436: Should You Buy an Online Business?

After finishing residency and swallowing the purple pill (reading a Kiyosaki book), I found my entrepreneurial self for the first time. I was a like a kid in a candy store looking for any business opportunity I could think of. My initial foray into the entrepreneurial world related to my background—as a surgeon. I started with medical businesses. I say businesses here to make the distinction that these were not run-like practices. They involved branding, heavy marketing budgets and cash pay. Unlike many entrepreneurs, my first few businesses were successful for several years. However, at times, I also felt a tremendous amount of stress because of the overhead involved in such brick-and-mortar operations. Anyone who runs a business knows that there are lots of bills to be paid regardless of whether or not your business makes money. You've got payroll, advertising, insurance costs, rent—it all adds up. My fixed costs for my initial Chicago business were running about $200K per month and the costs would go up as income came in because commissions needed to be paid out. Unless we were pulling in north of $300K per month, there wasn't much profit left for me. So, in certain months I felt rich and in other months I felt like a pauper. Those initial brick-and-mortar businesses are gone now. They gave me my start and made me some money over the years. But, as often is the case with small startup businesses, they often don't last forever. So what did I learn from them? Well, as you can imagine, I learned a lot. I learned that I prefer boring businesses to flashy ones because they tend to have less competition. I learned that you must have competent and reliable management that is not too concentrated in the hands of one person. And, I learned to avoid businesses with significant fixed expenses. Avoiding significant overhead is perhaps my biggest lesson. It's really quite awful starting off every month so far in the hole. But how do you avoid that? Well, one consideration is online business. They can be as boring as you want. They can be automated to a certain degree making management and employees less critical. And, in many cases, there are minimal fixed costs. Therefore, I have always been curious about buying an online business. For that reason, I invited a representative from one of the largest online business brokers in the world to discuss this type of asset. It's an interview where you will learn a lot. I highly recommend tuning it. However, just to be clear, I have never done business with this company nor am I endorsing them. I have no financial relationship with them either so please do your own due diligence if the spirit moves you to contact them. Show Notes: 05:00 What Does Buying An Online Business Entail? 07:10 How Is An Online Business Different From a Physical One? 08:25 Where Do I Start? 11:50 Where Are the Operators Coming From? 12:55 How Does the Operation Work? 17:11 The Risks 20:03 What Determines the Multiples of Sites? 23:15 The Due Diligence 24:34 The Success Rate