The Business Inquirer # 014
In this week's issue I include notes from our Clubhouse event, an affiliate deal in the legal niche, a jewelry ecommerce store, and what I learned last week.
Every week I highlight interesting online businesses which are for sale adding my own commentary. This newsletter is for those who are interested in business, finance, and entrepreneurship. Subscribe below to receive it directly in your inbox.
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Hello Friends!
Last week’s issue of the newsletter was the most read. Someone asked if I can provide a more “usable/savable” form of the resources. I put everything into a Google doc which I’ll update as I discover new resources. Hopefully that helps.
In this week’s issue:
Clubhouse Notes - Opportunities in Micro-PE
Affiliate - Legal Niche
eCommerce - Jewelry
What I Learned Last Week
Clubhouse Notes - Opportunities in Micro-PE
Last Saturday, me and a few subscribers hosted a Clubhouse room where we discussed opportunities in micro-PE. A few notes are below.
What is Micro-PE
Standard definition of micro-PE = An organized pool of capital formed to acquire businesses valued at or below $5M.
Consensus on the call was that $500k-$2M is really what we think about when talking about micro-PE. We either need to narrow the existing definition or come up with a new terminology - “micro micro-PE”
There are 1.3M US companies with revenues of $2M-$20M. And 100k US companies with revenues >$20M. Micro-PE swims in a much larger pool.
Trends in Micro-PE
Transaction volume is exploding higher…
Flippa has ~750 new buyers register each day. (Source: Stefan Von Imhof)
Valuations are moving up as well…
Source: Flippa January Update; Q4 2020 Data
New micro-PE funds are being formed (what seems like) weekly. Examples include Onfolio, Empire Flippers Capital, Alpha Investors, and more.
Opportunities
Data, data, data - big theme.
Data for brokers, data for buyers, industry data, data for search funds, etc. PE funds already using alternative data to source deals. Scraping product hunt, hiring trends on LinkedIn, Crunchbase, business marketplaces, etc. A lot of opportunities to create products/tools/data feeds to serve this market.Legal resources for micro-acquirers.
YC provides standardized documents for startups. Need something similar for business acquisition.Level the playing field.
PE/VC funds have teams of analysts, data scientists, lawyers, compliance, due diligence, business development, and consultants. Micro-PE funds or acquirers typically don’t have the same resources. Opportunity to create easy to access, value priced, productized services. Services in due diligence, operations, marketing, consulting.Tools.
CRM tools for business brokers. Dashboards for funds and business operators. Transaction management. Directories.Marketplaces
There are still opportunities to create new business marketplaces. Niche could be productized service, “sweaty startups”, enterprise SaaS, digital products. Remember the “We buy ugly houses” billboards? Would something similar work for business brokers?Independent industry group for micro-PE
Affiliate - Legal Niche (Asking: $4.4M)
Description
For sale is a 4-site package affiliate business created in 2017 in the legal niche. The business earns revenue from four affiliate programs hosted on ShareASale. Main website brings in 65% of the revenue while the rest do 25/8/2. 30 other domains are also included in the sale. Seller is cashing out to pursue other opportunities.
Details
5-person team in place who run the day to day.
Monthly unique visits from 7,895 to 31,084.
At least 89% of traffic is organic.
Built on WordPress.
Monthly revenue from $51k - $179k.
Monthly profit from $47k - $183k.
Asking: $4,472,415
Multiple: 39x
🤓 Why I’m Highlighting This Business
Admittedly, I have a soft spot for the legal niche since I founded a legaltech company. Broadly, I think it’s a great niche that’s not too popular and considered “unsexy”. Legal firms pay top dollar for leads and I assume the affiliate programs do as well.
✅ What I Like:
Traffic has been consistently growing
Earnings grew in 2020 overall
Team already in place to help manage the day-to-day
One property generates 65% of revenue. Means that you may be able to divest the other 3 properties. Maybe the other 30 domains are also worth something.
If you can divest the other properties & domains, valuation for this purchase comes down.
Somewhat diversified affiliate revenue from 4 programs
❌ What I Don’t Like:
All 4 affiliate programs are from ShareASale. Better to not rely on a single partner
Earnings have been dropping since August while traffic has been increasing. Need to investigate this trend.
Seller says they spend 15-hours a week on the business. Sarker Mushfiq astutely pointed out that sellers typically understate this number by a lot. So let’s assume it’s 25-30 hours. Even with a 5-person team in place that’s not exactly a hands-off business.
You can view the listing on Empire Flippers.
eCommerce - Gem & Co (Asking: $24.9k)
Description
Gem & Co is a 3-year old ecommerce store in the jewelry niche. They leverage advertising and influencer marketing to drive revenue. Sellers started an online marketing agency and want to focus on that full-time.
Details
Outsourced operations with VA doing 95% of the work
60/40 mix of dropshipping and inventory sales
Growth driven by Instagram marketing, ambassador program, influencer marketing, Facebook retargeting. 157k+ social media followers
Instagram: 150k; Facebook: 6.2k; Pinterest: 280k views; Mail list: 28k
AOV: $64.40; Profit Margin: 30%; Return Rate: 0.3%
Assets include inventory, suppliers, Facebook pixel, website, VA, SOPs, etc
Avg Profit: $1,482/month
Asking: $24,995; BIN: $89,999
Multiple: 1.4x/5.1x
🤓 Why I’m Highlighting This Business
I like the jewelry niche overall. Jewelry products typically have some of the highest margins and there are many niches to target. The downside is that barriers to entry are becoming lower and lower with jewelry dropshipping gaining traction. I recently started a niche online jewelry business and this listing provides some great detail and blueprint for how I can grow it. Asking price for this business seems reasonable but the BIN is extremely aggressive IMO. Frankly, I don’t know if I would purchase this business but a great listing to learn from.
As a side-note: Whenever I find one of these “great to learn from” listings, I just do print-to-PDF to save it for later.
✅ What I Like:
Jewelry niche is 🔥🔥🔥
Business seems to be well dialed in with supply, distribution, marketing, VA operating smoothly.
Sellers are experienced ecommerce operators and have started and exited multiple stores. I’d ask to speak to one of their previous buyers.
TikTok doesn’t seem to be utilized yet. This could be an easy growth lever
Store could be better optimized with social proof, reviews, etc
Flippa listing is not popular. Only 577 views and 7 watchers. I wonder if there’s a good deal to be had here. Start with lowball offer, maybe suggest an earnout or partnership.
❌ What I Don’t Like:
Revenue is very volatile
Asking price is fine but the BIN is crazy for this store
Majority of traffic comes from Instagram Ambassador Program. Would be better if traffic was more diversified between IG, FB, and other channels
Personal preference is to avoid dealing with inventory. Inventory requires capital.
Target market is 14-25 year old’s. A fickle bunch. Would prefer it to be 25-45.
Barriers to entry are relatively low. Niche is not really defined.
You can view the listing on Flippa.
🧐 What I Learned Last Week
Clubhouse continues to be intriguing
Last week…
1) hosted a room on micro-PE
2) listened to a holocaust survivor on remembrance day
3) listened to Elon Musk discuss rockets, Robinhood, Mars, etc
4) Sunday service chat with crypto bros (least welcoming of any conversation I’ve listened to)
5) listened to 21 Savage and his crew discuss Takashi 69 and whether anyone will date a “snitch” (answer: yes)
6) listened to Terry Crews chat with an NYC mayoral candidate
7) rap & love song battle
8) Kevin O’Leary & Daymon John talk about digital assets
There’s just no other platform where I’d have this diverse exposure of ideas and conversations. Whether this is a COVID driven fad or has staying power remains to be seen. I still think there are a lot of opportunities around Clubhouse.
Here’s something interesting that Jakob Greenfield pointed out in this newsletter as it relates to Clubhouse & unbundling of Reddit.
r/ClubhouseInvites is a subreddit dedicated to the trading of invites to the now viral social audio platform Clubhouse. (I’m not bullish, in case you wondered.) The community already has 2.1k members and its creator was smart enough to create a dedicated website. He claims that he’s sold already more than 700+ invites at $30 a piece. Even crazier, just four days ago he was able to sell the website for $9,450 on Flippa. (h/t Stefan von Imhof.) While there are many lessons here, the guy who started the community clearly followed the steps in the Unbundling of Reddit Playbook in record speed and was able to make a nice profit.
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Marketplace arbitrage
Back in the day I used to do some arbitrage using eBay. Purchase undervalued products which had terrible listings. Create better photos, better description and relist the product for a much higher price. I think today this may be possible between sideprojectors and Flippa. Obviously flipping a business isn’t as easy as flipping a stereo.
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Domain industry conference
I am probably late to the party (as usual) but I just learned about NamesCon.
NamesCon is the premier conference series for the domain name industry. With events online and around the world, we bring together the decision-makers and investors who build and grow this person-to-person business.
Just missed the 2021 event but I’m really curious to attend the next one. You can get a free ticket as a first-time attendee.
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The Great Unbundling - presentation on eCommerce
Benedict Evans recently gave a presentation on the various shocks that COVID has brought to tech and how it accelerated change.
Covid brought shock and a lot of broken habits to tech, but mostly, it accelerates everything that was already changing. 20 trillion dollars of retail, brands, TV and advertising is being overturned, and software is remaking everything from cars to pharma. Meanwhile, China has more smartphone users than Europe and the USA combined, and India is close behind - technology and innovation will be much more widely spread. For that and lots of other reasons, tech is becoming a regulated industry, but if we step over the slogans, what does that actually mean? Tech is entering its second 50 years.
Really interesting presentation that’s relevant for commerce. You can access it here.
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Amazon affiliate commission over time
Jason S. asked the Facebook Group whether anyone had historical data on affiliate commission payouts. A bit of digging led me to the Geniuslink blog.
While it’s a bit like comparing apples to oranges due to a major shift in the Associates’ commission payout model in early 2017, the gist is that the average commission rate peaked in mid-2012 at 9.25% and has fallen to nearly a third of that with 3.14% in early 2020.
This data is a prime example of why affiliate websites should have a diversified revenue stream and not simply rely on Amazon.
You can read the full, detailed report here.
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The accelerated rise in ecommerce in Q4 2020
Apptopia released their Q4 2020 Digital Shopping Performance Report.
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That’s all for this issue of The Business Inquirer!
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Important Disclaimer: This newsletter is provided for informational & educational purposes only, and should not be relied upon as legal, business, investment, or tax advice. This newsletter may link to other websites and certain information contained herein has been obtained from third-party sources. While taken from sources believed to be reliable, it has not been independently verified. The Business Inquirer makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. References to any companies, securities, or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any business, tax, or investment decisions. Content in this newsletter speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.