May 9, 2018
When it comes to buying internet businesses, is it better to buy big or buy small? Today we are chatting with Jeff Hunt of Own Optimize. Jeff has one of the largest web business portfolios we have come across here at Quiet Light. Through close to 60 transactions, he has owned a total of nearly 500 websites. These days Jeff spends his time working on his websites and educating others on how to buy internet businesses.
After a career with IBM in the services business, a move overseas led Jeff to the internet where he started a real estate website. Despite a tech background, he didn’t really know anything about websites when he started out. Soon he learned that buying them was much easier than making them and started to build his portfolio. Today we talk to him all about what to focus on once a website catches your interest.
Episode Highlights:
- Start off on the right foot at the very beginning of the process.
- When buying a site, what you’re really looking to buy is a quality website that you can grow and automate.
- Jeff’s range of investment is typically sites valued at $50,000 and under.
- Of course Jeff experienced failure, 8 out of 10 of his sites didn’t make it. He admits to being guilty of chasing too many things at once.
- Success for Jeff has come from a combination of buying and building.
- Making a smaller purchase is not always for financial reasons, it can be for a new buyer to explore whether or not they even like the business.
- When a buyer starts small they get an opportunity to learn the transaction process.
- Smaller websites can carry more risk. They may not have had enough time to grow.
- With large sites, you still have some leverage even if you come across hard times.
- Owning larger sites that garner larger revenue allow buyers to afford to hire a team.
- Before a purchase, study the heath of the business; the historical data, the ratios, and the percentages of cost that make up the total cost.
- The seller should have found the key to attracting new buyers and that knowledge can be passed onto the buyer.
- The buyer needs to really understand the business model and hone the process that the seller has achieved.
Transcription:
Mark: Joe, How are you?
Joe: I’m good Mark, how you doing today?
Mark: Good, good! I got to talk to another member from Rhodium Weekend, which is one of those events that we talk about a lot on this podcast, to talk to Jeff Hunt.
Joe: I know. Jeff Hunt’s a good guy. I think he’s bought four hundred (400) businesses in his lifetime.
Mark: Websites, a lot of these– yeah it’s about forty (40) or fifty (50) transactions that he’s done, so mostly some 50,000 dollar transactions.
Joe: Pause, I said four hundred (400). Am I completely wrong?
Mark: No, you’re not completely wrong at all. So forty (40), fifty (50) transactions but whole of about 400 to 500 websites at all.
Joe: Okay, got it!
Mark: Yeah, can you imagine trying to manage that many sites?
Joe: Absolutely not! –trouble doing my job here at Quiet Light that is an immense amount!
Mark: Yeah, I know everyone recognizes you as a slacker.
Joe: (laughs)
Mark: So anyways, he’s bought a lot of businesses, he’s bought a lot of sites and he has a lot of experience on that. Now he’s teaching people, he’s got the website investor– the book that he wrote. And he talks about developing systems to buy sites, successfully. And he talks a lot about some of the mistakes he made along the way. What we talk about some due diligence, but also about this ongoing question: Is it better to buy small or buy big? Now what was better for you, what’s– could’ve helped you avoid risk more and how’s that changed from the years. He’s got a lot of insights into due diligence that were fascinating and honestly, the interviews I’ve done, I kind of wish we would flip this one around because towards the interview, absolutely, really going to miss some good topics.
Joe: It’s interesting that the subject of should I buy a million dollar business for– or ten– how many thousand dollar businesses always comes up. And all we can do is thought from own experience and on what other people like Jeff have done. And I think, I’ve had Kevin Peterson on the upsell buying portfolio SAS business as he said– I think we’ve quoted him that it– it takes the same amount of work to run a million dollar business as it does a hundred thousand dollar business in some cases actually takes less because it’s more established. And Jeff bought forty to– 5400 smaller sites, right?
Mark: That’s right. And we talked about that. I do think that running-a-large of business is often less work And I wrote an article on this, years ago, We have not been blogging for almost a year now because we’ve been focusing on the podcast but I did right an article on this rad. I went into the data actually to take a look at: What are the average number of hours that people are working on smaller sites versus larger sites. And what is the average number of staff and how does that correlate with revenues. Really some fascinating data in there, so excited. I got to transcend you deep dive there. So all in to that much show notes, anyone wants to do some further reading. But larger sites, they’re often less work. And in some ways, that’s risky because there’s– you have more cash flow and we talked about that. If you have a business that’s– that has twenty (20) thousand dollars of revenue and you lose a key client or you lose a key-traffic source when things get cut in half, you don’t have but ten (10) thousand.
Joe: Absolutely! That’s why, just to say it so people hear it that the– the multiple’s evaluation on these jump when your discretionary earnings is up that million dollar mark, you’re going to jump significantly in terms of the over-all value not– obviously because of numbers but because the multiple actually jumps too, from a– let’s say from a three (3) to four (4) for an instance.
Mark: Yeah and I was talking to a potential client the other day who has a business who– it’s multi-million dollars of revenue but the earnings are starting to have troubles and he said, “Would anyone buy this?”. And I explained to him that if a business has millions of dollars in revenue, even if it’s struggling from an earning stand point, yeah, that’s going to really negatively affect the business but this is probably still is soluble. But if you have a business that makes five (5) or ten (10) thousand dollars a year in gross revenues and isn’t making any money probably not going to be sold. An orgs couldn’t be very difficult to sell for anything of value, so can newly certain size? It’s just more flexibility on the part of a buyer.
Joe: Yeah! But Jeff has a different model in system and he’s buying lots of smaller one’s so he’s doing something very, very right. Different than your blog couple of years ago, talked about so be real interesting series got to say.
Mark: Yep, let’s get to it. Alright, hey Jeff! Thanks for joining me.
Jeff: Hey, it’s great to be here, Mark.
Mark: I know we know each other from a mutual group that were both part of. And people who have listened to the podcast before will be familiar with this group, at least you’ve heard of it before, and that’s Rhodium Weekend. You and I have attended it from the past some years, right?
Jeff: Yeah, love–met a lot of fantastic people–Rhodium is a good– as you know, it’s a group of people either buying, or have already bought in to operate online businesses so it’s kind of really unique crowd and be part of it.
Mark: Yeah, if anybody wants an introduction 0:05:43.3 let me know, I’d be more than happy and of course, Chuck will surely be able to provide that as well. Chuck Mullins who works at Quiet Light Brokerage, introduced me to Rhodium. And really– Chris had actually stopped me, but really Chuck encouraged me to go. And it’s been a good investment of our time and place. It’s good group and I met you there few years ago. We talked at the conference and we’ve seen each other at conferences since then. I think the last time we met in person was Afilias somewhat last summer.
Jeff: Yeah! That’s right! And I met Chuck there I think the first time at Rhodium and I formed a number of partnerships there so it’s a great group of people, it’s your (0:06:22.0) way around the business that were in.
Mark: Alright! So, let’s start getting into little bit in the– as our listeners know, we usually love our guests introduce themselves. So if you want just give, just kind of quick background on who you are and what you do, that’ll be really helpful.
Jeff: Okay. Well, you know, I maybe one of your older guest– I don’t know but if the white here kind of gets it away a little bit, I’m in my fifty’s and I’m still on the website business so…
Mark: Oh, my!
Jeff: Kind of funny like the bunch together that we hangout or they’re a little bit younger than I am but I give them a run through their money. I actually started out in the corporate world. Probably like a lot of people buy websites and I had a crew with IBM and I was in middle managements. I had a pretty lardge organization, people who were in to service this business. So, big companies with give us their I.T. departments to run so I had development organization, infrastructure guys, and a lot. And how to buy a budget of about twenty five (25) million dollars, at that time. It’s kind of funny that even though I was kind of that technical business, I didn’t know anything about the internet at all. And so my first introduction to the internet was actually I started a real estate business. So I moved overseas, left IBM, moved overseas, I started this real estate business and I realized it needed a website. And so, I kind of just dove in and I learned out to do all the websites, staff and crew website for this business. And then after that , I– you know, my eyes kind of got opened to the side of the all. Starting website really hard and so I started looking at as ways to buy them. And I started buying websites and over the last ten years I actually– I’ve done probably fifty (50) or sixty (60) transactions and about something like three hundred (300) websites, actually probably closed to the five now but while it does ring, big groups like networks of websites that did some more functions than those kind of things. So– Then along the way, I kind of wanted to leverage some of my assets. One of my assets was just– I have been doing this for a while and you know, having my fingers and all kinds of online businesses and different business models across all the sites. And so I wrote a book called The Website Ambassador and then I’ve done courses on website investing and some networking like at Rhodium and other places and stuff. I really enjoyed this– I just love– I really love almost everything about online businesses. And just the lifestyle part of it but really like the analytical part of it, the marketing component and operations component. Component is just– is just low fun. So that’s my story.
Mark: So– I’m sorry, you said three hundred (300) and four hundred (400) websites in total? Maybe more?
Jeff: Yeah! Like one of my purchases is something like two hundred and fifty (250) websites that were– I can’t even read the domain names. They were German and French. And there were these affiliate websites selling Amazon FiliA products and to Amazon Germany and Amazon France. And I ran with those for couple of years some of them died off and then I sold them.
Mark: Oh, okay. How in the world do you begin to even manage that many sites?
Jeff: Yeah, well–you know, that’s one of the many mistakes that I’ve made I think in the course of my website career is buying too many and chasing too many ideas that looks really interesting like– it’s probably happen to you. Maybe it hasn’t happen to you though like I see these things and I think “Woah! That’s a very unique business modeling and that’s really cool. I like to learn more about it and pick it up. Like uncharmed by those particular sites, actually those who’re kind of template sites and so there was a lot of automation. There were programs that could make the same update to, ten’s, twenty. Sometimes more sites at a time. So that’s how we managed them.
Mark: Okay, That makes a little bit more sense. Now when you say that you’ve been buying all these websites, we don’t have to talk specific dollar amounts but who are we talking about larger sites, smaller sites, what’s the range that you really been investing in.
Jeff: Well I’ve bought in– again maybe this is something I would do differently for starting over again but most of my sites for sub- fifty thousand dollars only handful of that amount, just a lot of them as like mentioned. And I’ve done kind of a combination of buying and then building and typically for me the cycle’s ban or buy something that I don’t really know that much about like I started out with Google news approved sites and merely day so I bought a dozen different news site over time but then after a while after a year or two into that, I really understood that news business borrowed so it was very easy for me to actually create my own news websites and then go from there and I’ve done some more things. For example Mozilla site– so one of the reasons that we buy is because were learning something, were picking up. Were kind of learning from something that’s already working. And then later on if you want to add to it by building from scratch, that’s kind of a logical sequence for me.
Mark: Yeah, alright, let’s dive in to that topic a little bit because we get that–this question a lot from potential buyers, especially first time buyers. People that might become mean and in. They know that they want to get in to the website business or some sort of online business, they’re coming from the corporate business world like you did and they might have good enough money to do a larger deal but their wonder, is that the right thing to do? And I think you might have touched a viewpoints here which might be interesting. let’s talk about, specifically, let’s just start with the benefits, binds small to start. You’ve done a lot of bind small sites and smaller sites. What were some of the big benefits that you’ve gotten from that and then maybe later on we can move in to some of the drawbacks from that.
Jeff: Okay, yeah! That sounds great! And one of the first things that I say when I get that question by big or small is: Whatever you buy, it needs to be a good quality so it needs to be something that’s very stable no matter how big or small it is. So, kind of get to your specific question, what are the benefits of buying small, first the obvious one is that you’re risking less capital and for many people, that’s important, especially when they don’t have that experience that leads to the confidence to something bigger. So that’s kind of important. And many people are running to ask me that question and it doesn’t even matter what their capacity is. Some of them have a capacity in capital to buy very very large websites, multi-million dollar websites. They still don’t want to do it. They want to spend five (5) thousand or twenty five (25) thousand or something like that and the reason is because it gives them the, yeah. One of the things that they think about necessarily is they don’t even know what it’s like to be a website owner. So it isn’t just the risk of the money but they’re not even sure that they’ll enjoy the– be and stay which is being the owner and upper of your website. So that’s one thing that binds small can do. Kind of give them a taste, what it’s like. And then secondly it gives them an exercise of the transaction process. That’s as you know, the transaction process is quite different from very small sites than from a large one but at least they’re going through the steps of– during the evaluation, looking, evaluating, waiting, executing a transaction, setting up the accounts, perhaps hiring the team, and all of those kinds of stuff. And then some basic things that if you’ve never been on the website business, you’ve never done before like giving hosting setup and domain ownership and some of those basic things. So that’s kind of the value. And the other thing is that, whereas the dynamics and management of large versus small can be quite different some of the basics in terms of the actual business models behind the sites are actually quite similar. So the content website monetized by advertising is very similar too. Whether it’s big or small. Just the mechanism and process you put around that are different. So if you’re unfamiliar with the business model, you can pick up some familiarity from buying a smaller site.
Mark: So, you said that I think it’s a key point here, and that is bind for education. And bind small for education is something that you’ve done quite a bit, in where you bought, you’ve learned in this industry a net shore, a style of online business. And I’ve been able to use that as an education, they will build your own as well. I talked to buyers a lot about their first purchase and an advice to buy smaller if they want to get that education set, understanding that, can you talk about that a little bit more how you’ve used buying small to be able to learn more about the nature, about the business style?
Jeff: Yeah, that’s excellent accredit in general sense education and one of the ways that we educate our self is through relationships and at working and so really, the important part when you buy a site is the relationship that you have with the seller and those have been valuable to me. I meet so many really , really instructional, educational relationships, from sellers who– and that starts with setting at the relationship– setting off at the right flow with the relationship at the very very beginning on the process. But many of the sites I bought I got really good coaching, I have relationships to this day with people that I bought sites from eight (8) years ago who were entrepreneurs, they figured something out. Most– as you know, most business is fail. Very high percentage of business is fail, off line or online. And even at higher percentage of online business is fail, been off. And I think it’s just because more people try at the online business but when you have any site that’s been around for a while and it’s kind of built up a following and so on, is one that hasn’t fail or at least not yet. And so the entrepreneurs who’re able to do that and figure that out, a lot of times, they know things that you want to know from them so the key thing is actually learning what has been built, what the process is, that they use to attract customers and we’ll probably talk more about that later. I hope we could.
Mark: Yeah, I’ll get you to talk about whatever you think will be worth talking about. I do want to talk a little bit about the differences though on bind big versus small. You mentioned in there one of the benefits to bind small is you’re obviously risking what’s capital. And I would completely agree with that. I mean, it’s pretty obvious, if you’re buying a million dollar site to buy in a ten (10) thousand dollar site, there’s significantly less at stake. When I tell buyers to buy small, initially, often times I’d tell them that and say, you know, be prepared for a little bit higher risk profile. And in my experience in– feel free to disagree with this , that’s in my experience buying small often comes with a little higher level of risk. I know you said you have to buy quality. What’s been your experience as far as the quality businesses that you bought in this small range?
Jeff: I totally agree with you and the reason that buying small carries more risk is because most smaller websites don’t have the same age. They don’t have the same momentum they haven’t necessarily withstood the test of time. And what that really means is, in the internet business they change really fast so new competitors enter the space, there’s changes in technology, changes in software, and most importantly there’s changes unlike the big players like Facebook, Google and the like. And they’re making policy changes and all those things, so when you buy a smaller site, in most cases, they may be successful, cause they’re flying under a radar of sorts and they haven’t been around long enough to see the change from desktop to mobile or from easily making Facebook ad purchases to a more competitive environment, faced to capture all those things, so as a result, the lower in sites is almost always more risky. Now obviously, you can mitigate the risk the longer you look but sometimes it takes a really long time to find the site that’s– that has true stability. That’s still kind of that low end so, yeah, that’s right. So my experience with that, that answers a specific question is that I’ve failed a lot of times. Probably, my early sites that I bought, I bet you eight (8) out of ten (10) just didn’t make it. Either they didn’t pay for themselves and some of them might’ve made almost no money, most of them made some money but not nearly what I wanted and then they kind of take her off. It’s hard.
Mark: I found as well what larger sites having that extra cushion more discretionary earnings and more revenue, gives you a lot more ability to, not to make a mistake and absorb it. With the small site, if it’s only generating twenty (20), thirty (30) thousand dollar per year, if it loses a major source of traffic, all of a sudden that twenty (20), thirty (30) thousand will go down to five (5). And now, all of a sudden you’re questioning why I’m even doing this anymore. Where, you were as a few–you have a business’s doing five hundred (500) thousand dollars a year and discretionary earnings and it gets hit hard. You’re still probably making six (6) figures and have some leverage that are to be able to– may buy yourself out of this situation or fund what needs to be fixed Maybe place that better or so, there’s a little bit of subordinate there. Workload as well, I mean– I’ve found in your website, in some sense, I found that with larger sites, sometimes that workload can actually be less because you can afford the higher people, where as with other site that’s kind of on the edge. And I ran into this with my first company actually that I owned, I got it to a hundred twenty(220) thousand dollars in revenue and really I needed to hire people but I needed all the money. I was getting so– I couldn’t really afford six months of that financial hit. What’s been your experience with that? With dealing with casuals and maybe the freedoms that casuals would– of a large business would bring you?
Jeff: My experience is exactly what you said where– and in fact I have websites right now where I’m forced to do things that I really shouldn’t be doing, I should be spending my time thinking about the strategy, looking in for competition, time plotting on a road map, and in managing people on. And some sites is just aren’t making enough money for me to hire someone to do that on month you have. So that’s absolutely right, that when you get that, and you know– as I mentioned I– that there were intersections and that I’ve done everything where I sweep the floor myself, so I kind of gone the whole gimmick and certainly when you have a team then it really freeze you up to use your mind in a different way and that’s a lot of fun if that’s kind of where your skills are, what you want to do. So definitely not to big advantage of buying big.
Mark: Alright, so you have done– how you told me at the beginning, I didn’t worry about, how many transactions again, estimated?
Jeff: Only sixty (60).
Mark: Alright, that’s a ton! I mean quite label with more or less than a thousand for ten years, that’s with lots and lots of buyers and sellers. Sixty (60) percent is a lot. I’m going to put you on the spot and if you don’t have an answer for this please just ignore it. I’m curious, what’s one of the craziest thing that you can share that you’ve ran across in your process of buying sites?
Jeff: Well. you know, I’ve ran across more than I– there’s some crazy one’s I’ve ran cross that I haven’t bought. But there’s several of them, one of them that I talk about in my book is– I found this site that– I had a hard time finding out what product is sold but it was insanely profitable like nine (9) percent profit margins but it was an E-commerce site. So it was a hard physical good and when I looked into it carefully, what they were selling was a urine. Laboratory processed urine for people who’re trying to pass drug tests. And so they said, after I finally understood exactly what their product was, I understood why it was hard for me to understand, because they didn’t want to like, advertise it too much that they had to do it enough to be on the safe side.
Mark: There you go. One of the first clients I took on was selling poppy flowers and they were selling them for couple rearrangements, I may be naive. I had no idea that they were used for opium as well. And I had one person tell me, one buyer was like, “So are you okay with selling drugs?” I’m like, “What? What are you talking about?” Ends up, they were not, but there is people buying the poppies. At least my theory at probably buying the poppies thinking that they were buying drugs. They’re probably just get stomach ache.
Jeff: Alright, well, you know, that’s interesting you bring that up because it’s an example of one of the subtle eficlosures and we ran into this issues a lot in this business crossly, even for sites that you would think don’t really have controversy around them. We ran into this kind of things. So it’s one thing that buyers should be aware of.
Mark: Let’s (0:23:21.2) to that because you’ve got your course to write your book as well. Your course is at website investor.com? Is that right?
Jeff: Yeah, ownoptimize.com is a good place right now.
Mark: ownoptimize.com, Okay.
Jeff: Yeah!
Mark: We’ll link to that in the troll notes so just go over to our website and look in the troll notes for the course, the online course. Let’s talk about some of the lessons that you teach in this course. Obviously, we’ll keep the best secrets for the courses. So– but, what are some of the things that you try and teach buyers who are taking your course?
Jeff: Well, one of this– I don’t want to over simplify and this may just sound too simple but one of the biggest mistakes I think that new buyers make is they don’t just look at the graphs. And it’s amazing what this simple graphs can tell you, the direction of the traffic, and the direction of the financial, those two simple things are really, really important. And a lot of times when you look at a graph, let’s say twelve (12) month graph and it’s– you can kin od tell visually that it’s down or gently downwards sloping, but in truth it may actually be like twelve (12) or twenty (20) percent downward sloping and if you just extrapolate that into the future– I mean, business is going to be worth nothing in just a few years and so I think people tend to have an optimistic view when they look at numbers and sometimes they realize that their businesses that are losing money overtime and they feel like the moment that they buy this site, it’s going to stop losing money, it’s going to start– it’s going to be flat or go up from there and there’s no real reason to think that. So that’s kind of really simple but that’s a way that you can dismiss a lot of sites unless you have really specific knowledge about why it’s going down and a very specific idea about how you can turn it around. Now we can talk about that way or two because a lot of people– that’s hard to really know for sure. So then you need is just to stay away from those kinds of sites so we need to look–. So overall, key thing is you look at the graphs, if it’s a stable business, you’re looking for a stable business because the most important thing is– I kind of teach a risk-based methodology but for valuation and also for valuation-selection websites so for me, real core thing is you’re looking for the engine for customer acquisition and you can– all kinds of sites she can evaluate, usually the successful ones. The owner, the creator, has found a way to systematically attract new clients and if it’s a content site and the client is website visitor or if it’s a services site, a client, whatever it is. And that process–whatever the process is, it might be toasting the Facebook every day, it might be buying Google ad words, ads, it might be just content creation regimen, it might be a product launch, philosophy on Amazon like these kinds of steps, I’d choose these kinds of products, I’d brand them in this way, I’d quadrant them in this way. And the process may be –it may not be like mind blowing in terms of what it actually is, but it might just be very consistent and perhaps complex and blast. and whatever that process is, it’s that– is that engine it drives the site, that’s really what you’re buying because if you can get your mind around it and understand what it is that they’re doing that attracts these customers consistently and then you can start envisioning how you would do that yourself and perhaps, how you would scale it, how you would tweak it to enhance it, then that’s kind of the whole agree, So you want a process like that but you feel like doesn’t have a hauls or gas in it, like you can see why it’s working and how it’s working and you get your head around that then you know the business model and then if it’s historically if it’s a cheap pretty solid results, consistent results, there’s always going to be pivoting and changing strategies and so on but you get a model like that, that’s kind of what you really want to buy, to probably grow what you’re trying to buy as a buyer so that’s kind of a key thing and then there’s all kinds of methodology around you, valuation. We look like — there’s like several dozen things you can evaluate that there’s content and ownership and reasons people are selling and the financials and branding, legal aspects–all, all those kinds of things that you want to look at but the core thing is that how do they get their customers and what’s the risk profile on this side.
Mark: So how do you– how do you, work for– so that’s really, really good advice, understanding the customer journey from beginning– from top of funnel, just awareness of the site that you’re looking at down to the actual acquisition of the client. Right? How do you handle that insane environment like Amazon or were dealing with all the market places or even with– I guess with E-commerce, you do have a customer journey but have you worked much with Amazon to see how you would evaluate that?
Jeff: Well, no, I don’t have a lot of very specific experience with Amazon but I can tell you that– Amazon FBA is actually a very sophisticated business because there are so many elements of it and you have to do each of them quite well, actually. That’s one of those cases were it’s not just a simple three (3) or four (4) silver bullets and you win. It’s like the people who do Amazon FBA well, do a lot of things well. They do product selection very well. Niche selection first, product selection well, then they understand the launch process like putting the right brand on their product and giving those initial reviews. And they understand the inventory process. They don’t have cash problems with having generating a man and then having nothing to sell to people. Then they have to understand the operational aspects too like how do they wants making sales, how they actually get the product out and in a good way and then servicing the customers later on and answering their questions from there, just get a review and so it’s really kind– it’s a complex process so the– what I just said earlier about what’s the engine behind it, well in that case, the engine is, are there good SOP’s, is there a good team, is there like –what’s kind of the new ones that has a loud– like some people, super good at branding and they’re super good at that product launch process in Amazon and so that’s kind of what’s giving them the edge over the competition and other people were good with analytics and numbers and ratios and shipping cost, cost of good sold to whatever they’re spending on customer service and all that kind of stuff. Which that’s all fine but it’s kind of that it’s up front-end that’s probably more important in Amazons like how they’re interacting with the customer.
Mark: Well this is why it’s so important for pre-sellers to document their processes because a lot of this stuff is done almost from a skills like that is developed over years. Having those processes, documented, the stuff that you’re doing on day-to-day basis helps buyers like you, Jeff or any of the buyers out there understand what’s going on and try to sum it– that is as well. I want to go back about what you said about graphs because that really caught my attention. I–I’m with you on that. I love graphs. I think visualizing data, specifically the financial data is something people don’t do enough. And I might geek out a little bit here, and save my finger craft that I used when I’m evaluating business myself, is year over year analysis that I like to look at both the revenue and to those gross profit. Definitely take a look at that if you’re able to, if it’s done on cruel basis. My discretionary earnings, it was a year-over-year because it soothes out some of the seasonality that you’re naturally going to have in pretty much every business (0:31:12.3) has, even a little bit of seasonality. Is there a better–like a favorite approach or favorite sort of graph that you would recommend or any other piece of geo that you would look at to say, “Hey! Here’s kind of a peak into the future or maybe what the drafts of help of these businesses”
Jeff: First of all, I love year-over-year analysis too when you have a business that has enough historical data out there to be able to do that, and that’s really, really helpful. But in terms of adding to that, for me, one of the important things is ratios and if you have a numbers degree, whether it’s finance or accounting, whatever they teach you about that. But actually it’s simpler than– you don’t have to learn what you do in school. What it is, is your looking for things like the percentages of the cost that make up the total cost of the product or the service and a lot of times you can find problems where, for a few months, shipping was a lot of money or cost of product or cost advertising is a lot of money and then there’s–and then some of those cost drop-off where the ratio changes, the percentage change radically. And for me, those are kind of– a lot of people are afraid of financial analysis in funnels but actually, we understand that what you’re looking for is kind of that stability in the business and then a little– the flags or things that changes in the ratios, changes– the peaks and valleys in the chart. And is there good explanation for those peaks and valleys. Peaks and valleys are just fine. The only concern is what are the reasons behind those peaks and valleys and sometimes, for example, sellers, so they really have– they may not have any idea why they’re getting more customers or any idea why they lost customers. And the big problem with that is that when you buy the site and something happens, you’re not going to be able to get those customer back if you don’t know the reasons for those things. So some of the tools and things that I look at. And also just say, they kind of end in the evaluation stage and stay on in due-diligence stage. One of most important tools for new buyers is to compare different sources of information, just in the content, for example, a lot of times, you’ll have analytics reports then you have your ad network reports and sometimes you have bank statements, you have taxes, you have– you actually, a lot of times have a lot of different sources for very similar information and it’s important to kind of compare those sources together to see if something’s missing, something’s kind of wack. And it kind of really helping, so in E-commerce is same thing, where a lot of times you’ll have traffic and saying why I’m getting this many sales, repay-dues and then you have shopping cart software on your website, you have merchant processors who have similar data and then whatever is in half-thing in your back account and all of those things that’s lying out. So , there’s actually some, pretty simple tools, once your kind of aware them to take the mystique off of what’re people are a little bit concerned about when they first enter business.
Mark: Wow! there’s– I kind of always restarted with this, rather than buy a big verse and buy a small sort of conversation that is a lot of details you get in to hear, but we are up against clock a little bit here. I think this idea of understanding the customer journey, understanding how they become customers, and the process they’re involved there both can help any buyer understand how healthy a business is and how new was or how specialized they’re going to have to be in their–works with that business but also potentially uncover some opportunities if there’s leakage, for example in that customer journey wherein you’re losing a lot of people at a certain step maybe they are taking advantage of cart abandonment technologies or maybe they don’t have a good e-mail automation. Well these are opportunities that might be available for buyers. And then also this idea of looking at ratios; really, really solid advice.
Jeff: Yeah, the ratios– what I will do again when I’m evaluating business is I’ll look at cost of good sold– gross profits were the first things I will look at. Is that ratio staying healthy because you don’t want a business where that’s getting squeezed up at time or at least you need to understand that. But also you compare advertising to total revenue are you having to spend more just to keep the same revenue? Or has that owner adjusted another area so maybe they’re spending more but cutting back on staff–But to make the bottom line look healthy but ,maybe lying underneath there’s a few issues that you have to be aware of.
Mark: I would love to sit and talk for a couple of hours because I think we could talk for a couple of hours. So, maybe what we’ll do is we’ll have you on again in the future and we can continue the conversation. In the meantime where can people learn more about you?
Jeff: I’ve a website called “HeckYeah.org” and then “OwnOptimize.com” is where I’m selling my courses right now. So those are the two places. And yes Mark, I would love to– this is one of my favorite topics really is this idea. First time buyers, second, third time buyers; what are the questions that they have, which they look for and as you said, lots of things we could talk about. We’re just barely scratching the surface so I’d love to come back and talk some more about it.
Mark: Cool! Hey Jeff, thanks for coming on. Really appreciate you coming on and well, stay in touch.
Jeff: Yeah, sounds good, great. Thanks a lot for having me.
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