What I look for in a potential web business acquisition
I sift through a lot of listings on flippa, ebay, and other venues and basically dismiss 99.99% of them. In a year I probably scan through literally thousands of listings and I maybe go ahead and actually buy one new web based business. After thinking about it, I came up with 6 things I look for in a website or web business that gets me interested:
- It has to be something people will pay for on a recurring basis, like a web service or hosted application.
- It fills a need or solves a problem. Things like that it circumvents what I call “internet choke points”, (i.e an outbound email hop service), or enables online execution of some task.
- Some web businesses succeed on the basis of ignorance or stupidity, relying on an uninformed consumer to drive the economics of the “service”. I want the opposite, I want a business where the smarter the users are, the more it works in my favor.
- It has to be economically viable now. That means it has be cashflow positive in its current state. Either that or I need to see a way to fix a money-losing operation almost immediately after closing.
- It has to have problems. Basically I negotiate a price based on economics of the business in its current form, which I prefer to be already profitable. Then once I have the website, I can kickstart my upside growth from fixing those problems, which lifts the profitability.
- There should be barriers to entry: by this I mean there should be things about the business that make buying it a better choice than building it from scratch. The most obvious things here are established user bases, original software code, etc.
In other words what I look for are bona fide web businesses or micro businesses. Something that has a past, present and future.
The past: gives it the user base, the backlinks, the traffic.
The present: it works now and is economically viable.
The future: it has someplace to go, and if all goes according to plan, I can take it there.