A Good Business To Own Vs A Good Business To Buy

I recently told someone that their business was a great business to own, but not a great business to buy.

They looked offended.

They needn’t have been.

They owned the business. It was great to own!

Today’s newsletter is going to cover the differences between what is a great business to own, and what is a great one to buy.

Back in 2017 when I bought my first business off Empire Flippers, content sites were my bread and butter. I loved keyword research, writing or outsourcing content, affiliate links, display advertising, and everything in between.

I didn’t understand paid traffic, I didn’t understand eCommerce or FBA. I was an SEO guy.

So it makes sense that this is where I started my acquisition journey.

Side-note. I was actually a services guy, I just didn’t realize it yet. I was running a business that did about $1mm per year in revenue fulfilling services, but when it came to acquisitions, it didn’t even occur to me to buy a service business/agency until years down the line.

Now, the interesting thing about content sites is that they are often great businesses to own, but not such great businesses to buy.

This distinction is a common one we make in our due diligence, but took a while for us to realize was even a thing.

For content sites it is simple. You can build a site up from scratch over time, sometimes quite quickly, and from there you have a nice amount of cashflow. You can reinvest it into growing the site some more (risky), enjoy the cashflow, or somewhere in between.

Inevitably a Google update will slam your site’s traffic by anywhere from 30% to 80%, even if you haven’t done anything against their guidelines.

This is depressing as anything when it happens, but unless it is the sole source of income paying for your family, you can recover. You earn a little bit less, you pick yourself up off the floor, and you keep publishing content.

This might be a slightly simplified description of owning a content site, but I’m just making a point.

You have good months and bad months. Helpful google updates, and not so helpful ones.

But all the time, you can adjust your expenses and budget so that you will generally be making a net profit every month.

This is why content sites can be great businesses to own.

From an acquisition standpoint though, that volatility is terrible.

When you can’t say with any reliable confidence that a business you want to acquire is going to maintain its income for a few years, then you’re in trouble.

What’s worse is that the chances of you buying a content site only to have its income decreased significantly at some point in the next months, maybe even weeks is almost 100%.

With those kinds of odds, it just doesn’t make sense to deploy capital into this type of business when there are so many alternatives out there.

Fast forward to late 2020, and after seeing Google updates increasingly hurt content sites and increasingly reward other sites (such as things like nypost or business insider), and we decided it didn’t make sense to buy content sites anymore.

And this was well before the AI updates in late 2022.

Since 2020, we’ve acquired 2 eCommerce businesses, 1 marketplace, 1 digital course, 3 agencies/services, and a couple of Wordpress plugins. We like all of these models (though we resent how cash intensive the eCommerce businesses are and probably won’t acquire many of those again).

What’s key about these types of businesses vs content sites is how much control you have.

An internet business really needs to have these traits in order to make a good acquisition:

• Multiple sources of scalable and sustainable traffic

• A diverse range of revenues and low client concentration

• No over reliance on the founder or exiting CEO to generate sales

• Control over pricing

• A team in place

As an example, let’s look at someone who has a large Twitter following and uses it to funnel clients into their service (maybe they help eCommerce businesses do email marketing, for example).

Great business to own, all you have to do is tweet and generate eyeballs, and funnel people into your service.

But how can someone acquire this business? Sure, you could take over their twitter profile and tweet on their behalf, but even then you are subject to the risks of Twitter’s algorithm changing and your revenue drying up.

Or another example is somebody who ranks highly for some terms in Google, and funnels leads to another business. Maybe it’s a local SEO play, or maybe it’s more generic.

A business like this has a few issues.

1.) It’s reliant solely on Google (see my earlier comments about the pitfalls of relying on Google)

2.) It has no real control over its revenue

It is likely more passive and doesn’t rely on its founder, but it is still fragile.

What’s an example of a good business to acquire then?

Sticking with an email marketing agency example; that could work if it had a few changes:

1.) If it has multiple sources of leads. Maybe the Twitter account is anonymous. Maybe there’s a successful Facebook ad funnel. Maybe they can profitably acquire customers from Google ads. Maybe Linkedin prospecting works. Maybe they have an excellent referral system or strong word of mouth sentiment. Maybe they rank in Google organically. The more of these they have, the better.

2.) As well as the above, they have an email list of current clients, past clients, and leads. This list can be utilized time and time again to get new clients and win back old ones.

3.) Ideally they also have multiple services they provide too, giving them not just revenue diversification, but longevity if one of their services is no longer in vogue.

This is just one example, there are dozens of great business models out there.

The purpose of this newsletter is not to go over all of them, but to start opening your minds to the idea that a great business does not always make a great acquisition.

In future newsletters, I will dive deeper into some of the specific business models in more detail. I’ll also do breakdowns of some of our acquisitions, and why we pulled the trigger on them.

For now, I appreciate having you on my list, and hope this has been of value to you.

Dom