How to Make Money Online with Digital Assets | #130 Blake Hutchison

In this episode, I speak with Blake Hutchison, CEO of Flippa.com, about successfully investing into digital assets and what you need to know before buying a new website. Listen to the end to learn about new online business opportunities.

On the Show Today You’ll Learn:

• How to sell your digital asset once it reaches a certain size
• How you can build up your asset to the point where someone would be interested in buying it
• Which numbers, figures, and stats will a potential buyer be looking for
• What a buyer would look for in a perfect-world scenario
• And more

Blake Hutchison is the CEO of Flippa.com, the world's largest marketplace to buy & sell online businesses. Blake leads the team as they build out a product empowering exit and ownership for business owners and entrepreneurs globally. Prior to running Flippa, Blake held leadership roles across multiple fast-growth tech businesses across E-commerce and SaaS.

Links & Resources

Website: https://flippa.com/
LinkedIn: https://au.linkedin.com/in/blakehutchison

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Transcript

Claus Lauter: Hello and welcome to another episode of the e-Commerce Coffee Break. lot of Shopify [00:01:00] merchants always think about making money with their store. They put all the work and sweat and tiers in there to grow it, and then at some point, I might think on selling their business. Now the most important asset in the business is actually the website to store.

And a lot of merchants struggle to find ways or think about what's the best way to find a buyer there? So there's a very good way, and I wanna dive into this topic a little bit deeper today. And therefore, I have Blake Hutchinson with me. He's the CEO of flipper.com. flipper.com is the world's largest marketplace to buy and sell online businesses.

Blake leads a team as they build out a product empowering exit ownership for business owners and entrepreneurs globally. Prior to running Flipper Blake, health leadership roles across multiple fast growth. Businesses across e-commerce and SaaS businesses. Hi Blake. How are you today? Good 

Blake Hutchison: class. Thank you for having me.

It's nice to be here, Blake. Building 

Claus Lauter: a digital asset not easy and once you have grown it to a certain size, one might think on how to sell it. , that's what you're doing for a living. Give me a bit of a background on how this [00:02:00] kind of market has involved over the last couple of. 

Blake Hutchison: it's evolved a lot.

, we see higher value assets now and that's really a function of how the industry, e-commerce as well as the digital economy more broadly has evolved. And ma matured, I think you and I both know that was maturing, evolving and growing far before the Covid 19 pandemic. , , so Some impact, of course, mainly around, , people's awareness for digital and the power of digital for shopping.

But, , in many respects, online business ownership was thriving prior to that point. What I would say is that, , as a function of how the digital economy grows, , there's also a greater appreciation for. The work that digital entrepreneurs put into their businesses. And so as a result, hum smart savvy investors and acquirers, , are looking at this particular asset class as an asset class.

for a long time we might consider someone who was building an eCommerce [00:03:00] or, or a blog, or an app, to almost be hobby entrepreneurs. But in many respects, they are now, classified as legitimate high quality business owners as they should have always been classified. , but now more than ever before, as a result of a group and network of investors around the world looking to acquire online businesses as part of, , a portfolio strategy or as part of an asset and diversity of asset mix, , there's greater.

Clarity around the power of what people are building, and as a result, the valuations are creeping up as well. So I'd say it's evolved around the value, but also the sophistication of the people involved. 

Claus Lauter: If it comes to a digital asset, as you already mentioned, there is more than the website. It can be an app, it can be a social channel.

There's a lot of different ways that fall in brackets a digital real estate. Now, what's the best way to build up your asset and to bring it to a point where somebody would be interested to 

Blake Hutchison: buy it? Yeah, great question. , most buyers are interested in [00:04:00] something which has, , mature. younger assets are less well valued, and more mature assets, , are in greater demand.

So the average asset that sells on Flipper is actually four and a half years old. , and so that's something for people to consider that longevity is an indication of quality. the second thing to consider is, consistency of performance. , unlike the startup, You're not necessarily going to be sitting on top of a rocket ship.

what business buyers are looking for is consistency of performance. And so if for the last year, , and I'm being a bit simple in my language, but if for the last year you've been doing $20,000 every month with a little bit of fluctuation, 10% either side, , and clear evidence that you can manage a consistently performing.

In a profitable manner, , that will be very, very, very attractive to a lot of people. , because what I'm taking over is an asset and I believe that my asset needs predictability. And so if the performance is speculative, if it is highly subject seasonality or [00:05:00] some niche or fad or trend, , it's less, , likely to command the attention of a buyer.

so contemplate that as it relates to growth. Growth is really, really important, but it has to be sustainable growth. If you are spending money on Facebook to grow your business, you want to achieve not only for the sustainable operations of your business, but also for the ultimate value when you do go to sell.

You want to be able to show, , sustainability. And so if you can achieve, , 3, 4, 5 times row ass on Facebook, great. But continue to do that and show consistency around that effort. if you have a social channel, , and that social channel is clearly demonstrating engagement with your business and you can attribute that back to revenue, , that's great if you can't show that it contributes revenue.

Whilst it's cool, it's not likely to add, great amounts of value. On a multiple basis. So if an asset is worth three times net profit multiple, it's less likely that you can say, Hey, but I've got a hundred thousand Instagram followers. , so gimme five times. It's not valued that way. they tend to love [00:06:00] opportunity.

Buyers do, but they don't tend to pay for opportunity. They pay for performance. So if your social media channels, , create revenue, , wonderful. If they don't create revenue for you, that's a great opportunity for growth. You should be looking at your social channels and how you can actually attribute revenue to those social channels.

And, so therefore you need to have , a good understanding of your attribution model. So hopefully that provides you some context, lots of ways to grow. But, , a function of the way people assess a business is its predictability and its ongoing. 

Claus Lauter: Yeah, I think that's a very good overview and it always makes me smile if I see Facebook, some guys trying to sell a drop shipping store that's six months old and asking for some hilarious prices there.

So obviously you need to be a bit longer in business to become a sellable asset. I wanna go a little bit more into the KPIs. What are the numbers, the figures, the stats that a potential buyer is looking for? 

Blake Hutchison: Great question. , so first, and for. Buyers do look for profitable assets. And so let's just define profitability in its most basic terms.

We're looking at net profit numbers here. So that is [00:07:00] basically with the exception of what you might pay yourself, , which we can remove from the profit and loss statement. For the purposes of understanding the true performance of the business, they are looking at, , revenue minus expenses equals more than one.

They're looking for profitable assets, and that's because they are buying them as an investment. So I'm either buying them, buying an asset because I want it to be my next job. So it has to pay me a salary, which means it must be profitable. or I'm buying an asset because I believe it compliments an existing portfolio strategy that I have.

In which case, seasoned acquisition entrepreneur, or I'm buying an asset because I'm an institutional. And I buy a blog that's got lots of traffic that's profitable on ad sense, but I believe that if I deploy my own ad sales team, I can outpace ad sense, , and therefore get a greater return on investment.

So the first, , answer to your question is, , I'm looking at profitability. clearly I also look at operational costs. if you, have. A very expensive way of producing content. that's good to disclose actually, because it shows that , there's not only quality is a factor of performance.

, but , [00:08:00] it could also give buyers an impression of ways to optimize cost and potentially reduce cost. So that's a really good thing to be transparent and you don't know which, way a buyer will perceive. , the other thing is traffic and the way in which you acquire that traffic.

So buyers will always, put a greater emphasis on organic and direct traffic. And the reason being is it's more profitable traffic typically. that's not to say that a good e-commerce operator will dismiss something that spends money to make money. Of course not. If you can actually prove over time that you are less reliant on huge amounts of ad spend because you've got strong repeat purchase, a low refund rate, and a high AOV average order value.

Those are things which are gonna appeal. , buyers love high average order value. it appeals to the unit economics so anyone who has unit economics framework for assessing the quality of a. , they will love a high AOV business because it tends to mean there's enough money left over to pay everyone and afford to acquire new customers.

, that's a very broad way of answering your question. Okay, 

Claus Lauter: now selling a digital asset, , [00:09:00] digital real estates like selling a house. it's not only the house, there's a lot of things that come with it. Now, for a digital asset, you're not selling only a domain, which I think a lot of people think when you're selling something.

So there's a lot of other moving parts in there. What do you need to think about or what would be the package in a perfect world scenario that a buyer is interested in? 

Blake Hutchison: Anything they believe derives value for the business. So let's go through those things. The domain, certainly. Yes. , the brand. Yes.

The reputation. So that is the history, the customer database, all of the data and analytics around that customer database. The Historical trading revenue is acquired so that they can continue to farm that existing incumbent user base. all the brand assets, the social media accounts, and the followings as a result.

if there is anything proprie. They will be acquiring that too. if it's drop ship, there's often not anything proprietary, but in that case they might be, [00:10:00] acquiring the supply contracts you have. , if there's something proprietary like the designs, perhaps you put unique designs on t-shirts, they are acquiring the designs and that is factored in as an asset that needs to be transferred to the owner at the point of sale.

anything that they determine, To derive value for the business will be listed in the contract of sale or the asset purchase agreement, and is typically transferred at the point at which, , the escrow release happens. 

Claus Lauter: Okay, so I think it already shows our listeners and viewers that selling a digital asset is not just a PayPal payment.

There is much more to it, and we are coming into the realm of business and law and all of these things, and contracting. Now, flipper.com is the largest marketplace worldwide to buy and sell online businesses. How do you guys help both sides, the buyer and the seller, with going through this process?

Blake Hutchison: Great question. So the first we do is help sellers to understand the value of their assets, and that's a really important piece. So we have a proprietary valuation tool. can find that@flipper.com. And that is backed by [00:11:00] not only machine learning, but also the historical sales data that determines the value of any given business model, SAS e-commerce content.

content backed by a versus content backed by Amazon Associates, et cetera. There's lots of different variables that go in. Age is a variable. Profitability is a variable. All that goes into the model. , and then that gets smarter as we sell more assets and learn more about the industry in the marketplace.

The second thing that happens is we make listing and showing the objective performance of your business. Simple with our data integrations. So we connect directly to QuickBooks Online, zero, Shopify, Stripe, big Commerce, Magento, Amazon, woo Commerce. We connect to all of those. And so when you log in to create your listing, you connect your data source, we pull down the data, and we make therefore presenting your listing a little easier.

But then to finish the answer to the question, we then provide that data to buyers so that they can make an informed decision as to the quality of the asset. we then build market insights around. So we'll show buyers how that asset performs against its peer So if it's an e-commerce asset, [00:12:00] we will expose the refund.

Of the asset in question, but we'll also expose how that refund rate compares to other assets like that one. and that is available on the listing page. Once a buyer, , decides that they're interested. We obviously have, , an inbuilt what we call deal room where buyers and sellers can communicate with each other and negotiate, , for higher value assets.

We also. Provide a flipper advisor. They are there to operate as a representative for the seller, and sell the asset to our respective buyer base. we have due diligence services. We have inbuilt legal templates, plus access to lawyers. In the event of something more sophisticated, but we have a bunch of other seller services, , and buyer services that ensure that the asset transfer process happens smoothly and, including integrated escrow trust accounts, the ability to pay with crypto currency if you would like. So we are not only a marketplace, we're more like a market network.

We facilitate all of the different services are required to ensure the marketplace operates seamlessly. 

Claus Lauter: Okay. I already see it's a relatively [00:13:00] complex process. Two questions there. First of all, , where do you earn your money on? So where on going with that as a question? Who's your perfect customer?

So if I'm selling my first 50 products on Shopify, probably not. So who's your perfect avatar? 

Blake Hutchison: Yeah, so Flipper makes its money for success fees. So we're looking for really high quality businesses, because we know that high quality businesses sell. The quality question comes down to age, profitability, , revenue mix, and obviously, you know, , how you acquire your customers, organic direct or, or social marketing, et cetera.

we do make a little bit of money from listing fees, but it's, quite trivial from our perspective. It's most of our revenue, 85% of our revenue is derived from success. perfect customer for us is not necessarily Shopify, it's any online business that has been around, for two years or longer, which is cash flow generating, which is profitable and shows consistency of performance as long as they are built on top of the platform economy.

platforms that help you grow businesses, Shopify, Amazon, WordPress, ad Sense Analytics, all those, as long as they're [00:14:00] digital by nature, have shown a history of performance. They're a good customer for us. Whether they are big or not, doesn't matter to us. We are a marketplace. We are price agnostic. you can sell a beautiful, quality business for $25,000.

And you can sell a beautiful quality business for 25 million. So long as you have the revenue and the profitability to justify, those multiples, , and those price points. You're a good fit for Flipper. 

Claus Lauter: Okay. What's the average time for a sale on Flipper? 

Blake Hutchison: 3.24 months . , the only reason I know that is cause we just ran some data on it, like literally yesterday.

So thank you for asking the question. , so really, really, , high quality assets that are very much organic traffic driven. We'll sell very quickly, like literally days, sometimes weeks, , , a more traditional. , online business. Take a Shopify store in the fashion industry running at a, 2.5 times row ast and it's been doing consistently for the last two years.

that's gonna take a more traditional period of, call it 3.24 months. 

Claus Lauter: Okay. Thanks for this very [00:15:00] accurate number, . before we come to the end of our coffee break today, one question I will have is, what's the biggest arrow that you see that people are making when they're built their digital asset?

Blake Hutchison: so there's two big things. One is they don't actually understand the finances around how their business operates, and they're not tracking their performance and rigorously analyzing it day to day. and probably the second thing is that they're often trying to do too much. And so we often see eCommerce stores, for instance, which have, three or four SKUs making 80% of the revenue.

And then another 50 skew is making very little. And you actually drill down into what's working for you and just orientate most of your attention there because if you don't want to exit, fine, do whatever you want. but if you are actually trying to set yourself up to have a long term sustainable business that somebody else may actually want to acquire from you, , you're actually better.

Having, fewer focuses and better performance. 

Claus Lauter: Okay, thanks. From highlighting the Pareto , principle, the 80 20 rule, I'm a big fan for that and I'm always preaching that to my [00:16:00] clients and bringing this up in front. And you see there it works as well. Like where can people find more about you and Flipper Dot.

Blake Hutchison: I'm mainly LinkedIn user versus any other social platform. So certainly find me on LinkedIn, connect with me, send me a comment or a note and I'll respond. If you heard me here, certainly flipper.com. , get a free online business valuation only takes a couple of minutes, might help you out.

otherwise, keep in touch with us via the usual social mediums. And we're doing a lot right now, so there's a lot of change happening and hopefully that inspires. 

Claus Lauter: Cool. Thanks so much. I will put the links in the show notes then you just one click away. Blake. I think it was a very good insight on how to build, sell or buy a digital asset and, , should show anyone how this process works and that it's not a simple process and you need to put some time and work into to make it work.

Thanks so much again. Thank you class.

[00:17:00]