Growing your website is tough. You are continually trying to get more traffic, more leads, and new customers; improve conversion rates; and build a superstar team. But what if there was an easier way?
Have you ever considered buying a website to speed up growth?
Although not widely talked about, buying another website can be an intelligent and exciting way to improve growth, acquire customers, steal market share, and buy time.
Even Neil Patel, if he could do it all again, said he wouldn’t and would look for a website or web business to buy instead.
In this article, we will cover the reasons you might buy a website, what the process involves, some examples of successful acquisitions, and what to do once you’ve found a good website.
Why Would You Buy a Website?
Before we get into the details of how to acquire another website, let’s go over some of the reasons of why you would even want to consider it.
To Gain Time
Buying a website lets you cut in on the time and effort put in by the founders. There is a certain amount of lead time you must endure before getting traction with any new business. Acquiring a website eliminates that process and allows you to leap frog over years of hard work.
To Acquire Customers
When you purchase a website, you also acquire its customer base, whether that is actual customers or eyeballs.
To Increase Market Share
By acquiring a website in your market, you increase the size of your market share. You will find in most mature markets, there are only a handful of competitors (for example, insurance). This is because, over time, markets consolidate. Then, if new companies emerge, established companies will pay above market rates just to eliminate them as a competitor.
To Gain Quality Staff
Google is the master of this. With a limited pool of talented employees, it is sometimes easier to acquire a whole company to gain staff than to poach them from their existing workplace.
To Eliminate Competition
Buying your competitor means one less company to compete against.
To Increase Profits
Simply, if you have a business making $500,000 in net profit per year and add a business that is making $250,000 net profit per year, all things being equal, you will have a business that is making $750,000 per year. Nothing is ever as simple as that, but an acquisition should lead to an immediate increase in the bottom line if handled correctly.
To Utilize Momentum
Have you ever tried to turn the steering wheel of your car while it is stopped? It’s a challenge! Alternatively, it is very easy when the car is moving. This same principle applies to an existing website. It is a lot easier to tweak an existing website and produce huge output than it is to build a brand new website.
To Acquire an Idea
Coming up with a profitable and viable idea for a business is hard. If you acquire a website, you are set up with an already proven business that is making money with existing customers and existing systems and processes.
Doing the Deal: The Steps You Must Take
So how do you go about finding a good site to purchase? In this section, I will outline the 7 basics steps you’ll need to go through:
1. Research – Find the Right Site
You can obviously skip this step if you already have a website in mind. But then again, it can never hurt to do some research to see what other similar websites are out there that you may have missed. You may be shocked to find some other hot up-and-comers.
- Google is your best tool – simply emailing the owners of sites you like to get a general discussion going works best.
- Industry associations – join industry relevant associations which will allow you to network with the right people.
- Website brokers.
- Business brokers.
- Newspaper, news sites, business sites – anything where opportunities may appear – also look for media releases and other acquisitions.
- Your existing customers – find out what other products they use – which may present a good chance for horizontal integration.
2. Approach – Get in Contact
This is probably the most difficult step for most entrepreneurs to take. It’s always an uncomfortable moment when you have to make the initial contact. But all seasoned business owners know that you must “get comfortable being uncomfortable”.
- Approach potential target sites yourself or use an advisor (lawyer or broker).
- Your approach should be very broad – something along the lines of “I want to discuss a potential investment or partnership”.
- The main objective is to get a meeting.
- An NDA is worthwhile in most situations to give both parties a bit more peace of mind.
3. Negotiate – Test the Waters
Part of negotiating is getting a feel for who you are doing business with. Try to ascertain if you are dealing with ethical and trustworthy people. Although, you will be doing due diligence in later steps, it’s a good idea to do a “gut check” first.
- Always be honest in your communication – being direct is the best approach.
- It’s a good idea to start off the meeting with some open ended questions – “Tell me about the business?” “How did you get started?” “Why did you start it?” – to get them to open up and then talk about their problems.
- Use the meeting to gauge their interest in selling (not everyone wants to sell).
4. Making a Offer – Set the Terms
If you think the business is a good fit, you might want to have a few more meetings before you make an offer. When you feel the time is right, do the following:
- Start with a broad agreement of the deal via email. Include some basic terms, price, structure, payments, etc. – there is no point in paying lawyers to draw up contracts before you even agree on anything.
- Remember most deals take months, sometimes even years to conclude, so doing the basics correctly to start with will allow you to avoid hassles down the road.
- Then formally submit a letter of intent (LOI) with a terms sheet that outlines what the deal is – both of you sign – it allows you to start your due diligence.
5. Due Diligence – Make Sure You’re Not Buying a Lemon
This is an extremely important step. Don’t let hype or even recommendations from trusted peers steer your decisions. Get into the dirt and find out everything you can about the property you are considering.
- Check the site’s traffic – Get permission to view the site’s web analytics. Be sure to verify the site’s analytics ID by viewing the source code of the site and comparing it to what is shown in the analytics dashboard.
- Check the site’s SEO – Has the site been banned by Google or other search engines? Has the site been banned in other countries? It’s probably a good idea to hire a professional SEO to check the site out for you.
- Check the site’s reputation – How does the general public feel about the site? Use Google to look up reviews and opinions of the site. Make sure you do the classic Google search using expletives such as: “F*$! _______ ” and see what comes up.
- Market – Analyze the market in general, and competitors, and opportunities
- Legal – Analyze the legal aspects including: i) Business structure ii) Contracts between suppliers, customers, staff and iii) Potential legal traps (litigation).
- Financial – Be sure to check profit and Loss, business trends (up or down), and liabilities.
Make sure to check their bank accounts – just because they said they made income on their P&L doesn’t actually mean they banked that money (It’s VERY IMPORTANT!! to actually analyze the bank statements).
6. Finance – Paying for Your New Website
There are several options you can run with when it comes to financing your new website. Some of your available options are:
- Cash – Pay for the deal with money you have in the bank. 100% cash deals are always preferred from a sellers point of view.
- Seller Financing (earn out) – Pay a moderate amount of money upfront and then pay the rest over a period of time. Example you pay $200,000 for a website. $150,000 upfront and then the remaining $50,000 paid $5,000 per month over 10 months.
- Stock – You exchange ownership of a website for stock in your company. Let’s say you have 100 shares in your company at a valuation of $1,000,000. You buy a website for $100,000. You then transfer 10 shares (value $100,000) to the owners of the website you are buying in exchange for control of the asset.
- Borrow – You don’t have the cash yourself so you borrow the money from someone. That someone might be the bank, an investor, relative or some form of financier.
- Investors – You pay for the website with investors money. In the freelancer deal, Barrie brokered the deal which was paid for in cash by an investor (who received a minority share holding in the company) and he assumed role as CEO.
- Combination – When Facebook acquired Instagram they paid with a combination of cash ($300 million) and 22,999,412 shares of Facebook stock.
7. Closing – Dot Your I’s and Cross Your T’s
When closing a deal, make sure you go back and double check your term sheet for actions each party is required to take – and make sure those points are enforced if they haven’t been.
A Great Acquisition Success Story: Getafreelancer.com
An example of a successful website acquisition was that of getafreelancer.com by Australian entrepreneur Matt Barrie. It subsequently has been rebranded freelancer.com.
Barrie first came across getafreelancer.com when he needed a database created. Not being able to find someone competent to complete it by a certain deadline, he turned to the Internet to find a solution. Upon finding getafreelancer.com, he posted a job and had it completed on time and under budget.
Seeing the opportunity, he went out and started developing a platform himself from scratch. In an ironic twist, he realized he wasn’t any good at building sites from scratch. Then, after seeing the millions in capital and the time competitors had over him, he looked to acquire a website instead.
He contacted the owner of getafreelancer.com, who, it turned out, was in the process of selling the business. Barrie ended up taking an option on the website and then went to find the capital to buy the site. An investor in a previous company he started came on board for a minority shareholding and Barrie was able to purchase the website.
He subsequently has bought numerous other sites and combined them under the freelancer.com brand. These include EUFreelance.com, LimeExchange, Freelancer.co.uk, Scriptlance.com, Freelancer.de, Webmaster-talk.com, and vWorker.
Since its purchase, the site has grown from strength to strength, recently becoming the world’s largest outsourcing marketplace.
The lesson here: Always thinks outside the box. If you’re beating your head against the wall trying to build a site, sometimes it’s easier to buy existing technology, users and marketing momentum.
How You Can Benefit from Arbitrage Value
Using a similar scenario to that of freelancer.com’s acquisition of vWorker, let’s look at the advantages that an existing company can have when purchasing a competitor. The figures used in the example below are hypothetical and in no way represent the true numbers of the respective companies.
As you can see in the figures above, the acquisition of another company immediately adds over 100% profit to the current business. This is a great illustration of how an acquisition of an already existing business is also a smart strategy.
Buying a website isn’t the right strategy all of the time. However, in certain situations, the benefits of an acquisition far outweigh that of starting a business from scratch or as an add-on to an existing business.
But it also depends on the type of person you are. Remember, building a business from nothing is an amazing learning experience and can be an enjoyable journey. It’s becomes part of your personal history. And sometimes the real value in building a business is the experience and the relationships you gain along the way.
On the flip-side, it can be a lot of heartache, a great way to destroy friendships and an even better way to lose a lot of money!