Panning for Gold in Online Business Marketplaces

By Robert McGarvey | Friday, 03 December 2021 | Feature, Ecommerce, Business

You probably know names like Flippa, FE International, Dealasite, and Sedo — they’re marketplaces where owners of online businesses list them for sale. With a few clicks you can buy an online business. It’s that easy!

Making It Online

It’s also easy for that online business to fail. Many buyers purchase businesses that end up being disappointments. But many brick-and-mortar businesses that are sold also fail for their new owners. Caveat emptor, buyer beware.

Then there are stories like that of John Chen, a 2012 graduate of Lehigh University who majored in accounting and finance. A few years ago, Chen found himself working as a hedge fund analyst but hungered for something more. So, he started clicking around online business marketplaces and found himself looking harder at Blush and Bar, a jewelry marketplace. Blush and Bar was small, but he liked something about it.

Chen noticed that the sellers were claiming significant travel costs as expenses — none of which he saw himself spending. He calculated that money falling out of the expense line into profits. 

What’s more, he especially liked the price, which was within his range: $7,500. That amount bought a complete web business with ongoing operations.

Chen took the plunge. He bought the business in 2017. He also took steps to grow and nurture the business, invested in advertising, and the sales began to grow. Fast.

In 2019, Chen decided he had taken the business as far as he could. So he listed it for sale. This time, Blush and Bar went for $550,000. No typo — over a half-million dollars.

Now, do we have your attention?

The World of Online Business Marketplaces

Where to hunt for your next business opportunity? By most estimates, the biggest online business marketplace in the US is Flippa, which moves 500+ businesses per month with prices ranging from $5,000 to $30 million, according to CEO Blake Hutchison. Chen bought his jewelry business on Flippa. He sold it there too.

“We are democratizing access to business opportunities,” said Hutchison. Traditionally, businesses are sold by word of mouth and sometimes through brokers. Brokers also mainly rely on word of mouth. With Flippa and its main competitors, anyone with an Internet connection can browse the sites. After seeing a listing of interest, one can click it and receive detailed information about web traffic, revenue, profits, and more. 

Hutchison indicated that Flippa sees three kinds of buyers. The first type wants a supplementary income, meaning these buyers want an online business that won’t require much of their time but will still provide some profits. The second type wants a full-time job, and the third type consists of institutional buyers and investors. 

No matter the type, all three often find that doing business online is a lucrative endeavor, as ecommerce has grown to be an industry worth over $4 trillion annually. 

What Kinds of Businesses Are Buyers Seeking? 

Buyers are looking for all kinds of businesses. As for the most popular kinds, Hutchison notes that most activity revolves around content-focused businesses with income from advertising, frequently Google AdSense. This is largely because it is comparatively easy to join. According to Hutchison, a site built around a personality test recently sold on Flippa for $250,000.

But more obscure pursuits can also yield money, and just about any kind of content can find fans. Hutchison pointed to a site devoted to crocheting that recently sold for $90,000. 

Content sites often earn income from so-called affiliate links where the products are linked on the site and sales produce a commission. 

The next and busiest category of online businesses that sell is what Hutchison described as fulfilled by Amazon. These are businesses that sell via Amazon and where Amazon picks, packs, and ships the purchases. The appeal of this kind of business, says Hutchison, is that it has ready access to buyers via Amazon. For the business owner, it comes with significant ease of operation.

Incidentally, the most common mistake made by business owners for sale on Flippa is that “they overvalue them,” according to Hutchison. But the same can be said for offline businesses. An owner’s “million-dollar business” is often worth a fraction of the desired sum, mainly because owners tend to fall in love with their businesses. Buyers look at the value propositions with calculator eyes, which is what an owner should do too.

Try, Try Again

Stacy Caprio admits that her first website purchase flopped. She paid $1,300 for a site stuffed with technology reviews and affiliate links to Amazon. The seller told her it produced $350 per month in profit.

According to her, it did not. Her profits proved to be closer to $20 per month.

After a couple of months, she effectively abandoned the site but emerged with a couple of beliefs. The first was that she very much wanted to make her living in online businesses. The second was that purchases of online businesses require lots of due diligence. Sellers —even the ones determined to be transparent and honest — need to have their claims checked before a buyer parts with money.

Even with lessons learned, Caprio lost money on her second site too. She paid $10,000 for it, and it was built around a trendy game. She verified the revenue and the claims were legit, but trends burn hot and then burn out. That is exactly what happened to the site.

Her next lesson was that she wanted a content site built around so-called evergreen material (that is, writing that remains relevant over time). For example, a recipe for how to cook a turkey in an oven just does not get old, nor does content on how to remove snow from a car’s windshield. A lot of content is considered evergreen, with lifespans counted in years, not days or weeks.

By now, Caprio has bought six sites, created a few more, and sold one that she initially bought for $6,400. She doubled the revenue, and in two years, she says, she made a little over $24,000 on that site.

The last lesson from Caprio is definitely to check out online marketplaces, such as Flippa. She has bought on Flippa, sold a business on Latona’s, and looked around Empire Flippers. Her advice is to explore all three but to remember to do due diligence.

Chen Again

Remember John Chen, who sold a site for $550,000? He used some of that money to buy another online business, Gourmet Wedding Gifts. Once he took the business over, it sold numerous products. One of his first steps (after studying the profits and losses associated with every item in the inventory) was to strip the products down. He focused primarily on a stroopwafel wedding favor, which sold well.

Chen eventually sold that business “for about twice what I paid for it,” he said. He is now building a business selling plus-size clothing.

His advice to would-be online business owners? “Measure what matters.” There are many online metrics, such as page views, time on site, abandoned shopping carts, you name it. It’s been measured.

Who would have thought that the money on a wedding site would be in stroopwafels? But that’s where Chen found it.

Find out what really matters in your business and measure that.

The Retirement Second Act

In 2017 Jeff Wiener sold Digitcom Canada, a telecom company he had founded in 1991. A private equity firm bought him out, and he found himself with the time to travel. 

He traveled a lot until the pandemic hit and Canada restricted travel. In 2020, Wiener realized, “I would be stuck in the house.” Suddenly, he needed a new pursuit, and he found online business marketplaces.

Fast forward to today, when Wiener owns a dozen content-focused websites and employs a team, mainly in the Philippines, to manage and operate his websites. Wiener’s goal is to spend just two hours a week on his online businesses. His advice in assessing a website as a potential purchase: Look for gaps in profitability. Where are the current owners leaving easy money on the table?

One site he bought did not even have an ad network, which sells ads to companies and splits the revenue with sites that agree to host them. It’s easy money for many online content sites. Occasionally, there are sites that have overlooked that type of income source. One should find them and know that there is quick money to be made.

Wiener also likes finding sites that depend on Google’s AdSense, which he notes “is a terrible platform. The revenue is poor.” He states that switching out of AdSense often means a spike in revenue. In some cases, he has quickly tripled his online businesses’ profits shortly after acquiring the businesses. 

Find what the current owner has overlooked, and you will also find profits, said Wiener.

A final takeaway: Online businesses are real. They are growing, and hundreds of thousands of startups will never involve a brick-and-mortar location. They are exclusively online. That’s the reality in 2021.

About the Author

Robert McGarvey

Robert McGarvey, a veteran journalist who has long covered startups and small businesses, created and hosts the CU2.0 Podcast for credit union and fintech executives which is at 120 episodes and counting.