Quality & Education

[WSYSBroker]

Most people on this forum are buyers looking to purchase quality websites. Depending on who you talk to, the term “quality” can really mean different things. Some buyers here see quality as a site that has a ton of back links, a fantastic page rank, is in a popular niche & has increasing traffic from a number of different sources. Others see quality as a site that has been around for at least a few years with revenues (and more importantly profit) that has been increasing year over year. Sure, there are people here that need to see both the former and the latter in order to determine quality, but it is not always the case.

Quality to me is a little different. I do not really purchase sites myself, so I have a different prospective. It really comes down to dollars. I see websites as investments and quality investments show proof of a lot of revenue. Not only do I need to see increasing revenues & profits year over year, but I also need to see substantial revenues coming through the site and hitting the owner’s bank account (please read “substantial” as any site that makes at least $30K-$50K per year). If anyone has seen the show Dragon’s Den (in Canada, UK & Australia) or SharkTank (in the US), you will know that it always comes down to valuation and how much money the site has made. All the other bells and whistles are great, but they are meaningless if no money is being made and there is no sign of money being made anytime soon. Valuation is key. A ton of “sellers” come on that show asking for six figures for 5% of their business, when the business doesn’t even have six figures in total sales! I think the producers of the show just want to make great TV by pointing out the stupidity of others. Don’t get wrong, I love the show and some businesses are actually priced right and deals get done, but that only happens with a very small percentage of the businesses that come to the table.

I find that this same model that the show is touting is what is happening with the industry we are all a part of here. Lots of webmasters value their sites at a much higher multiple of revenue or profit than what the website would actually sell for. If there isn’t any revenue or it is a start up, they are simply selling the site on “potential” and it is really hard for me to assign quality to potential. There are certainly exceptions to this and I am sure that several buyers on here will try and convince me that there is a ton of quality with “potential type” sites, but I simply do not spend much (if any) of my time with them. As a broker, I rarely sell on potential. If there is the substantial revenue I discussed before and if there is the years of history, then I can sometimes sell on potential over and above what is already being done because investors need to know about the growth opportunities that can come out of the website.
That being said, I am not here to offend any of you. A lot of you have networks of websites that make very little money, yet you still work at them because you know that there is an end to these means. Heck, I make little to no money for most of the work that I do because I don’t actually get paid till I sell a site. I do not sell all the sites that I list and I do a ton of work for them. Some of you have done due diligence before and I am sure a lot of you have gone through a sales process of sorts so you know the kind of work I am talking about. It takes time and sometimes you are not rewarded for the work that you do. Thankfully, when I do sell the sites that I list, I receive the fruits of my labor and it keeps me motivated to continue to sell others.
I joined this forum because I want to learn and educate. I am well aware that most of the people here do not require my service and I am fine with that. Education is key and that is why most of us are here.
It all comes back to quality. Everyone here wants quality and people have different definitions of it, but at the end of the day, we want to assess, seek out & obtain quality for ourselves.
If educating the market is the key to bring more quality to the table, I think we really need to brainstorm on how to do that. There is a great group of people on this forum and we seem to have some leverage when it comes to providing great feedback (for the market itself and for individuals within it), so what can we do as a group to educate even more? I know this question has been brought up before in another thread, but I think we all need to revisit this question and really put a plan in place to get this done on an ongoing basis.
-Michael
P.S. Feel free to praise this or rip this apart as you see fit.

[Clinton]

Fantastic post, thanks, WSYSBroker.

I think you'll find that most here will enthusiastically agree that potential is all well and good, but real profit i.e. proven business model is better than any over-optimistic seller projections.

The comparison with Dragons' Den was particularly interesting. I've often thought that myself. I feel a bit pretentious calling myself a dragon but, in effect, every buyer is doing exactly what those "dragons" are doing: looking for a sound investment opportunity and paying a higher price the more sound that opportunity looks.

I don't buy any sites making less than $30K any more, but there was a time I did and I think that there's still a lot of opportunity in the sub-$30K market. I can see those sites not being of interest to a broker because they are difficult to place and there's no point doing several days worth of work for 10% of $500. But for many webmasters on these forums a site that's already making small amounts of money is a particularly good investment if they can see easy ways of developing it further, adding content or services, streamlining the business and substantially increasing the profits.

There are those that start businesses from scratch, those who take on well-established businesses and those in-between who buy businesses with the idea of developing / improving them and either holding on to them as long term investments or selling them on for a significantly higher price.

The question you raise should make for interesting discussion: what does a site need to have for us, as individuals, to perceive as a quality opportunity.

One factor I've always considered important is familiarity. I need to understand how the site operates and how it makes its money. I need to have a feel for the subject. I've stayed away from sites that would involve me getting familiar with a lot of technologies or material new to me. In the past that has ruled out anime site, incentivised sites, American baseball sites, Facebook applications and others that may have been fantastic opportunities for somebody already familiar with the model and subject and already set up with accounts with the right affiliate partners etc. So what was not a quality site for me may well have been a quality site for someone else. It's a constant learning process and I'm not averse to learning new things, but a mistake some webmasters make, I notice, is not setting minimum profit levels below which they won't take the trouble of acquiring all those new skills.

[meathead1234]

Hi Michael,

Interesting post, much of which I agree with. I think much of your opinion is based on the fact you deal with higher end sites ($10k+) and buy/sell purely based on revenue/profit.

From a buyer perspective, I spend much of my time looking for sites with "potential", as these can often be picked up way under value and increase revenue with little to no work. The fun for me is negotiating a price that keeps the seller happy and gives me the chance to exploit the low price point and turn the site into a profitable venture. I like to have a hands on approach to my sites and don't purely see them as a passive revenue stream (however nice that would be).

From a seller perspective, my market is different to yours. Most of my sales are $XXXX and as such, I regularly sell sites based on "potential", and I have clients who come back time and again for more. Many lack the experience/drive/time to derive a plan to make a site profitable, and I suppose my flipping mentality gives me the satisfaction in the start-up rather than running the business long term. If I can present a site with potential, a solid plan, a good price, then often buyers will jump on it, knowing that personally they wouldn't be able to come up with an original idea.

I'm all for educating the market, but at the end of the day it is also basic supply and demand: if there is demand for a certain level of site (startup/"potential") then there will be sellers there to fill the void. I don't necessarily think this is a bad thing, as everyone has to enter the market at some point, and many don't have the funding to come in at a five figure level. There are plenty of blogs/forums with extremely knowledgable people who can help out those who need to be "educated" and I don't think discouraging learning by your own mistakes (as we all have) is such a bad thing. I'm all for bringing more quality to the market - but perhaps the solution would be a better filtered marketplace at Flippa, or even a standalone competitor in order to meet the needs of different investors.

[WSYSBroker]

Meathead,

You are correct in the fact that I only deal with higher end sites. The reason I sell based on revenues/profits is because that is really the only thing brick and mortar type investors really understand. It is refreshing to speak with buyers who know more about the Internet so we can actually have an intelligent conversation about Internet related value that can be added to the valuation of a website. Good on you for selling on potential...I think it is much harder to do and if you are doing it successfully, that is a testament to your skills!

I agree that it is supply and demand, but I do think there is a huge demand for higher end sites. The problem is that here are not enough uber successful website owners right now who know that there is a market for their website. The ones who do know that there is a market for their site, simply want way too much for their sites (whether it be their ego or they truly believe they can value it at a crazy multiple).

[meathead1234]

Thanks for the reply Michael - it is interesting to talk to someone experienced in selling higher end sites. My personal experience doesn't go much past Flippa and the highest sale ever on there was $250k. Being young, I haven't had the time/resources/experience to build an extremely valuable property so I have had to enter the market buying/selling in order to build a portfolio for myself. Assets on the Internet are far harder to value for traditional investors (I've worked in an investment bank, currently finishing my Business degree) so I'd imagine it must be hard for you to convey value in terms of "page rank", "google rank", "authority", and other relatively ambiguous jargon.

I think one of the other factors is that many of the bigger sites have a relatively passive income (especially Adsense sites etc) so the desire to sell would be much lower, much like a profitable share portfolio to a traditional investor - unless they could command a good premium. Having big sites also opens a lot of doors in the industry: exclusive deals, contacts, which are rather intangible and hard to value, and as such, I would think that many owners would find it hard to part with their sites. The Internet is an unpredictable place, so many may also wish to hold onto a good thing while it lasts. Due to the transparency of the net, potential sellers may also be put off by publicly listing a site for sale - knowing that it could be met with displeasure from their users/customers/associates.

Out of interest, what kind of sites at the higher end sell well to investors? At the lower end, I find blogs sell extremely well, but I would be surprised if many investors would be interested in something that requires regular posting, a "personality" and the general unpredictability of popularity at the higher end. I'm assuming the kind of sites your buyers are interested in are e-commerce, Adsense and products (clickbank etc)?

Thanks,
Thomas

[TrustButVerify]

Hey Michael,

I agree with you... we are sharks

The question you raise should make for interesting discussion: what does a site need to have for us, as individuals, to perceive as a quality opportunity.

For me, I'm looking for evergreen markets, stable rankings and something I can expand greatly.

Perhaps taking a different revenue approach than the current owners... The site usually needs to already have revenue and/or traffic for me to consider it.

Anything based on some existing trend, video game, news story turns me off. I don't really like to sell sites, so I want to try and hang onto them for the long term.

That fax site I posted in the buy/sell section looked like a solid site but I couldn't see expanding it any further than where it was.

For me, the name of the game is finding ways to better monetize a site but still maintaining goodwill.

It also helps not to be in a bidding war (like on Flippa) so I spend time trying to source my own leads or finding sites not on the open market.

[WSYSBroker]

Thomas (better than starting this off as "hey meathead!"),

It's funny you mention Flippa...I browse the site from time to time but rarely fund much over that $250K mark that you referenced. In fact, a lot of high end sellers initially list on Flippa, realize that they are not going to get their asking price, and contact me to help them out. Just in the last few months I have sold 2 sites that were flippa auctions previously for $200K+. These sellers find me here, by googling "website broker" or simply by networking...

The best sites for these high end investors are e-commerce (drop ship!) sites, membership based sites, ad driven sites with tons of traffic, affiliate networks, template logo/web sites, video streaming sites, etc. etc. etc.

The key really is the less moving parts the better. It has to be relocatable and it should not involve much custom labour/project type sites. It should also not simply be a service that has a website....it should be more so the other way around!

[meathead1234]

Lol - the forum nicknames never make a good introduction!

Very interesting, definitely something I'm looking to move my business model towards as I build funds and finally escape full time education. Building my own products and selling them on to investors at a later date sounds like the ultimate flip and right up my street. I'm assuming the moving parts also refers to consistency in revenue/traffic too, what sort of length would a site have to be established? 1 year? 5?

Back on track though, I think "value" is extremely subjective and entirely depends on the individual, their goals, appetite for risk, experience, budget and loads of other factors. Personally, I'm always open to new challenges; but I suppose this may slow down as income becomes more consistent.

[Clinton]

Just in the last few months I have sold 2 sites that were flippa auctions previously for $200K+

I suspect that the typical buyer with $100K or $200K doesn't hang around Flippa and Flippa therefore isn't the best place to list sites like that. When people contact me for my opinion I advise them to go with business brokers and business listing sites rather than the DPs and the Flippas for the higher value sites.

I think one of the other factors is that many of the bigger sites have a relatively passive income (especially Adsense sites etc) so the desire to sell would be much lower, much like a profitable share portfolio to a traditional investor - unless they could command a good premium.

I find it's just the opposite. Some of the highest value website sales I've assisted with (either as a consultant or doing the due diligence) had premises, staff, contracts with suppliers of services, long-running contracts with other partners and customers, IP such as trademarks, overdrafts - all the stuff you'd find in a typical offline business.

Michael, has that been your experience as well?

[Andy]

Great discussion here. I'm learning a lot. Thanks guys.

Michael, I agree with you - the more revenue and profit - the more valuable the site is.

The comparison to brick and mortars is right on the money too. Business is business. Marketing is marketing. A computer just one more tool. Okay so it's a Swiss Army knife as compared to a spade. The Internet is a bit more complicated but it is a communications medium, nonetheless.

What does that have to do with the price of orange websites in China? Just that an "Internet property" should be valued as any other property i.e. according to the value it has to offer. First to those the site it is geared towards and then to the site's owners.

Gee I hope that makes sense to someone.

Regards,

Andy

P.S. Thanks for the tip on the Shark Tank - I'll have to look it up. I've been dying to watch Dragon's Den but those Brits don't seem to want to share.