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Thread: Marketplaces and due diligence

  1. #11
    aka "meathead1234" Thomas is a Premium Member
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    Quote Originally Posted by Kay View Post

    Going back to your point about it being the seller's choice, that's part of the problem. Marketplaces such as Flippa make their money from sellers, therefore it's in their interest to work on behalf of the sellers. Why should they care about buyers? We all know that a lot of buyers don't have a clue about what they're doing - we see them frequently on here. Sometimes they even accuse Flippa of "cheating" them when they discover they've bought a dud. Flippa hasn't cheated them. Usually it's simply a case that the buyer hasn't understood what he's buying, hasn't understood the market or marketplace, or that the marketplace is designed in favour of the sellers. The newbie buyer takes everything at face value about "verified" figures and doesn't know the right questions to ask. Flippa does quite a lot of marketing to attract new buyers into their marketplace because they need these people to keep feeding their sellers (ie the people they're making their money from).
    Because the market has far more regular buyers than it does regular sellers (of quality sites). There are VERY few people who sell more than 1 site over $10k a year. There are far more who buy at least 1 site of that size or above, though. Flippa's total sales volume is around $50m a year (if we believe their figures). I could name you 20 buyers who have bought that much between them in the same period vs the 1000s of sellers it took for Flippa to hit those numbers. Therefore, it makes most sense to help protect buyers so they come back and spend more. Just because Flippa get paid by the seller, doesn't mean that's who they should be "working for". IMO the focus on sellers and allowing them to get away with pretty much anything & so many buyers having a bad experience is the reason Flippa will continue to diminish trust and market share in years to come - while the industry will grow overall.

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  3. #12
    Administrator Clinton is a Premium Member
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    Quote Originally Posted by Thomas View Post
    Because the market has far more regular buyers than it does regular sellers (of quality sites).
    Of quality sites.

    But I've studied in detail the listings of career sellers, and they have always been Flippa's bread and butter. That's the reason why Flippa encouraged all the site flipping talk and that whole industry of creating sites for sale.

    Quote Originally Posted by Thomas View Post
    Just because Flippa get paid by the seller, doesn't mean that's who they should be "working for".
    Whyever not? That's who they've always worked for. The value of the sites being sold is irrelevant though I know Flippa historically liked to talk that headline number as it's more impressive. What is relevant is who contributed the most to Flippa's coffers. It wasn't the so called "success fee". Career site sellers = Flippa's goose that lays golden eggs and there's plenty of evidence over the years as you know to demonstrate Flippa's strong bias towards sellers' interests. In your own words, Flippa allows sellers to "get away with anything". Why do you think they do so?
    Find the right business brokers to maximise the value you extract from your business and improve the chances of selling your business.

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    Flippa allows sellers to "get away with anything"

    That's what I agree with. I was going to buy a site and found out it has lots of red flags. So I didn't end up purchasing the site. Flippa allows the seller to re-list it and that seller will sell that website to another person that don't know any better. I'm scared to even bid on Flippa anymore. I think most of their sites are all scam. I prefer to buy from a broker instead.

  6. #14
    Moderator Kay is a Premium Member
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    Flippa allows sellers to "get away with anything"
    Certainly there are some people who are not impressed by many of the listings in their marketplace. And there are some unanswered questions about how they do things, and practices that many of us don't admire. But if people pay to list, in accordance with Flippa's rules, then Flippa doesn't take on any duty of care towards anyone who ends up buying rubbish.

    I have responsibility here on EP for what sites for sale listings get through and I make it very clear that EP has not done any DD on those listings. I only check that they comply with the forum rules. (No porn, pharma, nothing illegal, etc.) You can't expect any marketplace to investigate and vet every site before they list it. If someone lists rubbish and someone buys it, that's up to them. It's not up to any marketplace to play Nanny.

    IMO, the best we can hope for is to educate buyers to understand what it is they're proposing to buy, and also to understand the marketplace and how it functions.

    I was going to buy a site and found out it has lots of red flags. So I didn't end up purchasing the site.
    It was your responsibility, as a buyer, to see the red flags before you started bidding for it and ended up winning the auction. Then wasting everyone's time by being a non-paying buyer. If you'd taken a proper look or at least an opinion from someone who knows what they're doing, you probably wouldn't have participated in that auction in the first place, far less gambled your retirement fund on it. How can you blame Flippa for that? It was your own fault. You should have been aware of the red flags before you bid such a large amount of money on it.

    Thomas and I both had a quick look at the site. I don't know how long Thomas spent on it - probably about the same time as me. I spent about five minutes looking at it and that was enough to raise loads of red flags for me. Many of Flippa's buyers are newbies who don't know what they're doing. People who buy without understanding all this kind of stuff are just walking into their welcoming arms. That's one of the reasons why this Internet myth perpetuates that it's easy to get rich by flipping websites. And it probably is relatively easy for some sellers. They just churn out their turnkey websites on a day to day basis, sell them on Flippa, and everyone is happy except the buyer when he finds out he's bought a clone or some other thing that's never going to make any money.

    Flippa allows the seller to re-list it and that seller will sell that website to another person that don't know any better.
    There is no reason why Flippa should prevent the seller from relisting. As far as I know, there's no evidence to prove that the seller has done anything wrong. He's trying to sell a site that some of us would ask questions about, but it's up to the buyer to satisfy himself about the site on offer before he bids. IMO, you did wrong by bidding to win the auction and then backing out after you'd won.

    Unless it's been proved that the seller has acted fraudulently, why should Flippa refuse to relist just in case another buyer who doesn't know any better comes along and wants it too? Do you expect them to make buyers/bidders pass a test or exam to show that they do know better? Do you expect a marketplace to do DD before they'll list a site?

    Anyway, business is about risk and return. I thought that website was a high risk (too many red flags) and over-priced (people bidding when they didn't know what they were doing). Supposing I had weighed up the risk involved and decided on my maximum bid for it. Are you suggesting that Flippa shouldn't relist it in case an inexperienced buyer makes crazy bids again?

    I'm scared to even bid on Flippa anymore. I think most of their sites are all scam. I prefer to buy from a broker instead.


    I've never bid for anything on Flippa either. Not because I'm scared. It's just because I've never yet seen a site for sale on there that doesn't make me want to run away. Yep, I'd agree they have a lot of churned out, low quality, made yesterday sites. But they're not necessarily scams. It's only a scam if the seller misrepresents what they're selling - and, yes, that can happen too. But when one knows that a marketplace specialises in selling this type of junk to newbies, if a buyer decides they want to buy that kind of thing, then that's up to them.

    And it's all very well to say you'll only use brokers in future. How are you going to choose a broker? Anyone can set themselves up as being a broker. It's an unregulated industry. You could call yourself a broker tomorrow if you want to. This is obviously very annoying for brokers who know what they're doing. It's the same for those who understand due diligence - Flippa's claims about verified figures and extended due diligence don't pass rigorous scrutiny by anyone who knows what they're doing. Their claims of providing "independent" DD are also questionable.

    Also, if you want to use a broker to help you purchase a site, I think you'd need a bit more experience before you jump into the price range where a broker might be interested in having you as a client. You should buy something cheaper first, learn the ropes, make your mistakes, and only then consider buying something in a higher price range.
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    Quote Originally Posted by Kay View Post
    Thanks for the exclusive heads up on this! I'm intrigued - please do tell us more as soon as you can. I'm keen to know more about this independent DD advice and what relationship the provider(s) will have, if any, with Flippa. Also, we have some people here who know about DD. Will you also be approaching them for independent DD advice or will you have perhaps one or two preferred suppliers of the service. If you have preferred suppliers, how will they be selected?
    We've got a DD provider locked in, we're just working out some of the finer details before we are able to provide more information on this. As always, keep an eye on the blog for further product news!

    Quote Originally Posted by Thomas View Post
    I'm curious why it's the SELLERS choice whether or not due diligence options will be prominent or not? Surely that defeats the purpose of weeding out the shady sellers (the majority) and keeping due diligence independent? In any regular business sale, due diligence is a contingent (not optional) part of the sales process. Allowing sellers to dictate the prominence of due diligence doesn't seem like a step in the right direction to me.
    Thomas, it's the sellers choice because this service costs money and Flippa couldn't possibly provide something like this for every single auction listed.

    The beauty of the seller deciding to include the DD information is that it shows they are serious about the site and their claims, etc are legit. Hopefully, buyers will appreciate this extra information and in time they won't touch an auction that doesn't have it.
    Last edited by Kay; 25 October 2013 at 12:50 am. Reason: To merge posts

  8. #16
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    Quote Originally Posted by Kay View Post
    Even if you think about it in terms of buying property, and after all a website is just online property, it's a case of where you get your independent advice from. Would you prefer to hire your own surveyor, lawyer, etc, or would you just use the ones recommended by the seller or someone with a relationship with the seller?
    This is one of the main problems I have with independent DD companies. While I think their service can be useful as a bolt on service to an overall larger strategy, I've found that the smartest buyers know what they want in due diligence and know what to look for. The danger I see in using outside DD services, from the perspective of a buyer, is that a new buyer may overly-rely on that DD to make their decision. No two DD processes are alike - every business requires some level of independent research. My hope is always that a buyer take the time to think about this themselves in detail to see what they need to investigate.

    I like what Kay said here, but maybe in a bit of a different light. Sure, there is a bit of a credibility issue, but beyond that a smart investor is going to do some of their own thinking and evaluating before making that investment. I do fear that newbie buyers may overly rely on that outside DD then wonder why that outside service didn't catch the things they should have been looking for.

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    I wonder how good the programs that exist these days are, alongside your own DD checklist. Programs that appear to analyze PR and other criteria to speed up the process?

  11. #18
    Moderator Kay is a Premium Member
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    Hi AusIdom. Welcome to Experienced-People.net. Why not go and introduce yourself and tell us something about yourself and what you hope to achieve? Conversations, discussions, and help are better for all if we know something about whom we're talking to.

    Whose DD checklist are you referring to when you say "alongside your own DD checklist"? Several EP members, including posters on this thread, have their own DD checklists. You can also find loads of checklists (many of them free) by doing a quick search on your favourite search engine. However, as quietlight said, a checklist is only "a bolt on service to an overall larger strategy". Many of us here recommend that buyers should develop their own DD skills and learn about what they should be looking for. A checklist is only part of the tool kit to assist towards performing DD.
    British Expat - helping people to live and work abroad since the year 2000.

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  12. #19
    Administrator Clinton is a Premium Member
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    AusIdom, a couple of links for you: 1 | 2

    Tools are great at automating some of the checks and there's a paid DD service or two that use such tools as a large component of their auto creation of DD reports. However, while tools can do some domain, keyword and SEO related searches for you, they're obviously bad at the human component as they can't form an opinion on the seller, can't analyse the accounts, can't smell rats ...

    Which are the tools/programs you refer to in your post? Can you tellus some more about them or point out any new ones since those two lists above were compiled?
    Find the right business brokers to maximise the value you extract from your business and improve the chances of selling your business.

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