EP17: Ask Michael 1

In this episode Michael answers 6 common questions that he is often asked by buyers, sellers, and clients, including “Why would anyone sell a profitable business?”, “What type of business should I buy?” and more…

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:

• 1:02 – 3:26 Michael shares some reasons revolving around why someone might sell a profitable business.
• 3:32 – 5:50 Michael gives some insight as to finding a good operator or website manager.
• 5:57 – 8:27 Michael talks about how one might find a deal when wanting to purchase an online business.
• 8:28 – 9:20 Michael gives advice on where to go, or who talk too in order to find good deals.
• 9:24 – 11:35 Michael shows us how to figure out how much one’s website might be worth.
• 12:15 – 13:40 Michael shares about the quickest deal he’s ever made.
• 13:55 -16:00 Michael talks about what type of business one should think about buying.

SHOW TRANSCRIPT:
Michael Bereslavsky 0:12 Hello there listeners, welcome to this special episode of the Domain Magnate show. This episode is called Ask Michael 01. Today I’m going to answer some of the questions that I often receive from buyers, sellers and different clients. If you have a question that you want to get answered, you can just send it to me directly by emailing [email protected] or you can send it to me through facebook at facebook.com/domainmagnate.

Michael Bereslavsky 0:46 Today we have six questions that I am going to answer that are some of the most common questions that we receive and the first one is why would anyone sell a profitable business? Why would anyone sell a profitable business? Why do people sell offline businesses? Why do people sell anything, they are pretty similar, often people need cash, to pay some loans to pay taxes to buy a house to get married or anything else. Also, they might be afraid of the risk any online businesses associated with a substantial amount of risk. So if it’s a content website, there is a risk of Google updates. You might be getting a lot of traffic now. But if the Google algorithm decides that your website is not worth it, you might lose 80% of your traffic in one day. There are also many risks coming from the competitors from advertisers. And there are other risks associated with managing a business and operation maintenance. They also often want to go into something new entrepreneurs often follow the kind of cycle, they have a new idea of they’re excited. They go and build it out. And then at some point that enthusiasm starts to drop down. And then they know it’s time for them to go sell and go start a new project. And they might feel bored, they might spend less time and less effort into the business. And they know that if they leave it like that, it’s probably going to start dropping, so it’s better to sell and get some good paycheck that they can use for the next project. Rather than just keep it and see it continues, see the revenue continue to drop. They also sell because they have no time to manage it. Maybe they have a new job promotion, getting married or having children, family. Lack of time to maintain a business is a very common reason to sell a business. There are also many other reasons and usually it’s a combination of several factors. There are also people that sell just because they plan to sell the build a business and they expect that at some point we are going to sell it maybe a year from at moment.

Michael Bereslavsky 3:16 So why would anyone sell a profitable business? There is a combination of factors, cash risks, and the desire to go move on to the new product. And next question, how to find a good operator? A good website manager? How to find a good operator or website manager? There are two things you should consider noticeably and verifiable track record of past successes and well aligned incentives. So a verifiable track record would mean that the person has recently worked on some similar projects that they’ve successfully managed and grown and improved and increased similar websites, and let you do something recent, if someone shows you a website, they’ve been able to rank well in Google 12 years ago, the same methods are probably not going to work now. And also it has to be something quite similar. If they’ve managed and ecommerce business and you want them to manage a software business, their skills might not translate well. Also, it has to be a reasonably similar size. So if they’ve managed a small personal blog making $100 a month, that might not necessarily qualify them to go and measure downfalls $1 per month business, so a verifiable track record and the incentives to be properly aligned. Many times I’ve seen operators improperly incentivized through suboptimal contracts. Then business owners tried to save some money or need and pay only or pay based on the project. And then the operator’s incentive is just to work more hours, or just to go into the project as fast as possible. So it’s important to align incentives in such a way that the operator makes money when the business makes money and then the owner makes money.

Michael Bereslavsky 5:25 At Domain Magnate, our buy and manage service is designed in such a way that we as operators make money then the owner makes money. So we take a percentage of the business profits. And so these are the two important criteria; a verifiable track record and well aligned incentives. Now the third question, how do I find a good deal? How do I find a good deal for an online business to buy? It really depends on what’s a good deal for you. Because a good deal for me is probably not what’s going to be a good deal for you. So first, you have to figure that out. First, ask yourself, what is my budget? How much money are you really looking to spend? And it could be a budget range as well. Then ask yourself, what are your skills? What are your expertise? What are you good at? What do you just don’t know much about? Maybe you are not a very technical person, so you probably shouldn’t go and look into software related sites or SAAS businesses. Maybe you are pretty good at content at SEO, then you probably would want to go and look into content businesses. Then ask yourself, How much time do you have, how much time are you able to spend on this business to manage it? To operate it? Maybe you have quite a lot of time then you can go and buy a business that requires quite a lot of maintenance because you probably get a better deal and be don’t have much time, then that’s probably not a good idea that you would want to buy a business that’s more passive in nature. Or you can also go and look for, for an operator to help you manage the business. Maybe you have an established business in your industry, the best deal for you would be to go and buy a competitor, or buy a business that could help you in some way through some vertical or horizontal integration. So it’s really quite subjective, and once you figured out all this different criteria, budget range type of business expectations of maintenance operation. Also, you can consider different risk parameters. So you might be very risk averse and so you want to go and buy a business that’s very, very stable. That’s been around for for many, many years. It’s very easy to domain gain, and it has very low risks, or you might be open to taking much higher risk. So you would want to go and buy a new business that you can buy much cheaper. And that probably has very high risk, but also very high reward. So that’s really entirely up to you. And then once you’ve identified that, once you have a pretty good idea what you’re looking for.

Michael Bereslavsky 8:28 The next question is, where do you find the deal? And there are, of course, many places where you can look, you can look at marketplaces, you can check the broker listings, but the best deals are usually only available privately. So if you want to find a really good deal, you should either go and conduct some businesses directly. If it’s especially if it’s it’s in your industry, if it’s a competitor, just contact them directly and see if they want to sell or you can work with a company like ours. Who source deals for people and find and negotiate and make deals for them. That’s something they do for clients as well. So how do you find a good deal? First of all, figure out what a good deal for you is. And then the next step would be to decide where to look for it.

Michael Bereslavsky 9:21 The next question number four, how much is my website worth? How much is my website worth? That’s a very common question. And I have people asking that all the time. So first of all, it depends on a lot of different factors. The main one of course, is profit, revenue and profit. Typically, websites are valued as a multiple of profit that they generate websites and online businesses. But there can be quite a wide variance in those multiples. So we’ve acquired websites from anywhere from just several months worth of profits or websites with very, very new, I think the lowest we’ve paid was like two or three months worth of profit for a website that was just like one month old. Because it was an interesting idea, just to try that it was quite unique. And the highest that we’ve sold businesses or that we’ve paid was, can be sold businesses to the users to bigger companies that wanted to buy it as a competitor. And we’ve got multiples of more than ten years of of profits. So it’s really wide range.

Michael Bereslavsky 10:45 In terms of current market averages, I would say it’s somewhere around two and three years of revenue between two and three years of revenue and profit for for content businesses, but it really varies based on a lot of criteria of the main parameter of course is risk and the way risk is calculated. This is a combination of the website age, the diversity of traffic, diversity of traffic sources and revenue sources. And then specifically if it’s organic traffic then understanding the backlink profile the content quality, the competitors also projecting in understanding the required expenses to to manage it. So there are really a lot of different factors. But how can you quickly find out? Just go to domainmagnate.com/sell – domainmagnate.com/sell and submit your website for review, we will review quickly and will usually contact you the same day and if it fits our criteria will be able to present you if an offer for immediate purchase – and if it doesn’t fit our criteria, we’ll just give you some free advice on how to sell it better, where to go, and what kind of price you can expect.

Michael Bereslavsky 12:10 Question number five, what was your fastest deal? What was my fastest deal? I think the quickest deal I had was about 15 minutes. This was many, many years ago, we were chatting with someone I knew for for a while through messenger, I think it was ICQ or AM. So you can see it was a really long time ago because nowadays no one uses those. And we were chatting about that, and I showed him one of my sites, and he was immediately interested. And he asked me, well, how much is it making? So I sent him some numbers, and then he asked, well, how much would you sell it for? And I wasn’t expecting to sell it. So I was thinking about for a few minutes and then I told him I would take $20,000 and he said, okay, send me a wire transfer details. And that was that – that was the deal. That took about 15 minutes total, we had a pre existing relationship, so we met offline, but we’ve been chatting online for quite a long time until that moment. So we knew each other. So he didn’t really ask to see the details to see Google Analytics to see the traffic and revenue screenshots. He just trusted me on that. And that’s it. I mailed him the wire transfer details. He sent the payment, and I transfered over the website, and that was deal. But the whole negotiation took about 15 minutes. And then like two or three days to receive the wire transfer, and then like one day to transfer a website.

Michael Bereslavsky 13:46 And finally, question number six. What type of business should I buy? What type of business should I buy? Now that’s a question we get often from first time buyers. It’s a good question to ask. Because one of the biggest mistakes that first time buyers make is that they just go and as soon as they learn about this opportunity to go and buy an stablished, profitable online business, they just go and start looking at different deals immediately. And they have no idea what to look for – they just start looking at deals. And then as soon as we see few, we develop a feel for what seems good, what doesn’t and then they just go and buy one. And that often doesn’t work out very well.

Michael Bereslavsky 14:37 So a better way to do this is really ask yourself this question first, what type of business should I buy? And that is going to depend on your skills, your expertise, your budget range, and also your expectations. So depending on the budget range, actually a different type of business is more common. So if your budget is reasonably low, like just below $10,000, you would mostly be looking at content websites or different content logs. If your budget is higher, like up to $100,000, you would still be looking a lot at content type websites, but you can also consider some SAAS businesses and potentially some small ecommerce websites. And if your budget is higher in the six figures, they would often be more ecommerce businesses in the market and quite a few accountant sites as well. But once you go bigger, into the seven figures and higher, it’s it’s going to be more different types of businesses. You’d have a lot more ecommerce you’d have services type businesses, you’d have software businesses and different agencies. So once you know you budget range will put give you some initial idea. But you should also ask yourself the same thing as you asked when then figuring out what’s a good deal for you? So the same questions apply when you asking yourself what type of business to buy? How much time do you have? What are your skills, what other things you are good at? What kind of advantages do you have in the market. So maybe you have an existing online business, then it’s always better to buy something that can drive more traffic more leads more clients to your existing business, because then you can just immediately monetize it better.

Michael Bereslavsky 16:36 Also, it really depends on your objectives. So maybe you are just looking to try things to buy your first online business and use something like play money just to try it out and learn. Then it might not matter as much and then you know, if you you can just get a small budget and go buy some blog to see how it works. Because at the core online businesses are pretty similar. You have to figure out how to get traffic, how to maintain it, how to operate it, and then how to monetize it. Then also, if you are looking for something that’s potentially going to be a very long term enterprise, something that could help you generate substantial revenue, or maybe something that would help you quit your job, or you can look for for a longer term project, so you can look for a service based business, for example, something that you can get into, and it clearly depends on your expectations. So the best way to approach these type of questions is by first kind of figuring out your budget range, your time, your skills, your expertise, your expectations, and also probably research more and talk to some experts.

Michael Bereslavsky 17:56 Additionally, you should ask yourself how are you going to operate it? Now, if you’re going to work with an operator, with a website manager of like us, it would be best to go with whatever that operators suggest you because operators are usually very good at one or two types of businesses. So like we are really good at content businesses, so we are not going to go and buy an ecommerce website for a client. Because we will just tell them like that’s not what we do. That’s not where our expertise are. So if you are going to work with an operator, it’s best buy the type of business that they are good at. And if you’re going to do to be doing it alone, as well, it’s best to buy the type of business that you think you’ll be good at. And finally, the last piece of advice which I usually give the first time buyers is start small, go and buy a small business first a small website and see how it works. And once you’ve been able to grow it and improve it and operated successful you’ll feel more comfortable and more confident to go and invest in a bigger business.

Michael Bereslavsky 19:08 So that’s it for today. Thank you for listening. And if you are looking to buy a business, go to domainmagnate.com/buyers to subscribe to our buyers newsletter, and you can also go to domainmagnate.com/investors to learn about our opportunities for passive investments. Thank you and see you in the next episode of the Domain Magnate show.