Consultancy to help people find and buy an online business

[Clinton]

There have been a fair few threads in recent months of people with some capital looking for help in finding and researching good businesses to buy.

I get multiple PMs about this as well asking if I'd provide such services. Today alone I've had three such PMs from people who've signed up in the last few days.

Is there anybody doing this? Obviously, brokers aren't a good bet as they work for sellers. Besides it would need to be somebody who can assist with the due diligence as well and brokers typically don't have that skill set.

If there anybody providing this sort of service? Why not?

[Thomas]

I offer it for an hourly rate, but you'll find most people who want someone to do the research for them don't have the budget to work with someone charging $XXX an hour as there are no guarantees for success. As you know, finding a solid site can take weeks of work - so that would add up pretty quickly.

Most people want some sort of guaranteed service - but then there's a disincentive to do due diligence properly so I would never do that (although it's hard to explain to some people). My other condition is that they DON'T buy a site through my company as that would obviously have a strong conflict of interest. As a buyer myself, we're relatively rare as brokers who do actually have real experience buying sites and doing due diligence - so I don't have too many issues on that front.

My advice for people when they ask me if I'd do this for them is usually: find a shortlist of sites you are interested and we'll take it from there. My critical eye can usually remove sites that have obvious red flags pretty quickly, especially compared to someone who hasn't done it before or doesn't do it for a living. The due diligence is the hard part, on sites in the <$100k range (where most of my consultancy requests come from) it's not really cost effective to hire someone experienced for due diligence and hiring someone who doesn't know what they are doing (hence are cheap enough) would be a recipe for disaster.

If you have a high enough budget and are looking to buy through a broker, it's definitely a good idea to hire a buy-side broker (e.g. a broker that represents you and not the seller) to ensure the negotiations go smoothly and you don't make a bad deal. Buy-side brokers can often split commissions with the sell-side broker so you might not end up paying as much as you'd think. I've done a few deals like this with people and they've all said the extra piece of mind having a broker on their side is helpful.

[DomainMagnate]

I do it for a reasonable rate, however the problem with this is indeed as Thomas pointed out there are no guarantees and that is what buyers usually want.

The best an experienced "acquisition consultant" can do is simply show the buyer the proper dd process, point to some potential problems and help reveal things about the site that an unexperienced buyer wouldn't usually notice. With a trained eye I can quickly spot some problematic areas, inconsistencies in stats and potential future problems with monetization and traffic, but there are really no profit guarantees in this, more of a second opinion.

[akirk]

Agreeing with the above - I also advise in this area - but rarely... as mentioned, there is generally an issue in terms of desire to pay!

As may be apparent from other posts of mine on here - I consider that businesses online are similar in nature to offline - therefore you should be doing much of the same DD - financial / market / warranties / sales / people / etc. though with an understanding of the internet and how that means that the DD presents itself...

Those buying businesses in the 6-7+ figure bracket are comfortable with the need for professional DD - those below, tend not to be...
many of my clients are at the lower end of the market - so the advice they get is more generic except for those few who are prepared to pay more...

I offer no guarantees instead I advise to allow the client to do their own DD... (something I prefer anyway as I feel that if they are to buy the business and run it they need an in depth understanding of all the issues / metrics from day 1 - not just a report from someone else saying green / amber / red etc.)

Alasdair

[David S]

I have a client who recently completed the purchase of an e-commerce business. The business was identified by a buy-side broker my client retained to conduct the search.

The search was not limited to online businesses and the broker did not have a specific expertise in web-based businesses, but his experience in locating and negotiating businesses across a wide spectrum seemed to translate very well into the online sphere. My client's business has had a significant online component for more than a decade, so it had much of the talent in house to do the due diligence on the online aspects of the business.

I have worked on other website deals as well where conventional business brokers and investment bankers have handled the transaction well. While there are unique aspects to an online business, there are unique aspects to most industries, and a good intelligent broker is going to know what the differences are and where he needs to bring in people with appropriate experience to help evaluate the deal.

The problem, as Thomas pointed out, is the cost. It is one thing to hire someone to find a seven-figure business like my client did, or even a mid-to-high six-figure business. It is quite another thing to hire someone to work to locate a business under $100K. That is true whether the potential buyer is looking for a website, a sandwich shop or an auto repair business. To conduct a thorough search for an appropriate property requires hours and hours of work, and there is no assurance that the buyer will like anything the broker finds. Although I have seen buy-side brokers who will work with at least some success fee as part of their compensation, most want a significant portion of their compensation to be paid without regard to whether a purchase ever occurs.

So my answer is that there are people out there willing to provide the service but that the terms may not be what a buyer would like to see.

[stillauwbadger]

This is a great thread. I'm glad to see Clinton jump started this, as I was one of the folks who recently pinged him about buy-side consulting.

re: due diligence - I agree whole-heartedly that it should be the buyer doing this. To have a broker or other representative performing due diligence... well, that is near-sighted on the part of the buyer and I question that person's business acumen.

Sure, there is some legwork that a lawyer / accountant / broker can certainly take part in, but it is the analysis that the business buyer must lead.

What I'm looking for is an experienced broker to play the part of devil's advocate. An impartial person who can evaluate based on data and fact, removing the emotion part from the equation (buyers should remove emotion as well, but easier said than done in my opinion). This, after I've narrowed a search to 2-3 strong candidates.

I also like the idea of a buyer's broker gathering parameters from the buyer for what they are looking for in a business, then working their network to find potentials that fit those parameters. From there, the buyer should take the lead on the DD.

Any other thoughts from this group? David? Meathead1234?

[akirk]

I think that there are two different things / skill sets you want here...

a broker is basically a sales bod - with a network of contacts / awareness of the movements in the market...
your 'devil's advocate' is more of a business consultant / mentor - they will be better placed than most brokers to challenge on core business aspects... / DD / will take time to understand you / your current business or portfolio / fit / strategy / etc.

ideally the business mentor is someone you should look to have available to you at all times - and this is one step in your overall business journey in which they should be involved...
the broker is a more intense but short relationship (unless you are continually buying!) where they are heavily involved for a short time...

the mentor will help you structure your business strategy / approach / plans - and therefore build the guidelines / parameters for a purchase...
the broker will work within those parameters...

Alasdair

[tke71709]

I recently received a PM from a new member here looking for advice on how to purchase a site/do due diligence. They had already picked found the site that they wanted and were OK with the price (mid XXX,XXX) but ironically I talked to them for about 30 minutes and ended up dissuading them from making the purchase. There was nothing wrong with the site in question (based on a quick rundown) but they simply weren't ready to run a site technically and they couldn't afford to lose their money if something went wrong.

I consider buying websites to be almost like going to a casino, you may have an edge on the house but you should always be prepared to walk out with nothing in your wallet. Don't bet the rent money.

[David S]

a broker is basically a sales bod - with a network of contacts / awareness of the movements in the market...
your 'devil's advocate' is more of a business consultant / mentor - they will be better placed than most brokers to challenge on core business aspects... / DD / will take time to understand you / your current business or portfolio / fit / strategy / etc.

I think we agree on the type of person, so the label "broker" may be distracting. People providing those services in the middle market, at least here in the Midwest, are often called "business brokers," although individually they may prefer terms like investment bankers, corporate finance consultants, or other more fancy terms. Most people reserve the fancier labels for firms that deal in much larger transactions, but that dumps the middle market transaction professionals in the same pool with the guys peddling gas stations, beauty salons and local taverns. It's too bad that there is not a better term to use across the board. "Consultant" is way too broad and even "financial consultant" has more general connotations.

The important thing is not the label but what the person does. For the rest of this post, I will refer to the role as investment banker, since the broker label does seem limiting.

I don't agree that the person needs to be involved in a long term relationship with the business. All of the good investment bankers I have worked with on the buy-side over the last 35 years consider it to be an essential part of their engagement to understand the needs of the business, both long term and short term. They are not the ones who actually develop the business strategy but they are heavily involved in how their engagement fits into the business strategy. I do think mentors are important, but I think that a mentor and an advisor on a particular acquisition objective are usually two different people with two different skill sets.

[SusanH]

I consider buying websites to be almost like going to a casino, you may have an edge on the house but you should always be prepared to walk out with nothing in your wallet. Don't bet the rent money.

Hi,
Could you elaborate on this? We are looking at buying a business which has retail premises but two thirds of its income is from its online sales. We have seen their tax returns and are carrying out DD on accounts and competitors etc but your comment worries me because I wouldn't expect to hear a comment like that relating to a bricks and mortar business.
Are you referring to sites that make their money from adsense/affiliate sales etc or all web businesses?
thanks
susan