EP09: Transitioning from Buying and Selling Online Businesses to Brokering with Ryan Kaufman of Digital Acquisitions – Domain Magnate

EP09: Transitioning from Buying and Selling Online Businesses to Brokering with Ryan Kaufman of Digital Acquisitions

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Michael sits down with Ryan Kaufman on a discussion about brokering, having your focused niches, marketing strategies, misconceptions on buying websites, and what’s coming ahead for Digital Acquisitions.

GUEST BIO:

Ryan Kaufman is a partner in Digital Acquisitions. The company has a collectively 50 years of digital marketing experience. They are working with entrepreneurs and investors who are either looking to buy a new business or grow through acquisition.

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SKIP TO THE GOOD PARTS:

02:13 – 03:31 –  Ryan’s Transitioning from Buying and Selling to Brokering

03:31 – 09:43 – Ryan’s start in the industry.

09:43 – 11:43 – Is brokering better?

11:43 – 14:10 – Challenges in brokering that many never thought of.

14:14 – 17:05 –  Knowing more about SBA loan

17:33 – 19:26 –  Thoughts about ‘Inspection Period’.

20:00 – 21:51 – Acquiring expertise by focusing on the niches you do best

22:18 – 24:23 – Focusing on SaaS and Digital Agency niches

24:51 – 28:41 – Growing Digital Acquisitions + an overview of the company operations

28:53 – 31:53 – Deals at Digital Acquisition: Numbers and values

32:43 – 36:25 –  Growing from low six-figure deals to seven-figure deals

36:25 – 39:53 – Misconceptions in buying websites and why brokers can be your best friend?

42:25 – 46:26 – Commission structure at Digital Acquisitions and in the industry

47:09 – 51:26 – Marketing Strategies

53:18 – 01:03:54 – Vision in the next 5 years

01:05:52 – 01:12:36 – Best kind of deals that are undervalued or underappreciated

01:12:56 – 01:13:20 -Last piece of advice

01:13:20 – 01:13:34 – Reach out to Ryan directly. Hear it here.

SHOW TRANSCRIPTION: 

Michael Bereslavsky: 00:15 Hello, listeners. Today we are chatting with Ryan Kaufman from Digital Acquisitions. Hi, Ryan!

Ryan Kaufman: 00:24 Hey, Michael! How’s it going?

Michael Bereslavsky: 00:25 It’s good. How are you doing?

Ryan Kaufman: 00:27 Great! Little sleepy end of the evening here in Portland, but, excited to chat and share some information with the audience.

Michael Bereslavsky: 00:38 I like the set up. You have some pictures of the unicorn.

Ryan Kaufman: 00:43 Yeah, my daughter painted these for me. She’s a little aspiring artist. She’s eight years old.

Michael Bereslavsky: 00:51 That’s actually pretty good.

Ryan Kaufman: 00:54 Yeah. Actually I was really proud of them. We have eight year old twins, a boy and a girl. And last week they decided that they were going to have an art sale and they brought their pieces out to the curb and put up flyers all over the neighborhood so that they could have a sale. So, I feel like I’m doing my job of raising little young entrepreneurs already.

Michael Bereslavsky: 01:20 Nice. You’re going to have the two young artists.

Ryan Kaufman: 01:22 Hopefully, hopefully, something they like doing.

Michael Bereslavsky: 01:28 So it’s cool. I know, we chatted a lot of the past years, you know, like over the decade, but I think it’s the first time, I finally called. So, it’s nice to finally kind of face to face.

Ryan Kaufman: 00:41 Yeah, absolutely. I know we’ve shared a lot of back and forth back in the Trusted Sites Seller days, we’ve rebranded. So yeah, it’s good to get face to face.

Michael Bereslavsky: 01:53 It’s funny, I looked it up and it turns out we’ve been chatting a lot about different Flippa deals and like I think even negotiating to buy some from me, I was negotiating to buy some from you. We’re probably competing on some deals. Why?

Ryan Kaufman: 02:10 We’re probably good.

Michael Bereslavsky: 02:13 But, I think I felt like you took a different direction. So I know that you started buying selling sites on your own as well. Right? Then you went more into brokering.

Ryan Kaufman: 02:24 Yeah.

Michael Bereslavsky: 02:24 And so what’s it like?

Ryan Kaufman: 02:30 I really like it. I am, you know, I learned early on, I really like the technical aspect of learning about the technologies, and digital marketing strategies, that you need and digital agencies and SaaS. But, I also have a really kind of strong deal making vibe to me and I just, I really enjoy the process of bringing two parties together and putting a deal together and I’m pretty good at it. I still have some side projects where I’m running some sites, one SaaS and another blog and then just continue to kind of sell some, but my main focus is in the brokerage these days and just continuing to kind of move upstream and find those niches to serve our core audience.

Michael Bereslavsky: 03:31 So then when did you start in this industry? In this business?

Ryan Kaufman: 03:36 Good question. I started the brokerage about eight years ago and I mean, if you wanted to go way back, and there was a partner of mine, Chris Parker, who actually started Trusted Sites Seller and I partnered with him and he was kinda doing, representing deals on selling them through Flippa and kind of really the first iteration of website brokering. It was kind of a cool time. So, partnered with him and he decided to go off and do a standup paddleboard, a directory site or something when he was an Australian. And so, I bought him out of that business and just kind of ran it as I guess , I don’t know, a side hustle, I guess maybe for, I guess for four years I still was doing affiliate marketing and some performance campaigns.

Have a lot of fun driving a lot of traffic through Google ad words to landing pages and monetizing through CPA networks and just kind of following all the newest, cool ways to make money online. And then I actually sold a business for a longtime client. So I had sold three of his businesses. And after the last one, we were kind of chatting and asking what he was up to and what was next for him. And he kind of, he was like, I don’t really know what’s up. And so, I had somebody I really respected and knew his work ethic and so kind of asked him if he wanted to be a partner in what was then Trusted Sites Seller. And that was Dustin Struckman, who is my partner today. He’s up in Seattle and yeah, that’s when we kind of both went full time into, in full focus into the brokerage. We rebranded the Digital Acquisitions to kind of represent a more brandable name and represent that we’re kind of a global international company.

Michael Bereslavsky: 05:42 So it’s like taken 2010 in 2012, 2011 if you rebrand it.

Ryan Kaufman: 00:05:50 Yeah, I think. No, no, no. We rebranded the Digital Acquisitions in 2017.

Michael Bereslavsky: 05:57 Okay. Yeah. And before that you are buying and selling some sites on your own as well.

Ryan Kaufman: 06:10 Yeah. Gosh. Kind of taking back a blast to the past. I mean we could talk all day about the different kinds of side hustles. Like, you know, we were doing, it was a lot easier back in those days cause ranking was a lot easier. It’s funny to me to think, cause I bought, so I was on some sites, Forum. I’m sure you’ll remember like a Digital Point or YourForum and name something. It was like NamePros. Yeah and so I was like, you know, kind of buying some small sites and at that time, you know $500,000 sites is what people, at least that’s what I was looking at and buying. And then kind of buying high PR domains and kind of hustling and selling links for 50 bucks a pop for lifetime links on a PR seven site.

And one of my first sites, I think it was a PR seven. I wish I still had it today was called tutorialcollection.com and it’s a good domain name, man. And then, I sold that for a couple of hundred bucks, like after I had sold some links on it. And so yeah. Anyway, it just kind of was in that space and just like always following what was new and what was coming up and kind of found my home in helping other people sell their businesses and then navigate them through that process.

Michael Bereslavsky: 07:48 Yes. I guess it started around the same time. So I bought myself site around 2005, 2006 and also started by buying some sites for like a few hundred dollars. And then I did some, some bigger deals like in a few thousand dollars and selling some links. Yeah. I also had PR6, PR7, maybe even PR8 sites or something like that time and then it’s interesting. So then, I kind of got more into buying, I realized there is this huge opportunity because you could buy sites like add multiple or could load down like them. Yeah. And I bought up a bunch and I think that’s a great deal because I could buy them, I could improve AdSense, make them, no one knew how to position AdSense properly, the conversions would be terrible. So I would just buy a website and that was simply, you know, takes that AdSense binder and put it on top.

And like that’s it. That’s all, just doubled the conversion rate. And then at some point I ended up if it’s quite a substantial portfolio then I realized I have to figure it out what’s next. And I figured I would sell some of them so I had them match those six figure deal back, I guess, like, defaults on 9th, defaults on 10th and sold a few of them and you know get some funds and gonna start buying more, buying and selling. And I guess you went the opposite direction. And that was at least concentrating that I was always considering doing some more brokering but that’s simple as a drug. There’s the male, this was a lot more attracted to that side of flipping, you know, by administering site vision portfolio. And so I’m going curious, as well, you know, convince me why I’m wrong, why is brokering better?

Ryan Kaufman: 09:43 Well, I don’t think it necessarily is better. I think it lends itself to a different certain personality type, I mean if you have kind of a sales mentality and outgoing personality, kind of like the process of overcoming objections and putting a deal together, then I think it’s, you know, it’s the perfect fit. I guess just kind of looking at it objectively, the nice thing about brokering is that there is a beginning and an end. And your involvement in an individual deal has a pretty short life span. At least actively. Of course we like to, you know, continue to help our clients long after they’ve done. But it’s not like, if you purchased a SaaS business or a blog, you know, until you sell it, you have an active role and you have an active kind of risk in something happening to that business, a search engine penalty, a monetization partner falling off.

So to me, it was less overhead and less mental overhead to have to worry about, you know, acquiring a portfolio of properties. And I’m just kind of by nature a more of a people person. So, getting the opportunity to talk to a lot of, other entrepreneurs and help them kind. For a lot of people, one of the biggest moments of their life, is, selling a business that they’ve worked for a number of years on. And so that I think is probably, for me, the best point of, being a broker is, and running a brokerage, just being able to kind of impact so many people’s lives, and positively and kind of help them achieve their goals.

Michael Bereslavsky: 11:43 That makes sense. It’s suddenly had different aspects to it and it’s a different set of skills and I suppose it’s a lot less risky, but what are some hard parts about brokering that many people might not know? Like what are the different parts about it?

Ryan Kaufman: 12:04 Yeah. Well, I mean, I feel like we have, we’ve put, spent a lot of time in kind of building up our relationships with especially buyers so that they trust us and and we trust them for the most part. The hardest part I would say is having to look at buyers with a lens of pessimism and understanding cause everybody wants to project themselves as being kind of a professional buyer, professional investor and weeding through those stories to understand what is real and what is being kind of made up because, and it might not matter in the LOI stage or in the review stage, but once you get a buyer into the due diligence stage, that’s when it’s really imperative to understand what kind of buyer is working with, especially in upper six figures, seven-figure deals.

I’ve seen a number of times where somebody with the best of intentions comes into a seven figure deal because they want to buy something through an SBA loan. And without the experience of going through a deal of that size before, the doubts just really start creeping in and the ability to execute. And you know, it’s a big decision putting SBA loan. Yeah, it’s great. You can get in for 10% down, but you’re also putting, you know, you’re leveraging your personal, your net worth, you’re personally guaranteeing those loans. So it’s not a light decision to be made. And that’s I think one of the hardest parts of it is kind of qualifying the buyers. Yeah.

Michael Bereslavsky: 14:10 Is there all this personal guarantee in an SBA loan?

Ryan Kaufman: 14:14 As far as I know, yes.

Michael Bereslavsky: 14:18 And so does it happen often that people at that stage, like the latest stage that they start to get the loan and set things up that they decide to take out all they can to change my mind? Is that something that happens?

Ryan Kaufman: 14:33 Yeah, it does. And you know, sometimes it’s not even necessarily the buyers’ fault. Cause it introduces a lot of additional steps into the process because not only does the buyer have to commit to the deal, but now you have, you’re involving bankers and underwriters into the process, which is good for the buyer in a lot of cases because you have a second set of eyes that are looking at a deal to kind of de-risk it. But at the same time it increases the closing time and the due diligence time and can just really throw some wrenches into a deal. So, I mean, obviously our preference is to deal with cash buyers and private equity firms. They obviously have executed on a number of deals when they see something they like, they can, you know, they can execute with their own funds and close in 30 to 45 days where, sometimes with an SBA you’re looking at, 60 plus two to get a deal done.

Michael Bereslavsky: 15:36 So, a typical SBA deal, let’s say six figures that might take you a couple of months? Or would it take substantially long, like the entire deal? Let’s say from starting negotiation to closing.

Ryan Kaufman: 15:52 Yeah. So, usually the kind of the clock starts ticking once the LOI is submitted cause that’s when they can involve the bankers. And yeah, we’re kind of seeing that 60, 75 day period through our preferred SBA lenders right now. Of course it depends on how qualified the buyers are, how strong, a business is being qualified. But yeah, the ones that are good fits for an SBA loan are processing in around that two month period, you know, usually a bit longer than that. I’d say 75 days, maybe. It’s a good estimate.

Michael Bereslavsky: 16:35 And that’s the time it takes to get the loan approved then, and funded or is it just with that process?

Ryan Kaufman: 16:43 Yeah, approved and funded. And usually we’ll kind of have the buyer be doing conducting due diligence simultaneously with the SBA process. So that they can, they don’t have that due diligence period doesn’t have to tack on to that period.

Michael Bereslavsky: 17:05 And do you also have some kind of like inspection period? So we just recorded an episode from Joe from Empire Flippers and they have what they call, the two-week inspection period, so that the buyer can inspect and potentially if a revenue drops about 50%, buyer can return it and get the full refund? So I’m curious if you do something similar.

Ryan Kaufman: 17:33 We don’t. I think you find in the kind of M and A investment banking space that that just doesn’t happen. I understand the model for blogs and affiliate sites, it makes the due diligence period easier for the buyer because they can kind of minimize the due diligence, which actually I think can be a risk because the fact if a blog loses traffic in 30 days, it potentially gives a buyer a false sense of security that they don’t have to conduct as much due diligence. So, the fact that it doesn’t deteriorate in the first 30 days doesn’t necessarily mean that it’s still a quality acquisition. The deals that we’re working on, there’s a lot that goes into due diligence and code review so by the time the two parties come together at the closing table there really isn’t much of, there’s a lot of trust and goodwill built up.

And I guess the difference too in a lot of cases is we’re talking about the difference between you know, a lot of their sites are kind of affiliate-based and organic traffic-based. Whereas in kind of a soft software and agency deals, which is what we specialize in, there’s actual clients, there’s actual clients that are on recurring billings and so that’s a lot easier to verify pre-closing than is organic traffic going to fall like post-closing. So I think it’s just a different model and yeah. So that’s how we handle things.

Michael Bereslavsky: 19:26 Yeah, that makes sense. Yeah. I certainly agree that sometimes when you go and buy, or if you buy from a flip broker or someone does that might give you some false sense of security, especially for like first time buyers. They might feel that we don’t have to do enough due diligence. And that’s always wrong. Like, you as a buyer, you always have to do as much diligence as all of this should rely on your own kind of experience and numbers.

Ryan Kaufman: 20:00 Yeah. So, as I mentioned, we’ve really kind of focused in on a couple of niches that we can serve really well and also not only can eliminate to the niches but also qualifying the deal size. And so instead of kind of servicing and helping founders that have sites that are kind of $30,000 deals and then trying to also work with people that have $10 million sites. We’ve really identified where we can provide as much value. And that’s in that kind of one to $10 million range, for SaaS and digital agencies with our sweet spot being right around that four or $5 million range. So we just don’t, we know where our services are best utilized and we just, we really don’t kind of play in that kind of lower market or micro market or whatever you want to kind of call it and yeah.

Yeah. Anyway, so that’s just kind of wanted to highlight that. Cause I think there’s some benefits into not having a Jack of all trades people, if you have somebody that understands how a certain industry works, then you’re going broker is going to be able to communicate that to who the buyers and ultimately you’re going to have a smoother deal. And what we’ve seen in a lot of cases, we’re going to be able to extract the maximum value, as well. Just because we can make momentum of the deal going without having to kind of have the seller interpret things that we may not understand.

Michael Bereslavsky: 21:51 Yeah. There’s certainly a lot of benefit than in focusing on specific niche into big time business and acquire some expertise in it. So that should be, get teams so that all the brokers are very knowledgeable. So, let’s get some more into numbers. So you’ve mentioned that you are focusing on one to 10 million. Is that like, is 1 million the minimum for you? What’s your actual minimum?

Ryan Kaufman: 22:18 Yeah, that’s a good question. Actually our kind of bottom floor minimum is right around that half million mark. Of course, you know, if it’s for 480, there’s obviously some discretion there. If it’s a business that is growing quickly and is in a kind of a disruptive space, then yeah, of course we might make an exception. But yeah, our focus is really on attracting those, those businesses that are above the 1 million mark right now.

And, you mentioned, SaaS and digital agencies. I thought maybe it’s more of in terms of multiples, but what kind of multiples, like you’re seeing SaaS and digital agencies and like this usually tie it to specific geographical location or is it just all completely online or remote?

Ryan Kaufman: 23:14 Yeah. Good question. So, for multiples, we’re on SaaS. We’re seeing anywhere from the kind of three and a half to four and a half levels, with kind of the median being right around the upper three lower floors. Not sure if there was a followup on the SaaS part of things, but on the agencies, a lot of times we’re working with agencies that are run remotely, just like our company is. And so the geographic limitations aren’t really relevant. We did close on a seven figure deal for an agency earlier this year that did have a physical office. And the buyer actually relocated to the location to take over that business. And it wasn’t either me or my partners, kinda geographic area. So we were able to still manage that transaction and get a great exit for that seller, without being in the geographic area.

Michael Bereslavsky: 24:23 Nice. And do you often have to travel in person or is it everything online?

Ryan Kaufman: 24:29 Yeah, occasionally. You know, if it’s a large deal and it’s required to get the deal done, then of course, yeah, we’ll travel to talk with you. They’re the buyer, the seller. But I’d say in the vast majority of the cases, everybody’s getting so used to video conferencing and using Slack and we were able to do that virtually most of the time.

Michael Bereslavsky: 24:51 All right, so let’s get more into numbers. How big are you guys currently? So, on your site, it says that you’ve closed 78 deals, can you tell me a little bit more about like your revenue as a company or like your sales volume or the number of employees

Ryan Kaufman: 25:12 I mean, we don’t, I’m not going to just disclose exact numbers, but I can give you a sense of our growth. We have, five brokers on our team, at the moment they’re distributed through, we have one up in London, one in Florida and another one in New Jersey. So distributed team, which, you know, we can, it makes a nice, we can attend meet-ups and have a local presence in some of those markets. So, we use Slack for all of our internal communications. So, you know, it works really well. We have Friday team meetings and stuff, so we like, we try to get face to face with each other as much as possible, so that’s kind of the team structure, uh, myself and Dustin are kind of co-founders of Digital Acquisitions.

So we lead the time, the team as far as kind of strategy and kind of mentoring. Yeah. I mean we’re, we’ve seen kind of tremendous growth,over the last couple of years from 2018 to kind of 2019 our deal flow and kind of deals the deal values closed, should end up at about kind of five to six times of what 2018 value was. So, so that kind of gives you an idea. We, you know, we tend to focus on kind of a small quantity of deals at a time. I just wrote down before we got on, we have, four, five deals currently listed and that’s about where our number stage. Kind of at the one to two deals per broker.

And you know, I think that it’s interesting, we’ve always kinda tried to create the service that we would like if we were selling our business and we like to think of ourselves as the kind of the brokerage. You know, I know that everybody is a sell side broker, but in reality, a lot of brokers are just trying to get the deal completed with very little interest in actually maximizing value for the client. And we, I mean, we like to really think of ourselves as having a fiduciary duty to the client to really see the deal through and advise them in what their best next steps are and not just, you got an offer, go for it, let’s close this thing.

It’s like, yeah, hey, let’s build up some tension. Let’s, let’s see if we can have some competing offers and let’s maximize the value here. Even if that means that the quote, the deal closing is gonna take an additional month to get through. And, I think in the long-term we’re here for the long game, those kind of treating people, treating sellers like we would like to be treated and giving them a little, a higher touch service, you know, ultimately is going to come back. Come back with, you know, additional referrals and happy customers.

Michael Bereslavsky: 28:41 So, you mentioned five deals and how many deals do you expect to close this year. Like it’d be like 20 to 30 or more.

Ryan Kaufman: 28:53 I don’t know that it shouldn’t probably won’t be, It probably won’t be that many. I would say, well, let’s see.

We’ve had six closed, six to seven closed, and we have about four that are closing. So anywhere from 11 to 15, somewhere around that range.

Michael Bereslavsky: 29:11 So like the average deal, would be generally somewhere in, like mid 7 figures or something like that?

Ryan Kaufman: 29:23 We have, looking at our kind of listing roster right now, we have what, two ones, 2 million? One, 2.5, 1 that’s 1.8 one that’s four, and then a small one that’s about 700K. It kind of ranges from that. Mid seven figures to lower something.

Michael Bereslavsky: 29:43 And what’s the biggest one that you’ve closed, let’s say, like in the past couple of years?

Ryan Kaufman: 29:48 Well the biggest one, we have what we have under kind of due diligence at the moment. I hope it should be closing in October. And that’s that four and a half million dollar deal. The largest we’ve closed to date is two and a half million.

Michael Bereslavsky: 30:11 That’s a smaller range, like between half a million and like doing it half of 5-million price . Right. I mean like the range is kind of narrow and what would be the lowest you’ve closed and the boss like a couple of years will be also around a couple million?

Ryan Kaufman: 30:28  The lowest like I said, we’ve been kind of aggressively moving upstream. So what we were doing at the beginning of 2018 isn’t necessarily representative of what we’re doing at the end of 2019. So, you know, we had some deals we were doing for a couple of hundred thousand. And like I said, those are what we learned was the quality of deals. And the quality of buyers is higher as we move upstream and there’s, I don’t want to say there’s not as much work because the expertise you need is different to be able to communicate with those people. But it sometimes can actually be an easier deal to put together because you’re not usually working with inexperienced.

Michael Bereslavsky: 31:24 Yeah, I know it’s kind of similar event than buying business of managing business with like a two thousand dollar deal might be enough started small and simple, but at $200,000 deal is definitely not going to be like 100 times more time consuming. So it might be, you know, like five times kind of more complicated but sometimes than not. So it doesn’t scale in your realm. So it suddenly sounds as a broker to go after bigger deals.

Ryan Kaufman: 31:53 Yeah. Well and the other, the other thing that starts helping is as you get into kind of the million plus valuation deals, you tend to have a team behind the founder instead of just a solopreneur that’s running the show. And that can help in not only post acquisition operations but in migrations and just kind of helping ease the transition. If you have a support person that’s staying on, if you have some designers and some paid media consultants, that are gonna stay on post acquisition, then it’s a whole lot easier than having to do a knowledge transfer for a hundred percent of the information from the seller to the buyer. Yeah, absolutely.

Michael Bereslavsky: 32:43 I see. I’m curious if you’re kind of transitioning from low six figures from mid six figures and to seven figures, did you see with businesses that you are dealing with now that they are more stable, that they are less risky or for the buyer or would you say to them similar.

Ryan Kaufman: 33:05 I mean it’s a pretty general question.

Michael Bereslavsky: 33:10 I mean, like in terms of risk we’ve been facing and in terms of the structures, so the seven figure businesses will have some leaves, they would have some processes in place. So, it’s a lot easier to add. And the risks might be different, right? Like there is more diversification than multiple sources of income and different clients, multiple system traffic, things like that.

Ryan Kaufman: 33:35 Yeah. Yes. I would say that as you move upstream, there’s going to be, generally more diversification. The risks should, for the quality deals are going to be, are going to decrease. That being said, you can still find very risky deals in the seven figures. I mean, we can look at deals that are completely monetized through affiliate relationships and much strategies and, unfortunately those founders want to apply the same multiples as they see that SaaS businesses are getting, they don’t understand that at the end of the day, it comes down to a risk assessment by the buyer of how that multiple is achieved. And there’s a whole lot that goes into calculating that multiple and different diversifying the risks.

But, different monetization channels, different traffic channels, human resources. I mean, all of those things play a role in accounting for what the multiple is gonna be. So, I would, if somebody has , I get asked the question, quite a lot. If, you know, if I have $1 million to invest in a business, maybe I should just go buy 10 100,000 thousand dollars sites, or should I look at a million dollar site? And my advice is usually to focus your energy on a single acquisition or if you want to diversify, go for two, at the most. The real risk in diversifying that quickly and that broadly is that your focus won’t be on any of those, especially for first-time buyers that if you don’t know what you’re doing on one, you’re certainly not going to know what you’re doing on 10. So, and that’s probably the quickest way to see your investments fall is by taking your eyes off the ball and not paying attention to them because as much as anybody wants to say that they’re passive income, there, it’s very rarely is that a true story. And I mean it can be a passive income property for a while, but the truth is if you don’t give it some attention, it will die, someday.

Michael Bereslavsky: 36:25 Yeah. I think there is a big misconception that people feel that buying an online business, especially a content side, is kinda like a real estate investment that’s an investment that you just buy and hold and that’s the truth. Like it’s a business, even if it’s an online business, it’s just that, well, the business, so it has some maintenance requirements you have to grow with, you have to do the market thing, you have to do some different things and you have your clients. So, it’s the turn of business and that’s why it requires constant attention and understanding of you know, areas, the competition of level of market and I certainly agree that like buying or doing fewer deals is generally bad and focusing on kind of what you, but also knowing what to buy. I see so many buyers just like start looking at numbers stuff, looking at deals, without taking some time to think and consider what should they actually go for? Like, what are their strengths, what other strengths of this team? Like what is it good at, what can they bring to the table, what kind of advantages they have. And this is so important because this is going to increase your chances of success tremendously.

Ryan Kaufman: 37:50 Yeah, absolutely. When we engage in a buy-side representation, which we don’t do very often, but when we do, we walk people through, an avatar creation process and get them to really laser target what their superpowers are and what levers they have to pull and what disqualifies a deal for them. For it to be good. And I think the challenge, and one of the problems can be, like you said, everybody kind of like looking at every deal that comes through a pipeline is that you can get bogged down into looking at deals that you don’t really want just the sake of looking at deals. So, I would say to be very quick to say no. If something’s not a fit. And just to give a little rant here.

If you are working with brokers, they can be your best friend. So, give them the courtesy of telling them when you’re not interested in a deal, instead of just ghosting. I’m like, you’re a Facebook friend or something like that. Like at the end of the day, you’re engaging in a professional relationship. It is over the internet, so it’s easier to kind of just blow people off. But, those relationships that you build with, in the broker community, will come back and it’s okay to say no to people, but if you string people along and tell them you’re going to give them an LOI and then you go dark for two weeks, you’re going to kill your chance of getting another deal in the future. So, I don’t know why people have a hard time like saying no. It’s like they’re breaking up with a girlfriend or something, but, just remember that if you’re going to engage in this as a business, then, you know, treat it like a business and you know, treat everybody you engage with respect and you know, kind of, yeah. Anyway, rant over.

Michael Bereslavsky: 39:53 Yes. We see a lot of that as well. On both sides of the picture as buyers and sellers, people are so slow to say no when like often fast to say yes. Like you’ll see a lot of people saying, yes, okay, I want to buy it and then just change your mind. And, it’s wrong. I think a much better strategy is just to say no and the slow yes, the opposite and that’s what we should have try to do. So, if you have skills that just don’t match up, definitely just try to sell them to tell them no as fast as possible, to respect their time so that they don’t kind of wait up and develop expectations and you know, and if it’s something that we are interested in, they are going to, we try to do quick deals. So, we often, two deals in just just a week, six bigger deals we get off in close and just that we put two. But even then we wanna make sure that we are moving steps, like do all due diligence steps, and kind of incrementally increase it and go with keepers as it develops. And I think that’s certainly a big problem in the industry that people just kind of goes, if you deal, especially as a broker, I imagined that’s what happens a lot. Like if you dealing with buyers, they look at some deals. And they just never respond and you kind of don’t know and you have to follow up. Right. Does it happen often?

Ryan Kaufman: 41:16 Yeah.Oh yeah. I mean, and you know, we have our processes in place so we can make sure that we continue to follow up, but at the same time, you know, everybody is busy and like I’m sure that I’ve been guilty of not responding, on a single email in the past. But when it’s like after three follow-ups and there was initially a strong interest, it’s always kind of like you just kind of shrug your shoulders, like what’s going on. It just makes you, it immediately makes you think they’re just not a professional and they’re not likely to be taken seriously in the future.

Michael Bereslavsky: 42:02 Yeah. I also kind of make a mental note of people display all the time. Like, if someone says, okay, I’m going to follow up tomorrow in five days, and then they don’t, that’s just tell something about the person, you know, and yeah, that just means that the next time you might not seriously be taken as a buyer.

Ryan Kaufman: 42:20 Yeah.

Michael Bereslavsky: 42:25 So, we haven’t really discussed some of the major details. What is your commission structure? So, we use the modern layman structure. So for anybody that’s not familiar with that structure, it’s 10% on the first million and then cascades down by 1%, after each million after that to a floor of 4%. So, okay. So the first, so let’s say if I want to sell like half a million to 1 million websites, that commission is going to get 10% to the seller. Okay. And if it’s like, the millions, so that’s going to be like 1% of a million and then like 10% from assessment and 9% from the second. That’s complicated. Yeah. It makes sense.

Michael Bereslavsky: 43:21 So, I am not the kind of seller that wants to get to like 10 million and you might end up having progressively lower commissions. I mean progress.

Ryan Kaufman: 43:30 Yeah. I mean, it followed, we kind of took the model, from the kind of more established and middle, lower middle market. I’m in a community and that it’s a pretty standard pricing and commission structure for that market. You know, the average commission rate for kind the middle market, the lower middle market is around that three to 5%. mark. So, you know, as I said, at the end of the day, we’re trying to create a brokerage that we would want to have served us if we were on the other side of the table. And so we, I mean, we think that’s a fair structure. And, I think you’ll probably see the industry as a whole move closer to some of the practices that the investment banking community, especially in this kind of a one to $10 million range. Well, I think you’ll start seeing a lot of the best practices from them kind of cascade down as the industry continues to mature. So we’re just trying to get ahead of that curve.

Michael Bereslavsky: 44:48 Yeah, that makes sense. I think one of the problems in the industry that commissions are quite high. Like I feel like 15% is really high. And one of my predictions that the next few years back like to see lower commissions just on average across the board. And we were talking with Blake, CEO of Flippa and I believe they are also have been changing their commission structure. I feel every few months.

Ryan Kaufman: 45:20 Lots of changes over there.

Michael Bereslavsky: 45:22 Yeah. But, I think now it’s also lower. And I think as more competition and as like bigger companies come to space, we’ll probably see commissions be counted slower and whatever. Do you agree?

Ryan Kaufman: 45:39 Well, I mean I don’t, I’m not sure that they go lower than where we have them. I think 15% rates for sites over $1 million are probably unsustainable for the long-term.

Michael Bereslavsky: 45:56 Yeah. Well, the Empire Flippers, their rate is 15% in the deal. And then I think after that, it’s 10%, something similar. And I know that talented brokers have similar, right as well, but that seems reasonable. So, you mentioned that you have five brokers. Are they like independent brokers or are they placed in short positions? 

Ryan Kaufman: 46:26 No, they’re independent.

Michael Bereslavsky: 46:31 Yeah. But, they’re exclusive working for your company, right? Do you have some more people on the team, like technical people, things like that, or like do a couple of research?

Ryan Kaufman: 46:45 Yeah, we have one research analyst. We have, a couple of people that help with operations. And then our team of brokers. So overall the teams at, we have some on-demand labor, but you know, anywhere from that kind of seven-day person, the number for the whole team.

Michael Bereslavsky: 47:09 Yeah. So you keep it small. That makes sense. So that you can have people that are more experienced and professional and what kind of marketing do you do these days? Like how do you get most of your clients?

Ryan Kaufman: 47:24 Yeah. We’re, you know, we’re kind of going through or putting them in a lot of new initiatives in Q4, investing in content marketing. We have some Facebook ads that are kind of promoting some of the lead magnets that we have, that are, can be really useful for buyers. And I can, you know, happy to share a link to that. It’s a kind of a workbook that allows buyers to kind of utilize, a metric based approach to analyzing deals. So, it kinda tried to take some of that emotion out of it and use a scoring methodology to really kind of bring the best deals to the top instead of having to rely on emotion for those. So, yeah, some of those things to kind of bring people into the top of the funnel and creates brand awareness. Of course, we get a lot of deal flow coming in from past clients and referrals. So that’s a major, major area that we’re strong in. And then, you know, I think with like, any other brokerage, we do a lot of outreach and connection through platforms like Facebook and LinkedIn and just kind of building those initial connections, providing value and, being a resource for people, whether it’s now or in the future. I have a big mentality of providing, kind of providing value with no strings attached. And so if I can help somebody with their side or give them some direction on how to make their business more valuable, even if it doesn’t result in a sale, then, you know, I’m happy. I’m happy to do that.

And I mean, with just kind of an example that happened, just one of them, we just had a blog that we sold. It was a travel blog and they had initially a buyer that they were working with, directly. And I know them from a mastermind community that we’re both part of. And so, they asked, they called me up and they said, we’re kinda in the dark here. I’m wondering if you could, we could just ask you some questions about if this sounds right, is this a good offer? Like, just pick your brain. So, I mean, I did that, spent an hour, half an hour, an hour on the phone with him, gave him a lot of really good information on how to, or things to watch out for in the closing process.

And, you know, wish them good luck and, unfortunately, or fortunately for me, that deal fell apart and they kind of, they didn’t know what to do at that point. So, the value that I provided upfront to them with kind of no expectations in return came back and decided to list with us. So, there’s actually a good testimonial from those clients on the website under our testimonials page. So, anybody wants to check that out?

Michael Bereslavsky: 50:25 Yeah, they can certainly add all those links, like up to the show notes for this look. So, most of your clients are coming from word of mouth, from referrals, right. And you do some outreach and that’s what it makes sense to me. We had the Domain Magnate, we tried to do the same. So, we had many people coming to us. When they sell a business to us and it just doesn’t feel like our profile, maybe it’s not big enough. Maybe, that process is just fine. So we often try to help, if we can give some, there’s some advice, like some follow people, I would recommend them what to do, how to coach them. And we often see it that they politically shaped that and they often come back, you know, three months, six months, a couple of years later, and then they have a bigger business. They sell them, they show someone else so that suddenly do just have that attitude of trying to help people, you know, I feel like the karma will come back.

Ryan Kaufman: 51:26 Yeah, absolutely. And I mean, you talked about size, the size of our team and you know, I think Dustin and I, we’re, you know, kinda on the same page. I don’t think we have aspirations to kind of to be the largest team or close the largest number of deals. Our kind of mission statement is just to kind of continue the level of quality and level of service that we can, I mean, for example, for every listing we have, we bring everybody into their dedicated Slack channel so, the whole team can communicate with the seller, every step of the process. And it, even after we’ve launched the listing and in promoting it, then, it make, we found that it makes a really, great communication channel rather than utilizing, I’m sure you’ve had the experience of email threads that, you know, that are a hundred emails long.

Michael Bereslavsky: 52:29 And I do guess anyone that’s thinking of the licensee.

Ryan Kaufman: 52:33 Yeah. That’s, I think that our focus is on maintaining though that quality of service and those relationships, having a tighter knit, smaller community of buyers and sellers that are, we really have a strong connection with them rather than kind of doing the foreign wide with, you know, bringing on 50 brokers and creating a marketplace where we can kind of just turn certain things out. We focused on getting to understand the business and really, so that we can A, value it correctly and B, so we can communicate that value when we’re in the marketing process.

Michael Bereslavsky: 53:18 Yeah, that’s a good stratagem. So you mentioned your aspirations or like a lack of aspirations, in terms of growing too much, but what are some plans, like what is your vision, the company to be next year or like in five years. Would you like to build the Big Co. or just focus on providing better service or would you go into higher interest?

Ryan Kaufman: 53:44 I think, the market and the size that we’re in right now is, what we found is above that kind of 10 million range is when you start the activity and the larger private equity firms and venture money starts because those businesses start becoming attractive. And we’ve already seen the level at which those players have kind of moved down market because the deals at higher levels have seen too much competition, so, I don’t know how far downstream those kind of, the big money will come and try to perform roll-up operations. But I, for right now, I don’t see it as kind of, moving from the valuation range that we are focusing on. And, so as far as value, I think that kind of answers your question. And then, you know, the nice thing about, kind of isolating and targeting the specific niches is, we can talk directly to the pain points that those specific businesses have. By kind of not, directly targeting e-commerce and blogs and affiliate sites, we can really highlight the concerns and questions that agencies and SaaS owners are having about the process of selling your business.

Michael Bereslavsky: 55:16 And you and your partner currently like involved in all deals personally. Why do you just let your brokers handle things?

Ryan Kaufman: 55:26 Well, we are always involved in as a kind of an oversight capacity. So, the brokers are certainly running, running their own deals, with our kind of assistance especially during the closing process. But yeah, I would say that, Dustin and I probably make up, at least 50% the overall deal flow. So, you know, we’ve been in this industry for a while, so it makes sense that we probably have an  oversized amount of the closings.

Nice. And, talking to us to discuss a little bit about the industry, what do you think about the competitors. If you have any thoughts or like the changes in the industry because you have had the privilege should be how it changed in a decade or so. And what do you see happening next?

Ryan Kaufman: 56:30 Yeah, good question. I mean, I think it’s really interesting what Flippa is, the role that they’ve taken. We’re Flippa marketing partner, so we have the ability to market our listings through their platform. And I think it’s a smart move, to kind of embrace the brokerage community instead of trying to compete against it with their, you know, when they had their deal flow, a brokerage. I mean, I think they’re taking some really interesting initiatives there. I’m trying to kind of become, which I still think kind of needs to be filled out by somebody in the space is kind of like MLS multiple listing service, that can and whether it’s membership based, I don’t know.

I mean I haven’t put a lot of time into it, but you know, the real estate market has a very defined strategy for how buyers and brokers work with one another through a buy sell-side relationship. And I’m kind of curious if that will, you know, if something will mature, there to kind of increase competition or cooperation? Yeah, and I don’t know. I think at least my intent is to, and I don’t really understand this. A lot of brokerage are very kind of isolationists. They tend to not want to work with brokers. And I mean we tend to have a more friendly relationship with the ones that actually, wanting to have friendly relationships. And I guess our thoughts there are that for the client, it ends up being producing the best value and the best speed to closing.

If you know, if we have to work with a partner to get closure, we’re going to make less money on the deal, but they ultimately got what they were looking for. And to me that just is right. That’s exercising that fiduciary duty to the client. Not maximizing my commission, it’s maximizing what we signed on and promised to the client what we were going to do. So I hope that the industry continues to kind of mature and I mean, we have some great relationships with some of the brokerages and others are, you know, like to kind of keep their walled garden up and keep it in their own ecosystem. Yeah, other than that, I mean, I think multiples I think will continue to expand as the economy is strong.

I personally think that probably we’re going to see a bit of stagnation in the economy overall, which I think will impact, not only buyer attitudes but banking, the bankers underwriting standards. And so as those standards get tighter, I think we’ll see kind of less competition on those deals. And thus it’ll probably push multiples down. So I would say if I had to give a prediction, I would say that we’ll continue to see expansion and strong sales in the next 12 to 18 months and then probably followed by a contraction.

Michael Bereslavsky: 01:02 Yeah, that makes sense. I think I agree with that most, except if one part, I feel that we are going to see some kind of economic stagnation indeed and that will prompt many people to try to sell, to get some to the community. So then the rights might drove down in the short term. But overall in the longer term I feel that what we’ll see is that there’s going to be a wider range, like some businesses and guessing that already now, like some things would go full high multiples and even the themes, specific areas like things, styles. I often see that there are some SaaS businesses that are high risk can sell more or less, the same multiple as with lower risk businesses. So I went recently to someone who bought SaaS business and six figures, like mid six figures.

It was doing quite well and it had this service for the clothes company tied to the Facebook API. And then a few months ago, Facebook changed the API. So some of those features that the SaaS was using from API, they’re just not available anymore. And like that’s it. It completely kills the business with businesses practically worthless because it cannot provide the same video, anymore. But even before, if you look at a business like that like that’s a major risk. And I would say a business like that should be priced much lower than like your usual stuff multiple. And right now, because we are not seeing that as much because there is some difference, but I think there’s going to be a much bigger difference seen of those areas. Like with a new commerce, SaaS agencies. Like you would just see some that like one X or less than that and going for like five days. So I’d imagine that’s something that’s gonna happen as well.

Ryan Kaufman: 01:02:10 Yeah. I mean, I think when I’m analyzing deals, I tend to put on my worst case scenario hat and know, you identified some of those major ones, I mean organic traffic, failures or are at the top of the list and as well as dependencies on third party companies. And especially one of the highest risk ones. And they’re almost, I think kind of an unsalable really, are companies that are utilizing kind of, operating against terms of service of other companies. So, I can think of some like LinkedIn products and you know, Facebook products, those are just huge risks. Not only is it you risk, you know, that those platforms finding out and kind of changing they’re always changing their platform and try to mitigate against people that are abusing their systems.

But you’re on the really real risk of legal action potentially. So, those are definitely ones we kind of we stay away from representing. And when I see them coming through the door, or like looking to value them. They’re, you basically, the way I look at them as, they would have to be either kind of like a one X, like you were saying, or be extremely heavily weighted on some sort of a performance basis because it could be, it could be that they run for another 10 years, but they, you know, like you said, very easily, could be kind of shut down six months after acquisition and now, you know, that’s a big risk.

Michael Bereslavsky: 01:03:54 Yeah. So, yeah, that business, it was not against the terms of service, but those terms do change sometimes. So that’s certainly something to look out for. And what, like what do you see in the future for yourself? Do you intend to like keep working in that industry for a while maybe? Do you see yourself exiting at some point sending the business, retiring in a decade?

Ryan Kaufman: 01:04:23 Yeah, that’s a good question. I mean, right now it’s we’re, you know, we’re seeing really great growth and having a lot of fun doing what we’re doing. So that kind of the near term plan is that I plan on continuing in the industry and I think as things mature, I think, there’s some new products and new opportunities that will probably continue to look at, which, I know that a lot of, on other people are kind of looking at the funding model and kind of, and we’ve certainly looked at that model to kind of create our own portfolio, but at the same time, kind f going back to the first question you asked, it’s an additional overhead and there’s always going to be a need for intermediaries to help buy and sell at that level. So, it’s certainly something we’ve tossed around to kind of introduce other products and opportunities for investors. But yeah, I think for, right now we’re just gonna continue to improve the service and  just gonna continue to kind of stay the course.

Michael Bereslavsky:  01:05:53 That’s a good plan as something to fill that you are in a good position. And I like your approach of really focusing on your responsibility to the clients to acquire some kind of looking at what all that, everything you do as a worth to invest in for the client and in that, on that topic also, what do you see as the best opportunities in the market right now in terms of buyers, let’s say for someone and looking to buy a business for like $1 million and they don’t have any specific advantages or anything. What do you think are the best kind of deals that may be undervalued or underappreciated?

Ryan Kaufman: 01:06:37  Yeah, that’s a good question. There, I think there’s some still some really good opportunities around kind of blogs and affiliate acquisitions, too. Like, you mentioned, back when you first started taking traffic sites and putting the AdSense on, there’s a slew of new programmatic, monetization partners like, Media Vine and Ad Thrive, that are offering kind of the next level of service above what AdSense can provide as far as monetization goes. So, I think there is an arbitrage play there to look for, undervalued or under monetized higher traffic sites and then come in and introduce a different monetization model by introducing Mediavine or Ad Thrive. And then in a lot of cases, like actually one, one site that we purchased, a couple of years back, was a blog and it was in the kind of budget kind of couponing and budgeting niche.

And it was just being monetized through AdSense. And we, after we do our due diligence, we kind of discovered there was a single site, a single page that was receiving quite a lot of traffic. And so we found ways to introduce affiliate offers into that post organically just through link inclusion. And that ended up being, I’m accounting for I think 60 to 70% of the revenue, after post-optimization. So, sometimes you have to think out a little bit outside of the box and when you’re analyzing the site, look at it through the eyes of not where, how you can continue on with what they are doing. But how does your expertise or where is there a kind of a massive shift to introduce a new model, whether that’s a new monetization or leveraging an asset under utilized asset to make the business perform?

I think, you know, in the SaaS space, there’s certainly a lot of opportunities where there’s maybe a technical founder and they’ve built a really great product, but they don’t have the marketing chops to really develop out in a proper onboarding process or analyze how to fill the gaps of addressing insurance issues. And so for somebody that has those skill sets, I think there’s a lot of opportunities to step in, kind of at that, million-dollar level, maybe kind of the half a million to million-dollar products where it’s kind of a single founder running and to really take those to the next level stepping in, kind of utilizing, some best practices.

Michael Bereslavsky: 01:09:47 Yeah, it’s interesting you mentioned MediaVine, we actually had the founder of MediaVine on our show recently. She gave some really good tips on how to optimize. And we also had one of our websites I approved for Mediavine, lesser months and the difference is just staggering like it’s so much better than AdSense. It’s so surprising. But on the flip side, they said he checked with most of our websites because that criteria has been history. Yeah. I think there is certainly a lot of skill, a lot of opportunity in finding this kind of affiliate sites and monetizing them better. That’s actually what we do. Like that’s pretty much the main thing to do in Domain Magnate. I mean when you buy this kind of website, we do generally go below 1 million. So like in six figures, so high five figures. And we try to find the size where we can add some value and monetize better, improve conversions, improve SEO and that seems to be something that there is still quite a bit of attention for buyers, but it’s also something I think that requires quite a lot of skill. Like you have to have a lot of experience to be able to see what are some things you can go in and proof and do better while, probably running an agency. I don’t know about SaaS. I think SaaS is a bit complicated for those times. Well, but like running an agency it might be an easier thing.

Ryan Kaufman: 01:11:24 It depends on the structure of the SaaS and what the skill sets of the acquirer are. I mean, at the end of the day, you don’t, if you have a good marketing mind and a good ability, a good project management ability, you don’t have to be technical, you don’t have to be a programmer to have success. You know, it can be challenging to find developers that you can communicate with. So, that’s why we were kind of talking a bit ago. If you’re not a technical person and you’re looking at it in the SaaS space, finding opportunities that have developers that have been with the product for a long period of time and that are willing to stay on post-acquisition. And we’ve even seen some cases where, there’s kind of a key person cause for those developers to stay on for X number of years or one year, you know, whatever to kind of diversify the risk or mitigate the risk, of kind of the owner being left in the dark after post-acquisition.

Michael Bereslavsky: 01:12:36 Yeah, that makes sense. Well, thank you for joining, us, Ryan. Do you have any final thoughts, final advice to buyers and sellers anything you’d want to share.

Ryan Kaufman: 01:12:49 Final advice. I mean, I guess, be diligent in your due diligence and when you’re reviewing deals, try to as much as possible, eliminate, emotional bias and you could, and you can use our worksheet business mind worksheet to kind of help with that process and I can give you that link so you can share it with your community.

Michael Bereslavsky: 01:13:14 Yeah, for sure. Well, thank you. So how can people contact you if they have a question or want to sell or buy website?

Ryan Kaufman: 01:13:20 Yeah, you can go to digitalacquisitions.co. We have a chat widget on there. Also, contact us form or feel free to reach out directly to me, [email protected]

Michael Bereslavsky: 01:13:34 Alright, well thank you, Ryan. Thanks for joining us today. Pleasure to have you.

Ryan Kaufman: 01:13:37 It’s my pleasure.

Michael Bereslavsky: 01:13:37 And thank you, listeners. If you enjoyed this episode, please give us your ideas till next time.

 

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2 comments on this podcast

One of the best podcast episodes related to online business

The right informations from the right expert. Thanks Michael and Ryan for this interesting interview!

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