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Thread: The commoditising of due diligence

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    The commoditising of due diligence

    [[This thread split from Filtering the time wasters - Clinton, May 27, 2014]]

    Quote Originally Posted by Clinton
    flipfilter, LOL, you really should chill. The hate and vitriol in your post is not healthy for you. And too ironic for words! It's hilarious.

    <clip>

    Love-hate?! You're a poor judge of people if you believe anything I've done or said as "love" for Flippa
    Kay, Even without the subsequent post where Justin mentioned he missed adding a smiley, I did see his jest. I saw his post as just a good-natured poke-in-the-ribs without vitriol.

    Clinton Sir, I had to clip out the part about the weather, as it's been horrifically hot over here and time to hide in the air conditioning.

    As did @flipfilter, I also arrived many months after the SP rebellion which brought forth this most-excellent repository of web-business discussion and knowledge. Many members that were not a part of the inaugural January 2010 establishment of EP have, nonetheless, contributed greatly to the knowledge-base available on this board. I believe I can speak with some certainty: No established senior member on EP has any illusions about some of the member-held opinions of SP and its progeny from much of the founding cadre.

    Quote Originally Posted by Clinton
    when many of today's so called experts were still in nappies I created my first website for a B&M business. I ran that as my only site for years.
    I was doing mail-order sales out of magazines starting in 1972. My bet would be that was before many on this board were born. The term, Board, also probably dates me. I ran a multi-line board, the Major BBS, in the late 80s. I have no idea how I managed to get this old?

    I do find the perspective of younger people intriguing. They think of technology differently; Many are more cyborg than not. They do not, however, carry most of the baggage and bias that decades of experience have provided both as benefit and burden.

    Quote Originally Posted by Clinton
    I had no doubt that commoditising DD would be used to create complacency in the gullible targets Flippa was gunning for even back then
    Somehow, I cannot fault the attempt to provide some level of DD to buyers. Clinton Sir, the fact that they reached out to you, in an attempt to provide a better, safer service, is commendable. If you had the inclination to design a structure for them when first approached, the number of attempts to perpetrate fraud may have been decreased. Quite obviously, given the contents of Experienced-People.co.uk in addition to this discussion forum, had you accepted and had they applied recommendations, perhaps more could have been helped sooner?

    I know the experience of eBay and their attempts to provide for safer auctions, better listings, qualified sellers, and a high user experience. They are removing listings daily. My personal thought is that I'd rather see some DD attempted by Flippa than none. At least they, like eBay, are attempting to do better. Can they stop all attempts at fraud? Nobody is perfect, so I assume no, as I know neither eBay nor Amazon are stopping all seller's attempts at fraud even to this day.

    People buy web businesses without knowing how to run them. It's a completely different skill set to run a blog than to run a store, to run a forum than to run a directory, to provide matchmaking or SAAS. Not all business-people's knowledge is comparable, so some may not be purposefully deceptive, just naive. I have seen both constructive and angry comments about Flippa over the years. If everyone were in agreement, there'd likely be little to discuss.
    Last edited by KenW3; 24 May 2014 at 10:53 pm.

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  3. #2
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    1972?! I concede defeat. I started my first business in the 1970s but not as early as that. But I know what you mean about "suddenly" getting old. Most of my friends and classmates have grandkids.

    Somehow, I cannot fault the attempt to provide some level of DD to buyers. Clinton Sir, the fact that they reached out to you, in an attempt to provide a better, safer service, is commendable.
    You misunderstand. Flippa's intention all along had nothing to do with DD. They wanted a way to gather some bland stats and package them to prospective buyers as an "all clear".

    DD involves, among other things
    - understanding accounts sufficiently to analyse a website's figures and form an opinion on the state of the business
    - being able to spot anomalies, inconsistencies, flaws, cover-ups and areas of potential frauds in those accounts
    - knowing enough about the industry to judge with enough confidence the part the website was playing in that industry
    - researching the industry and forming an opinion on the longevity of the business model, the competition, the sustainability of the cash flow etc
    - researching the seller/s and their past activities to decide the extent to which they can be trusted
    - investigating the legal environment surrounding the site's activity and areas of potential liability
    - compiling a list of risk factors & studying each one to gain an idea of their likely impact on future operations (and how each should influence valuation)
    - using all the above research and investigation to draft clauses for use in the sale contract to protect the buyer's interests
    ... I could go on.

    Flippa's idea of DD was getting a list of backlinks, Alexa rank, WHOIS history etc., - publicly available stats - and calling it DD. The idea was never to help experienced buyers automate part of the data gathering. It was to target the less experienced buyers and convince them it's perfectly safe to outsource risk assessment to a third party who has no stake in the success of the venture. Give the newbie a large package of data, add some fake confidence from the so called "verified analytics" and "verified Adsense" - metrics that are easily manipulated at the other end; for example, by secretly paying huge sums to buy traffic or incentivise clicks - and the newbie recognises that it's far more data than he'd be able to put together himself. Call it "complete due diligence" and bingo, the newbie has no reason to not go ahead with the purchase. The "due diligence" has been done and it's all now perfectly safe.

    The fact of the matter is that now, when it comes to buying and selling websites, Flippa is largely irrelevant. Flippa has morphed into a market of MFF sellers and n00bs.... and has hardly any quality sites sites of $5K+. Most buyers of the better sites don't bother with Flippa any more. Most sellers of the better sites are voting with their feet and going to brokers and investment bankers. The average investment banker's total sale volume every month, in dollars, is several multiples of what Flippa does in the year. I wouldn't be surprised if a broker sells more than Flippa. Flippa has succeeded in making a lot of money, but they've also succeeded in painting themselves into an MMO corner of the market ... which is sad in a way because they had a chance to become a proper marketplace for quality businesses (and not just online businesses either). People partnering with Flippa to make money off buyers/sellers need to tune into the MMO mindset and be prepared to play in that particular sandpit for the long term.

    But don't kid yourself that Flippa "DD" has anything to do with buyer protection. Next you'll be saying Flippa's strict about deleting dupe accounts that they know about , dupe accounts created in the thousands by sellers who use them for shill bidding! Each time one of those shill bidders successfully pushes a price up fraudulently, it's Flippa that makes more money. A bit of due diligence blocking the known crooks on their own site would be a good way for Flippa to start making the market safer.

    eBay?! Ken, sir, Flippa ain't no eBay!
    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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  5. #3
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    (FWIW, I was in the army in the mid-1970s with ne'er a thought of going into business. Too busy learning useful stuff like how to iron clothes and walk in a funny way.)

    Flippa v's eBay?

    As it happens, I came across this while researching for a "where to buy" piece. It was written by Andrew Knibbe (a member here).

    http://flippa.com/blog/would-you-buy...sites-on-ebay/ (May 2011)

    Enjoy!

    ***

    Executive decision - I don't have time to keep chopping up this meandering thread. Let it go where it will as long as there's no fluff or spam. (If anyone wants to reminisce about where they were in 19oatcake without adding to the existing discussion, please go and start a new thread in Foo.)
    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!



  6. #4
    Administrator Clinton is a Premium Member
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    I can't decide whether eBay is worse or better than Flippa for buying/selling websites. On the plus side eBay don't scam the public with MMO spiel or with all the fake security of "verified" Adsense etc. On the minus side no serious buyer/seller of websites goes to eBay. If you're looking to spend $5K on a site you've a much better chance of finding a half decent site on Flippa than on eBay.

    But one thing that article does stand out for - it supports a point I made in a recent post about lack of interest in talking about buying/selling websites. See how many comments there were in response to that 2011 article by Andrew? There were hundreds, or at least well over a hundred comments. Have a look at more recent blog posts at Flippa - many have not one single comment!

    Flippa's platform has thousands of users, hundreds of fan boys, dozens of people with a business model totallly reliant on Flippa. Not one of them bothers to comment. EP still has more user comment participation on website buying and selling .... and that's despite the much higher standard required for posting here.

    Incidentally, Andrew must have thought he was pretty smart when he made that post about eBay. We caught him out at the time: have a laugh. What a slimy trick to bad-mouth a competitor!
    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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    Quote Originally Posted by Clinton
    You misunderstand. Flippa's intention all along had nothing to do with DD. They wanted a way to gather some bland stats and package them to prospective buyers as an "all clear".
    We know there is no such thing as an 'all clear' in business, no matter the size and quality level. A neophyte to business ownership (which includes those experienced in business but new to a type) can still completely destroy their high-quality investment through a variety of mistakes. No person should buy any business they have not worked for as an employee. (Thank you for the forum education!)


    ...but Clinton is correct; I do not understand. I see many disagreements being discussed (in this and other threads) as largely irrelevant:

    The problem (for me) with Flippa is not the sellers nor the buyers. It is how businesses are represented in the provided marketplace. Given a cross-section of buyers and sellers, business acumen is going to vary greatly. The problem I see is in how the buyers are expected to analyze and select businesses to purchase, when the standard business purchase process has become convoluted.

    Starting DD is not done pre-negotiation of price; Starting, it is all known information the seller has supplied. A final audit of all financials and the completion of DD is a process which occurs after the agreement to buy but prior to exchange of funds. A seller (or broker) is responsible for providing accurate and detailed information. This allows a price to be set based upon standard industry multiples. Once an offer is made and accepted, then, and only then does the final DD investigation begin. Sure, if more than one person wants the same business, bidding is a solution, but only for accurate and known metrics provided by the seller, and the winner completes the acquisition process which includes final investigation.

    Other presumptions also leave me somewhat perplexed; This is probably my fault as I am old and find this new way bass-ackwards from standard business practice. Due Diligence is not a report to be sold to all parties interested in an acquisition. DD also does not occur on a sliding scale, where those willing to pay more will learn more (in some attempt to gain advantage?). When a buyer has 5 bidders, why would the exact same report be sold separately to all interested bidders? DD was never meant to be a product; It is a service. It must remain a service due to the infinite number of business variations possible. Whether a report has 40, 80 or 200 reported metrics is not the significance in the provision of this service; More is not better any more than less is incomplete. A generic, pre-structured report can never provide adequate investigation because DD is an individualized process.

    Buyers need to be told precisely what they are buying. The end-user for pre-sale metrics reports were never the bidders on the auction of a business. That responsibility has always been, and remains solely, with the seller pre-sale. (If a broker (or an auction site) reverses the process, they inevitably will gain sellers and lose competent buyers.) One report should be sold per listing, and the (third-party provided) DD report sale should be to a seller interested in achieving a higher price for the asset they're attempting to liquidate.

    Quote Originally Posted by Clinton
    Most sellers of the better sites are voting with their feet and going to brokers and investment bankers.
    No bidder on eBay, Flippa, or any other site can ever be held responsible for making payment for a product that is not clearly represented. eBay guarantees all products sold by their sellers; This is new in the past five years, and is their attempt to regain market share lost by opportunistic sellers willing to take advantage of buyers. eBay had no choice but to stop this practice, even though they knew a decline in revenue would occur, because they also knew survival required it. (Flippa may not be an eBay, but I do see Flippa as attempting improvements to their UX.) Without these provided protections to buyers, an entire market will remain Wide Open to competition. (Is the model that addresses this demo correct?)

    Quote Originally Posted by Clinton
    On the minus side no serious buyer/seller of websites goes to eBay. If you're looking to spend $5K on a site you've a much better chance of finding a half decent site on Flippa than on eBay.
    The auction format for business sales and purchase does tend to lend itself to very specific website-business types. That's why the MFF site evolved (due to recognized demand). A less-than 5k site with html or a commonly known CMS, monetized by a familiar and commonly applied process, that can be replicated worldwide with relative ease? That's the reason for the advent of MFF sites. Without interested buyers, the product would have failed.

    The most critical comment on this thread, that struck me as being of import, is Justin's interest in a private or public solution requesting a safer venue with known members.

    Quote Originally Posted by flipfilter View Post
    I still speak to several of those people and they would LOVE a place to buy and sell amongst themselves and considering these are guys who pay 7 - 12% when they sell on broker fees, I'm sure money isn't the issue here.
    Every failure to serve a large (and known) demographic opens a new window of opportunity to build and prosper.
    Last edited by KenW3; 26 May 2014 at 6:49 pm.

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    Yikes, Ken, you're almost coming around to my views on Flippa!

    One report should be sold per listing, and the (third-party provided) DD report sale should be to a seller interested in achieving a higher price for the asset they're attempting to liquidate.
    Makes sense. But I have a problem with even that. A third party being paid by the seller or the auction house (which acts on behalf of the seller) has no incentive to stick to the truth or provide the whole truth. I'll continue to maintain that sellers and Flippa should stay the hell out of DD. DD is a buyer matter and exclusively a buyer matter. He may engage a third party he trusts, but he would be wise to not employ any third party that has a close association with the seller or the auction house being paid by the seller.

    That's the reason for the advent of MFF sites. Without interested buyers, the product would have failed.
    There were no interested buyers for MFF sites. Flippa created that market because they saw its potential for profit. Disappointingly, for me, other industry players whose opinions I respected jumped onto the bandwagon to recruit lambs to the slaughter because they saw a quick buck or two to be made. Some of them may even genuinely feel they're providing a much needed service!

    eBay guarantees all products sold by their sellers
    If Flippa did that they'd fold in a week!
    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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