My first foray into purchasing a website business was not the stunning success I half expected it to be.
After signing up on flippa, reading the literature on their site and diligently watching auctions for a couple of weeks, I indulged in some bidding. I made a few bids on a couple of ‘real world’ perfect targets. Listings, that based on the claimed revenues seemed to make perfect (gulp) sense to purchase. E.g. ROI within 1-3 months. (I know the seasoned vets here are already shaking their heads)
Reminder to myself: In the real world, buying a business, with a ROI of a couple of weeks is almost unheard of; unless one is selling large quantities of illegal substances.
I performed ‘some’ DD on the seller. Your standard: google, yahoo, social media etc. no red lights. I asked for references and proof of the income claimed. The seller provided an Excel spreadsheet. Over USD10,000 in sales in a month! The sales had allegedly been made via a WSO. I checked WSO, and yes the product was popular. How popular? I had nothing other than his word, and a reams of those typical “I love your product, made me serious coin overnight” type rhetoric but I did have an excel spreadsheet and an endless trail of affiliates spreading the gospel about the product. This less than solid ‘proof’ of returns should have registered a huge ‘red-light’, in fact a motorcade of red flashing lights. Unfortunately, my DD was pathetic!
Continuing on my merry way, I even did what I thought was extensive research on the product – a plugin – and test drove it. It worked and worked well. Even the reviews on the net were outstanding.
The only other ‘red light’ that I really noted was that the seller had previously listed the site – it had sold – only to have fallen through. His reason “The buyer was a fraud”.
At this point in time, I had unusually become my own worst enemy. In the real world, I would have asked for audited accounts, or some type of leverage. However, being new to this caper my rationale on the numbers not being ‘audited’ was that even if they were grossly inflated (think: 5 times) I would still be ok. That would still equate to a ROI in 2.5 months! And I wouldn’t be pushing illegal substances!
The reality is that I was not doing anywhere near the DD I should have done. Nor was I qualified to be let loose on a marketplace such as flippa. Not only did I establish - the hard way - that flippa has no interest in protecting purchasers (conversely, they are only interested in protecting the sellers) but I also discovered many flaws in using Paypal (both for buyer and seller).
Do I blame the seller?
No. I blame myself. I was a complete wombat and a fool to accept the figures. The bottom line is that the product is good. He did a fine job on the product. The problem was that the WSO offer had ended and revenues had dried up. He knew that and he also knew the effort to get momentum back, hence why he was selling. The sellers pitch was “Go onto CB and you will make a killing on this product”. Reality is I did and no killing was made. At the end of the day, I take full responsibility for my mistakes.
Any good news?
In my opinion, there is always a positives in these situations. One is: I am now on a site/ forum that has provided immense learning material and surrounded me with quality people that know a thing or two about trading on the net. And it doesn’t cost a cracker!
The product – after a lot of promotional efforts – is slowly starting to gain traction. At the current rate, it will be more like a 2 year ROI… so I will eventually get my dough back and turn a profit.
I also learned to be very skeptical of dealing with flippa. Know their limitations and the fact that you will be hung out to dry if something goes wrong. Despite the PR they fling around, and the false sense of security they attempt to build; the reality is they will do jack shit if things go wrong!
Based on my quick learning curve, I have since made some decent purchases and I am slowly putting together a portfolio of quality sites.
What did I learn?
Before you start ‘playing’ with the big boys and making bids on sites like flippa, go to forums where experts hang-out (hint, hint… the reason why I am here on EP), and learn from them. Better late than never in my case!
Have a strategy in place where you can pay out the seller the agreed amount into escrow account and have a decent closing period to check income streams, traffic, etc. claimed. No honest seller should have an issue with this, unless of course he has misrepresented his numbers.
Sign an agreement drafted up by a lawyer in your jurisdiction.
Don’t let greed get in the way of solid/ proven business methodology and principals. The same ones you would apply in the real world.
If it looks too good to be true…It usually is!
Reminder to myself: Don’t move away from the above strategy!
Finally, if you do screw up, don’t take it too seriously. Makes some key learnings and move forward positively.