Buying Internet vs Non-Internet Businesses & Paid Acquisition Funnel

Colin and Brent discuss Colin's experience buying ads for his micro-pe course and thoughts around buying non-internet businesses.

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[00:00:00] Colin Keeley: All right. Hello and welcome back. This is Colin Keeley. Here

[00:00:03] Brent Sanders: And I'm Brent Sanders.

[00:00:05] Colin Keeley: we are two guys buying and building wonderful internet companies.

[00:00:09] Brent Sanders: Yeah. And we're going to talk about first paid acquisition, kind of updates on a couple of fronts as what is it? Today is the end of March. 2022. We are, you know, I think in my position, um, we were just talking about this, but you know, the, the evolution of paid acquisition after. You know, Facebook's changes, you know, we're not, I wouldn't consider this like a marketing podcast.

So we're talking about this way late in the game, but I do feel like the sands or the land has shifted under our feet, uh, you know, on the internet in general, around paid and around, you know, Facebook's major changes, which really cascade and ripple. Everywhere. Because if people are companies are contracting their spend on Facebook, they're expanding it in other places like Google.

So I don't know. I was curious to see how you feel like things have changed, or if you don't feel like they've changed.

[00:01:04] Colin Keeley: Uh, so right out of college. I used to run large campaigns for like soft. Uh, marketing and it was Google mostly. And then we got into Microsoft and, you know, being a, that was a number of years ago now, , 10 years ago, and then we've run it for software stuff periodically, and it's going pretty well on Google, mostly.

Um, but so I have this course in DP where it's like how to buy a small business and , it's all organic. So. I have a good conversion rate from the webpage. I have a lot of happy customers. So like the obvious thing is just throw more traffic at it. And so I engage this agency and specifically this one guy to like buy Facebook ads and it's just been a complete bust. W w we spent a good amount of money and it's just, so there's a couple of different issues. , it's a really expensive niche to market to, which I guess makes sense in retrospect, that it's like people with enough money to buy a business. And that's like what you're targeting, where, you know, other, you know, expensive products they're targeting to them.

So clicks are too high. And then conversion rate is just been a Bismal. Um, and what we've kind of figured out. You know, my credibility is like why people are buying the course and it's mostly from Twitter or this podcast, or my writing, probably my writing is the biggest component. And those people already know me.

They've already got a lot of value from me and these cold people don't know who I am. Uh, click on something, go to some guy's like landing page for a $300 course. And then. Uh, they go away basically, like they immediately turn away and it's just, uh, I guess this is just the reality for like high price products that are kind of built on a personality.

It's really hard to buy traffic to them.

[00:02:48] Brent Sanders: If you're not Ty Lopez, you're not winning in short. You've gotta be Ty Lopez. If you're going to sell, if you're going to sell that way, right. Like. I feel like we talked about him a long time ago, you shared a conversation, a podcast with him where he was, you know, they basically admitted what it was. Was this the greatest marketing play ever, which is just like, get people to talk about me, do something kind of cringy and ridiculous.

And then whether they like you or not. Okay. Like it's working right now. We're talking about him, but I guess in order to sell to folks, they, they have to have, if you're selling on your personality, which I'm curious, have you thought about maybe putting your writing kind of front and center, be like, Hey, here's here.

Examples of people that are doing this. Here's how you get into this game, because I feel like that's, that's always the, um, the gap between like reading business books. And like, what I ever referred to in the past is like the mental masturbation of like reading business strategy books, and then actually getting your hands dirty with, with the business, which is way more difficult.

So it's like, what are you going to do? I guess is the short question,

[00:03:56] Colin Keeley: So the next step, when like this is kind of clearly the issue is provide more value upfront. So that's why you ended up driving people to. I you see people on Twitter doing it like a free email course, and then you trip over like seven days, some good valuable content. And then at the end of that, you have a call to action where it's like, and now buy my course.

And then hopefully you built up the credibility. Or the other thing people do is webinars. And so like once a week you could have a webinar once a month. Um, and then over time, You could just record that webinar. So it looks like it's alive, but it's actually not like these are tactics that we could actually use maybe for like selling people on selling to us.

[00:04:38] Brent Sanders: Yeah.

[00:04:38] Colin Keeley: So like you basically use convert kit, you have a lead magnet of like something like, you know, how much is your business worth and then your drip, um, you know, uh, lessons over a week. And then maybe at the end of it, they like us a lot more and wanna engage on actually selling a business.

[00:04:55] Brent Sanders: I think you just came up with our new, our new top of funnel. This is great.

[00:05:00] Colin Keeley: Yeah, I I've been deep in the ConvertKit world. Uh, So

like learning on YouTube and all that stuff. Like, so it's so much, if you get all this, like inbound, how do you actually capture people's emails? So you have to offer something value of value. And like I was thinking what's the Value. to these SAS sellers.

So something else set up.

[00:05:19] Brent Sanders: Yeah. Evaluation. I mean, so we did this with formulated when we were working on that last year around, uh, you know, an automation calculator, something where we could like, get, get people in to understand like what, but it really was a, you know, a lead qualifier for us as well. But, you know, ideally it can do both of those things, but I do feel like there's a bunch of great ideas around, you know, here's how to buy a business.

There are other subtopics, which are like, how do you manage employees? How do you hire VAs? How do you, uh, do do at work? We're talking right now. How do you build a top of funnel for your business? I mean, even just little short masterclasses that you give away for free and then yeah, leading up to. This is just one topic.

You need to figure out how to buy the business because I think that's, yeah, that's like, it makes a ton of sense. I mean, in terms of, um, going back to the paid acquisition piece of it, what, what is the, was the cost of acquisition? Just way, way too high.

[00:06:17] Colin Keeley: Yeah. cost per click costs, cost per thousand views. All those were just really high and you know, maybe the ads weren't great and you can improve the ads. But if it's too far out of whack, like even the best ad isn't going to drop that cost down too much.

[00:06:30] Brent Sanders: Yeah. Yeah. It's, it's funny you say that because it's like, we ran into this with, um, with Wiki a little bit we're, you know, especially on Facebook. Um, but you know that it's a totally different business. It's kind of an anomaly. It's not really what I would call like a real Vern business in the sense that it's not a B2B software company.

It's a, it's a, it's a subscription candle business. So it's like, You know, not within the same realm as the other activities we're doing, but it's still, it's been an interesting barometer for what DTC or, or even like retail companies are, are doing online right now. You know, I was sharing with you before, when we were talking about the, the podcast is just, you know, the, the COVID bump that we saw and then the subsequent changes to Facebook advertising.

I think this is indicative of what I'm hearing from a lot of sellers on Shopify or a lot of sellers on these e-commerce platforms that, you know, COVID was amazing. But this year was, it was kind of a, you know, a fart in the wind. It was not the same revenue at the same velocity of like, Hey, all the malls and stores are closed, you got to buy something online.

And the idea of even going out to a store is like, life-threatening that, that was really good for business. I think for a lot of. E-commerce sellers and coming back to reality, it was just this, like, you know, that, that bump, but coupled with, I think that the Facebook, um, Instagram changes, especially for, um, retailers like huge shifts and where that shifted us.

Into Google, where we're seeing good conversion and good ROI on spend, but not like great. Um, and also we're getting into Tik TOK. That's, that's actually where I think a lot of the flow is going.

[00:08:18] Colin Keeley: Yeah, that's something I haven't tried. I have this thing, like, I don't know if I want to be on camera. Like, I dunno if I wanna record tic-tacs or videos. Like I'm very comfortable with text and audio. It's like, I don't know if I

[00:08:31] Brent Sanders: picturing you doing like a dance to, to buying a business? Yeah. Like, uh, uh, yeah. Well, you're getting old. There you go. That's the, uh, the first step. What is this know the stupid shit that kids are doing, but it, I think for depending on what you're selling, you know, you have to wonder. Maybe LinkedIn is the place for you to play people that are, you know, job seekers, people that are maybe considering a career change, but also maybe considering purchasing a business people that you know, but I do like, I can't wait until there's an NDP Tik TOK, and you've got like dance moves and that'll be sweet.

[00:09:05] Colin Keeley: Yeah, maybe I could just hire like a kid, uh, and just like hear, say these words that I've written on Twitter and dance to them or something. Pretend you're Collin.

[00:09:17] Brent Sanders: There is somebody on now that you say this, there is somebody on it produces Tik TOK style videos. I don't know if they're posted to Twitter, but they're always on like the fed statements. They're like dramatizing. It's a, it's a lady that does it. It's great. Um,

[00:09:33] Colin Keeley: Uh, I know

[00:09:34] Brent Sanders: don't know her name. You've seen those.

Yeah. They're great that the Fed's raising interest rates and she's talking about the economy and doing it in a very, uh, tick-tock narrative manner, which, you know, that might be. But yeah, it would probably be better if it's like a 21 year old kid.

[00:09:48] Colin Keeley: Yeah.

I think it is it I'm just so reluctant to go down that path. so anyway, I guess other topics you want to talk about one thing. caught up on, so it's okay to say saying these numbers because one of their investors said, um, so in, during ventures, Xavier and Sieva started this like holding company, or like a permanent equity company and they background is technology.

They raised, $2 million in from that they've bought a bunch of businesses like a internet service providers, poor manufacturing companies, a bunch of non-internet companies, and just bought a tremendous amount of cashflow for like 2 million bucks. And I think they're at, they're like 25 to $50 million in revenue now that they bought off of this.

so they're up like tremendous, you know, 10, 20 X from where they began. So we're buying up these software companies and they're expensive. If your goal is like cashflow to plow into other things, it's kind of a tough path. And so I've been looking at some physical businesses and I'm just kind of hung up on, is that a path I don't ever want to go down or not?

Um, any thoughts on it?

[00:10:58] Brent Sanders: Yeah. My, my immediate reaction to that is like, well, what am I going to do there? Right. Like, right. Like my, I can manage and operate, but like my value proposition to Vern and to the businesses that we buy as a technical leader, building technical teams, working with technical products. If you were to remove that, It would be fine.

I can still apply all the management and, you know, I think I could build teams of, you know, crews of painters and, you know, build a management layer in between. And, you know, I have enough operating experience in my 20 something years I probably could do that. Probably could, could manage it, but I would wonder that's not really like.

Probably not the best use of my time in terms of my experience, that's where I'm at. But if you, you know, that the attractive part is not, you know, is this the best use of your experience, but these are cash flowing businesses and they're growing, ideally, but in my mind, what we're talking about is people versus not people businesses.

So that's what I hear when I think of non software businesses. I think of like, I think of a landscaping business with. Awesome. I also think of like self storage businesses. Those are, you know, not necessarily super people intensive, right? You've got a manager or a crew of folks that, that Manoj an office.

Um, so you know, it kind of depends on what it is, but I am a strong believer. How do I put this? I'm a believer that like, there is no such thing as like a free lunch, right? This idea that you can't just plug yourself in and like people have. But want to buy a carwash to just collect quarters, people that want to own vending machines and just collect quarters.

Like it never, it never works that way. It's either a shitty deal where you're not collecting as many quarters or the carwash is breaking and you need to know how to fix it. Otherwise you're gonna be, you know, paying a lot to your car wash maintenance guy. That that's my non MBA perspective that it's going to come with some amount of brain damage.

Regardless of what it is, any business that's cash flowing, unless you are an absolute wizard at not even operating, but I think management and hiring, you've gotta be really good at those two things. And that's, I think the only way that you can, um, insulate yourself from the brain damage of those businesses.

And so therefore it then also depends like where is it? Location and hiring good folks these days is, is challenging. So you, you, you may want to. Ideally be bringing your own people into it. People that you already have track record with and, you know, have, have worked with before.

[00:13:40] Colin Keeley: Yeah, so to the free lunch, I think it is. I mean, nothing's or free lunch. So the issue is that in this like more mainstream businesses, not like strictly software, there's just a tremendous number of these baby boomers, retiring with these nice cashflow businesses that are too small for traditional private equity and aren't like venture or something.

So that option is basically sell which many of them end up failing to do or more likely to shut up. So you could get these like crazy silicide financing things. , the question there is how much experience do you need or like domain knowledge. , so I think I could vet it to the point that I'm like, this is a good business to buy.

The bigger thing is like, if I have to go do anything in person, like something has gone horribly wrong. So it's more of a discussion of like, , can you hire like capable operators in all these businesses? and in theory, like I think we have to be able to, , but it's definitely harder in a space that you haven't done before.

[00:14:44] Brent Sanders: there's a, there's a company that I know does this for, you know, and I'm sure the, the model exists for a bunch of different domains, but I know it exists for self storage businesses where they will come in, audit a, an existing facility, give you recommendations on what to do. And then. Manage it for you.

They basically, they have a managed service and they're priced. They know what the pricing is for that stuff. So they're able to price it to the point where it's like, they know what it would cost you to do it yourself. And they're competitive with that. , it's, it does remove your ability, I think, to compete.

Like, let's say you were to use like a service provider like that. Like you're not going to be getting. The, you know, whatever the differentiator is in the space. So if you're finding a business where it's like, okay, the churn is really low, it's really sticky. Like self storage is the reason I'm kind of mentioning that.

Like the people don't generally leave. They. They die and then they stay, stop paying their bills and then you auction off their stuff. That's how sticky that business seems to be. Um, sorry to be so morbid, but that that's like literally the, the, the thing that strikes me about it is it's similar to, , SAS business in that respect, but you know, it it's, it does confuse me or, you know, depending on what the context is when you're relying on, you know, basically like.

And crews and, you know, everyone has to operate whenever there's people involved, it's going to get messy and you need a babysitter. You need an adult in the room or you need multiple. And so you're going to, you know, I guess just forecasting for that, like getting great people on a management layer and executive team, great people that you know, where there is a differentiator where it's like, yeah, You know, Johnny is turning 80 this year and wants to sell his, whatever his carwash is.

He's got a system, he's got a crew. He, you know, if you lose those people, if you lose that, that knowledge, could you come in and hire and build, um, a similar thing that likely this was somebody's passion and put a lot of time into and invested in. And it's like, Uh, there's a lot of things that can go wrong, which is striking, striking me on these non-software businesses.

Whereas I think on the software side, it's a much more known quantity of like, okay, there might be a team that can be replaced. They're there. The roles in the there's a much more like finite set of problems in my mind when it comes to software, which sounds opposite. I think you're counter to how most people think it's like anything go wrong.

But when it it's just less people, it's, that's the part that I get stuck with. So I guess if you're following these cashflow businesses, you know, be great to kind of look at how much people, how much sort of people capital is, is involved.

[00:17:33] Colin Keeley: Yeah, so you'd want kind of an existing team. And then to me, it has to be for it to work for me, it would be, yeah, it has to be like hiring one tire 10. Like I can't build out a team on top of it. I just have to find one CEO and hopefully buy something with enough cashflow. They can incentivize someone and it's their responsibility.

Hopefully they're from the industry or they have to be, and they're their responsibility to keep everything up and running and you manage the team and they'd be incentivized to do. , but it's something I've been like really torn on. I've been kind of playing with it for the last couple of months and I built out like theses around different markets and I think they're all compelling, but it's like, I just don't know whether I want to go down that path or not have like a non-internet business.

[00:18:18] Brent Sanders: Yeah. What I hear when you say that is a single point of failure. So if that person who is generously paid and incentivized decides to quit or gets hit by a bus, you know, you have to have like layers, insulating yourself because you're saying something has to have passive gone horribly wrong for me to be coming in and stepping into a CEO.

So, but you know, It's a very different, I know a lot of people that have, you know, either friends, clients over the years that have built those businesses themselves and then found a way to extract themselves, which is very difficult. Like it's, there's a grow phase, there's a build phase. And you finally get to a point where it's like, okay, you put in an executive team and you know, you're going to go play golf or go boating on Wednesday, you know, whatever that is and that they want to move on to other things.

And so it is possible to do, I just think it's going to come with a fair amount of. Uh, brain damage again, unless you, you know, maybe the thing to be thinking about is like, and sorry, pay piece in the background instead of, uh, like making a thesis around the business, making a thesis around a team that you could, whether it's, you know, they exist already or they're just templates of like people that could come in and.

You know, and what those incentives would look like, and then therefore, what would the business have to look like in order to support that? Because I think there, there are some businesses, I don't think you'd be super upset about having to step in if you had to, right. If like worst came to worst, you had to step in and buy yourself 90 days to find a new CEO or a hundred, you know, what or whatever that timeframe is to find either a CEO or a manager or an operator, whatever that might be.

, like one business that I ran across. So my wife's interior designer, she puts what they do is they'll send all the furniture to receiving warehouse. And they had an issue with receiving warehouse down in Florida that, you know, it was an old guy. Exactly. You say he doesn't email, he won't answer his phone.

They sent like a quarter million dollars of furniture to his factor. Two is his warehouse and they can't get ahold of them. They're freaking out. Uh, and so we sent actually my cousin down there to just go knock on his door and see what's going on. And he answered the door and got to talking to this guy and was like, so he doesn't own the building, but he's got a great cashflow business.

He's the only player in town and he wants to retire and he's got like two guys that. You know, help him move stuff around on pallet jacks in a forklift. And he, despite of himself has a really successful business. And somebody's cousin kind of was like, Hey, would you ever be interested in selling something like this?

And he's like, oh man, I can't wait. Like I'm going to, I'm going to retire next year either. Just as you say, I'm either going to shut it down and walk away or. You know, if you can give me a minor upside, some seller side financing, I'm sure the guy would've snapped it up, but you've got to go scrub all of his, all of his reviews, which is, I don't know how they ended up using them all worked out well, but it's like, there are tons of businesses, like a receiving warehouse where it's like, you know, it's a pretty simple business.

And if you did have to step up. Like you could do it. You really, you could go down there, you can unlock the office and, you know, find a new manager within two to four weeks, train them and be back up and running it. And that's where my mind goes, which is like, that's a worst case scenario. Ideally you would have, you know, built up layers and layers of protection around that.

But that's where, like, if you look at this structure, I think there definitely is something to it, but I think. To like, if, if we were to do it, let's say, and I'm involving myself in this. Like, if you're going to do this on like a scale similar to this fund, you were talking about where it's like, Hey, you have a group of people.

That's where you invest. You invest in this like general manager layer training, where anybody could, could be able to be like a support person to come in and, and step in for an outgoing manager or something like that. Or even just having like strong training programs to be able to. You know, prove from a proven track record basis.

Like, Hey, we can take somebody who's entry entry-level within six months, make them a manager and like be able to train them up. Those are, to me, the things I think if you invested in that, you could pick up these businesses and feel confident about, you know, not getting the phone call that so-and-so didn't show up to work and your customers are banging on the door, trying to get into their storage unit or whatever it is.

[00:22:43] Colin Keeley: Right. Yeah. And there's a lot of overlap, I think, in what you do, like the whole acquisition phase of it. And then it's like, can you build up that operating muscle or that like hiring muscle to the point that you're comfortable doing it? I don't know I'm conflicted about it but I feel like it's also not that far away.

Like it's certainly doable, like share, it would suck for times, but just like any acquisition is.

messier than you think. But the payoff is definitely there.

[00:23:10] Brent Sanders: Yeah. You just have to think about it the way I look at it as like the software currently makes us money, it's doing the thing you invest in that upfront. Largely, you know, you build the machine and then it it's the machine that earns money while you sleep. Versus you're generally making money on the performance of people.

And it may not necessarily be. Like a service business per se, like I'm saying, but it might be, it's still reliant on a person. So it's the person in the front desk, you know, at the storage facility, it's the person, you know, that's, you know, managing the work crew or you're, you know, people that are going in and, you know, maybe maintaining lawns or a plumbing company, whatever it might be.

But, um, yeah, it's, it's hard for me to bridge the gap. The thinking of the seller. Like they spend all that time probably working on things, but yeah, you probably could get it to a point where you don't need to be terribly involved. You find a great manager, but yeah. It's, I definitely oscillate between.

Yeah, that sounds easy. And yeah, that sounds insane. Pretty quick, pretty easily as I think through what it is, but I still think like the government is, is putting. Uh, putting that opportunity forward the SBA seven, a loans, which we talked about on prior podcasts are like, it's almost too attractive to pass up.

That's the part of this is that you can get a cash flowing business. You can get a great rate on it. Support and they're doing an intentionally, cause you're, you're just going to be creating jobs. That's like, you're going to take that cashflow. And instead of going in someone's pocket or going into your pocket, necessarily all of it, you're going to distribute it out to employees and build that employee base and hopefully grow that business and continue that process.

Cause that's, that's the path of least resistance. And I think that's what the SBA is bought in.

[00:24:58] Colin Keeley: Yeah.

it has to exist because the people buying the businesses don't have enough money to acquire them otherwise. And so they just get shut down, which is horrible for the economy. If a bunch of small businesses are shutting down all the time. Um, anyway, uh, I I'll keep thinking about it. I'm not moving forward just yet, but it's something I think we'll keep discussing on the podcast as I noodle on it, at least.

, anything else you want to talk about?

[00:25:25] Brent Sanders: No, no. I mean, I have a couple of topics that I'd love to do a little bit more research on. I mean, this SBA conversation has been interesting. I think on the next podcast, I will come a little bit more informed, but I'm going to start, start doing some research into some of these. Programs around. So I'm in Ohio recently moved to Ohio about a year ago, and I've heard these rumors and I think states have things like this.

Like I know Hawaii had something similar, but like incentive programs for early stage businesses, which I really didn't think of our portfolio to. Fit that characteristic, but it might actually, I think it's based on revenue and revenue sizes, but, you know, there's, I know there's a two for one matching investment program in Ohio.

That's interesting that, you know, I don't know much about it, but I'd love to talk about that on future podcasts. Maybe bring in a guest to talk about that. And I think that there's like a lot more resources, like, I didn't know about seven, eight loans. Like those are well-known now it's like. A lot more to uncover in that space and just ways to get started, because, you know, as we look at our constraints, it's like, you know, on a business like that, would you do it without an a seven, eight loan?

Probably not, you know, with the remainder, which you, you know, want to raise outside capital to grow it, or, you know, whatever. Like there's a lot, I think more options out there than, than we even are aware of. So that that's not what I want to talk about on this podcast. But in a future one, that's something I'm super interested on.

Maybe we'll bring a guest on the channel.

[00:26:56] Colin Keeley: Cool. Yeah. let's talk about the future. They had a similar program in Minnesota where they would give you like a good chunk of your money back. If you invested angel invested in startups. Um, we talk about next time. My one last thing was. Uh, so realizing that, um, distribution or like Mindshare is so expensive in this space, you know, we've got some up mine through my Twitter and writing and stuff, but also through this podcast.

And most of what we talk about is acquisitions. Um, so at a question recently, like, are we creator focused and it's like, not really anymore. So I do wonder if we should rebrand around acquisitions something or other.

[00:27:35] Brent Sanders: Yeah. I mean, I'm, I don't see myself starting a business from scratch ever again. I hope not too. Like maybe it'll happen, but, um, yeah, I just, I it's funny. I went, I've spent a lot of time now that COVID is kind of lightening up spending some time actually with people face to face. And I just I'm like a broken right.

You know, whenever anybody asks me, would you do this or do that? I'm like, I would find something in that space and buy it. I would not. So yeah, I think, I think I'm brainwashed. So it probably does have to be acquisitions.

[00:28:07] Colin Keeley: Well, if you could think of any good names and we'll talk about it next week, I like alliteration, but those guys already have acquisitions anonymous, so we have to do something else.

[00:28:16] Brent Sanders: I haven't heard that, but I got to check it out. Um, naming stuff is hard. I'll give it some thought, but that's probably good enough for this.

[00:28:25] Colin Keeley: Awesome. Alright. Well until next week, take care.

[00:28:29] Brent Sanders: Thanks for listening.

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