What I look for in a potential web business acquisition

By , October 7, 2010

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:

  1. It has to be something people will pay for on a recurring basis, like a web service or hosted application.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.

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