This episode highlights Domain Magnate’s Founder and CEO’s portion in Invest Like a Boss Summit in Los Angeles last September 28 2019. He, alongside Stacey Caprio from Her.ceo and host Johnny FD have a discussion with a live audience with focus on the topic “How To Get 100% Returns Through Buying Online Businesses.”
GUEST BIO:
Michael Bereslavsky is the founder and CEO of Domain Magnate. He’s been involved in various internet-based businesses since 2004 and quickly graduated from building, promoting, and monetizing websites to buying and selling them. With over a decade of experience, Michael and Domain Magnate has managed 300+ successful deals.
SKIP TO THE GOOD PARTS:
0:14- 0:49 – Brief overview of segment
1:25- 2:04 – Introduction of Speakers
2:05-8:02 – Introduction of Domain Magnate and how it works. A buyer’s perspective.
8:03-10:06 – Addition and example on buying a business
10:07-13:55 – Stacey relaying her first experience with buying sites
13:56-16:46 – Reasons for buying and selling a business
16:47-18:43 – Increasing the value of the business you bought.
18:44-20:35 – Increasing profits
20:36-21:35 – Getting started. Know your budget.
21:36-22:19 – Aligning your interest with a purchase.
22:20-23:14 – Know your strategy and management plans.
23:15-23:31 – The work allocation with purchase and increase.
23:32-24:43 – Guiding a buyer to running independent business.
24:44-27:38 – Income flow generation
SHOW TRANSCRIPT:
Michael Bereslavsky 0:14 Hello podcast listener. This episode features a talk and a panel discussion, which I had last month in Los Angeles at the Invest Like a Boss Summit. This was an event for investors. And we were discussing the different opportunities for investors available with the online business market and why it’s potentially a very good, very lucrative opportunity.
Michael Bereslavsky 0:49 At the beginning of this episode, I discussed a little bit about how this works, about the market, about Domain Magnate. How we operate, our strategy, and then we also have a panel discussion and some questions from the audience.
This episode features some very basic questions. But it also has a few more detailed and more advanced concepts. So, hope you enjoy it.
Event Host 1:25 I gave you a kind of a short introduction of themselves and what they do and then this one’s going to be even more Q&A based. So, while they’re introducing themselves, really start thinking about what you want to ask them. So, we have Michael and we have Stacy, come on up.
Michael Bereslavsky 2:05 Hi everyone. So, let me tell a little bit about what we do first. Then I’ll go more into details and how we do it. So, we are what’s called a Micro Private Equity Firm. We buy online businesses up to $1 million. And we’ve been doing it for about 15 years now, made hundreds of deals. And we focus on mostly content businesses, so it’s content sites, blogs, affiliate sites. We don’t commit to ecommerce and other things, and having that narrow focus really helps us develop the advantages.
So, to tell a little bit about us, this is some of our team members. And we also have a couple dozen more people we work with on a freelancer basis as contractors, and half our team I involved in managing the deal flow. We look at hundreds of different deals, mostly private deals, to review and analyze. And the other half I involved in managing the businesses with me.
And just to talk a little bit about me, you’re welcome to check out my personal websites. So, I’ve been in four countries. I’ve traveled like 60 countries. I speak four languages, and this is actually my first time in US, loving it so far.
So, we have a podcast, we recently started. You can check it out. On the last episode, we had Matt Barrie, the owner of Freelancer.com and Escrow.com.
And now finally the good stuff. So how does it work? How do we figure out what kind of businesses to buy which to don’t buy? And we have our deal assessment framework, which we’ve developed over the years. So, when we look at any business, any deal, we look at it through different criteria. First, we look into the numbers, and this is normal, this is what everyone does. We look at the price, the revenues, the profits, the price of the profit multiple. We look at the trends and all those normal things. And of course, some proofs, some revenue proofs.
Michael Bereslavsky 4:11 But for most buyers, unfortunately, that’s where their due diligence stops. For us, it’s just the beginning. Because next we would look at risks, and the risks are really the most important part of the equation. Because when you buy an online business, you can often acquire business for just two- or three-years’ worth of profits. So, it’s not that difficult to make profits, it’s not that difficult to find profits compared to any traditional investment. So why do so many people lose money on that? It’s because they misevaluate the risks. And so that is the most important part of the equation. And then we look at the opportunities. And we have many advantages that we’ve developed in this field that allow us to get much better deals than most people who would.
Michael Bereslavsky 5:03 So, most of our deal flow comes from people coming to us. And while in general, if you have a business under 1 million, like six figures, you want to sell, it will take an average about five months. You go to a broker if you listed it on the marketplace. And we are usually able to do a deal like that, with six figures, in just one week. So, we are able to go to our sellers and offer them the price quickly. And that’s why you can really get major discount for a market price. Also, because if you go to a broker, you would pay a 50% commission. And we buy directly. So that’s why we’re usually able to get a substantial discount from market value, and we have our network of SEO people, content people, so we are able to manage and grow most businesses efficiently. And our strategy is more short term.
Michael Bereslavsky 6:00 And that’s usually surprising to most people because reality is you buy business, you grow it like five to ten years, you can’t exit. And then you look for an exit. And what we do is the exact opposite. We buy a business, we try to get it cheap, we buy a little, we improve some things that we can improve quickly. And that itself, we try to sell high. And what we found is that this is just a more optimal strategy based on the current market, and based on our own strengths and our team’s strengths, and that also helps us manage risks better. So, when we have many different deals, and we don’t hold on to things for too long, which is buy, grow, and sell, we are able to reduce our risk substantially further.
Michael Bereslavsky 6:46 We’ve had consistent returns of 100% for many of the deals that we do, and we’ve been doing it for 15 years, but we’ve actually only start taking on some investors last year, that will serve as our first fund. And now we’ve also started offering some services to people that want to go and buy businesses. And we offer full service to help people understand what kind of deals they should be looking for, find the right deals, help them, do the due diligence, acquire the business, and we also managed the business. So that’s a little bit about us. And you’re welcome to go visit our website to find out more. Thanks.
Event Host 8:03 Alright, cool. So, what was really nice about having Michael in resolving that, we wanted to have Ace here, they’re kind of on the buying side of buying businesses. So, whether, you know, it might not be a big startup, or like, something growing like Liquid Death, but buying a business that is actually already selling well.
So, let’s say Liquid Death was on Amazon for whatever reason, and it was making $10,000 a month. Someone might be wanting to exit that business for whatever reason. And now we can go in and you can actually buy these businesses, usually for, you know, whatever it is, might be three times annual revenue or something like that. And this is a way for us as investors can own a business without building it ourselves. And it’s not correlated to the stock market or real estate. So, this is something that a lot of people are getting kind of, more and more interested in, because this is a way where you don’t just make maybe a 7% return or a 12% return. But you can literally make 100x return or thousand percent return, or you can lose everything.
So now there are companies like Michaels that actually take on investors as well. So instead of that buying the whole deal themselves, they actually happy to come in and say, you know, we’ll put in 75% or something. And Aces’ company, income acquisitions, does the same thing. I think his, Aces’ deals start at 100,000. Where Michaels deals start at around the same, okay. I think some of Aces’ deals go up much higher as well. And then the reason what we want to touch Stacy on is she was buying businesses on her own for herself as a way of bringing in new income. And this is kind of more where a lot of us are going to be right now especially we’re getting started. So, Stacey, can you introduce yourself?
Stacy Caprio 10:07 Yeah. So, hi, my name is Stacy Caprio. So, I currently own a company and website called Her.CEO where I do document entrepreneur journeys, getting financial independence, especially people who have bought and sold websites. So, I started on my journey of buying websites as a way to get financial independence. So, website investments are very unique in the sense that you put down the capital, once you make it all back because you got a monthly payment if you chose a good website. Then each month after that it becomes pure profit.
So, it’s not like the stock market graphs that we saw earlier in some people’s talks where you put money in and it can go up and down at any time. But once you make your initial capital back, it’s pretty much pure profit. So, it’s not like they can take that away from you once you’ve made it. So, it’s more similar to real estate in that sense. So, it’s a great vehicle for people who want to get financially independent or start getting some type of income on the side that is not dependent on the stock market or any type of fluctuation. So, websites are great because you can buy them for such a lower valuation than real estate. So real estate, it might take you five or six years to make your money back but website, you can actually make your money back in 10 months or two years depending on what type of site you buy, and how good you are at growing it and improving the revenue.
So that’s pretty much the upside. However, as Michael was saying, there is a lot of risk. So, the first two sites that I actually bought, I pretty much lost the money I put into it, because I didn’t really know what I was doing. So, for example, you really have to verify revenue. The first site I’ve got, the owner, the seller, was pretty much just lying about how much it was making. So, I thought, oh, this is a great deal. I’m going to earn it back in three months, and obviously knowing what’s on the site. For three months of profit, like if it’s making that much, if you’re going to pretty much pay 20 times monthly profit and you’re up to 60 times depending on what broker you get it from. And depending on, so if you partner with a company, you can buy sites independently or you can buy it through a company that will manage it for you, kind of like Michaels’ or Aces’. So, you have to choose which makes sense for you based on your technical ability, and just your time, the time that you have. And you can do research to figure out what makes sense for you.
But if you do partner with a company, understand that you might be making it back in a longer time period. So, you just have to figure out what makes sense for you there. But I think the main thing to think about when investing in the site start smaller, so you can make mistakes with a small amount of money. And then as you get experience, and you kind of learn what to look for in a good site and you learn how to grow it and maximize revenue, you can start investing more money. So, it’s the type of thing, either start with someone who knows what they’re doing, or start small because I definitely made some mistakes. But once you get the hang of it, it’s a really great tool to make monthly recurring revenue, and it’s what’s allowed me to be financially independent, so I’m definitely grateful for that. Yeah, a few questions about red flags and green flags, and that type of thing. I suppose I can answer them from an investor’s perspective as well.
Event Host 13:56 Nice. Oh, thank you for that. It was great. And actually, it’s kind of funny that I’m the third person on here because I represent kind of the seller’s point. I’ve sold a couple of these, you know, small and medium sized businesses. And I, there’s two examples I want to give. I’ll say the second one was a junction store that I had that was doing okay. It wasn’t, I wasn’t kind of earning or anything. The average profit per month was 1500 to $2,000 in net profit. Some months are better, some months are worse. And the person who bought it, the reason why they bought it, well, the reason why, cause that might be question, is why would someone sell a business if it’s making money? For me it was because I had started a business with my girlfriend at the time. And when we split it, we were still running it. And you can imagine it gets a bit messy.
And luckily, we actually had a very amicable breakup and we’re still friends. But I felt that you know, having the business was kind of like keeping us from moving on completely. Because we would start to talk every week and almost about felt like a bit of an excuse for her to call me or, like we’re talking every single day pretty much about something and it was really hard for me to move on. So that’s why I need to sell this business. The guy that bought the business, the reason why he bought it was he was in the process of building his own junction store. And he was in the same courses, the course that I took, he just wanted the same method. But he was struggling, he was making some sales here and there but he didn’t really know what he was doing. He really didn’t know how to manage it, it’s his first time. So, his idea was if he buys this store from someone who’s already done it, he can kind of see the back end and backward engineer and figure out, okay, like I can see how it works. This is how it’s supposed to be built. Maybe that’ll help me to find my next business.
And then the other example, quickly, was I sold this store because when I built it in 2013, I stupidly didn’t use a mobile responsive theme, thinking no one’s going to buy in it online with a phone. And two years later, half of the, I was losing half my sales because I was getting so much mobile traffic, but I wasn’t set up to display correctly on the phone. And I was like, well, am I going to spend a lot of time, energy, and money converting the whole website to be mobile friendly, or I’ll just get rid of this and do something else. The guy who bought it, the reason why you bought it, he saw this as an opportunity thinking, oh, look at this amazing idiot, doesn’t even had this optimized, I can buy this and then I can just have my team build up the store, redo the page to be mobile friendly, it’s going to double the value of it, which means I have doubled profits coming in every month. And if I want to sell it again, I can flip it for double of what I bought for. So, there’s win-win and reasons for every single person.
Event Host 16:47 And as Stacy and Michael mentioned, from the buyers’ point of view, that’s kind of these value adds that they’re thinking about. Like, can you kind of go a little bit deeper on what are some of the other ways you can buy business and increase the value of it?
Stacy Caprio 17:02 Oh, yeah. That’s a great question. And yeah, so the person buying John UK, obviously, was kind of thinking ahead, like, oh, how can I double revenue quickly. So, if you sold it like a 40 times monthly profit valuation, you’d get it, he’ll make his money back in 20 months. So that’s kind of what you want to look for, like an undervalued site or something the owners not seeing that you kind of see. So, something, just a few things I kind of look hard across sites is, if a site is super slow, that’s just an opportunity that you can improve off of that and you’ll see a lot more traffic, users stay in the site longer, and sales. That’s like a huge like, thing to look for, that you can improve on. Secondly, look at the app, like, if it’s making revenue on ads and a lot of the sites that I have are.
It helps to have relationships with different ad platforms. So, you can test different ones to see what will make you the most money. And you can also put more ads on the site and put them in prime position. So, you can use a tool such as Ezoic, which is an ad testing plugin that helps you find depositions that return the most revenue to help you do that. And then the third thing is, if it makes money in other ways, you can look at ways you can test improve the conversion rate, or maybe add different monetization methods. So, they’re just a few quick things you can do off the bat to really increase the revenue. Because the goal if you buy a site at 20 times monthly revenue, if you want to make it back in 10 months, so you can start making a profit. So, I think that’s the goal.
Event Host 18:44 Yeah, I think that was a great explanation and the reason why it’s so powerful to increase the profits isn’t just for that monthly profit. So, let’s say you bought a site for $100,000, right? It could be less, it could be more, whatever it is, let’s say it was $100,000. The way that I got that number is a multiple of the monthly profit or the revenue, whatever it was. So maybe it was making 2,500 a month or something and then, you know, 4x annual total. If you increase the profit margin, the profit, from 2,500 to 5,000, which you could do in the kinds of ways we just explained. You double your traffic, adding ads, you can make your site mobile responsive. So now you have to sort of market, maybe introduce more products, maybe you do the site, maybe you add a product, or whatever it is. If you can double your monthly profit. You’re not making an extra 2500 a month, you now own a business that is worth twice as much as you bought it for.
Event Host 19:53 So yes, you’re making an extra 2500 a month, you’re making five grand a month now. But if you are going to sell that as a year from now, you don’t just get back 200 grand. And you don’t just get back the 200 grand that you can now sell it for, you get back 200 grand plus $5,000 per month, that entire time. So now your $100,000 investment in one single year has now made 200,000 plus 5000 times 12, what’s that? Yeah, $260,000. So now you’ve more than doubled your investment in one year, and that’s what makes it so powerful.
Michael Bereslavsky 20:36 So, to add a little bit more. I’ll ask you a question first of all, how many people here bought a website before, or looked into buying a website before? Okay, so just a few. So, to take a step back from that before you, one of the most common questions we get is how do I start? There are so many different businesses I can buy, how do I choose? Where do I look? What do I do? So, what we usually command is try to define a few things, a few criteria. First of all, ask yourself, what is my budget. And just like Stacy mentioned earlier, it pays better, like, it’s better not to put all your budget in one business the first time you do business. Well, we can figure out let’s say your budget is 100,000. So maybe you would go and take 10% of that, 20% of that, buy some business. Once you feel more comfortable, that you know how to manage it, how to run it, go and buy a bigger business. So, once you figured out your budget, your overall budget, your budget for first time deal.
Michael Bereslavsky 21:36 The next question you want to ask yourself is, what am I good at? What are my advantages? And if you buy a business that you have some advantages in running, your success rate is just going to be higher. So, it could be anything. It doesn’t have to be something technical. So, let’s say you work in logistics and you’re really good at organizing things. So, you might want to look at the businesses that are really complicated, like a drop shipping business, or an ecommerce business. If you are good at, like, let’s say you are a fan of cars, and you have a lot of interest in different car, so you can go and look up websites for sale related to cars.
Michael Bereslavsky 22:20 So, having it aligned with your interests, or with your competencies and skills, is going to increase your success rate substantially. And then the third thing is you have to figure out the strategy of how are you going to buy it, where are you going to find it. And before you buy it, you have to know how to actually manage it. So, you will either work with someone like us, or you would go and hire someone like a VA to help you manage the site, or you will just go and learn all the skills on your own. And then start looking at deals. And what most people do is they start looking at deals first. So, it’s kind of like, the other way around, and that’s not good. So, my first advice is really to ask yourself some of these questions before you start looking at deals, and then you get a better idea of what to look for? And then you can kind of go on and start buying something.
Event Host 23:15 My other question for you is, when someone invests with your company, are they running the website? Or are you running the website? Are they just like a passive investor? Would they just get some money, do they have any say? Do they have any responsibilities, or do you guys come, do everything, and take a cut?
Michael Bereslavsky 23:32 That’s a good question. So, we do a bit of both. Genuinely, our goal is to try to educate the buyer, the investor in, you know, the business. Actually, one of the criteria for investors is that they have to understand how businesses work. They have to understand how we operate. And we actually turned down quite a few investors who didn’t match that. So, we just sold one of our businesses a couple days ago and the buyer have experienced in running similar businesses, but he felt that he needed a lot of help with that. So, the deal was that we would provide a little service for management, just kind of a hybrid deal. So, we are going to help them run it for about six months. And we are also going to have our staff available to educate them, to give them all the deals and all the complex that they need. And then it’s, after that, they will be able to take over and acquire skills and experience to handle it on themselves.
Event Host 24:31 Nice. And I just, so if you guys have any questions, feel free to raise your hands at any time. If not, I’ll just keep my thoughts out. Go ahead.
Event Host 24:44 So, the question is, how are you guys get paid? What are your fees or what do you charge?
Michael Bereslavsky 24:53 So, we don’t really do much brokering. So, we get a lot of people coming to us with they want us to sell their website, but we don’t do a lot of that. In terms of buying, it really depends on the specific needs. So, for, kind of the model we have for investors, first of all, right now in our fund rate works is, for every deal we do, we put up 10% of the cost and investors put up 90% of the cost. And we manage everything, it’s a completely passive investment, and then we split the profits 50/50. So, at that the model, it also gives investors preference for returns. So, the profits are only, we only get profits after they get their investment back.
Michael Bereslavsky 25:42 And in terms of fees, it really depends on a case by case study. So, we, since we’ve only started doing, offering these services this year, because frankly, like many acquitted buying businesses it’s just so much more profitable. It doesn’t even make sense to think about like doing it for other people. And the reason we started doing it is just to, you know, to help us expand so that it allows us to be able to grow faster. So, it’s really more, kind of really depends on each case. And another thing is, because when people come to us and they want us to find a deal for them, the deals we find are really going to be very different from what you would see on the market. On average we get somewhere between 20 and 30 or 40% discount just for market value for each business we buy. So that would already give you enough of that page to cover up most of the fees.
Event Host 26:46 Okay. Any other questions? How are you financing some of these acquisition, loan or cash?
Michael Bereslavsky 26:51 Yeah, so for the first like, 14 years of our operation, has been all just our own money, our own funds. And now since we’ve started doing it for the investors, it’s all out from equity. We don’t do any debt right now. One of the reasons is because we want to be very efficient. And it’s difficult to do if you want to do an SBA loan. That’s going to take a long time, we cannot do a deal in two days. Another reason is kind of doing it from equity makes it simple and it allows the investors to be more like partners when they participate in the returns and the losses.
Event Host 27:30 Stacy, have you been funding it with your own cash or like SBA loan or your credit card?
Stacy Caprio 27:38 I like to do it with cash, or not worrying the speed but just that I’d rather take on the risk with my own cash then debt. Because then it would take longer to pay it back and you have to probably get a nine to five or something.
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