunded. And if you decide to buy the business, the deposits are funded as well, you have pay by wire, that’s the only type of transfer that we accept. There’s also, if we’ve done business with you before, or you’re involved in one of our groups, or you know a buyer or seller or you can provide a statement of liquidity from your CPA or accountant, something like that, we’ll give you a VIP code. And the VIP code will allow you to bypass the refundable deposit system and get directly into the details and start doing your own due diligence.
Michael Bereslavsky 27:27 Okay, so I’ve done that, and I’ve looked at the business, and I decided, but I have a few questions. So, then I want to schedule an interview call with the seller, right? And that can be done through your system as well.
Joe Magnotti 27:42 That’s correct. Yeah. We call it the buyer-seller conference call and that’s done directly through our system.
Michael Bereslavsky 27:47 Do I have direct access? Can I ask questions to the seller directly?
Joe Magnotti 27:52 Yes. Well, not directly, those questions will be fielded by us because here’s the thing is, we don’t want to bother a seller with 100 of the same questions. If we already know the answer. We’ll go ahead and provide that answer. If we don’t know the answer, then we’ll go ahead and ask the seller and get back to you. But we really do encourage buyers to immediately set up a buyer-seller conference call if they’re at all interested in the listing, because you know the back and forth via email to be delayed, it’s a cumbersome process. Whereas a phone call can get it all out in an hour, right? And so that’s really the process that we try to make sure to stick to at Empire Flippers. But the thing about scheduling a call is sometimes with multiple time zones, and all this kind of stuff. It’s a nightmare, right? Well, for us, we have a custom application that schedules a call between you as the buyer, our seller, and somebody at Empire Flippers. And so that call will be scheduled, a half an hour will be done with the seller beforehand in order to prepare him, make sure he’s ready for the call. And then an hour between the buyer, the seller, and the EF representative.
Michael Bereslavsky 28:57 Okay, makes sense. So, as a buyer, I schedule the call, I discuss things, and now I decided I want to buy it. So, the next step is for me to send the funds, the wire transfer, right?
Joe Magnotti 29:07 Correct. If you buy for full list price, then you get the business as soon as we receive your funds. And so, we would proceed to migration after that. If you think the business is overpriced, or you think you want to get a deal then you can make an offer lower than list price. If you’re lower than list price offers accepted, we run that lower than list price offer against any and all active depositors, those other active depositors would have a chance to beat your offer. And if they go ahead and beat your offer, then you know you would have a chance to also beat them back. And then we get into a little bit of a race, but you will never pay more than list price at Empire Flippers. And that’s you know, the guarantee that we can provide.
Michael Bereslavsky 29:45 Okay, that’s good. So, I’ve completed the purchase, I’ve sent the funds, and then your migration team helps transfer to my account. Does your migration team also help change some affiliate IDs, AdSense codes, things like that?
Joe Magnotti 30:00 Yeah, we changed all the codes for you. We changed, you know, all the affiliate codes, all the AdSense codes, those and all can be done by our team. We transfer the website from one hosting to another if necessary. I mean, the only thing we can’t provide, obviously, if there’s any training needed, then obviously the seller would provide that. But we’ll set up a call, we’ll make sure that that’s run smoothly. And you know, the other thing that the buyers look out for, that something we do that nobody else does, is we allow a two-week inspection period where the revenue needs to be within a certain amount in order to make sure that the deal goes through. Because if we transfer everything over, and you know, you were expected to make $10,000 a month, and you only made two, then we know that something is wrong. Either a code is wrong, something’s wrong, maybe you got unlucky, maybe we just need to do another inspection period, or you know, the business has been damaged in some way. And that is a very safe way to transfer online businesses to make sure you’re not getting a lemon. And it’s something that buyers, for us, find very, very valuable.
Michael Bereslavsky 31:01 That’s quite interesting. So, first of all, how big is a difference? Let’s say the business is supposed to make $10,000 and it makes eight and a half? Is that okay, or is that a cause for concern?
Joe Magnotti 31:14 Yeah, for us, the threshold is 50%. Now, that is negotiable. Sometimes we’ve seen buyers say, look, it needs to be higher than that or buyer say, Look, I don’t really care so much about it. And the threshold is not important to me, it can be zero percent. So, it is something that we put in as a goalpost to be 50%.
Michael Bereslavsky 31:35 Okay, so what happens if the site is making under 4000? Instead of 10,000? What does the process look like?
Joe Magnotti 31:42 Yeah, so the process would be one of two things, the buyer can either get his money back and the deal is off, or the buyer and the seller can renegotiate. Obviously, we try to encourage some renegotiation at this point, either a lower price point and extended evaluation period. So, for instance, there was just the holidays coming up, the Memorial Day holiday when, I’m sorry, the Labor Day holiday, when all of the online businesses much lower. So, if you have an inspection period that includes those three, four days, you know, you might not hit the exact numbers that you were thinking because, hey, it’s most people are on vacation, they’re on the road, they’re not on Amazon buying stuff. So yeah, there’s really two ways, it’s just the deal is off or renegotiate.
Michael Bereslavsky 32:24 And what happens if there is a disagreement? You know, the buyer wants one thing, the seller wants another. How would you solve a potential conflict?
Joe Magnotti 32:32 We will just call the deal off and stick to the whatever the asset purchase agreement is, obviously, there’s some terms in there, we do that. But at the end of the day, you know, we could just call the deal off, refund the buyer, and then find a new buyer for the seller.
Michael Bereslavsky 32:45 And what if the seller, so some things that happened to us once is, you refunded it and you know, there is a problem because the seller says that the buyer damaged your website in those two weeks, you know, the buyer change some things and they want some compensation for it. What do you do then?
Joe Magnotti 33:05 Well, our terms clearly say if you break it, you buy it. And if you make changes to the website as the buyer, before the inspection period is up, any changes to the website, you own the website. And that’s how we prevent that from happening.
Michael Bereslavsky 33:17 Even changes like changing the hosting, because they will change it with hosting account there could have some…
Joe Magnotti 33:23 Well, when we do our migration, you have to do a migration to the exact same account at the exact same level. If you choose a different account, like a cheaper account or something like that, you’re basically breaking the terms of service and you own the website. So, we put, our migration people wouldn’t allow that to happen, we would say you realize if you do this, you own the website and the inspection periods over because this hosting is not as fast as the other hosting. And that’s going to cause other problems. And so, you know, we wouldn’t be able to do a proper inspection period. So, you’re calling off your inspection as the buyer, 99% of buyers are going to say, Okay, I’ll just do the same exact hosting that they have.
Michael Bereslavsky 33:59 Yeah, so that makes sense. So, the two weeks inspection, everything just stays the same, and there is no change. So, if there is a problem, you know that it’s not caused by the buyer, right?
Joe Magnotti 34:10 Yeah, I mean, we’ve had buyers who are not so concerned about that. They want to get in there and start getting their hands dirty, and they even call off the inspection period. Look, go ahead, pay the seller off. Because I know that I have paid traffic coming in, I know that I can make some zero changes today to increase, you know, and double my income. I don’t need the inspection period. So, we definitely are flexible in those kinds of things. And we understand that not every sale is going to be the same thing.
Michael Bereslavsky 34:36 Yeah. And what happens if, as a buyer, you know, everything completed, the inspection period is over. And then maybe a month or a couple months later, our revenue just drops sharply like 70% or 80%. As a buyer, do they have any kind of recourse, or that’s it?
Joe Magnotti 34:53 Yeah. Unfortunately, there’s no recourse. There’s no warranties at that point. If you’ve allowed the inspection period to go over, you have allowed the seller to be paid out. Once the seller is paid out, the deal is considered complete, and there is no recourse.
Michael Bereslavsky 35:06 Right. Make sense. It sounds like the system is well thought out, then I know you’ve been doing it for a while. So, you’ve definitely changed and tweak things over the years.
Joe Magnotti 35:16 Well, this comes from us being buyers and sellers, you know, we are not just some corporation that decided to jump into this. Justin and I did use the flip a system for a long time. And we saw that there were significant drawbacks to it, you know, and one of them was this sort of post-sale period where there was nobody to help you. You had to figure it out yourself. And if there was a dispute between the buyer and the seller, there was no one to figure it out. Yeah, you can go to somebody like escrow.com, but they’re going to throw you into third party arbitration. Third Party arbitration typically has an old retired judge who doesn’t know much about technology. And Justin and I actually went through that with a purchase that we made out of Flippa, but we wound up with losing, and we got a lemon that made zero dollars even though it was supposed to make a couple of thousand dollars. So, you know, he didn’t really understand. He just said, well, the domain name and the business has been transferred. If it doesn’t make any money, that’s your fault, even though we obviously got scammed. So, this was a system that not only we designed for sellers to be protected, but for buyers to be protected as well. And we think it is a very even and fair system.
Michael Bereslavsky 36:28 Yeah, that’s interesting. You mentioned that because we have the CEO of escrow.com. in one of our next podcasts, Matt Barrie, and it’s going to be interesting to ask his opinion of that.
Joe Magnotti 36:41 Look, I think the escrow.com guys are great if you’re buying cars, houses or boats, but unfortunately, for online businesses, they’re just not the online business experts. And if there’s going to be a dispute, they’re not going to try to handle it themselves. And they’re just going to throw you into third party arbitration who are even worse and don’t know anything about online businesses.
Michael Bereslavsky 36:59 Right. And I’m curious if you have any data regarding your buyers, regarding their success. How many people lose money, how many people are successful with their purchases. If you have some kind of follow up with them, you know, a few months later. I can tell you according to some data we’ve seen and some data we’ve seen from different markets, most first time buyers actually lose money. I’m curious if that’s similar with your experience.
Joe Magnotti 37:27 Definitely not the same with our experience. But you know, we’re a lot more selective with our sellers, and therefore, we’re able to be a lot more selective with our buyers. So, you know, if you come to us, and the first question we’re to ask you is, have you ever run an online business before? You’re a buyer, right? We’ll say, have you ever run an online business before? And your answer is no. We’re going to say, you know, do you know what hosting is? And you say, No. And I say, have you ever bought a domain name? And you say, No. And I said, do you know what GoDaddy is? Do you have a GoDaddy account? And you say, No. We’re going to say, you can’t buy from us. I don’t care if you have half a million dollars, you can’t buy from us because you’re not going to be a very successful buyer. And we want to make sure that our success rate is very high. Now that said, I mean, I don’t have the exact stats that say how successful first-time buyers are, second time buyers are, all that kind of stuff. What I do know is 40 to 50% of our buyers are repeat buyers. So, people keep coming back and buying again and again. We have a lot of portfolio people that we deal with. And this tells me that the system must be working and the listings must be good, because otherwise people wouldn’t be coming back.
Michael Bereslavsky 38:32 Yeah. Do you follow up? Do you have some system to follow up with people like six months, 12 months after they purchase to see if it’s successful or not?
Joe Magnotti 38:39 Well, we don’t have a system to see if it’s successful. But we have a system definitely to say, hey, you bought a site in this niche, we have a site in the same niche, do you want to buy it? And that’s obviously been very successful for us. So, most of those people will come back and buy again.
Michael Bereslavsky 38:53 So, a couple of final questions. What are your tips for buyers? Like as a buyer, how would I find the best deals? Yeah, how would I find kind of something that’s a really good deal?
Joe Magnotti 39:05 Well, I mean, the one thing that I would do is definitely come up with a list of criteria. I would try to focus on one or two monetization types. I would try to make sure that you understood you know, what type of traffic you’re dealing with. And you know, if you’re not a physical product person, then stick with affiliate sites, that kind of thing. I wouldn’t be too specific about niches, all the time we get people that say, Oh, I only want something that does, you know, this, this or this. And a lot of times, that’s just too specific. And it’s too hard to find, you’re better off focusing on the numbers and the criteria in terms of monetization and traffic, that’s really going to be more important, in my opinion. The other thing I would do is take your budget and divide it by three, you can really mitigate your risk as a first-time buyer, by dividing by three. If you have $200,000. And you buy businesses for $70,000 each, it’s very unlikely that you’re going to go broke, because you’re not going to get three lemons in a row. And that’s one of the ways to make sure that your risk is mitigated and that you’ve had a lot better of an overall experience. And it’s something that we recommend to buyers all the time. And the last thing I’ll say is get on the phone with the seller. I said it before, and I’ll say it again, you could sit there and look at spreadsheets all day. But the end business is done between people. And if you get on the phone and you find out the guy is an asshole. Sorry, excuse me, I hope that’s okay to say. You’re not going to do business with them anyway. So why keep on doing all this due diligence, looking at all these numbers, you know, focusing on spreadsheets and driving yourself crazy, if you don’t like who the seller is and you don’t trust them. Get on the phone. ask them some questions, have a normal list of questions that you asked sellers. And you’ll find a good gem that way.
Michael Bereslavsky 40:53 Yeah, very good tips. So, divide your money. Get in the call there for seller and have some criteria.
Joe Magnotti 41:00 Yeah.
Michael Bereslavsky 41:01 And finally, what’s next for Empire Flippers? what are your current goals? Are you just trying to grow as much as you can, maybe planning for an exit?
Joe Magnotti 41:10 Well, I don’t see us having an exit anytime soon. Justin and I just love running the company too much. Obviously, we’re always focused on growth, doing larger and larger deals. You know, I think that we’re going to be closing eight figure deals soon. So, we close a number of seven figure deals this year. And I think our eight figure deals just right around the corner. But the real push for me in the last 12 months has been our new Empire Flippers platform. And right now, it’s in beta. If anyone in your audience is looking to be part of the beta, they can just email [email protected] and we’ll sign them up. What this is really allowing us to do is to be a broker, and a platform, and a marketplace at the same time. Right now, the experience in Empire Flippers is you come to a WordPress site, you click on a page, you place a deposit or use your VIP code and everything is done via email. That’s not a very effective way of going ahead and getting things done. So, we wanted to create a great customer experience with a dashboard that went ahead and had a lot of bells and whistles. So, people could track all of their deposits, make sure that they were doing their due diligence in an organized way. And that sellers could see information about their listing, how many visits they had, who were the depositors, all this kind of information, rather than trying to email us all the time and back and forth, and back and forth. So, there’s going to be a lot of automation in there, we’re still going to be walking you through the process, still going to be that white glove service, there’s also going to be this layer of software to help you interact with us.
Michael Bereslavsky 42:43 Yeah, that’s great. It sounds like some major changes are coming up. And that’s going to give more power to the sellers and the buyers and more control. So that’s great.
Joe Magnotti 42:53 Cool.
Michael Bereslavsky 42:53 Well, thank you for joining Joseph. And finally, how can people reach you or ask you a question?
Joe Magnotti 42:59 Yeah, if you have any questions, you can just email me [email protected]. And if you have any questions in general about Empire Flippers, you’re unable to reach me. You can always reach our support. They’re available 24 by seven, [email protected].
Michael Bereslavsky 43:13 Right. Thank you, Joseph, nice to talk to you today.
Joe Magnotti 43:16 Thank you. Thanks for having me up.
Michael Bereslavsky 43:17 And thanks to you listeners. And if you liked this episode, please give us a positive review on iTunes.
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