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Thread: Pros and Cons of the auction format when selling a website

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    Administrator Clinton is a Premium Member
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    Pros and Cons of the auction format when selling a website

    In the creation of our marketplace, I was tempted to allow sites to sell in an auction format. But I decided against it. As I've said in this post, I believe...

    it's unedifying for proper businesses. From the buyers' point of view, you never know who is shill bidding against you. From the sellers' point of view, it's a bit of a cheap and tacky way to sell something you've spent a lot of time and energy building.

    ...

    That's how proper businesses sell! Go to any classified listing site like bizquest.com or businessesforsale.com. Real world businesses have been selling for decades on platforms like those that restrict themselves to discreetly putting buyers and sellers in touch with one another, not making a big gameshow out of the process.
    Also, the final selling price doesn't become publicly visible (that's a disadvantage for market watchers, but it's hard to argue it's not in the interest of the buyer and the seller).

    The decision is taken and our marketplace will aim to put buyers and sellers in touch with each other, to facilitate transactions, not to make a public display of the process. But...

    What's your take on private contact vs auction format?
    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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    Hey Clinton,

    I think one of the flaws with Flippa's system (and I can't believe I forgot to mention this a couple of days ago!) is that the auctions remain public for all time. Look at any of the earning sites sold 2-4 months ago and you'll find a TON of copycats that found it after the fact. You'll still deal with that as there are those that will get the idea to copy while your site is live and all the information is up, but taking it down after the fact better protects the buyers, IMO. It's one of the reasons we started selling privately...several requests from previous/potential buyers that came from Flippa preferred that.

    I have to say though (from both a buyer/seller perspective) that I actually like the auction format. I don't disagree with your points above and think they're valid...but the time limit and forced action gives you an idea as to whether there's any social proof that the site has value or that the valuation is in-line with what it should be.

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    Administrator Clinton is a Premium Member
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    Hi TryBPO, I did comment in your blogpost from yesterday: The Problem With Flippa. You raise a good new point, but it's a double edged sword.

    Disclosing all details publicly and having a public auction does, as you say, provide some social proof via seeing how much others are willing to bid. But it is also a magnet for opportunity seekers looking for a successful formula or niche to jump into. Removing the listings after a site has sold isn't the answer either as numerous sites scrape the Flippa Just Sold listings (which is what I think, FlippaLeaderBoard does, for example). If Flippa removes auctions after the listing completes, that's just an opportunity for someone to create a site that maintains a copy or uses that now invisible data to add value to their niche advice, siteflipping advice or other MMO product.
    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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    I think you made good decision it is simple reason:

    We have flippa one one side as auction based solution and you made something different on another side.

    That is perfect, since EP is very popular, have 'initial boost' in posting potential site offers, so market will very soon "decide" what is better, we will see in which direction people will go. Of course that many deals is done on flippa and will be in next period, flippa will have some kind of "momentum" but on the other side there is a lot of people who are, let say "cheating a little bit" or cheating a bit more on flippa. There are thousands tricks to increase on NON natural way site "look&feel" and of course price. People do various things. Personally found out directly from sellers some "tricks" like buying PPC traffic for site to increase targeted traffic which makes increased profits which make increased site value. When newbie buy such site, become disappointed because he/she found out that spent few $X.xxx or even $xx.xxx for nothing. Also wrote here about "wise idea" that broker gave me on how to sell site for almost 10 times higher price than my estimation is... Not to mention that is you look ads that google shows when you try anything related to flippa, how many ebooks, consulting experts, etc offer their service which all are 'tweaking' site value, and at the end someone pays for that - both experienced and non experienced buyers

    Why I mention all this? because I think that time will show that this concept that you choose is very good, and MAYBE even better than you or anybody in this moment think. So we will have on other side (EP side) maybe this scenario: everything will be more transparent, many sellers will not like that, maybe in first time buyers too, but we will have realistic prices for buyers and some kind of better "control" of sellers (because they need to be here some time, post, have some reputation so everybody can check,etc)

    Maybe I didn't explained what I am pointing so will try to clear that in few more sentences: flippa is great place, but if they don't do something, their model where people are so focused to bid, looking at data that seller shows them, and "to grab this chance" and I think that more and more people going home unsatisfied with flippa deals that they are made, and flippa start to looking me as hyip industry in the past. They are doing a lot of work to resolve this (higher fees, additional verification methods,etc) but if they don't make system more secure, more transparent they business model will go down.

    On the other side, what you decide makes perfect sense, since that looking as going in opposite direction from boat that will maybe sunk.

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    I love the idea of your new buying selling section, but without price suggestion or auction format allowing a price to establish, as a buyer it puts me off, because I have no idea of price expectation, or I might have expressed interest in some of your sites. Price expectations can be wild in the world of domains and sites. So as a buyer, I need to know the seller is realistic.


    To that extent the flippa format is better.

    In your justification you mention businessesforsale, but the seller is obliged to state a selling price there: the only real alternative to auction: On that front by the way I think rightbiz is better because of the public view.

    A reverse auction format cannot work without branded products but a "buy" section that allows a buyer to state a price and stats (eg traffic type, volume, age, rank. earnings niches included or excluded: that allows sellers to offer sites that match the spec might work... That way put buyer and seller in touch.

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    Clinton (6 July 2012)

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    Price expectations can be wild in the world of domains and sites. So as a buyer, I need to know the seller is realistic.
    Good point.

    What I've done in the past when opening dialogue with a seller was trying to establish whether his expectations were based on earnings or potential. The next tentative step in that discussion, and even prior to knowing the net profit, would be to suss what he saw as a reasonable multiple. I'm revamping this whole section and the concept of listing sites for sale here. I'll try to corporate a field for sellers to give an indication of the multiple they're seeking - choose between 6x-12xmonthly net, 12x-24x etc.

    but a "buy" section that allows a buyer to state a price and stats (eg traffic type, volume, age, rank. earnings niches included or excluded: that allows sellers to offer sites that match the spec might work...
    There's a major classified listing site for businesses that offers this facility. I signed up as a buyer two years ago and started getting more and more spam - people try to push sites with the "potential" to make what I stated in my requirements, franchices where "people just like you" are making that type of money etc. I complained to the classified listing site about the spam coming through and they washed their hands off it because, I expect, of the subjectivity involved; they can't vet every response a buyer receives.

    In your justification you mention businessesforsale, but the seller is obliged to state a selling price there: the only real alternative to auction: On that front by the way I think rightbiz is better because of the public view.
    I don't understand. What are you saying rightbiz does differently? Offering an option on public disclosure of price expectation?
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    If something is always worth what someone will pay for it, then an auction is the best way to realise that. The danger with fixed prices is getting it wrong. The danger with auctions is that the right person won't be at the auction.

    I think each method has it's pros and cons but I'm a big fan of organic systems and auctions are very organic. I definitely don't think that they're tacky, tell that to Christies or Sotheby's.

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    I don't think that comparison is particularly apt.
    1. Christies and Sotheby's have reputation as experts and as valuers
    2. Buyer trust them on the DD. You don't need to do DD yourself
    3. They sell inanimate objects. Businesses are complex organisms that take days/weeks to learn how to run
    4. The sale of a business usually involves complex contracts with loan notes, non-competes etc, they are not simple purchases

    And more important than all of that
    5. Buyers have reason to good reason to trust Christies. Every Tom, Dick and Harry can't go bidding on million dollar Ming vases, the auction house has a whole deal more filters than phone verification. They also take responsibility for collecting the money!

    Those are some of the reasons, I believe, multi-million dollar businesses for sale go to brokers and classified listing sites rather than auction houses.
    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 View Post
    Good point.

    What I've done in the past when opening dialogue with a seller was trying to establish whether his expectations were based on earnings or potential. The next tentative step in that discussion, and even prior to knowing the net profit, would be to suss what he saw as a reasonable multiple. I'm revamping this whole section and the concept of listing sites for sale here. I'll try to corporate a field for sellers to give an indication of the multiple they're seeking - choose between 6x-12xmonthly net, 12x-24x etc.


    There's a major classified listing site for businesses that offers this facility. I signed up as a buyer two years ago and started getting more and more spam - people try to push sites with the "potential" to make what I stated in my requirements, franchices where "people just like you" are making that type of money etc. I complained to the classified listing site about the spam coming through and they washed their hands off it because, I expect, of the subjectivity involved; they can't vet every response a buyer receives.


    I don't understand. What are you saying rightbiz does differently? Offering an option on public disclosure of price expectation?

    I was advertising on those sites late last year - I could have sworn that "Businesses for sale" was hiding most of the business information except to subscribers.

    Just looked - I am wrong.

    URLs are there in both cases. One thing I can say is businessesforsale charge a fortune in comparison, allowed some very dodgy internet listings, and got less less views on the same sites: but I put that down to them forcing buyers to subscribe. If it was so, it certainly is not now.

    As regards price - the buyer has to quote high side, if he wants to get close to an expectation - but both for the buyer and the seller, the price determines whether they are in shooting range of each other.

    I think the auction with reserve and buy it now , has the best of both worlds. I know , boring, but it has merits!

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    >> If something is always worth what someone will pay for it, then an auction is the best way to realise that. The danger with fixed prices is getting it wrong. The danger with auctions is that the right person won't be at the auction.

    Sort of.

    Because that right buyer, who might bid high, will start to question his own motivation for paying that much when he hears crickets.

    Think of an actual auction room...

    Fancy artifact is being sold.

    You want it.

    You bid. High. Higher than most people would in the room.

    But you felt you were bidding LOW.

    You would have paid more, but the lemming principle (aka, social proof) makes you wonder whether that piece of knick-knack really is worth your price in the first place.

    In fact, on a site like Flippa, it's dead easy for you to just back-out and think "oh well wait a minute, I've changed my mind".

    Which is one of the 1001 reasons why I don't take Flippa seriously for larger/established "quality" site sales.

    The figures associated with larger sites gets a lot of opportunity-seeker types trigger happy. They bid. They may even click BIN (as talked about in another thread). But it's very simple to just back out.

    To them it's a game.

    But my point is... when you're in an auction scenario, you need MORE THAN ONE "right person" in the room. Ideally several. Otherwise, even your "one right guy" can start doubting and questioning the value.

    As Clinton (and likely many others know), there are schill ways to artificially drive up the bid. But that's a whole "black-hat" system I won't even cover. Sleaze is everywhere.

    To me, a website sale should be based on the same principles as anything else of value: (1) quality of the offer (2) quality of the presentation/communication (3) quality of the lead.

    As long as the web-business you're selling does have merit (1), and your proposal/presentation is intelligently and carefully crafted (2) and you get that message to the relevant and potential buyers, you're said.

    Easier said than done, I know. But the auction games are fun for biz opp types and small site purchases. I'd stay away from them for larger web businesses... and IF they are used, it's to gauge the market and find the objections/confusions. For a couple of hundred bucks, I can have 3000+ eyeballs to a Flippa listing tearing apart the business presentation, the stats, throwing questions at it that I hadn't even thought of etc. You can't BUY market research for cheaper than that.

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