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Welcome to episode 32 of the Food Blogger Pro podcast! This week, Bjork talks with Mark Doust about buying and selling established websites.
Last week, Bjork talked with Erin Clarke from Well Plated. About a year ago, Erin decided that she wanted to rebrand her blog, but she found that the road was a lot tougher than she imagined. Fortunately, she decided to come on the FBP Podcast to tell us about what she learned along the way! If you ever think about rebranding your website, definitely go back and listen to that episode.
Most of you probably aren't thinking of selling your website right now. But even if you aren't, knowing what makes a website "sellable" can really help you in the future if that day ever does come.
Mark Daoust has made his living by helping people buy and sell websites since 2007, and he's become a go-to expert in the field. Lucky for us, he decided to come on the podcast today and tell us everything he knows - well, as much as he can in an hour!
Listen to the Food Blogger Pro Podcast below or check it out on iTunes:
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Bjork Ostrom: Welcome to episode number 32 of the Food Blogger Pro podcast.
Hey, everybody. This is Bjork Ostrom. You're listening to the Food Blogger Pro podcast. Today, we are interviewing Mark Daoust from Quiet Light Brokerage. If you immediately think brokerage, what is that all about? What are you brokering? We're going to talk about that a little bit but to spill the beans on the interview, we are actually going to be talking about buying and selling or brokering websites. I know that a lot of people listening maybe have never thought about themselves as somebody that would buy a website or build a website that would be sold.
The reality is, if you stick with it long enough with building your blog, whether it's a food blog or some type of other blog or website, whether that be eCommerce or something of the like, then there might be a point where you start to think about maybe doing something else or maybe shifting into another area. The idea of potentially selling your website might come into your head. Mark is going to talk about what you can do on the front end of things, like right now, if you are thinking about someday selling your website.
We're going to talk about some of the realities with buying and selling websites, for instance, how Pinch of Yum is a website that's not very acquirable. We're going to talk about why that is and some of the ways that if we wanted to build a the Pinch of Yum as a site that would be sold, the things that we could do to make that happen, which were not thinking of selling it just in case and maybe you're wondering. I know that some people might be thinking of buying or selling their websites.
That's why we wanted to interview Mark. He's a great guy. He's really knowledgeable. To boot, he's from St. Paul, Minnesota which makes it really exciting for me. Without further ado, let's jump into the podcast. Mark, welcome to the Food Blogger Pro podcast.
Mark Daoust: Thanks so much for having me. I really appreciate being here.
Bjork Ostrom: It'll be fun to talk about a few of these things. Personally, I'm really excited to chat about it and I know it would be helpful for the audience as well. Before we get into it, I want to do this. Let's say that you meet somebody, they have no idea what you do, and they ask you the question: "How do you describe your job to people that have no clue what it is that you do?"
Mark Daoust: The easiest way to describe it would be that it's like real estate but for websites. We sell existing, profitable, established websites on behalf of people who want to get out of it. Usually, if I'm asked this, I give an example. Suppose that somebody has started up an eCommerce store that sells Red Wagons and I like those Radio Flyer wagons and they want to do something different, we help them find somebody to pay them for that website and to take it over from them.
It's a really good opportunity for the people that have built something valuable to cash out of that and cash out usually pretty good prices and it's also a good opportunity for the people buying because they're able to get a leg up on a business opportunity without going through the pains of the startup process.
Bjork Ostrom: For sure. Awesome. I'm really excited to talk about that because I think my assumption would be that the majority of people that are listening to this podcast know that they want to build a business and know that they want to probably build that business around a blog like Food Blogger Pro. One of the things I would assume that maybe not everybody thinks about is the fact that they are also building an asset, not just one that is able to help pay their mortgage, let's say, or pay for coffee everyday, depending on where your business is at. It's also something that, if you do it right, if you build it right, you can build something that, in and of itself, can be sold as a product itself.
I'm excited to hear that you use that analogy of the real estate person because a few people have asked. I said, "Yeah, I have a friend, Mark, that does, you know, buying and selling websites." They're like, "I don't get it. What is that?" That's the analogy that I use. I'm glad that I understand what you do, that will help with this interview.
I'm curious. This is just me wanting to know what this is like. Can you talk about the day that, I’m doing the air quotes here, the day that the deal goes down? Is there literally you're transferring, let's say, $500,000 from one bank account to another? How does that happen?
Mark Daoust: The day that the deal goes down is usually very stressful for people on both sides. Fortunately, I've been through the process 600 plus times now so it's not as stressful on our side but, yeah, that's effectively how it works. Typically, the buyer is going to wire the entire closing funds into an escrow account, whether that be with an attorney or with escrow.com. We used to hold the funds but we don't actually do that anymore.
Bjork Ostrom: Real quick, can you explain what an escrow is for people that aren't familiar?
Mark Daoust: Sure. Absolutely. An escrow is just a temporary holding account where the funds get locked, basically. They get locked with a neutral third party. That gives the seller time to transfer the website and everything else over to the buyer. The buyer can confirm that they've received everything and then the funds get released. It's a way of protecting those funds but also making sure that the buyer isn't withholding those funds and asking for one more thing. It's way to protect everybody in that transaction.
Bjork Ostrom: Got it. Somebody doesn't get the money and then move to Mexico immediately without, yeah.
Mark Daoust: One of the very first deals that I did when I had, frankly, not nearly as much of an idea what I was doing, we didn't. It was escrow and the buyer wired, it was only a smaller deal. Now I'm using air quotes, smaller deal. $45,000, that's still a lot of money. $45,000, he wired the funds. The seller gave him the website, sent him a bunch of things, but didn't give him passwords, didn't give him like the important information.
Bjork Ostrom: Someone has to hound this person for all of that stuff.
Mark Daoust: He basically disappeared and so the buyer, he got hurt quite a bit from it. That was an unfortunate learning experience. Escrow protects against that which is why you always use escrow.
Bjork Ostrom: Thanks for explaining that real quick. You transferred into a esrow, so then it's in this holding tank, and then what happens at that point?
Mark Daoust: Usually at this point, you've already been working with this person for, say, 30 days, maybe 45 days so you put together a plan as to what's going to happen on that day of closing. It's typically just changing over ownership information, changing over the ownership of the website, the credit card information if you're processing credit cards, the domain names into their name, passwords, vendor accounts, everything like that. Once all that's done and honestly it doesn't take that long to do, a very long transaction might take a couple of days. Most take a couple of hours. Then the money gets wired to the person selling the website and they get a nice big cash infusion.
Bjork Ostrom: Weird.
Mark Daoust: Use to say it.
Bjork Ostrom: Do you know what people do? Do people like obviously they probably celebrate? I feel like, "What would you do if got all that money deposited?"
Mark Daoust: Do you know what I did? Before I started Quiet Light Brokerage, I sold a website that I built. It's what got me into this. It was $165,000. I didn't get all that at closing but I got most of it at closing. That was the biggest paycheck I've ever gotten. My wife and I went out and bought a set of really nice knives.
Bjork Ostrom: All right, celebrate. It's totally an adult thing to do, right?
Mark Daoust: Exactly, like, "Let's go buy some nice knives."
Bjork Ostrom: Then go home and cook with them, right?
Mark Daoust: Then we went home. I thought, "Boy, what am I gonna do next?"
Bjork Ostrom: Start this business, which you did and which is going to be really beneficial for people here today to hear about some of the things that you've learned. One of the things, I wanted to clarify a few of the different things as we get into it here so people have an understanding, kind of the niche within the website buying and selling world that you serve.
First, I want to talk a little bit about this idea of, you said, "We sell profitable websites because I know there's this other side where I'm thinking of Instagram, for instance. It's a really outlier example because it was such a huge acquisition. There's also these acquisitions that happen where people or companies are buying another company that really doesn't make any money at all. Can you talk about the difference between that type of acquisition and the buying and selling that you do?
Mark Daoust: Sure, and a really good question. I think there's a lot of room for discussion especially within the industry on how those transactions work but. Generally speaking, and very generally speaking, the vast majority of transactions happen in a world that is not the Instagrams or, to go back a little bit further, the YouTubes. That said, every person, every company that buys a website or an Instagram has a goal in mind and that goal is the same: it's return on investment.
You need to be able to demonstrate no matter what. You need to be able to demonstrate the ability to provide some sort of return on investment. Now, Instagram has a really good ability to demonstrate that with their large user base and their high level of user engagement. That deal makes sense.
We break this down within our industry into two categories: there's the marketplace-based deals and there are the strategic-based deals. The acquisition of Instagram, that's strategic. For Facebook who bought Instagram, for them it's about user retention. It's about engaging more with their base and they can integrated into their existing structure in a way that makes sense in a strategic way.
The vast majority of transactions don't happen that way. The vast majority of transactions occur from an entrepreneur like myself or a small private equity firm that is seeking a return on their investment that's a little bit more immediate. That's why having earnings really drives most valuations.
On the flip side of that, if you build a service and you get that user retention like Instagram has or YouTube or even a fraction of that but still substantial, you can still sell something like that and there's still value there. The valuation change quite a bit at that point. If you're looking at the sub-5 million dollar range, you just don't see those transactions happen a lot.
Bjork Ostrom: It's interesting. I don't know where I saw this but a breakdown of different types of businesses. When you said sub-5, I remember reading like it's probably not going to be a company acquiring something for the business model in the sense that it's not making any money and they're going to turn it into something. It's like it's probably a profitable business that they're acquiring to add to the profit that the business is already making.
Mark Daoust: You can break down acquisitions into lots of categories. Acqui-hires, you're just acquiring just the talent or the infrastructure technology acquisitions as well. You can break it down into lots of categories like that but I take maybe an overly simplistic approach to it. It still all boils down to the same thing that is return on investment. Oddly enough, so those strategic acquisitions like Instagram and YouTube and Tumblr, when Yahoo bought Tumblr for gobs and gobs of money, studies show, I forget that number. It was just looking at it but it's somewhere around the lines of 80 to 85% of those acquisitions fail.
Bjork Ostrom: It's so interesting. You see that all the time where a huge company will acquire a growing startup and then 3 or 4 years later, they fold.
Mark Daoust: Frankly, I think Yahoo acquiring Tumblr was bonkers. I think that was nuts but it happens all the time. Certainly, if you build a product like that and you can cash out, that's fantastic. That's definitely valid route to go but you need some market disrupting service. Another example would be Google Analytics. They bought Urchin Software ages ago but that was because they were an analytics game and Urchin had refined that so well. That was a mix between the technology and the acqui-hire.
Bjork Ostrom: Got it. I think that's important to point out because it's that weird reality of, like you said, it's such a small percentage of acquisitions. Let's just throw a number out there. Let's say it's 5% of acquisitions are those huge billion-dollar acquisitions but it seems like it's 95% because you hear about it and it's in the news and it's so well reported on. That's not necessarily the type of stuff that we're going to be talking about today. We're going to be talking a little bit more towards the majority side of acquisitions which are sub-5 million which I know sounds crazy but we're going to talk about potentially how you can get there.
Another thing that I wanted to point out and talk a little bit about you is something that is going to conflict with advice that we give to people as they're building a blog. I think it's important to clarify this on the front end but one of the things that we talk about is how bringing your personality in a blog and we can use Pinch of Yum as an example, if you go to PinchOfYum.com, so that's the side that Lindsay, my wife, runs.
It's a very much so like Lindsay and Bjork or dog Sage, like it's very personal. We talk about that as a competitive advantage because people will follow along and that they'll get to know you and you can engage with them. Can you talk about why that's a bad strategy if you're looking to build a blog that you hope to someday have that be acquired or to sell that or a blogger website I'll say?
Mark Daoust: Sure, and a really good question. This is something that's very unique to blogs. It's one of the few areas I often tell people that a good exit strategy is usually a good business strategy. In other words, if you're building your business with an exit in mind and selling it in mind, you're typically go to build a really good business. This one of those areas where I think there's a divergence from that because I would agree with you. Adding a touch of personality from just a business standpoint is a good idea.
I actually just recommended this to a friend who's used to be a state trooper, quit his job, and just going to travel Central America. He thought, "Well, maybe I should start a blog." I told him and said, "Make sure you let people know that you were a state trooper cuz that's, you know, that's a cool thing to have. From a standpoint of actually selling the blog, it becomes problematic because you can't sell yourself. In other words, if I wanted to buy Pinch of Yum, people are going to wonder who is this guy? I mean, why are you telling us everything that Bjork and Lindsay used to tell us? You run into a problem with what we call transferability.
I often tell people there are four main areas that create value in a web-based business or website or blog or any web-based property. Those four areas are the growth prospects, the risk of the business, transferability which is a huge element, and then verifiability can improve what it does. If you don't have transferability, the business doesn't sell, the website won't sell, or if it does sell, it's in a way that really doesn't make sense. You have to stay on board for the long term while you do this really long transition.
I often advise people that own blogs, if you're looking to possibly sell a blog 1, 2, 3 years down the road, start to work yourself out of the picture gradually to see how the blog reacts to that, how your readers react to that. Start bringing another people into the blog and see how different personalities can influence a blog. It should, in most cases, just hum along just fine. When you do that, then you can gradually work yourself out in a way that it's no longer relied on yourself. What some people find when they do this is they don't want to sell because now they aren't working on the blog anymore.
Bjork Ostrom: They be like, "Oh, this isn't that bad when I'm only working 10 hours a week," or something.
Mark Daoust: Exactly. That's where, like I said before that, having a good exit strategy can be a really good business strategy when your first building the blog, having that personal touch really helps build an audience that's loyal to you. As you work yourself out of the picture, then you have a business that doesn't take a lot of time and that's also really nice.
Bjork Ostrom: I want to go back and talk about each one of those. That's transferability, meaning the ability to transfer the business from your ownership to somebody else and to allow it to continue moving along. The other ones that you'd mentioned, growth, risk, and what was the fourth one?
Mark Daoust: Verifiability.
Bjork Ostrom: Can we talk about each one of those real quick? When you talk about growth being a factor in having an acquirable business, what does that mean?
Mark Daoust: I remember probably year 2 or 3 of running Quiet Light Brokerage. I had a really good website, what I thought was a great website for sale. It was doing a lot of money and I had a good buyer who owned a small fund. He looked at it and he was interested for a while, then he declined. I asked him, "Why didn't you like this? Everything kind of checks all the boxes." He said, "I just don't think I can take it anywhere further. There's no growth prospects there."
Buyers always look for a business that has good growth prospects because if you figure, let's say, that somebody pays you 3 years worth of your earnings. You make $100,000 a year from your blog. They pay you $300,000. It's going to take them 3 years to earn that money back. If they can grow that from a $100,000 to say $125,000 a year or $150,000 per year, that payback rate just shrinks significantly, the value of the business grows, and the return of investment is stronger.
You want to be able to demonstrate the ability for the business to grow. There's lots of signals for that. Let's say that you've never really tried a certain type of revenue stream and that's hanging up out there. Really the strongest sign of growth is past growth. If you're going to 00:18:34 have 3 years of steady, 10, 15% year-to-year growth, that's going to be sufficient to show growth prospects.
The really important thing here to keep in mind is growth prospect is different from potential. Potential is a bad word. We don't use that word because everybody says, "Wy website has tons of potential. All it needs is," and then fill in the blank, "$100,000 marketing budget or traffic”, right? It's always the vague things like, you know, of course, right. Potential is a bad word. We don't want to use that word. We use growth prospects which is basically how clear or how easy will it be for somebody to grow the business beyond what it is right now. It doesn't have to be just exploding growth. 10% growth, 15% growth, those things are really good signs of growth prospects.
Bjork Ostrom: Got it. One of the things that I hear you or I read in some of the listings and those are really interesting the encourage everybody to go out and check that out Quiet Light Brokerage and just poke around the website and look at some of the the websites that have been sold and the ones that are listed. It's just fun to look through those but every once in a while I see listing something like this person hasn't really or this business hasn't really used advertising at all or like they haven't done any type of work in affiliate marketing.
Those seem like more along the lines of switches that you could turn on and try that the person just hasn't gotten around to. Is that another element of growth that plays into it? Not only past growth but the idea of these different avenues of growth that haven't been a implemented?
Mark Daoust: Absolutely. We try and do that with everything that we sell. We try and identify those areas that somebody can come in and pay a strong price for but effectively get a good price on that business if they just implement this or just implement that. Again, these aren't just implement a large marketing budget now. It's simpler things than that, such as they've never done any conversion rate optimization. Actually, I just published an article where I got 21 tips from experts on conversion optimization for that very purpose to help buyers think, "Okay, you know what? Maybe I can take a look."
Let stay it's an eCommerce store. This person really hasn't done much for the mobile site of eCommerce that we know that's growing rapidly. If I implement that, I can probably grow this thing 10 or 15% within a month and have that. Yes, absolutely. Those triggers that we put in there are to inform buyers: "Here are the various areas that you want to explore where you might be able to get a better return."
Bjork Ostrom: We talked about transferability, meaning, essentially how smooth will the transmission be from one owner to another and the idea that the best brand is probably one that isn't reliant on the person being front and center. The ultimate example of a website that wouldn't be very transferable would be like if I did Bjork Ostrom's Best Recipes in every post had me holding the recipe. It's like, "Oh, that'd be kind of tough to transition and then remove my personality from it."
How transferable is the website? The growth potential looking at the past growth and that projection in terms of continuing that as well as some areas that could be implemented and speed that process up. Then there's this idea of risk. Can you talk about how that plays into building an acquirable a website?
Mark Daoust: Sure. Risk is a huge influencing factor and value of any website. I'll just give an example of a case where risk destroyed value of a website in a natural way. It was a network of blogs, actually, in the pet space. I was going through with the owner doing evaluation and the value of the company. I can't remember exactly how much it was. It was a lot. It was over $500,000 from the value of the company and payback should've been a lot more than that. I just honestly can't remember.
Bjork Ostrom: We'll say 500.
Mark Daoust: We'll say 500.
Bjork Ostrom: 500 million to make it even more exciting.
Mark Daoust: There we go. I actually think it may have been million but I'll just 500 for now. We were going through the valuation process and everything was looking pretty good. He had lots of years of history but he had all of his traffic was based off of Google, really Google ranking has lots of long-term rankings and then this is at the beginning of all the animal updates from Google.
Bjork Ostrom: Which is a little bit confusing so to clarify, his blog is in the pet space but then when you say animal updates, that's like that's not connected. There's not any correlation there. Can you explain the animal updates real quick?
Mark Daoust: The animal updates: Google years ago implemented two major updates or more than that but the two biggest ones were called Penguin Update and the Panda Update. They focused on the link structure coming in or the inbound links the people built their websites, and then the second one, I can't remember which is which but the second update focused on the quality of content on the page. Their goal was to get rid of people that were trying to gain the search rankings and try to manipulate the search rankings and especially from the content side, people who were presenting low quality content to the users and providing a bad user experience. This client was providing the bad user experience.
If you look at the website, most of what you saw were advertisements. If you search, you can find the content. Pretty bad user experience. As we're doing the evaluation, he got hit by one of these updates and his traffic just fell off the table. It just completely plummeted. The value of his company went from 500,000 or a million, whatever it was, to virtually nothing within a couple of days. This is an area of risk and something that people look at is what happens if your main source of traffic disappears? What is your main source of traffic?
Common area of risk would be any website that is built entirely off of Google search rankings and doesn't have social presence or doesn't have any email list or doesn't have these other areas that you can drive traffic to your blog and can build a community which is so important.
Risk is any element of your business which could destroy or significantly hurt the business quickly. Another example would be this gets away from the content game a little bit but if you sell a product and you're relying on one vendor, that would be an area of risk. We look for things such as single points of failure. These are the reliance on Google rankings would be a single point of failure. The other element that we would look at would be dependency. If I started a blog completely revolving around Twitter and how to do all in Twitter, if Twitter all of a sudden becomes a nonexistent entity then I really don't have much to go on. Dependency would be another area that we look at for potential risk.
Bjork Ostrom: Got it. Interesting. To go back there to recap, the Panda Updates, the Panda and Penguin. It's interesting because I think that's something that people don't normally talk about. We think of updates for our computer like I saw use an Apple Computer and once a year I do a really big update where I go from Maverick to El Capitan, like the type of operating system or you do that on your phone. You have the different Android systems or iOS.
Google is the same way where they release updates but we don't really see it because we don't have to do anything. We just go to Google.com. That restructure is how different websites are presented and the rank of those websites. For that example that you gave, when they did this really big update there for the pet site, their traffic just tanked and so the business value was totally diminished because who would want to buy website that wouldn't have any traffic or create new revenue? That's something that you'd call a single point of failure, is that right?
Mark Daoust: Yep, single point of failure. Again, we actually break this down into four categories. I'll say the four categories quickly. It'll be the single point of failure, such as having only Google traffic or relying on one vendor; dependencies, so your success depends on the success of another business.
Bjork Ostrom: Like in Myspace themefor instance.
Mark Daoust: We got so many valuation requests, so many requests to sell Myspace wallpaper sites when Myspace sort of imploded. Everyone is thinking, "Boy, I better get out of this one." No one bought those sites, of course.
Lack of barriers to entry, this is something that we look at as well. How easy would it be to replicate what you built. Unfortunately for blogs, it's typically pretty difficult to do because the content is so unique and it's something that, as you know and as your listeners know, it takes a lot of work to build a community and a really vibrant audience like that. You are going to have this too much with blogs.
The last thing would be key man risk. The transferability issue that we talked about before would actually fall under this key man risk. Let's say that you take yourself out of the business and you have one personal assistant to access your editor and coordinator with everything and does basically everything for the blog, now you have a key man risk. What happens to that person leaves. That's a potential area of risk as well.
We look at all these areas and say, "Are there elements that could just destroy this business as really, really fast? And if so, let's have at least contingency plans in place to avoid that risk from realizing itself." One of the big problems with risk from a business owner standpoint, and I do this with my business as well and I think everybody does, as business owners, we get comfortable with risk because the longer you run your business and the risk doesn't become real, you forget about it.
Bjork Ostrom: You fade away.
Mark Daoust: You get comfortable with it and the only moment that we actually realize that it was there is when it comes and bites us.
Bjork Ostrom: With Google changes its update or when Facebook changes its algorithm.
Mark Daoust: Before those animal updates, the Panda Update, the Penguin Update, I would ask people about their search rankings because before those, they had years ago, they had what was called the Florida Update which is another major update where ranking shifted. I would ask people. I said, "How confident are you in your rankings.?" The response was, "So tell him," they said, "Well, I know my rankings are good. I know Google loves me a lot, because I survived every update in the past." That's like a Russian roulette player saying, "Well, I've never been shot before so it's completely safe."
Bjork Ostrom: It's so important to factor that in for people in the food space, too, because I think people that have built a site know that, "Man, for us it's two, which spreads the risk a little bit but we have a lot of Pinterest traffic and a lot of traffic from Google." If any of those shift, if Pinterest changes an algorithm, for instance, like Facebook did, that's going to have a huge impact on our blog.
I know people that for them it was Facebook. They had hundreds of thousands of people following them on Facebook and they could, in a second really quickly direct traffic to their website just by posting an update. As you know, Facebook changes its algorithm which means that their posts aren't seen as much. That's a single point of failure or one of those points of failure for them, triggers, and they're not able to send that traffic anymore and that impacts the value of the business. I think those are all. I think it's concepts we understand but important to put a name to it and say this is a real thing that affects the value of you business.
Mark Daoust: I think, just to interject one thing, one thing for food bloggers specifically that you want to caution against and really look to do an analysis of your site to see, do you exist within a trend or something that could potentially be a trend. For example, if you built a food site that really specialized for anyone working out with the Atkins diet, that was huge years ago and now it's really not so much now.
Now, paleo seems to be a lot bigger. Someday paleo is going to be replaced with something else. Try to avoid positioning yourself too heavily in a specific trend and build your business in a way, build your blog in a way that you can pivot as those trends ebb and flow so you can capitalize over the next trend.
Bjork Ostrom: One of the things that we talk about occasionally is this idea of niching up, meaning that you can start in a niche like, great, start in paleo and build a site around that but know that there might be a time where it makes sense for you to niche up and to go to that next level of niche so it's not super rich but maybe it's one level above that. It's a little bit broader but it has a further reach and it mitigates some of that risk as well. I think that's a really good point. Let's hit this last one here: verifiability. That's a big word. It's a mouthful but what does that mean?
Mark Daoust: I'm actually not even sure if it's a word. I think I made it up.
Bjork Ostrom: We'll role with it.
Mark Daoust: It's actually the simplest of the four areas that we talk about but it's the most ignored among everything that we see. It's simply keeping good records, having a really good financial statements, having your analytics, for using analytics, having it set up properly. If you need to, hire a consultant. They don't cost a ton of money. Let them know what your goals are and have them set up the analytics so that they actually work right. Then keep contracts on record. Keep documents on record.
From a business ownership standpoint or from an entrepreneur's standpoint, it's really the boring part of owning a business. Nobody likes to do it but it's so important to do. To put it simply, no one's going to buy your website if you can't prove it with third party statements. It just won't happen. If it's messy, let's say that you have a business bank account but that business bank account gets used for your trips to lunch and for that family vacation or to fill up your car with gas or to help launch another website that you're playing with.
All of these things create a muddiness with your financial records and make it much harder for a buyer to really assess how strong is this business, how good is this business. They'll take you at your word only so far. If somebody's going to write a check for $500,000 or $1 million and, again, these deals do get done all the time, but if somebody's going to stroke a check for that much money, they're going to want to make sure that everything is accurate. You have to have that in place.
The number one complaint from buyers that work outside of Quiet Light Brokerage when I talk to them are business owners who do not have their stuff organized, who do not have their financials organized, or just been inaccurate. By far, in a way, the number one complaint.
Bjork Ostrom: Can you paint a picture? This could be a real life example or maybe an average of a few real life examples both sides. Can you tell about somebody that has come to you and said, "I wanna sell my business, my blog, my website," and you look at their stuff and you're like, "You did this right, like this is spot on." Maybe that never happens but pretend it does. What does that look like, like really specifically? Maybe even down to programs they use and things like that.
Mark Daoust: You can tell right away. Because when we do evaluation, we provide free valuations for anyone that wants to see how much their site is worth right now and then part of that valuation process is to let them know maybe here's what you can do to increase the value over the next year or 2 years. When we do that valuation, we ask people for a lot of financial data, 36 months broken down of what's called the profit and loss statement. The profit and loss statement just shows what's your income, what's your expenses. In your income reports that you're essentially doing a profit and loss statement.
Bjork Ostrom: In the Pinch of Yum income reports six months we say, "Here's where we earned money and here's where we spent money. And that's profit and then the loss."
Mark Daoust: Exactly. The people who are organized can get us those reports within hours. The people who are not organized, we have to give them an Excel spreadsheet and it takes weeks or months because it can be really a labor-intensive process.
An example of somebody who really did it right, I've used this example in the past. It was an eCommerce store and he sold basketball hoops. He had a new opportunity that he wanted to get into so he decided he was just going to sell his existing business and so provide him with a nice cash infusion. It would free up time. He had investors that were waiting those so he had to get this thing sold pretty quickly. I asked him for his financial reports and they were pristine. Everything was perfect. I got them back right away. He was using QuickBooks which is what most people would use. You can use other programs as well.
Bjork Ostrom: We use QuickBooks online.
Mark Daoust: It's the most popular one out there by far. He kept everything separate. When we looked at his tax returns, it was pretty easy to see how his financial records matched up with his tax returns. He kept separate bank accounts from his personal and for his business stuff. His new business did not dip into his other business. As a result, because he had really clean financials, we were able to get his business sold in 45 days from beginning to end, money in his hand, and everything was done. It was a nice clean scenario.
This is the other part of it. He kept more money. It sounds so weird like just keeping clean records gets you more. The more doubt or the more muddiness you put into a buyer's mind as to are these numbers right, the more they're going to discount the price; or if you're organized, the more safe they're going to feel that that return is actually going to come.
Bjork Ostrom: We talk about that a lot how trust is the ultimate bottom line with anything. It's just in general but especially online because I think it's harder to trust people online because you don't have that face-to-face connection in the same way that you would with it traditionally like handshake business deal. I feel like that's such a great example of how trust can impact the actual bottom line. It becomes a variable in the multiplier for your business, which we're going to talk about in a little bit.
That's the financial side, so using QuickBooks, separating out those expenses, making sure that when you're buying stuff for the business it goes on a business card. When you're buying personal stuff, it doesn't go on the business card. You also mentioned some of the analytics, so that would be using Google Analytics preferably and just making sure that you really have a strong data around the website traffic and things like that?
Mark Daoust: Yep, absolutely and then depending on the type of business that you have. If you're just running all your revenue through ads, understand what your ad rates are and what the renewal rate is from your advertisers, if you have a subscription-based business, so if you'd have maybe stuff behind the content wall, a paywall, a content paying out a paywall, start looking at some of these more advance metrics such as your lifetime value, which is really a hard figure to calculate, then there's a thousand ways to do it. Choose a method and figure out what your lifetime value is. Figure out what your cost per acquisition is.
The more numbers or the more hard data that you can provide, the easier it is for somebody to calculate what they can potentially do with a business. Familiarize yourself with the different metrics specific for your business and start to track this. It doesn't have to be super time-intensive. There's a lot of programs out there to help you with that but tap into these and have that data set up.
Bjork Ostrom: Do you have any at the top of your head, any of the programs that you'd recommend?
Mark Daoust: Off hand, no. I'm trying to think. If I think of some, I'll actually email them to you, maybe include them out there.
Bjork Ostrom: We'll put them in the show notes. We do the show notes at FoodBloggerPro.com/blog for anybody that's listening and you can find this episode and we'll include any of those recommended programs. QuickBooks, obviously, using recommendation, Google Analytics. If you run a SAS service, the company that, if it goes through Stripe, one of the companies that I've followed along with its really interesting companies called Baremetrics.
I don't know if we've talked about this, Mark, so as a quick side, Mark is in Minnesota which is so fun. The first time I came across Quiet Light Brokerage, I was like, "St. Paul, what?" What did just happened? Same place.
Anyways, , so I don't know we've talked about this before, Mark, but there's a company called Baremetrics and they have this area called Open Startups and they reveal all of the financial information for different SAS companies. Anyways, that's a great analytics tool for anybody that runs recurring revenues SAS, talked about in that, calculates lifetime value and things like that.
Mark Daoust: I was actually thinking of them. I couldn't think of their names so I'm glad you brought it up. The other thing to look at would be these all-in-one dashboard solutions. For example, Cyfe would be one, that's Cyfe.com, that pull in all sorts of metrics from a lot of different places and give you a holistic view of your business. These will give you some ideas as to some other services that you can use.
Bjork Ostrom: Awesome. The quick overview of those four different areas which I think is also helpful, is transferability, growth, risk, and verifiability. I won't recap those. If somebody wants to, they can go back and listen to that again which I think they should do because that's really important stuff. We're going to keep moving on here.
Let's say this. Let's say that I'm listening and I say, "I wanna set a goal and we're going to make a nice clean number." We're gonna say, "I wanna sell a website or blog for $1 million." That's always the number that people think about, that seven-figure mark. What does it take to get to the million dollar mark, knowing that there's lots of different ways to get there and lots of different variables? How would you calculate that when you're getting into it? What does a $1 million website look like?
Mark Daoust: Great question. This is where people sometimes get a little frustrated. I'll try and explain the reason behind this. The marketplace and buyers in general use what's known as the earnings multiplier approach to valuing a website. This formula looks deceptively simple. It takes your earnings, so the bottom line earnings, the profit that you make, or the money that you able to take home at the end of the year, lots of ways to describe that.
It multiplies it by a number and that number that it's multiplied by is determined by a lot of different factors. This is where the formula gets more complex. It's determined by market conditions. When started Quiet Light Brokerage, the average multiplier was about 4.5. When we hit the great recession about 8 years ago or so, I don’t remember that was.
Bjork Ostrom: It depends on when people are listening to it. If they're listening to this podcast episode 20 years from now, it could be 27 years ago.
Mark Daoust: This is true. Was it the great recession? We'll just refer to it as it. The multiplier dropped from that 4.5 down to maybe 2 to 2.4. The economy makes a big difference. Then outside of that, so outside of the external conditions, there's also conditions about your business in those four areas that we talked about: the growth the risk, the transferability, and the verifiability. Those are the areas that influence that multiple for you. We can break those out literally into almost 100 different categories. We're going to release a very detailed valuation guide here soon that gets super into all the different things that could potentially influence the value.
Again, what does $1 million website look like? First, you have to have the earnings. This is the part that's the hardest to sell people on but you have to have the earnings. Now, let's say if you want to sell a $1 million website, you've got have at least $300,000 in earnings. Ideally, more. Ideally 350, $360,000 in bottomline earnings.
Then the second thing is all those four areas need to be there. You need to have the growth. You need to have the low risk profile. It has to be easily transferable and you have to have all of your documents in order and verification in order. Those would be the two key elements, two key drivers that would get you up to that million dollars.
Bjork Ostrom: It's interesting because it's almost like there's this really basic equation which is profit times a variable, a multiplier. Then when you zoom in, the multiplier in and of itself is an equation with lots of little factors. That's the one that can really shift and it depends. What I hear you saying is that it depends on those four things that we talked about: the growth, risk, transferability, and the verifiability. Is that, in general, the right approach?
Mark Daoust: Yep, absolutely. We can think about the multiplier as one giant catch-all number. Those four areas that I talked about, they push and they pull on the multiplier. Try to move it up or causing it to be dragged down. They work against each other to find out where it's actually going to settle. Even with those four categories, if we really blow this up, it becomes dozens and dozens of individual factors.
If you exhibit a really strong trait in one area, for example, if you are completely a one-of-a-kind website and nobody can possibly replicate that website, now you have huge value. That's going to dominate everything else. Sometimes you get dominating factors as well.
Do you want to just move over to the other side of the equation, the earnings? People get a little confused concerned sometimes then say, "Well, you know, with my earnings when I file my taxes, I try to reduce that as much as possible because I don't want to pay a lot of taxes."
Bjork Ostrom: So interesting.
Mark Daoust: I would say you don't worry about that, the number there. For the sake of simplicity, we just say earnings. The actual number we use is what's called seller's discretionary earnings. We have some articles on this on our website that explain what this is. If we were to just break it down simply, the discretionary earnings are the earnings you have to spend at your discretion as a business owner.
When we do a valuation, we actually do a lot of work on that number as well to say, "Let's back out this item in your expense profile called amortization," because it's really not a real expense. You took that trip to Hawaii with your family and you talked business so it became a business expense, let's go ahead and back that out because everybody knows that was probably put in there for the gray category. Right or not?
Bjork Ostrom: Right. Your job isn't to say whether this is morally right or not. Your job is to say was this directly tied into the business. If it was, like maybe they had to go once a year to Hawaii to meet with a vendor, then it's like, "Well, maybe that would be more of a something that you'd have to factor in."
Mark Daoust: Exactly. One of the most common things that we back out would be the owner salary. If you're paying yourself a salary from the earnings of the company, not everybody does but if you do, then that gets added back right away because that's completely discretionary. That number had some work that we can do with it as well. The bigger number and the one that's harder to quantify would be that multiplier. Like you said, that in itself is a complex equation.
Bjork Ostrom: With the earnings, we can go back in time and we can talk about QuickBooks. If you use QuickBooks, you can go to, let's say, profit and loss for the year and look at that. What you're saying is it's not necessarily that bottom profit number because that potentially, for the business, has your salary included in it. You would remove that and actually add it back in and say, "This was actually profit even though on the profit and loss statement, it doesn't show. It shows us as a loss." That was actually a business profit. Is that right?
Mark Daoust: Absolutely. Another common area would be rent. If you're working out of a home office, you can deduct that, you can expense part of your mortgage in proportion to the size. I used to have a home office and it was a fifth of my home. I would take my mortgage and I would expense a fifth of it to the business. That's a valid expense but for a new owner, it doesn't really play in. We would back that out as well.
Bjork Ostrom: One of the easiest ways to start to understand this is just to look at some examples on your site. I mentioned that before and we can link to this in the show notes but you can see it's not necessarily URLs like that and stuff because you need to protect the seller's information. You can see general overviews of like here's how much this website made, here's how much the expenses were, and here's what we're selling it for. You can do some simple math and figure out what the multiplier is based on the profit from that business and it's really interesting to play around with that a little bit.
One of the things you had mentioned earlier and we're coming into the end here and so we'll need to wrap up in a bit, but I wanted to talk about this because I think it's an important concept. One of the things that you talked about earlier is this idea of removing yourself from the business. You even touched a little bit on it and you said, "And then people get to a point where they're like, 'Hey, this isn't so bad. I don't wanna sell my business. I wanna keep going at this.'" Can you talk about some ways that people can intentionally outsource or delegate some of the work they're doing and how that can potentially increase the value of their business?
Mark Daoust: Sure. I think from a blogging standpoint and a content standpoint There's a couple of ways you can do it. One way is what I like to call the Dread Pirate Roberts way. You've seen the Princess Bride, I assume.
Bjork Ostrom: I haven't.
Mark Daoust: You haven't?
Bjork Ostrom: Add that to the show notes and then I'll go click on it and watch it.
Mark Daoust: You have to watch it. There's a brilliant about, not sure if it makes sense to go into it now.
Bjork Ostrom: I know. You almost have to now because, otherwise, they won't understand.
Mark Daoust: There's a brilliant scene in there when the main character is the Dread Pirate Roberts. Everyone is confused because they never knew him as a Dread Pirate Roberts. He explains. He says, "I am not the real Dread Pirate Roberts and either was the Dread Pirate Roberts before me." No one would surrender to the Dread Pirate Wesley. Then he said the important thing and the thing to take away from a blogging standpoint, he said, "It's the name that inspires fear for the actual pirate. It's the name that's important."
The joke is the real Dread Pirate Roberts is retired and living like a king in Patagonia. I tell people all the time that's what you want to do. You want to be able to be retired and live like a king or a queen in Patagonia. The way to do that is to create a name that can transfer. This is one approach.
A good example of this, and I don't know how active the blog is anymore, but I think it was shoeblogger or shoeblogs.com. The blogger created this whole persona called Manolo. He had this really weird intonation to the way everything was written. That creates a very transferable product. It's not the ideal solution for somebody who has an established blog. I'm not just starting out a blog like from startup that might be one thing, one direction you might want to look is creating a persona as opposed to bringing in that personal touch.
The other approach would be to start to slowly pepper in or sprinkle in a consulting writing writer or consulting writers or people to come in and join the staff of writers who can really help out with the actual writing. The more you do that and it creates sort of a long term plan to say, "This month, 10% of our posts will be done by outside writers. Next month, maybe it's 15%." You create this gradual movement over. The audience gets used to that.
The example I would use there is completely outside of the food area, for the NFL and pro football. The website ProFootballTalk was started by a guy named Mike Florio. He used to do all of the blogging himself. He still does a lot of the blogging but he has probably about four, five, maybe six other writers. People have gotten to know those writers as well. If Mike Florio decided to stop blogging all together, the site would continue to do just fine because he's effectively brought in enough other people to carry the brand.
That's the goal. You can be like the Dread Pirate Roberts. Build a brand if you can initially from day one, one consideration would be to wrap it up at a personality so that people don't have to know who you are. The other option would be to, again, slowly sprinkle in people who can carry the brand and carry the voice and add their voice as well. That becomes a very easily transferable product.
Bjork Ostrom: That's great. I think of two sites: Mashable, so it's started by a guy named Pete Cashmore, I think, like mid 2000. Now I think for most people that go there and not really have any idea who Pete Cashmore is because it's such a massive site of random content from lots of different people.
Then TechCrunch, I don't know the complete history of TechCrunch but that's another site that I check out every once in a while. I think it was acquired by AOL but the guy behind that, I think it was Michael Arrington started that as this startup tech reporting blog. Now, it's like they do a new post every two hours or something like that and it's this total content engine and a huge brand but started with an individual that removed himself from that. Eventually, that was acquired for an obscene amount.
Mark Daoust: Huffington Post would be another example. Arianna Huffington and she did a lot of the work initially. Now, obviously she doesn't do any.
Bjork Ostrom: All of that could be easily transferable to the food space so you'd have people that would come and help do recipe development or maybe you hire a photographer, people to help create that content if we're talking about a content-driven business which, I'm guessing, most of the people that are listening, that's what it would be.
Mark, super helpful stuff and I know that it's going to be the kind of thing that's going to leave people some stuff to think about. I also know that people will want to follow up and learn some more. Can you share real quick where people can follow along with what you're doing and where they can find you and Quiet Light Brokerage online?
Mark Daoust: Sure. Absolutely. If anyone wants a free valuation of their site, we do that for free. It's completely non-pressured environment for us. It's a win-win. If you want to do that, just go to our website at QuietLightBrokerage.com. That's L-I-G-H-T, so QuietLightBrokerage.com, and click on the Sell website. That doesn't mean that you actually have to sell. Fill our the form and we'll get back and contact with you and ask you a few questions and give you a general value of the website.
If you're not interested in talking to somebody just so you won't take that time, take a look in the blog. We try and publish something once per week. We're not as pretty good as other companies may be but we do try to polish really good useful information on the nuances of the valuation process. It's not set up yet but our Resources section which you'll see that link up there is going to be built out significantly here in the next few months with a lot of very detailed guides as well. We are trying to add a lot of content so that people can learn about what influences the value of a website and how to create a website with a really good exit strategy in mind.
The last thing that I'll just leave the listeners with is this: understand that a good exit strategy takes time to implement. Over 50% of the people that come to us asking to sell their website, we tell them to wait anywhere from 3 months to 6 months to even 12 months because they aren't ready to sell their website yet. Always have in the back of your mind, if you're starting your business right now, if you're starting a website, you probably aren't thinking about selling it and that's perfectly fine.
There will come a day when maybe you start to flirt with the idea. When you do, start to research it and start to implement some of the things in advance so that if something happens or if you need to sell, you're ready to do it in a much should've faster way. It gives you flexibility and it's a very good practice I think just to have.
Bjork Ostrom: Awesome. Mark, that's super helpful and I'm excited to share the podcast with people. Thanks so much for coming on.
Mark Daoust: Thanks so much for having me.
Bjork Ostrom: Have a great day.
That's a wrap for episode number 32. I appreciate you guys tuning in. I want to say something real quick before we wrap up this podcast interview or this podcast episode. It's something that we occasionally hear from people on. They say, "What is Food Blogger Pro." It's just a podcast and I want to explain that real quick.
Food Blogger Pro is actually what we call a membership site. We have a bunch of food bloggers that are members of Food Blogger Pro and they interact with Food Blogger Pro multiple ways. There's the community forum that we have where people ask questions that they're running into and interact and meet other food bloggers.
There's the Tools area. We have a Course Tracker where you can go through all the different courses we have and work your way through all the important steps of building not only a profitable blog but also a secure blog that's really hooked into all the different tools. For instance, like Google Analytics like Mark talked about today and making sure that you check all those boxes as you build your blog.
Nutrition Label Generator is another tool that have within Food Blogger Pro. As well as, and I mentioned this, but a ton of course content around different important concepts to know, everything from time management to food photography to Google Analytics.
That's what Food Blogger Pro is all about. How do you join? Right now, it's actually not open for enrollment. If you're interested in someday joining Food Blogger Pro, you can go to FoodBloggerPro.com and sign up for the waiting list and we will let you know the next time that we open enrollment. I just want to clarify that for those of you that listen to podcast but maybe don't know a lot about Food Blogger Pro itself. That's what we're all about. We also have this podcast that we do every week and we do it for free and we are so appreciative that you tune in and listen. We hope that you find it helpful.
We will be back here next week same time, same place. Until then, make it a great week and we will talk to you soon.
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