EP20: Doron Wolffberg in pursuing growth through acquisitions

In this episode, Colton speaks with yellowHEAD’s Head of Mergers and Acquisitions, Doron Wolffberg. They talk about how yellowHEAD began purchasing websites, the types of websites they look for, mistakes they’ve made in past acquisitions, and how you can avoid making the same ones yourself.

GUEST BIO:

When he’s not practicing Brazilian Jiu-Jitsu, Doron leads yellowHEAD’s Digital Acquisitions team with 5 years of experience in SEO, Content Marketing, and Lead Generation. He has a B.A. in Economics from Hebrew University.

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SHOW TRANSCRIPT:

Doron Wolffberg 0:34 Thanks. Great to be here. Thanks so much for having me. So let me start by really giving like a brief overview of me and Yellow Head and how we got into that space of doing online acquisitions. So I started the Yellow Head at about five years ago, originally in the SEO department kind of grew from there, from account management to the head of SEO, Yellow Head is a pretty cool company, we work with big brands from wide industries. So anything from gaming ecommerce, SAS, we built a really good name for ourselves. We got to the point where the online acquisition space seemed like there was a lot going on. And it was also kind of a solution to a problem you have when you run a digital marketing agency, which is the churn, so all your revenue is client based, so you cannot live and die by that sword. And that fluctuates, and you can’t really control it. And it’s not really something that’s more like an asset, so to speak. So, at some point, we thought that Okay, so why don’t we try this and see how this works, right? Because we have the capability as an operator, right? We know how to do SEO, you know how to run ad campaigns. We have creative resources, we have development resources. We have a lot of talented people that know how to do this stuff. So, you know, why not give this a try? And so in early 2017, we bought our very first site from Flippa was a recipe site monetize by AdSense. A month later, we also launched our first in house project to see if we, you know, we can build something from scratch. And then things have rolled on from there. After building that department in early 2017, we went on growing in deal flow so far, but around 17 websites with over 20 websites in the portfolio, managed to sell a few by now. So been going pretty well. I think that’s about it is kind of like a general overview of things.

Colton Moffitt 2:53 Yeah, well, that’s really, you know, it’s interesting. You guys got up to now 17 you sold some. What was it like, if you can compare the process and the difficulty and the resources required to acquire a new site, or an operating site, versus setting up a new product within your company? As you mentioned that you guys tried doing that some years ago,

Doron Wolffberg 3:16 That’s a good question, the difference is that, I would say it’s relatively more simple to acquire than it is to start a product or whether it’s like a tech product in a company or law or in you content website for that, for that matter. It’s relatively more simple because there’s a lot of the setting up stage the building something from scratch is extremely time consuming in terms of research, in terms of the resources you need to allocate, you know, when when building content size from scratch, for example. I mean, you can you can use like a basic WordPress site WordPress template, use the generic resources that you have online right to find content writers link building. But even that, if you don’t have the infrastructure still takes a lot of time and effort. And then if you really want to have a good product, so if it’s a content side, and like really the content is your product, right, the way it’s written, the way it’s presented on the site, you know, the way the site performs in terms of technical elements, you have to combine all that to create a really good product right to compete, because it’s still a very competitive marketplace. So I would say to the process for that is, it’s not an easy task. So if I compare it to acquiring a website that’s already past that stage, I would say it’s, it’s a bit more simple, from that perspective.

Colton Moffitt 4:53 Interesting. And you know, you guys had this kind of competency on your team already from the content prospective…the SEO perspective. And I would imagine there are a good number of people in the audience who do but we also have people who are listening who don’t necessarily have a lot of experience with content marketing and with SEO. Would you recommend that they look at other business models? And you guys have a preference for content sites because of your competency? Or do you think that it’s really the strongest one, and they should find people to work with who have that skill set?

Doron Wolffberg 5:25 So I think it really depends on what kind of skill set you have…your background and what’s interesting to you. Personally, since I kind of lead the activity from the get go, I took it more to the content, side vertical, because that’s what I know. So I come from an SEO background, I feel really confident there. We did try to acquire other businesses like econ businesses, and we kind of thought, you know, hey, it must be really simple, right? Because we’re a marketing agency. So, you know, we’ll just buy an e commerce site and we know how to run Facebook, we know how to run Google Shopping ads, Google search ads, you know, we’re so good. So let’s just do it. And it ended up being a total mess, basically, because running an e commerce businesses is much, much more complex than just the marketing aspect of running econ, right? There’s the logistic side of things. There’s the customer support, even as a marketing agency, just talking, suddenly you have to talk to all the different marketing elements yourself and the development yourself. So you’re not used to that you’re used to consulting or managing on behalf, so it’s a very, it’s a very different story…not to say that is not doable, but let’s just say that if we were an agency specializing for example, in FBA marketing, then it would make perfect sense to acquire FBA businesses and run them assuming of course that, you know, all the different elements that come along with managing this type of business.

Colton Moffitt 7:05 Yeah, certainly makes sense. There are models that are much more hands on and much more directly engaging with the customers. And I can’t remember who said this, but it’s one of those kind of terrible quotes. And it said business would be great if it weren’t for all the employees and customers. But ultimately, this is, this is something that person has to decide if they’re going to put money into an asset like this, because there are or at least over the past, you know, five to ten years, you would see different ebooks and blog posts out there about make passive income by investing in profitable websites. And it’s not really that passive. You know, there are ways of working with a company who will manage it for you, but you’re going to give up some of your returns. So, you know, you mentioned you guys have 17? What kind of team does that take to keep those running, profitably? And also, maybe we can hear one of the stories, of one that you’ve sold?

Doron Wolffberg 7:56 Sure. So right now we have a model that’s very agile. So, in terms of what we have in house is, we have me and another team member. And then we handle everything that has to do with the deal flow prospecting deals, verdict them, negotiating them, acquiring them, setting up a growth strategy for this side, which means that…and that’s something that we’ve learned with experience now to do before the acquisition, is to already have a growth strategy in place. So like, kind of look at a website and see Okay, so what kind of investment would it take to just maintain the site at his current revenue levels? And then what kind of investment would it take from our end to grow the site from one x to, two x three and four x and that helps us choose the best acquisition route for that specific business. You might acquire a business that’s It’s 100K, 3K a month or so right. But then it might be such an old website that just updating all the content might have an additional expense of 15 to 20K. Whereas maybe if you buy website, the same website but has a fresh content, it works like an evergreen niche where you don’t really have to update the content, as much as let’s say, like a technique for that, for that matter. And then maintaining that site might not be like an additional $20,000 on content and outreach might be much less. So that’s something that today we do within that stage. And then we outsource everything that has to do with content creation, outreach campaigns and management. Most of the development is outsourced and then creative, that that’s kind of easy. We do that stuff in house because we have the designers but it’s also something kind of that you have to pay attention also how, how you manage your in house resources versus external resources because in house, you kind of use them for clients as well. So you kind of find, you know, that balance and you gotta keep keep track on, you know what you’re spending with those team on in house activities versus like client, clientele and make sure that, you know, everything operates smoothly.

Colton Moffitt 10:27 Okay, so there’s obviously a challenge, an array of challenges within any given business model. And that’s part of the reason if you’re just starting out and your buying your first sites, try to stick with one that you know, or if you have a partner who really understands the operations or marketing in a certain model that’s good. And venturing out can be can be a bit dangerous because it’s easy to underestimate what it will take to grow and to scale reliably over the course of a year to two years. So you can actually either sell it again or, or recover your principal which you outlaid. Speaking which, do you guys tend to finance everything out of the cash flow from the SEO business? Is that how you started? Did you have to bring in any other kind of financing options? How did that work for you?

Doron Wolffberg 11:11 Yes. So we’re not externally funded all the operation is within the current cash flow. So kind of putting some funds and size to create other growth opportunities for the company, whether it’s through acquisition or through developing, there’s other cool stuff that are going on developing other SAS products or other, let’s call it like new revenue streams or new growth streams. And this is just one of them.

Colton Moffitt 11:45 Okay, that makes sense. So one of the ways that you stay relatively diversified and manage your risk is by having not just these websites is content sites that produce income but you also have your service it business income, and then you have SAS income, which I mentioned, subscription based, or you will have that option anyway.

Doron Wolffberg 12:05 Yeah, it’s basically the idea of developing other tools that relate to the marketing activity that hopefully you can later on market as your own product.

Colton Moffitt 12:15 That’s really interesting. So what are some other strategies and techniques that have worked really well for increasing the cash flow or the traffic post acquisition?

Doron Wolffberg 12:24 There’s a few things that we do. Some of them are really basic, an example one of the type of sizes I like to look at, as I said, on half comparison tables above the fold. Usually, that’s an area where there’s a lot of activity that takes place readers love to click it and today, you have to be super relevant, right? Especially, you know, on mobile with limited attention span of user these days, they want to, they want to see relevant content right away. And then I kind of know that if a certain site it doesn’t have like Proper comparison table that’s above the fold doesn’t have like proper CTA buttons, you know, I kind of know that’s an extra anywhere from 10 to 25% in revenue that I can get just by getting more affiliate clicks. On some niches, I kind of know whether the good CPA opportunities in terms of affiliate offers. So I can I can see a site that has you know, he has this he has offer x from this certain brand as an affiliate, and I kind of know I can get a better offer since I’m already active in that space. So those I guess the some of the things I look for. Another thing is like if I’ll already have a site within one space, I like to acquire another site. I like to bundle them up and you can get…you typically get higher multiples when it’s a two or three site bundle as opposed to just one site. diversify their risk for the buyer, it’s also easier for you to sell them as abundant kind of less work. You don’t have to find multiple buyers for for listing just one, but primarily as a way to get a higher multiple on the listing.

Colton Moffitt 14:15 Gotcha. And for your sales process, and you’ve successfully sold a few out of the portfolio so far, how have you found is the best way to find you know, a good price in a reasonable amount of time without waiting around with tire kickers for six months?

Doron Wolffberg 14:31 So right now we’re mostly selling through external marketplaces, we tried setting up kind of in the process of setting up our own network where we can also make deals that hasn’t matured quite yet. So the thing that I found with you know, whether it’s also selling for like deals for yourself or whether it’s selling for your network that normally…so on for this question, on, on on the seller side, direct deals, it’s kind of hard to find a buyer that would pay a high multiple for the like deals has to be like someone that really, really, really understands, you know, the business. He understands how you operate, he understands, you know, the type of asset you’re selling. Otherwise, it’s mostly people that are just looking for multiples. And there’s less competition on your business, right? Because if you’re just dealing with one person that most of the time there’s no real urgency for him to kind of buy it. So is more than position of power. So unless you have a really good relationship with someone, unless you have like a really good network with people that already bought for you, I would say that that would be a different story just takes more time to build. So I personally where I’m at right now, I found it more effective to do it through marketplaces where I can get a higher multiple deal for good listings there’s more competition. So eventually, so I would pay the brokerage fee. But eventually that kind of adds up since I can sell at a higher multiple.

Colton Moffitt 16:09 Right. Okay. Well, that’s interesting. And as far as some of the the times when it maybe didn’t go so well, you’d mentioned there was an e commerce site that you learned more about how you should have a growth strategy in place beforehand. It was that the one that really stands out, or was there one that was also in the content side where it didn’t really pan out? And you had to figure out what to do with it?

Doron Wolffberg 16:32 Yeah, yeah, there were definitely…so not every acquisition is successful. There was…we talked about the e commerce site and that just…also in the due diligence phases, you know, if you’re not familiar with the content markets, really hard to spot problems, or to verify reports unless you either know it really well. You get someone that really knows how to look at those reports. So that’s why there were I like a lot of mistakes from the due diligence process to operating the business. I would even say that the biggest expense or loss in terms of that acquisition was just running it for, I think we ran it for another 8 to 10 months you know, pretty much had a full staff in house doing that. So just taking a small SMB, especially in the e commerce space and operating, kinda like a full time business or like, you know, basically not the SMB model where you have like a passionate entrepreneur that does everything. So you can get a lot of at you get a lot of overhead, and I think that was even the biggest expense. We had another issue where you know, the very first site we bought, it was a recipe site, I think two weeks after we bought it, there was a big update with the way Google was monetizing AdSense and we just lost like half of the revenue from AdSense two weeks within the acquisition, just kind of found out from different forums and stuff that was going on that other publishers, you know, were also saying that somehow we will just change the AdSense algorithm. And then eventually kind of found ways to kind of stabilize the site. But it was never like a case where like, for that site, I think it’s at that age where, you know, doing on five years without a base of five years return on investment instead of like, two and a half or four years. And that’s something that you kind of have to take into consideration because, you know, you can buy an Amazon affiliate site, and man, they can change your commission structure tomorrow, and there’s nothing you can do about it, right. You can buy a site that has a specific affiliate program that will work then, there’s no real contracts there, that contract you know, that company can cease to exist, you know, next year and then you’re…So there’s a lot of, you kind of learn with time that, you know, you gotta have a diversified growth strategy for each scenario, and different ways that you can kind of grow the website to really fight all these different risks that you have. And the key is just diversification. So, like, don’t have one website have like, enough website, whereas like, you can feel secure that, you know, you kind of know that one out of five websites isn’t going to do that. Well, you know, obviously, the better you are as an operator, then the more websites are going to do well, but you kind of always have to assume the worst stat, you know, one of your acquisition isn’t going to go well. And then, but as long as you’re diversified enough that still you know, that’s still a very solid and sustainable and profitable business model.

Colton Moffitt 20:04 Yeah, that makes a lot of sense. We’ve had similar things happen. And the diversification even within the same business model, you can get different ad networks, different affiliate programs, different niches, different frequencies of publishing. So you get your evergreen content in place. And then you’ve got your, you know, news type sites where it’s constantly changing. And mixing those up can really help, particularly considering these different updates to Google. They’ll happen, some of them more severe than others. And you’ll notice that a lot of sites will come onto the market all the sudden, gotta be extra careful with those too, because the deals look good, but the due diligence needs to be probably doubly thorough in those times. So you must probably have some stories where things went really well though. What do you think is your favorite acquisition out of the 17 or so you’ve done, which was the one you’re most excited about? Or it was or maybe it surprised you that it turned out so well? But it’s a good story for the audience.

Doron Wolffberg 21:02 Yeah. Okay, cool. There is I think the second website that we bought, and I think I posted that case study on Empire Flippers. It was a website we bought for, I think it was 51K and then we flipped it for 135, about 16 months after doing that 16 months, the site made just over 50K in revenue. So we kind of got the whole acquisition back in profits. And we’re able to flip that one. Got a couple of other case studies, also insights we’ve managed to build from scratch. One of them is also on Empire Flippers. I was in the music space kind of was even the very first project we did, internally, it ended up being really successful invested around an initial investment of I was around two 15K in terms of development content basis in terms of backlinks. So that site 18 months later 100K during that time the site made made of just over $55,000 in revenue. Yeah. And I think that’s like the biggest upside, well, you also the operator. So all those additional costs in terms of manpower that you had, you know, to pay some other third party, you know, to do that for you, once that’s in house. Now, that’s a lot more flexible on how you allocate those hours. So that turned out to be a very successful model for us.

Colton Moffitt 22:44 Yeah, that’s really good. If you can put them together. If you can put together sites or products within your team. In parallel to doing acquisitions, you’ll find that there’s a lot of upside there for you as well. So that’s a pretty fascinating way to turn things around with the competency you already have from within your team. So if you’re listening now and you’re in the audience and wondering how should I approach this, I hadn’t done an acquisition yet, then really do look at your own skill sets and the skill sets of people that you can or do regularly partner with. And apply that when you go into it. Make sure that you do your due diligence, so that you go as far as having a plan for growing whatever it is that you buy. So what do you think is next for you and Yellow Head? In 2020? We still got a lot of year left. And I’d imagine you probably have some plans for it.

Doron Wolffberg 23:35 Yeah, definitely. So the plans are, you know, to keep scaling up the activity, making logical deals, kind of like all the foundations to do it is in place, personally, myself, I got a few things going on. So I’m going to take a bit of a timeout from my work there. And then hopefully, just help other folks, other companies, people that, you know, want to learn how to utilize this as a business model within their company.

Colton Moffitt 24:12 Yeah. Cool. All right, well, that’s good. It’s always good to take a take a break and reflect sometimes, particularly when you’ve got some bigger projects on the way. What do you think you could share us maybe a final word of advice for the audience, whether they’re just getting started or someone who’s already got a portfolio?

Doron Wolffberg 24:30 I would say that you know, especially if you’re doing the content site, you know, don’t be discouraged from Google updates. You know, those happens. Those are part of the business. They’re basically you know, a way to just you know, make your content better make your websites better. Take it as a learning experience ever since like there was a lot of big updates over the past couple of months. We felt it too, but you know, you can weather the storm as long as you know, you’re consistent you kind of look at, you know, where can I improve the sites, so normally if you just keep working if you’re consistent and you know you’re going to recover and you’re going to keep doing great in the long run. In terms of another advice for you know, if it’s someone just starting out and doesn’t have previous experience, I would, I would say that you know, don’t look at buying a website that’s kind of a shortcut to building it from scratch if you don’t have like the necessary skill set in place. Take someone, take an operator you can trust take someone that you know, a mentor, someone that consult you and kind of like you said, it’s better to have your investment back in four and even five years but you know, have a really solid investment, where you kind of…you can feel secure because the alternative of just trying to do everything yourself, you know, is a little passive. A lot of stress, you might, you know, lose a big chunk of your investments during that time. So, you know, hire someone you can trust, hire someone that you know, can be with you with that journey. And also aim more for a portfolio than just, you know, buying a content website as an investment, think about like, how can you diversify? How can you, you know, get multiple websites that are a bit different? That in case one doesn’t work that well you know, another one probably will so it will kind of mitigate your risk in the long run.

Colton Moffitt 26:40 Yeah, yeah, that’s really important and one of the things that is overlooked by people just getting started out is, it is not really passive. You do need somebody to be keeping a pretty close eye on things keep things up to date. And this is reflected in the multiples you know, the multiples for these assets are so low and the returns are so high because the risk is so high that they basically just become useless overnight, if you don’t know what you’re doing. And that’s also a very important reminder for people that you’re not going to be able to skimp on marketing and operations expenses or learn it on the fly, you will find yourself very frustrated and resenting the person who sold it to which, you know, isn’t fair if they were if they were honest and clear, and you just didn’t understand. So take the time to learn. Take the time to work with people who have been there and done it. It’s always better to make a little less money on the first one, if you can be sure you won’t lose money. And we really appreciate you sharing those tips with us. So Doron, if people want to work with you, or if they want to learn more about what you’re up to lately, what’s the best way for them to do that?

Doron Wolffberg 27:43 Yeah, they can reach out to me for LinkedIn, go to my profil there or through Facebook, and I’ll be happy, you know, to help any way I can.

Colton Moffitt 27:53 All right, excellent. Thank you very much, everybody. This is Ben Doron Wolffberg. He is the head of mergers and acquisitions for yellow head insist upon his marketing agency that is now doing acquisitions to grow. Thanks a lot for sharing your insight with us today and I look forward to talking to you soon.

Doron Wolffberg 28:11 Thanks so much.

Colton Moffitt 28:13 Domain Magnate is a leader in buying and selling online businesses with a proven track record of expertise gained from over 300 deals since 2004. To learn more about how we can help you acquire or exit a profitable online business today, head over to Domain Magnate com for more details.

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