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Thread: Marketplaces and due diligence

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    Moderator Kay is a Premium Member
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    Marketplaces and due diligence

    In previous threads we've already agreed that there's a conflict of interest where brokers (who are in the market to sell websites) offer to do any due diligence for a buyer. The seller/broker makes more money according to the highest price they can get for the site. The brokers who are EP members agreed that it's not something they'd do. Mostly they said, if the broker selling the site offers due diligence as well, then you should run away. Fast.

    In which case, can someone please explain to me why anyone would buy DD services from a marketplace or a DD service recommended by a marketplace?

    The marketplace makes money from their listing fees, and often on their percentage on gaining the highest price for the sale. Surely there's a conflict of interest here too. Would you trust DD done by a marketplace, albeit by a different company from the marketplace? Would it not be in the marketplace's interest to have a tame DD company to help them push through these sales?

    Would you not prefer to learn DD yourself or to go to an independent party to help you with it?
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  2. #2
    aka "bryanon"
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    Quote Originally Posted by Kay View Post
    Would it not be in the marketplace's interest to have a tame DD company to help them push through these sales?
    Sure it would! The only issue with this is that marketplaces would have hell of a lot of difficulty finding a DD company that
    a) is knowledgeable and able to prove that;
    b) is possible to be "tamed";
    c) is stupid enough to produce rigged analysis, not realising that in an industry as small and vocal as this, doing something even remotely similar to that would be an extremely unsustainable business strategy.

    I'll let others members comment on the rest of the questions raised

  3. #3
    Administrator Clinton is a Premium Member
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    Bryan, I've known you for a while, I like you, I trust you more than I trust most people in this business but I do not agree that it's wise for customers to trust a DD company recommended by the marketplace that has a vested interest in the customer making the purchase. I must emphasise this most strongly.

    Biases come in many forms. I know people who are otherwise smart, experienced, knowledgable and even come across as honest, decent chaps try hard to keep Flippa sweet because, for example, they rely on Flippa's data feed (API) or they rely on the whole sentiment driving this seedy section of the MMO market. So they don't call out blatant stats manipulation by Flippa, don't point out the Flippa flaws, cons and caveats that they really should and, in fact, do just the opposite - cover up - in their attempt to appease the beast.

    The first rule of DD is to not rely on someone who's "possibly" working for the other side. That's simply dumb. That someone doesn't need to be on the other side's payroll. If they have a close working relationship with the other side, a partnership of some kind, an agency agreement or, as in your case, a reliance on the other side's service it wouldn't be smart to trust them to do your DD for you. No matter what you say, you do not have an arms' length relationship with Flippa. It's possible they become the single largest driver of customers to your business. Your business then rests on that edifice of sand i.e. it's in a position where it's not viable without Flippa's support. If Flippa says jump why then would you not ask, "How high?"

    The only issue with this is that marketplaces would have hell of a lot of difficulty finding a DD company that
    a) is knowledgeable and able to prove that
    There are several million experts ... and all of them have the testimonials to prove it. When targeting beginners, naive wannabes and outright muppets any idiot can be passed off as a knowledgeable expert. So, while people in the industry know of you and have dealt with you and respect your experience in the field, when dealing with people who aren't industry insiders it's not difficult to pass someone off as having knowledge on par with yours. Heck, sometimes where I hear the build up given to newbies speaking at seminars and conferences on siteflipping I'm almost tempted to sign up for a beginner course to learn the basics of siteflipping!

    Would such an expert be in league with the marketplace to rip customers off? Why not? A marketplace with a very er, flexible idea of what's fair and what's a blatant rip off is hardly likely to demand higher ethics from its partners. I believe you have higher ethics, but it would not be a prerequisite for the job so finding an expert who'll work in the marketplace's interest ain't hard. When the marketplace is using their clout and reach to promote someone why wouldn't they expect something in return (if not now then surely later and if not in cash then surely there are other ways to make a pay back)? If you won't play ball they'll have no trouble finding a replacement who will.

    c) is stupid enough to produce rigged analysis, not realising that in an industry as small and vocal as this, doing something even remotely similar to that would be an extremely unsustainable business strategy.
    Rigged analysis? There are many ways to rig an analysis - thousands of ways - some of which even an expert like you won't be able to spot as intentional rigging. I speak as the grandfather of DD, someone who was providing paid DD services long before most of today's experts even learnt that websites can be bought/sold. Buyers of sites an "expert third party" has done DD on are going to put mistakes down to their own inexperience rather than to a rigged or less diligent analysis which they've got no chance of ever proving.

    <added> I'm not doing any DD services now so, new visitors to this site, please don't contact me with requests.
    Find the right business brokers to maximise the value you extract from your business and improve the chances of selling your business.

  4. The Following 4 Users Say Thank You to Clinton For This Useful Post:

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    aka "bryanon"
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    Clinton - You've been in the industry for long enough (longer than I have!) and I respect your opinion, but I don't want this to turn into a lengthy back and forth, wasting both of our time that could be spent far more productively so let's just agree to disagree here

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    I have seen a site on flippa I'm interested in buying. This thread says I cant rely on DD recommended by flippa so where is the best place to get independent advice?

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    Moderator Kay is a Premium Member
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    I was hoping that someone else would reply to this since I already said my piece in the OP. However, since they haven't...

    Charlie, I'm guessing that you're not an experienced buyer, otherwise you would have more idea how to do your own DD or how to find an independent DD consultant. If it's a site at the lower end of the market price-wise, you're probably better off learning how to do your own DD. If there's more money involved and you need to buy in expert advice, then perhaps a buy-side broker, ie a broker who acts for buyers rather than sellers. Also, you can ask here on this forum. There are people here who can advise on DD, or at least some aspects of it, and they are independent in as much as they have no relationship with Flippa or their sellers.

    Perhaps some of our other members can share more info about buy-side brokers. From what I've read they want their fees up front - this removes any vested interest they might otherwise have in helping to push the sale through. So, it could prove expensive for you to keep paying fees up front and yet never actually completing a deal.
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    Quote Originally Posted by Charlie View Post
    I have seen a site on flippa I'm interested in buying. This thread says I cant rely on DD recommended by flippa so where is the best place to get independent advice?
    Charlie, in the coming weeks we'll be increasing the importance and prominence of independent due diligence on Flippa. It won't be on every auction as it'll be the sellers choice to include it but I hope it'll be come an essential part of selling a website on Flippa.

    Keep an eye out on Flippa for it but for now consider it an E-P.net exclusive!

  9. #8
    Moderator Kay is a Premium Member
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    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?
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    aka "meathead1234" Thomas is a Premium Member
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    Quote Originally Posted by tbcooke View Post
    Charlie, in the coming weeks we'll be increasing the importance and prominence of independent due diligence on Flippa. It won't be on every auction as it'll be the sellers choice to include it but I hope it'll be come an essential part of selling a website on Flippa.

    Keep an eye out on Flippa for it but for now consider it an E-P.net exclusive!
    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.

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  12. #10
    Moderator Kay is a Premium Member
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    Good point, Thomas. But I think Tim (tbcooke) meant it'll be the seller's choice whether or not to include the DD option in the sales listing, rather than their choice about the importance and dominance of independent DD on Flippa.

    That said, I find it quite hard to believe a lot of the things that Flippa says because of their sometimes misleading use of terminology. For example, they refer to various things as being "verified". The fact that a person can upload a file to a meta-tag does not prove ownership of the site. (The person could be an employee - even a disgruntled one - and have no right at all to sell the site.) Flippa also have what they call "verified traffic" figures. What the heck does that mean? Another thing is that they have a link on some listings saying "View extended due diligence for this listing". What do they mean by "extended due diligence"? Who is doing this extended due diligence, on whose behalf, and is it independent or done in co-operation with Flippa? I don't know. Perhaps Tim will tell us.

    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).

    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?
    British Expat - helping people to live and work abroad since the year 2000.

    The joy of Internet delivery - the cartoon illustrating this will make you laugh!



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