So you’re planning to buy an online business?
They provide cash flow and the ability to have a go anywhere (or work from lifestyle). I admit it’s nice. I also think it is more effective to buy an online business than start one as most 'start-ups' never really get any traction
I’ve personally operated 3 online businesses going as far back as 2009. The first one was an ecommerce store dropshipping motorcycle parts. Since then, there has been a content website (flip), and also a lead generation business spening several millions of dollars in paid ads.
I also own / invest in offline businesses that I grow largely through online means.
With more and more people looking to acquire an online business and valuations going up, I figured I would give a list of considerations… kind of like tips.
Here we go:
Consider Platform Risk -- it’s Huge.
In the online business world, most businesses rely solely on one platform, and would cease to exist on any other platform. Consider an affiliate blog.
Affiliate blogs are hugely popular because they require no customer interaction. The risk however is their traffic source -- Google. The whole business model literally relies on free traffic from Google.
Guess what? Google can take that traffic away. Even websites great, original, and engaging content get hit with penalties and things can dwindle or go to zero.
In this blog post I give an example of an affiliate site that I shopped and less than a year later traffic had declined over 75%. But let’s look at an example of a larger more established site.
Consider the the site InvestorJunkie.com. It was sold in July 2018 for over $6,000,000. At the time the site had organic traffic of 148,000 monthly visitors by SEMRush’s measure. It’s not a 100% accurate measure but it shows the trend.
The traffic then spiked, but the recent 6 months has been on the decline (bigly). How would you feel if you bought a site, and the traffic (and likely corresponding revenue) declined like this?
The way around it is to have diversified platforms generating the traffic.
The platform risk is not limited to just organic Google traffic however. I’ll use my own lead generation business as an example which operates by generating leads through paid ads.
In the end of April 2021, IOS14 rolled out with a built in cookie blocker (in simple terms) effectively limiting the use of tracking cookies that paid advertisement platform rely on. My lead generation business has been on the decline since. Admittedly I would feel sorry for anyone that bought the business had I sold it in March.
Expect More and Faster Change Than An Offline Business
Owning both offline local businesses and online businesses I see the game in both arenas. Offline the busines remains pretty much the same. Like if you run an HVAC business, fundamentally all you have to do is train employees, perform service for the customers, and sell a bit and you’ll do fine. A simple business model that worked 50 years ago really still works today.
Online business is constantly changing. THere’s google updates, and cookie apocalypses as I’ve already mentioned. Then there is also the underlying software, and staffing.
Software is constantly evolving. So you always have something new to learn. Platforms are changing.
Employees… well they change at a faster pace than an offline business. I believe it is because the employees can jump around so easily. To them there is no switching cost.
The Best Online Business Is One That Has A Brand
A brand will stand the test of time across platforms and devices. It won’t matter if people are using Google, Tiktok or whatever comes next.
It’s easy to identify a brand. Just run an SEMrush report and see how much many searches the brand name gets.
Personally I wouldn’t buy an online business that gets no branded search (that’s most affiliate content sites).
I would pay exponentially for something with a good amount of branded search.
Don’t Give Credence To A Broker Listed Online Business
If you want to buy an online business, you’ll probably look at some listing buy a broker. Don’t think they are better than any other listing. Some brokers list absolute junk.
In this post ‘Buying A Website: Be Cautious of Pump & Dump Affiliate Websites (even brokered listings)’, I covered a website I looked at that was listed by a major broker, for $1,280,000 (a72x multiple) in september 2020. By September 2020 the website had lost an estimated 75% of it’s organic traffic.
Have Growth A Plan.
Things change. There is platform risk.
Considering these two aspects of online business, I think it is foolish to buy an online business and just plan to sit back and ‘kick it’. You need a growth plan.
What can you do to grow it? Invest in another advertising method or traffic source. Build a brand off of Google. Negotiate with your customer (often affiliate managers) for better commissions.
Don't Jump Into Major Changes Right Off The Get-Go
There will be plenty of change ahead, don’t create any more for yourself. Often time new online business owners want to jump in and make major change like changing the name, or merging two websites, or doing a complete redesign. Don’t embark on those kinds of projects until you’re absolutely certain that you have done everything else that can add value without such increased risk.