In this episode of the Domain Magnate show, Michael chats with Eric Owens, the Founder of AppBusinessBrokers.com. They discuss current trends in the mobile app market, when it is a good time to sell a mobile app, and more.
Eric is the founder and CEO of AppBusinessBrokers.com and has been successfully brokering Internet businesses since 2004 and doing online business since 1997. His engineering background and attention to detail, combined with his systems thinking and ability to understand key aspects of each business, puts him at the top of the elite when putting deals together. Having started, grown, and sold numerous businesses, Eric has an impeccable reputation for efficiency, speed, and integrity making him one of the most trusted and sought after business brokers in the world.
SKIP TO THE GOOD PARTS:
- 1:09 – 1:36 – Michael and Eric chat about the kinds of sales APP Business Broker has brought in.
- 4:00 – 6:07 – Eric brings in a $10 million dollar deal.
- 6:50 – 8:43 – Eric shares about his most memorable sale yet.
- 25:09 – 26:20 – Seeing more buyers than sellers after COVID.
- 27:48 – 29:40 – Eric gives advice to those buying and selling businesses.
- 39:31 – 41:29 – Thoughts on an evolving industry.
Michael Bereslavsky 0:10 Hello there listeners, welcome to another episode of the Domain Magnate Show. Today we have Eric Owens from APPbusinessbrokers.com. Hi, Eric. How are you?
Eric Owens 0:23 Doing great. Thanks for having me on, Michael.
Michael Bereslavsky 0:25 Thanks for joining. So tell us a little about yourself. How long have you been in this space? And what services do you provide to clients?
Eric Owens 0:37 Yeah, definitely. So we’ve been brokering this deal of internet businesses for about 15 years. And then mobile apps in the last eight years now, eight or nine years we got into that but year and a half after the App Store started. And then these days we mostly work with seller clients and work with them all the way through the process from valuation to closing and transition, and then focus on apps in internet businesses like Econ, Amazon software as a service.
Michael Bereslavsky 1:09 If you had to guess, like how much did you sell in value? Businesses? Like what would you say was the total number more or less?
Eric Owens 1:19 I think the less than we checked, it was around 46 million. I might be up over 50 now, because I haven’t tallied up in a while.
Michael Bereslavsky 1:28 That’s pretty good stuff. So about $46 million in sales. And during what timeframe? What period?
Eric Owens 1:36 I think we’ve been tracking that the last like, probably seven years. Yeah, good question.
Michael Bereslavsky 1:44 Nice. I understand that you you mostly focus on buying and selling apps. And so what is the difference in terms of brokering and selling between apps and traditional businesses or websites?
Eric Owens 1:57 Sure, yeah. One of the biggest differences with apps, it’s, like there’s less ways you can market apps, there’s less, kind of less things you can do with them. On the flip side, and some things like, you can get the natural lift of this, the more people using apps, like they have been during this pandemic, where they can go up kind of on their own more easily than internet businesses. And then, that’s really the big things that I always like to kind of coach buyers on.
Michael Bereslavsky 2:28 And how is it different in terms of how the transaction goes, if transferring the app transferring the ownership and the assets that are included, then you compare it to it to an online business, like a commerce store?
Eric Owens 2:43 Right, used to be pretty onerous. Were like Apple, did you trandfer through an app, Apple made the buyer buy the whole company entity, because they own the whole developer account. Then years ago, they changed to where you can now lease transfer, transfer apps. That’s one thing about apps I think compared to internet businesses, when it comes to the the transfer process, it’s pretty simple. Same thing with due diligence where there’s not much we can do for due diligence besides verifying the revenue on Apple or Google or ad networks in the user base numbers in the code. So there’s gonna transfer stuff is it’s literally like push a button and a transfer the over to the new owner and shows up in within hours, 30 hours a day, at most, and then it’s done.
Michael Bereslavsky 3:33 So that’s pretty straightforward. So it sounds very similar to basically how you would transfer a website. And if platforms like Google Play, iTunes, like all these different play stores, do they all allow simple transfers these days?
Eric Owens 3:51 They do, Apple has a couple like strings, technical requirements, where if people have used like there’s something called iCloud and another little bit Piece of code in there that like makes the app non transferable. So we always work with seller clients, make sure they haven’t used that code in their app so they can actually transfer them. Google is very easy.
Michael Bereslavsky 4:15 What’s the biggest deal that you’ve closed?I
Eric Owens 4:17 I think ever is 10 million. It was the combination of a software to service and an app. And I worked on 100 million dollar deal before but that was an offline business for like a circuit board factory so, much different than internet businesses.
Michael Bereslavsky 4:36 Yeah, so the 10 million business. That’s pretty impressive. How, was the process going? How long did it take?
Eric Owens 4:45 That one, it took us about six months to get the deal closed out the the buyer was using a small private company or a small public company, I mean, so they, they had some extra requirements on the SEC side of things and then reporting. And then the part of it to you is the owner had like a video studio that they used for some stuff. And so doing actual physical transfer for the studio was a little bit different than most internet businesses.
Michael Bereslavsky 5:14 And what type of assets are included? Like was it wasn’t mostly online? Was it like an e-commerce store?
Eric Owens 5:21 It was mostly online. Yes, the software part of it the software as a service was a key component just the owner did like some the marketing stuff we had like this high-end video studio that the public company wanted to continue to use for their marketing stuff as well.
Michael Bereslavsky 5:38 Did they do just a one time 10 million payout or was it spread out in a certain time?
Eric Owens 5:45 It was it was a blended deal so it’s hard cash in part earn-out and part stock. And you kind of some sellers aren’t cool with that this guy was because he was gonna…he wanted to keep being involved in the business just not running the day to day stuff, so it kind of worked out well for the fit.
Michael Bereslavsky 6:03 So it wasn’t a company sale, not just SSL.
Eric Owens 6:07 Yeah, they bought the whole company.
Michael Bereslavsky 6:10 Make sense. That’s really interesting.
Eric Owens 6:12 And some of the small public companies do that just for…it helps them on their whole stock price to when they do things that way.
Michael Bereslavsky 6:22 Yeah. So it took six months to close with you, but how long did it take before that to find the buyer?
Eric Owens 6:32 Yeah, there was in the whole process. There are two probably two, three months to find the buyer and then the closing process was around three months with them.
Michael Bereslavsky 6:40 That sounds quite fast. That’s quite impressive. Nice. And what would you say was your most like the most interesting and most memorable deal that you’ve ever done?
Eric Owens 6:50 Yeah, it’s a good question. It was probably the first deal that ever did. I in that was where how I got into brokering was never like intended to business broker and I started off doing a manufacturing company. And so in the engineering school didn’t manufacture stuff for a while. And then I realized that I did not want to be in that business that was back like 97 to 2002 and started looking at other ways to do business. And that’s when the internet was kind of first getting going. And I started an internet marketing publishing company with a couple of partners. And me and one of the guys created these couple small tax software sites, just this little small piece of software that helps small businesses and then we had to go for a couple years that means is pretty small. I mean, it made like 30 to 40 grand a year in profit. And, but he wanted to buy a new Mercedes and I wanted to buy a house. So we’re looking around, like, what assets do we have that we could do this with? Like, well, you know, we don’t really do much with these sites. So we could just see if we could sell them back then I don’t even know if it was possible or not? So we just went through and, and figured it out as we went, like using a couple of listing sites that were around at the time. And then we took a different strategy to on that where we actually reached out to a customer base for that to say like, Hey, does anyone have inner marketing experience and would want to own their own business? And so one of the guys off our list ended up buying it in the end and then the interesting part for me has opened my eyes because I realized like, we, me and my partner on that made more money in that month and we sold it than we had in like a year before. So I really opened my eyes to the power of selling a business in general.
Michael Bereslavsky 8:44 Yeah, that’s really interesting. That’s also very similar to my story of how I got into buying and selling businesses. Like this says deals most memorable. I remember the first time I saw the site was built with a small sale like, like $2,500, but it was a small site that I just acquired, then it wasn’t making that much money. So I was just thinking that it’s probably going to be a bit of a loss. And then suddenly, this gambling company just contacted me and they wanted to buy it. And they offered me a good amount. So we negotiate a little bit, and I sold it. And I remembered that I paid about $100 to that site initially. That was probably back in maybe 2006, 2007. Yeah, and that was the first time that I realized that is really profitable to sell sites like I bought it for like 100 or $120 and sold it for $2,500. And yeah, and then the next one was also my first six-figure deal. That was quite memorable because it also took us quite a long process. So it took many months to settle to complete one of the more exciting ones as well. I think that’s kind of how it is the first time is the most memorable. Right? Right.
Eric Owens 10:11 Yeah, definitely.
Michael Bereslavsky 10:14 And what do you think about the current economic climate, how does it benefit buyer’s or seller’s like is a good time to buy or is a good time to sell now?
Eric Owens 10:28 Yeah, I think it’s definitely from what I’ve seen it the good time to buy and we’ve actually had, like, when the whole pandemic stuff first started, there was definitely we had some deals in motion. They got paused just because buyers were scared. And then maybe the last month or so, we’ve had more and more buyers inquiring about both apps and internet businesses. I think the people have seen that the value in digital businesses in whatever form online businesses or digital assets is strong, where people might have I’ve been looking at maybe buying an offline business before then now we’re looking at buying online businesses. So hopefully the trend for that continues where like over time it’ll increase the value for internet business owners and app business owners. On the sell side I think things have been coming back now where we’ve gotten deals back in motion and some stuff we’re like even bank financing where at least here in the United States when it the whole stuff first hit the banks, we’re not loaning your money because they were, too busy dealing with the, the current climate of it so. So we listed one business rate when this stuff was gonna hit just because the seller was very motivated to sell. He has like a little six month old daughter that you wanted to spend more time with. So he was kind of like, oh, let’s just give it a shot. See what happens and the business has been growing. That business has grown more when we’ve had elicited in the last few months and I’ve ever seen any other business where I went from like 150 grand a month in profit 150,000 a month in profit three to 500,000 in April, and then may should be like around 800,000 in profit. So, we just got a deal signed on that on Monday.
Michael Bereslavsky 12:24 And what’s the average multiple that you are seeing currently, for apps or for other businesses from your experience?
Eric Owens 12:34 Yeah, absolutely, definitely can go anywhere from like one and a half times to around three times the yearly profit. Most of them are very high margin unless someone’s doing a lot of paid user acquisition for it. So they tend to be like, a little bit closer to multiples of revenue than we see for internet businesses. So those ones have been doing well. subscription apps. Certainly, reacurring revenue sometimes we can get, those are the ones that tend to be closer to three times. And the lower end are ones where they’ve gone in decline. So get that, sometimes apps where sellers launch him and then don’t know what to do to market Am I going to they definitely decline. And then internet businesses…now we’ve been through anywhere from like two to more like three and a half times on those on at least the ones that are growing.
Michael Bereslavsky 13:29 And who are most of your buyers these days and those ranges would it be funds or individuals or some groups, public companies?
Eric Owens 13:40 Year for apps, it tends to be there’s a couple or at least our favorite buyers to work with. And there’s a couple of like small investor groups and even a couple of individuals with teams were like they just buy apps all the time, like they buy multiple apps and then figure out ways to better monetize So they’re almost like small investor groups. We like them just because they’re very experienced and they can usually make cash offers and close quickly. We do do some app deals, though in large public companies like the one I see an Apollon, who owns like Tinder and match.com, that kind of stuff, where they bought the maps through us before. And then on the internet side of things, those tend to be either individuals or like, some private equity groups. And like we said, there’s some investor groups now that have popped up that specialize in internet businesses, even some that are doing like only Amazon business deals and stuff like that.
Michael Bereslavsky 14:44 So are you seeing many repeat buyers? And what do they usually do? What kind of strategies do they have to run to monetize those those apps and businesses better?
Eric Owens 14:55 Yeah, so on the the apps front, they usually…their strategy is they look at the the user base in the revenue, and then see where they can get a ROI. So some of them have better ways to monetize the app than the current owner does. where sometimes it apps donors will just like, they’ll use the freemium model. So we’ll make the entry and then make money off of advertising where these buyers will look at it and see how they can turn it into more in app purchase revenue, or even turn it into a subscription app. We’ve had some people do that really well, especially in like the photo video editing market, where they’ll buy like a free an app that’s been free and turned into a subscription app. And they get really strong ROI on that. On the internet front, the repeat buyers, we have they’re usually they’re getting some kind of leverage just from efficiency with operating multiple sites like to look for niches where they maybe they’re targeting the same demographic, and then they can create cross promote products from a couple different small online brands to those customer bases.
Michael Bereslavsky 16:06 Yeah, this is also similar to what we are doing at a Domain Magnate with all acquisitions trying to reach some efficiencies by having multiple assets, multiple sizes, same niche and then we can negotiate better deals with, if affiliate companies with products and we can manage them better and you know, do content and SEO better at lower rates. So I guess that’s similar with apps as well and the commerce sighs right?
Eric Owens 16:39 Yeah, definitely. You commerce do we see some buyers that are like the if they’re doing any kind of like, if they have physical products and they’re doing any kind of stuff, we find most sellers get them to a certain level where they start to get uncomfortable about doing larger inventory purchases. You know, where it’s a big difference between buying like fifty thousand dollars of inventory of $500,000. But some of the buyers who buy them, like you said they have experience negotiating better deals and getting better terms and even financing inventory purchases and stuff that smaller sellers don’t know how to do.
Michael Bereslavsky 17:16 And when it comes to apps, so one one strategy you mentioned is you could buy like freemium apps, or premium apps that that one time cost the user and then turn them into a subscription model, or introduce some in app purchases. Is that like the most common tactic or what are some other things you can do to have more efficiency better management?
Eric Owens 17:39 Yeah, in some some of the guys that do well with a deputy the figure out how they can cross promote apps, and, and with their traffic to some of them can go to some, some non traditional advertisers besides like the Google AdMob type of stuff and get better advertising rates. They’re like a bare minimum. That’s what they usually do. Look for that leverage,
Michael Bereslavsky 18:03 can you really get like a substantial improvement with AdMob? Because they’re pretty big.
Eric Owens 18:11 Not with them using other, going with other advertising services besides them.
Michael Bereslavsky 18:16 Yeah, okay. And then would there be some advantages to having multiple apps? Would people buy apps in the same category? Or just different apps? And, and, and cross-promote them or manage better?
Eric Owens 18:30 Yeah, exactly the cross-promotion stuff. And then, and then usually to they have some, some development team, even if it’s outsourced, where they might have a better team that can go and update those apps and improve them much faster than a smaller current owner can.
Michael Bereslavsky 18:47 So you mentioned that the development costs are very high, that the margin is suddenly high. So does it mean that the development costs are not that high for those apps because I know that app developers usually quite expensive?
Eric Owens 19:02 I yeah, usually there’s a most of them, I think have the front end sum costs of the initial development. And then after that, it’s mostly updates, where they’re not doing late, you’re investing a ton of money on the update side, but there’s definitely the upfront cost.
Michael Bereslavsky 19:19 And, you know, I’ve noticed many apps that come across our desk, often absolute are on a decline. So there seems to be kind of like they go up and then they go down. And I wonder if that’s pretty common or are there a lot of apps that just stay stable.
Eric Owens 19:40 Yeah, the most of them do go up and then have some of them are very sharp, like hockey stick effect over time where they go down rapidly. I think those tend to be games that we see that with some of the other stuff like utility apps, and even the more like subscription-based apps, those ones don’t have that same effect.
Michael Bereslavsky 20:03 Yeah, we looked at some game apps. And it’s kind of hard to tell like, how can you actually understand if it’s, going to be stable, if it’s something you can fix or if it’s just going to drop rapidly?
Eric Owens 20:15 Yeah, usually, I always advise our app buyers, if they’re new to it, that they should have a strategy in place of exactly what they’re going to do to maintain or grow the user base. Because that’s often what you said, what happens where they get an initial burst, and then people just stop using it. But it doesn’t have ongoing value for them.
Michael Bereslavsky 20:36 And do you see many first time buyers buying apps or other businesses from you?
Eric Owens 20:43 Yeah, we do on the lower end for sure. where some people, usually the people that have like some kind of software experience, or at least are comfortable with working with outsource developers where that’s not like, totally new to them. So they’ve been quite successful. Doing some other business or industry and then they look at apps it’s kind of like a nice little cash flow lifestyle business and which they can be for that for sure, you know, low, truly low requirements on owner time for on the internet side of things. The smaller deals are usually more first time buyers where you know, same thing. They’re looking for a lifestyle kind of business.
Michael Bereslavsky 21:24 What kind of price range but what’s that before there were first time buyers mostly?
Eric Owens 21:31 Usually under like $250,000. Some of them do larger deals. Like we have one emotion right now for we’re actually much closer to like 2.5 million with some first time buyers, but it’s two partners who do have past business experience. So yeah, it’s the first time buying a business, but they have some experience.
Michael Bereslavsky 21:54 And are they using loans? Are they using SBA or something else?
Eric Owens 21:58 Yeah, exactly. Yep.
Michael Bereslavsky 22:00 Yeah, SBA loans says that’s quite common like they see a lot of those buyers with the loans.
Eric Owens 22:06 Yeah, definitely nowadays, I think one interesting trend in the whole internet business space in general, but certainly for us doing deals in brokering where, how long it’s been Now certainly the last couple of years, there’s way more sources for people to get bank loans now, which is pretty cool to see. Like, it makes it more of a real industry.
Michael Bereslavsky 22:27 Yeah, but I understand there are some strict requirements like it has to be a US based business and, and a bunch of other things. That’s right.
Eric Owens 22:35 Yeah, definitely for the SBA loans. We’re seeing other lenders too now, that will do deals, they’re usually not as good of terms as the SBA stuff. I mean, those can be really insanely great terms for buyers, you know, it’s like payback over 10 years at some low-interest rates, it can be a pretty good investment.
Michael Bereslavsky 22:57 What kind of businesses Can people buy there they can get a really good terms and alone.
Eric Owens 23:05 We even did one just back and read before the pandemic. It was a an app deal subscription app that does video editing, where the buyer got an SBA loan for that one, which was the first time we’ve had a buyer to an SBA for apps. So that was a, that was an interesting experience. So we’re that guy now that he got basically you got a loan so we’re he’s, I think the loan terms are like $10,000 a month and the business makes like $40,000 a month very passively. So some good leverage for him yet smart use of debt for sure.
Michael Bereslavsky 23:42 How much equity did you have to put initially?
Eric Owens 23:47 For that one, he only had to do 10%. Depending on the deal in the buyer, but in the past, some of them were like even 5% but 10% seems to be the average.
Michael Bereslavsky 24:02 And so what would be the criteria for the SBA loan? Do do they have to have a certain number of like maybe three years of returns? Like that?
Eric Owens 24:12 Yeah. Ideally, that’s what they’re looking for is the three years of tax returns and then that the current businesses at least flat like not in you know, not any rapid decline at least, it could be month to month fluctuations, but an overall trend that points to being flat or growing.
Michael Bereslavsky 24:30 And are you seeing many funds like private equity funds moving quicker private equity funds would focus on smaller deals, coming and looking for deals and buying mistakes as well?
Eric Owens 24:42 Yeah, definitely. It seems like there’s been a couple that where they’re focusing on some particular niche or type of business. So there’s some that are just doing Amazon or even like Amazon FBA deals or like that they’re specializing in. Then some with e-commerce or even software as a service. And then, of course, you guys with more content.
Michael Bereslavsky 25:09 Yeah, so it’s the pandemic, it’s interesting how the market is changing. So you mentioned that you are actually seeing more buyers now. Other than sellers, are you seeing that kind of the market shifting from a seller market to buy a market or the thing?
Eric Owens 25:30 Yeah, I think we know that short term to definitely still be some good opportunities for buyers where they can find good deal. You know sellers that just decided they want to get out of their business during the pandemic. I think over time here that we’re going to see more and more buyers that might get more competitive even to buy some internet businesses or so more people focusing on those compared to offline businesses.
Michael Bereslavsky 25:55 Yeah, that’s also my expectation that the financial crisis is just going to cause people to have to go and sell faster. And maybe it’s a lower price.
Eric Owens 26:07 Yeah, yeah, we’ve seen some sellers who were like during this, they kind of, maybe they did some introspection and decided that their current businesses and what they really want to do, so we’re going to sell it move on to something different.
Michael Bereslavsky 26:20 So do expect that the multiples might go down in the next year or so?
Eric Owens 26:26 I don’t know, I guess I’m optimistic that they’ll go up. If there’s more buyers demands, more people looking. I think in the short term, it’s definitely been down. We had some sellers that were looking at selling, they decided to just hold off on it, because they expected that they either wouldn’t find a buyer in the short term or that they would get offers that were from buyers that were looking through the deal that they want to get the price that they wanted.
Michael Bereslavsky 26:54 Yeah, that’s true. I guess the The really interesting thing about the pandemic is that people are understanding offline businesses are actually also quite risky. Like you could, you know, you have an offline store and something like that happens. And suddenly you just don’t have any business. So I could actually yeah, looking for to get more into remote businesses, businesses that are more international and not not as fixed in location as well. So I think that’s great for the industry.
Eric Owens 27:24 Yeah, definitely. Right. Yeah. I feel bad for the offline businesses, but definitely, over the long term, it will be good.
Michael Bereslavsky 27:33 So do you have some some advice for people out what not to do or any, like cases of something that didn’t go as well as planned with the deals on buying and selling sites?
Eric Owens 27:48 Yeah, definitely. I mean, you probably see this also, but we get some sellers coming to us where they wait until their businesses in like some kind of almost rapid decline, or at least some steady decline. Where then they even if we can sell it, they get way less value for it than they would have if they had at least maintained it or sold it when it was flat or growing. Where there’s just like something about it where there’s so many entrepreneurs wait until it’s gotten to that point. And then they don’t want to put the time into resurrecting it. But then when buyers look at it, even smart buyers look at some of those and go in the back of their mind. They’re thinking, am I catching a falling knife and I just don’t see it. So they’ll see it as more risky and make offers that are way lower or offers with less cash and more earn out based. That’s been the biggest thing. And then the other thing is, is not keeping good financial records where I think almost every entrepreneur when they’re first starting out like it’s not fun to do bookkeeping stuff. There’s just not now you want to focus on and it’s the people over time don’t get their financials in good order, where then when they go to sell it, they limit what they can get done in terms of valuations because the banker or buyers might not be able to use bank financing the back clean financials and clean tax returns and stuff like that, where it’s a I think if entrepreneurs this was the only ones can look at their business really as an asset, and then keep that mindset as they’re building it. It can motivate them more to put time and resources into stuff like that, that might not have the immediate payoff when they go to sell make the big difference.
Michael Bereslavsky 29:43 Yeah, we are seeing some very, very similar things as well, especially on the low end of the market. Many people kind of sell at the wrong time they sell at that that lower end of the cycle than the business is going down and then they lose motivation to manage it too. grow it. And that’s I usually advise people also that you have to sell that when you are going to peak. But that’s also difficult psychologically, right? Because when the business is going well, everyone wants to keep it and grow it and, and people are excited about it, but then it’s going down. They want to sell but then no one wants to buy. That’s the constant dilemma. Buying and selling. And if the numbers definitely as well be, especially on the low end, like like below 50,000. We see a lot of people that come in, they just don’t have proper numbers. We don’t have any financials. And like, it’s really difficult to confirm things and it’s taking a lot of effort and time to also verify stuff. So there is definitely a huge advantage to just keeping proper numbers early on.
Eric Owens 30:56 Yeah. The good thing is the industry keeps kind of growing up and being more sophisticated too, it will become even more of an expectation where your seller can set themselves apart by having clean financials and records compared to other businesses.
Michael Bereslavsky 31:12 And you do often work with sellers that have multiple assets or sellers that start businesses and then sell them. Or is it mostly people that just have like one big business they’ve run for a while?
Eric Owens 31:27 Oh, yeah, we do have quite a few clients who are definitely fallen into this serial entrepreneur category. Where, yeah, like oftentimes, they’re selling their current business so they can self fund their next big idea. Or is it part of their strategy where they buy the starter, buy something and run it for two or three years and then sell it off?
Michael Bereslavsky 31:47 Yeah. Are there any interesting trends, you’re noticing something that’s emerging maybe in the past year or so in apps?
Eric Owens 31:57 Really this subscription app aspect. We’re more and more of our absolute clients, they’ve they’ve sold off their past apps and now focused on subscription based apps. And the interesting thing with those is where it almost becomes more like software as a service business that just delivered through an app where they can view more paid user acquisition, if they know their numbers. If they know that they’re probably going to make $100 from the user versus like $5 from advertising or some unknown amount, then they can can invest in more user acquisition and do more things with it.
Michael Bereslavsky 32:36 Yeah, and again, what do you think about the industry in general? Lately, there is quite a big amount of many of new players coming in as well. There are many brokers now there are multiple marketplaces for people to sell the apps and businesses. What are your thoughts on how it’s developing in the past years and how it might look in the future
Eric Owens 33:01 Yeah, definitely I think that we’ll probably see some more people start to specialize. Yeah, we might have some brokers that focus on like we kind of focused on apps and branded ourselves that way even though we still do internet business deals. We just took that scan three years ago by the privacy more people do that kind of thing where maybe a specialized software as a service deals or are specialized in certain deal sizes. As opposed in the past I think most of us early day in our brokers were probably opportunistic, or like, okay, there’s a seller wants to sell well this day. So it’d be more specialized in you know, have some brokers that is focused on particular niches.
Michael Bereslavsky 33:46 Yeah, that’s, that’s what we’re seeing as well. The deal flow brokerage, we’re looking to specialize more in the higher ranges, and kind of picking things that we are really good at selling rather than going and competing. And everything.
Eric Owens 34:02 Yeah, some of those larger deals can be more, more fun to work on too where it’s just, I think partly it’s just the buyers are more sophisticated. So like we’ll get, I remember last year, we listed two businesses at the same time. One was for $2 million, one was for $200,000. We got the $2 million one closed faster than the $200,000. And we’d like way less questions. It was almost less effort to then for the $200,000. One. So those buyers tend to know exactly what they’re looking for. Ask very specific questions and either a fit or not in the fit don’t make a fast decision to move on it.
Michael Bereslavsky 34:42 And are you competing with this Empire Flippers of international and similar who are targeting a wider range of prices and deals?
Eric Owens 34:53 Yeah, to some degree, although I think we’re gonna probably specialize even more where we’ve been going in the direction of focusing more on larger deals and a smaller number of clients that we can work with more directly. Maybe even work with them for like a couple of months before they list to help fix up the business a little bit. And if they can get better value out of it so big for us we’ll probably go more in the direction of like smaller m&a type of strategy and certain deal sizes.
Michael Bereslavsky 35:25 do you guys also do some advising if people just want to division service or m&a advice is out just out the brokering?
Eric Owens 35:35 Yeah, definitely. Yeah, we worked with some clients on that front, some on the buy side to the supply side consulting, mostly for people that are looking to do multiple acquisition kind of strategy.
Michael Bereslavsky 35:46 Yeah, have you guys ever worked with Flippa?
Eric Owens 35:50 I kind of like avoided it for many years just because I had we tried using it early on and it was always like dealing with buyers who didn’t end up doing interviews anything compared to other marketplaces and listing sites. We’ve started using them again in testing it out and working with them. So definitely had some seems like there’s some more sophisticated buyers there now than there was years ago.
Michael Bereslavsky 36:17 Yeah, it’s interesting. We recorded an interview with Blake the CEO of Flippa. Last year, and we just recently recorded another one a few weeks ago. And I’m definitely seeing that flip is improving. It’s still it still seems like it’s mostly oriented towards the low end of the market. But I see a lot of effort on this side to put in good systems to filter…filter buyers will also get a lot of messages for our listings, both on the main Domain Magnate where we sell our own sites and for deal flow brokers that we broker businesses, like there is a lot of messages from people that just don’t look like serious buyers, you know, it’s like maybe 90% just people looking to do some research or some stupid questions. People do not have the kind of budget. Yeah, yeah, that can be frustrating.
Eric Owens 37:15 Yep, definitely. Yeah. It’s probably one of the one of the few annoying things about this business.
Michael Bereslavsky 37:20 How do you how do you do that in the own business? Like when the when the most buyers come to you? Do you just walk with a small number of existing buyers or send it to your list?
Eric Owens 37:30 Yes, we are methods for that we, we definitely have email it out to our database, and we’ll list it on our website which it gets some traffic. We’re looking at starting to do some more social media stuff, and then we do use a whole select group of the business for sale listing sites. Some of which worked pretty well that bringing in good quality buyers, other ones not so much. And, but our database is definitely the main place that we focus on it. And then some listings now to you, we’ve started doing some, like direct outreach to potential buyers, which we hadn’t done much of in the past. For certain businesses, it can make sense to do that. Yeah, not all of them makes them for me.
Michael Bereslavsky 38:17 No, it does make sense where it’s, there’s a potential for some strategic buy, right?
Eric Owens 38:23 Yeah. And in terms of like the buyers, the more you know, tire kicker looky-look buyers, the working on the larger deals tend to minimize that to you. Just because they, you know, if you ask someone for financial verification on a deal, that’s gonna be $2 million, ask them how they’re gonna fund it. That can bring people out very quickly
Michael Bereslavsky 38:47 How do you usually do the financial implications?
Eric Owens 38:50 what kind of some, some of the larger deals will ask him even for like, some kind of proof of funds some of them are like our private equity groups. Wherever you are, they’re just able to show that they have no capital backing investors to do it. And then smaller individual buyers are usually okay with that if they’re trying to reach for a larger deal. they’ll explain their strategy for it. It’s pretty typical to you from like the offline business brokering world where I mean some of them are like very strict on that kind of stuff where they need a whole financial statement from buyers before they’ll even let them look at the business.
Michael Bereslavsky 39:31 Yeah, absolutely. That’s that’s definitely something that’s essential is deal for a brokerage as well. We do a lot of KYC and what what are your thoughts on how the industry might evolve like I think there is a good chance we’ll see some some kind of process of integration there will be one of the perhaps Empire Flippers or someone else will just become too big in dominate the market, at least on the low end. on the high end, it’s kind of hard to predict.
Eric Owens 40:04 Right? Yeah, it’s a good probably a good prediction on that. Yeah, I don’t remember. I can’t remember if anybody in our space has even done bought other brokerages. I think at the International did a while ago we might see more of that even if it’s not like a straight purchase, you might see more like mergers that people are teaming up together to combine resources and to be able to compete in some way.
Michael Bereslavsky 40:31 Yeah, I think of a like a, there are countless several that are more or less similar size. So I think maybe if there is a big investor coming into the space and investing in one of them or buying one of them, and then that that have the capital to go and buy up the others. So we had them we had a discussion with with Matt Barrie, the owner of freelancer.com and nascar.com. And that’s how he described his business. This model that he initially started freelancer.com. And it was quite fragmented at the time, like there are many different freelance portals and none of them are really big enough. And he just, he just got pretty good at doing it and started buying up the smaller ones. And eventually he bought, like close to 20 of them. And now there is just two players like there’s only a freelancer and Upwork.
Eric Owens 41:29 Yeah, yeah, that will happen in the brokering industry is something similar? Yeah.
Michael Bereslavsky 41:37 All right. So what are some what are some general tips that you would recommend? sellers people looking for, like figuring out how to go and sell their business?
Eric Owens 41:52 Yeah, definitely. I think one of the key things we talked about before was the clean financials. Like that’s, that’s very important in on some of the more sophisticated buyers we’ve seen over the last like year or two, they beat up and look for ways that the business is defensible or has like some unique advantage over other other competitors in the marketplace. So, there’s certainly value and stuff like trademarking business and products. And then also, there’s ways in the marketing side that you can get things in place where you can set yourself apart from the competition. Patents, certainly not every business there’s not necessarily something you can patent with it. But we’ve seen a couple of where like, they have had patents, even if their time to loose patents that it helps on defensibility At least that’s the value. And then certainly those type of buyers think more along the lines like someone that’s looking to sell for a higher multiple or you know, ultimately do a bigger deal where those kind of things are really important in then, having a team of people in place to run the business, some kind of processes in place where new owner can take it over and run it, ideally, without the owner being there, definitely important.
Michael Bereslavsky 43:17 And so when people come to you who want to sell their business, but don’t have some of these things in place yet, like processes and proper financials, do you would you offer to recommend them to just wait and set it up maybe over 6 or 12 months? Or just listed immediately and then see what happens?
Eric Owens 43:36 Yeah, so we usually do some work with them to figure out like, their…depends on their motivation. Like some of them, definitely, if they want to maximize the value, then definitely we take the the latter approach with them. Some of them are just so burned out. They’re like, they’re never going to do that. And they know they’re not going to, and we know not going to happen. So those scenarios, were usually like, yeah, just sell it and Do now. And they know, we know and they know that they’re not going to get the same value that they would if they improved it.
Michael Bereslavsky 44:08 help people with how big of a difference Do you think this is? compared like, like all those things that you’ve mentioned, like having proper financials and having it to all structure wouldn’t be like a 10% difference potentially. And would rates show something much higher?
Eric Owens 44:25 I think higher, especially on like, the more your medium to larger size deals to small deal. If it’s a $50,000 deal, there’s probably not a lot of multiplication, you can end up doing there. But we’ve seen some like we sold a pet supplement business last year, around this time where I knew the owners we’d sold a different business for them a couple years before that, and so they could gone through the process before and they knew it was involved. The first business to be sold for them was like almost one of those ads This scenario is that I think we sold it for just around a two times multiple. And it was a smaller deal. That was around 200,000. So they kind of learn those lessons and implemented them for the next one. And we spent some time where they track their gross like every month, and they’re like, Okay, it looks like this trend is gonna continue. So let’s push the button and sell now where they had originally looked at selling it, probably, I think six months before that, and, and we looked at a few things where we’re like, well, if you just improve your numbers and then add like a recurring revenue product, you’re going to increase the value quite a bit. So we kind of took our like, we figured who pie would have sold it at the time for around like 1.2 million, and then instead ended up selling for 1.5 million. So I mean, that would have been just a 20% increase somewhere around there.
Michael Bereslavsky 46:00 And so do you often have some some disagreements some things that just don’t add up between buyer and seller? Then you know then you have the deal close to getting closed but there are some…there is some drama happening.
Eric Owens 46:17 Yes. Yeah, it definitely seems like it sometimes the roller coaster some deals are quick and easy other ones for whatever reason. It might just be the certain seller buyer where the being an emotional roller coaster for them. Yeah. Yeah, I think some of it too is sometimes when they have certain attorneys involved that you know, throw, throw things in the mix that don’t need to be involved that they can definitely make that a tougher process than normal. We just had one recently where it was like the sellers and by the seller buyer like they actually are very great fit, like personally love each other and want to work with each other. And then when it came down to like this final thing for consulting agreement that became it was tougher to negotiate the consulting agreement than it was to negotiate the deal. And this is like on a $2.5 million deal where consulting agreements probably worth 200,000 but that was that was tougher to do than the than the actual deal value part of it.
Michael Bereslavsky 47:29 Yeah, it can be really stressful decision to sell your business and especially as the last like this last moment, then when you’re close to signing and then all this, all this potential regrets come in like and then no second thoughts. Maybe you should just keep it right.
Eric Owens 47:46 Yeah. Yeah, distillers is definitely sometimes more emotionally attached to a business than they realize. Because it’s like it becomes part of their, their identity almost like to they are the owner or that runs out business. So we might not think about that when they first start selling it. But as it gets closer to that final decision point, definitely, those things can come up.
Michael Bereslavsky 48:09 So what can you recommend the seller? So what do you do yourself to keep yourself from getting often the drama? And keep calm during closing the negotiations?
Eric Owens 48:21 Yeah, I know definitely. For me, I rely on meditation, which I’ve been doing for years. I know, I know, you do know, now also where it can make such a big difference where if you are able to calmly, differently commonly negotiating and emotional negotiating, where you know, when you’re, when you’re more calm on that stuff, you can see both sides and see where there might be a fit versus just getting all emotional about it. And so, that’s definitely one thing that I fall back on doing meditation, and that helps out big time.
Michael Bereslavsky 48:59 Yeah, yeah, absolutely. For me as well, I don’t know that that six figure deal back maybe 10 years or more. And it was so emotional it took, it took several months. And it started with me, basically selling a small site for like $3,000 to a buyer on Flippa. And then, and he had some problems. So I helped him with that. And I introduced him to some people to do some content to do some other things. And he was pretty impressed with I was actually responding to him consistently, despite not getting paid. So he asked if I have more sites to sell and I said, Okay, well how much do you want to spend or what kind of sites do you want to buy? He said, Well, maybe I can buy all your sites. And and that actually sort of happened in there. And I know we’ve been negotiating for a few months after that. And I ended up selling most of my most of my sites, and the whole thing, the whole process was really slow. Okay, we’ll be sending an email and you know, receiving an email one or two days later, and that then again, I would send another email and like, and that was my negotiating we have, we didn’t have calls or anything like that, or no chats. And it was really, really stressful. I was not sleeping very well during the entire process a few months. And that’s just the beginning. Like as soon as we close the and the we had an agreement, and they started escrow, and we’ve started transferring the websites or the inspection period, then suddenly big Google update happened big Google algorithm update, and some of the sites lost traffic. And we had to basically renegotiate the whole thing. And the deal was was falling apart then I was already like really close to getting the money and And just finally taking some rest. It all just started to unfold. And that was one of the most stressful periods of my life. So I really realized after that, that it’s just not like if I want to be doing deals economically For that my stress over time and things like that also brought me to to meditation and and as well as doing many deals that gives you the perspective and you’ll probably notice that too if buyers with sellers like people that that maybe it’s a sales deal might be a bit more stress if compared to people who are more experienced, right?
Eric Owens 51:28 Yes, yeah definitely. Yeah. Yeah and that that level of stress that you’re just talking about it’s really not healthy for you. Yeah. For anyone long term I get affects people more than than we realize that the time
Michael Bereslavsky 51:43 Yeah, after that after that sale after it’s finally closed. I decided that I just needed to take a vacation for like a few months to stay to stay away from business and then later I got back to it, but and you know, instead of selling some new things, but It definitely was stressful. But I’m glad to have found some more some some better methods to to manage the stress. And so do you have some final thoughts or advice or any other things you want to share with our listeners before we finish?
Eric Owens 52:28 Oh, yeah, one thing I know I’ve had some sellers that is like is is ideally when you’re selling like have some plan for what you’re going to do next even if it’s to take some time off you don’t know your next move. But have some kind of plan. Just because you kind of experienced that emotional kind of letdown of like, yeah, hey, I I still my business but now like, Who am I? What am I going to do my life I so that can affect some people more than others. We’re like a plan. What would you do next? Then you can avoid those kind of things.
Michael Bereslavsky 53:05 That’s a good advice and probably a plan on what to do with the money and also like what to do with the time. Yes. Well, thank you very much, Eric. That was a pleasure to discuss and I’ve learned a lot. How can people find you? How can people reach out to you?
Eric Owens 53:25 Oh, yeah, sure. So they can find this at just appbusinessbrokers.com and, you know, just, it’s [email protected] for email.
Michael Bereslavsky 53:37 Right. Okay, have a good day.
Eric Owens 53:39 Thanks, Michael.
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