Ep 234: Why Size Matters When Buying A Business with Jaryd Krause

Jaryd Krause:

I just got fed up with it. People wanting to buy small deals, which there's absolutely nothing wrong with. But at the same time, they have lofty expectations and unrealistic goals. Now, if you don't know what size business to buy, then you were just absolutely lost from the get-go, which is why I created this podcast episode. So you can understand the journey and what it takes to build wealth with online businesses. If you want to own a portfolio of online businesses, this podcast is absolutely for you.

Hi, I'm Jaryd Krause. I'm the host of the Buying Online Businesses Podcast. And today, I'm speaking with myself and with you and having a solo podcast episode. Yes, me, myself, and I are talking to you about what it looks like to dip your toes in the water when starting off trying to buy online businesses. I also give you examples of what it looks like to buy websites or online businesses, whether they're e-commerce, content, SaaS, or membership. And I specifically talk about the mindset needed to buy these businesses and, very importantly, what you should expect when buying small deals versus larger deals.

So I'll give you examples of what it looks like between buying a $5,000 site, a $50,000 site, a $20,000 business, and a $200,000 business. And I give some scenarios if it were to be a linear path as an online entrepreneur of owning these businesses, what it could look like in terms of years from going from a $20,000 business to getting to that point of building a million-dollar portfolio of online businesses from that point.

And then it also stacked up against starting with a $200K business and building a portfolio to a million-dollar business. And the difference in timeframes and the difference in the experience of the journey, as well as how you can do it with different levels of stress, input, and work.

There's so much value in this podcast. I'm sure you're going to enjoy it, but I'm very specifically talking about buying businesses. And if you haven't got my Due Diligence Framework that I've used and a lot of my clients have used, go away, and get that at buyingonlinebusinesses.com/freeresources. It is a framework that you can get for free, and it has helped people save a lot of money and make a lot of money. So go away and get that. Let's dive into the episode.

What's up? This is Jaryd, and I am stoked to have you here. Before we dive into the show, I want to remind you that for a limited time, you can get one-to-one voice note mentoring with me to help you buy and grow your online business. I'm opening up just a few slots of voice note coaching to give you one-on-one access to me via Coachvox. You'll tell me your goals and challenges, and we'll work through them together.

I'll ask questions, I'll tell you what I think, and we'll get you ticking boxes and achieving your online income goals. You can message me anytime, and I'll respond within 48 hours. Right now, you can get 20% off by using the coupon code JARYD. That’s J-A-R-Y-D. And I'll drop the link in the show notes so you can find out more. Until then, let's get on with the episode.

Hey, welcome. This pod's going to be a little bit different than what you're normally listening to. Normally, you're listening to me have a conversation with somebody else about a certain subject. In this, I'm going to have a conversation with just you, the listener. So it's just going to be me, myself, and I talking to you about what size business you should buy for your first acquisition and moving forward into larger acquisitions. And I just want to highlight what the process could look like for you for those different types of businesses or the different sizes of businesses you get into and where you start out.

Specifically, I'm bringing this up for myself and for you guys. What I want to do is just get this off my chest. I just need to let it out there because my goal is to help you guys have a better lifestyle and earn money while working less. And to do that, sometimes people come to the party and want to start at a different level, and they might be making life a lot harder for themselves.

So I want to try to help you set yourself up for success. And I do know that everybody is in a different position. So we should not be comparing ourselves to others financially, no matter where we start. You need to start where you can.

But if you can afford to start at a different range, then it can allow you to actually get to your goals faster and have a more enjoyable experience. Remember that. It's really, really important. Where you start determines how enjoyable your experience will be and how fast you can get to your goals.

So a lot of people come to me and say, “Jaryd, I want to get started in buying online businesses. I want to start with a couple thousand dollars.” Cool. Now I've had other podcasts, and I recommend people not start under the $10,000 price range. And I'll go through and share with you some examples and stuff about why. But the proof of concept is not the same. And your experience is not going to be the same as buying a larger business when you're buying a smaller business. You just cannot compare the two. They are not the same. When you buy a smaller business, it's very different from buying a business that's ten times its size.

So let me give you an example, and I'll give you two examples. And when I give you these examples, please note that I'm being very generalized because there are nuances to businesses, and different niches behave differently on different content sites. This will be about content sites, but it can also be used for e-commerce businesses, SaaS businesses, and membership businesses. So all of the business models can be used, but I'm being very generalized in what I'm saying here. This is not a specific deal. Very generalized advice on these examples.

But if you were to buy a $5,000 site compared to a $50,000 site, when you buy a $5,000 site and stack it against a $50,000 site, that $5,000 site is ten times smaller, generally. Ten times more risk, ten times more work, and can take you ten times as long to get to that $50,000 valuation. Because you need to put so much more effort and work into it.

And what I have found is that people have started out on the smallest scale, and I've warned them and said, “Hey, this is how it's going to be.” And they say, “I just want to start off with a $5,000 site or a $3,000 site, and then I'll work my way up to something bigger.” Cool. They do that. They realize it can take a year, two, or maybe even longer to get that $5,000 site moving and even gain some traffic and a little bit of income. And they realize, “Ah, this is not going to work for me.”

Which is an absolute massive shame. Because then I see people buy a $50,000 site that's ten times the size of a $5,000 site, ten times less risk, ten times less work, and ten times easier to run. They buy it, and they have a far more enjoyable experience doing so because they have resources and they're working on an asset that has a lot more meat on the bone rather than trying to manufacture income and manufacture traffic on something that is a baby site.

Now, I know people who charge $50,000 for a website design in itself. And then you can also buy domains for $2,000 or $1,000 to $5,000, and they are not even getting any traffic. I'm not talking about expired domains here; I'm talking about brand new domains. You can buy domains in that price range, and they're not even generating traffic. You can buy domains that do have links and traffic going to them at that price range, but then you still have to build a site and gain momentum.

Now, let's give you an example of a $20,000 site versus a $200,000 site. It's the same thing. So a $20,000 site compared to a $200,000 site is ten times smaller, ten times more risky, and ten times more work. And I would go as far as being very general in saying that buying a $200,000 site would be ten times more enjoyable than buying a $20,000 site. And the same difference between a $5,000 site and a $50,000 site. I would go as far as to say that buying a $50,000 site would be ten times more enjoyable than buying a $5,000 site.

Now, this is getting thrown out there by me not to make you guys put yourself in financial hardship and stretch yourself too thin. This is for me to share with you that you can go away and start on a smaller scale. But you're looking at a different timeframe for you achieving your goals compared to people that are buying those sites for 50K to 200K or more. And you can't compare yourself to them.

Typically, when you're buying a smaller site, like I've said before, you're going to have to do a lot of work, tireless work without much ROI, for a minimum of a year. Maybe two years, maybe even a little bit longer, will pass before you start to see results unless you invest a decent amount of money and time into SEO content and links for a smaller content site. Or if it's an e-commerce business and all that sort of stuff, then you've got a lot more other things that you need to be investing your time and money into as well, especially paid ads.

Now, why is buying a $20,000 site ten times less enjoyable than buying a $200,000 site? Now, let's give you an example. When you buy a $20,000 site, let's just say we're going off a 35 multiple, okay? So if you divide $20,000 by 35, you get $571. Now, with that $571, you can go away and buy a bit of content with it.

But most people in this bracket are going to have the mindset of, “Oh, I want to get the cheapest content that I possibly can and put it on the site,” which I don't think is the best move. And with $570 in income per month, most people in the $20,000 price range are going to want to gain their ROI back and put it in their pocket rather than spend it all on content or more than what they're already getting from their return per month on content.

If you were to spend that money on content, say $570, $550 per month, you could go away and probably get five really good articles. But you're going to want to grow quicker. Especially for a smaller site, you're going to want to grow quicker and start to take market share of that traffic in your particular niche.

And you're also going to want to build backlinks, and you will have to do a lot more of the work yourself if you want to save money and not reinvest too much into it. And to get that $20,000 site to a higher value, you're going to have to do a lot more work yourself.

Now, if you buy something that is $200,000 and you divide that by the monthly multiple of, say, 35 again, you get about $5,700 a month. Let's just say $5,500 a month. What I find when I work with people who buy sites worth $200,000 or more is that they typically go away and get an SEO agency to create content, build links, and do SEO work. And they might spend $2,000 to $3,000 or $2,000 to $4,000 a month on that.

And they might keep for themselves $2,000 to $1,000, or $1,500 a month, to put in their back pocket and gain some ROI. But by reinvesting in the site, they have resources. So with larger investments, you have the resources to hire a better team and better consultants that are really good in the space and can get you better results, which allows you to grow faster with less stress. And it makes the experience far more enjoyable.

Now, let's talk about, for example, content websites. A $20,000 site gets hit by Google. What are you going to do? Most people are going to freak out, and they're not going to want to reinvest or have the money to use an SEO to pull them out of that pickle that has happened and work out why that site has been penalized or why that site has been affected by a Google algorithm update. And they're going to try and reverse it themselves, typically.

If you do go away and invest in somebody, it's going to cost you a decent amount of money. And it could be anywhere from $1,000 to $10,000, for example. Now, say it's $10,000; that's half the price of the site that you bought. And you might not justify paying that much money to make sure you get the site back on track because you don't know exactly what those changes are going to do or how those changes are going to allow the site to behave in the landscape of the market and with Google.

Now, when you have a $200,000 site, what happens if your site gets hit by Google or some Google things change? Of course, this is to say you bought a really good site. First and foremost, you want to buy a really great business. If you need help with that, reach out to me. It's what I do. And I've done it so many times and helped so many people buy great sites. In fact, we only buy great sites. I haven't heard anybody ever say they're not happy with the site they've purchased.

So back on track with that $200,000 site. Say a Google update comes along, and that site doesn't weather very well with the update and loses some traffic. What are you going to do? If you need to put 10 grand into an SEO to help you reverse that and do some work, so what? That's two months of income for the site. No skin off your nose, which means it's less stressful owning that business because you know you have the resources to reinvest in that type of business if anything bad happens.

Of course, something might not, right? If you're buying a great site, hopefully it shouldn't, but here we go. And there are sites out there that have been around and never had bad changes from Google updates in the content space. So it might happen, but so what? You've got resources.

So that's the fun thing about buying a larger acquisition compared to dipping your toes in the water; the experience that you have is going to be so much different than buying something that is a larger asset. And typically, when people want to try and dip their toes in the water, this is where they have a bad experience. And if you had a bad experience with this vehicle, you're going to think that whichever way you tackle it—using this vehicle to replace your income or as wealth building—it's not going to work for you. When reality sets in, the strategy that you took just didn't work, or you didn't understand at least what was required of you by dipping your toe in the water and how much that can slow your progress down.

So let's now talk about goals. When it comes to goals, if your goal is to, say, have a portfolio of a million dollars’ worth of businesses, that might make you, let's just say with the multiple of 35, $350,000 net a year, okay? Now with that, that could be your dream goal, right? So you've got a million-dollar business; I'm just going to get my calculator out there. It's going to be about $342,000 a year. So 28 grand a month is really damn good for a family to be able to cover bills and have a good lifestyle.

Now, if that's your dream goal, to get to that million-dollar price range, let's look at how you could do that with a $20,000 site compared to a $200,000 site. With a $20,000 site, it might take you, I don't know, a year to double the size or two years to double the size of the business. So you got it worth $40,000. Then you might sell it, and you might have saved a little bit of money.

So you got your 40K from the site, and then you got your 10K that you saved in that time period, and so you got 50K. So you can make a $50,000 acquisition, and it might take you, say, two to three years. Let's just say three years, and this is if you're doing really, really well. Three years to double the site.

And guys, what I say here is very general, and what might take somebody two years to build a site might take somebody ten to 20 years to get those same results. So I'm talking about if you really know what you're doing, and I'm just giving a hypothetical. So definitely take what I'm saying with a grain of salt. Because each person who operates a business will operate it differently, you should not be comparing it exactly to this, which is how it's going to look linearly for you.

Often, business is not linear, and life is not linear. We have things go up and down, sideways, and we make a mess of things because we're human beings. And if we stay on the path, then we'll get results, but these ups and downs cause people to move, jump out of the vehicle itself, and get distracted.

So back to the 20K to 40K. Then you get a $50,000 site, and you go buy that. It might take you three years to double that 50K site. You got a 100K site. And then you're a tenth of the way to your million-dollar valuation, right? And that's five years. So from that, you've got a $100,000 site, and say you get that $100,000 site in another three years, up to the $250,000 price range. And in that timeframe, you save $50,000 as well. And so then you got 300,000, and what's that? Five plus three, so you've got eight years there.

And then you could just go away and buy that $300,000 site and double that. That might take you four years. So that's 12 years to have a valuation of, say, 600,000. And you saved a bit of money in that timeframe—say, $100,000. So you got 700,000. And you buy something for 700K at the 12-year mark, and then you get that from 700K to a million after, say, two years, right? So you've got a 14-year timeframe, for example. Hypothetically, if everything works out really well and you absolutely crush it in space, it will take 14 years to get to that million-dollar valuation.

Now, let's take a 200K site as an example. You get a 200K site. And over your first two years, you double that. That's 400K. Great. And in that timeframe, you also saved $50,000. So you've got 450K. After two years, you go buy a 450K site, and then you double that 450K site over, say, three years, okay? And that 450K site is now worth 900K. At the same time, you saved about $100,000. And then you got a million-dollar valuation after five years, compared to 14 years. Massive, massive difference.

Now then, we also need to consider what it would take you to get to that point of difference from having $20,000 in cash to $200,000 in cash, right? Maybe you can do some creative financing. At first, maybe you raise a bit of money, and there are different ways you can do this.

Now I have to state a real big caveat here as well. I can understand that not everyone can start at the same level, and you should be okay with that. I personally started with $15,000. And you want to start there? There's nothing wrong with that. There's absolutely nothing wrong with that.

I'm giving examples, I'm giving hypotheticals, and I'm trying to highlight what it could look like for you starting at different levels. And I want people to understand what their experience would be if they were going to dip their toes in the water under the $10,000 price range.

So just understand that there is absolutely nothing wrong with starting off at a lower price range, and you need to really, really understand and work at it If you do start at that price range. It will be a second job, and that won't give you an insane payback. But know that you can still do this from any entry point, and I'm just, like I said, setting expectations.

In our BOB community, we help a lot of people buy sites around the 220K range and below, and they love it, right? But I frame it up to them that it's going to be an absolute grind. And they buy the best sites in that price range, from that $20,000 range and a little bit down, and they work on them. They grow from learning from the course that I have. I don't just have a course on buying online businesses in the community. We have a growing online business course. People also reach out to me via email, ask me questions in the Facebook group, and all that sort of stuff. So I help them grow their businesses too.

And most people who teach people to make money online, what they actually do here, guys, is promise the world and deliver nothing, right? So what they do is they go away and say, “You can make $5,000 a month in 12 months, and all you need to do is this, this, and this, and it's easy.” On the other hand, I don't care about that.

I have gained a good reputation and a lot of trust by just being upfront and saying, “Hey, if you start off at that $5,000 range, under the $10,000 price range, it's going to be a slog and you're not going to enjoy it. It's not going to be an enjoyable experience. I just like to be real, be upfront. It is what it is. I like to mostly under promise and over deliver. But I'm really being realistic with the starting points here.

So for me, what would I do? Some people would say, “Jaryd, all right, cool. Easy for you to say.” Is it, though? Is it easy for me to say? I'm going to say F no. It's not because I started off at $15,000, right? I was a plumber. I hated my life. I built this life. I created it. And was it hard shit? Yeah.

I was surfing with a friend of mine. We're talking about M&A, right? And I'm working on one to five million-dollar deals as a strategic consultant for M&A deals. And he works for a firm that just got sold for $250 million, and he's basically a fractional CFO (chief financial officer) and head of finances in that firm.

And he was like, “Wow, dude, you have a really good life, right?” I work 20 hours a week. I was out in the surf for three hours just now. And I told him about my business. And he's like, “Oh, what are you up to? What are you doing for the rest of the year?”

And I told him, “I'm going away, mate, for two and a half months. I'm going to go surf, Indonesia. Then I'm going to come back. I'm going to go snowboard, New Zealand. And just take a two and a half month break from a lot of the stuff. I'll still be here working, doing some things here and there.” And he's like, “Wow, dude, that's sick. You've really got life.” I’m like, yeah, but I was a plumber, and I started with 15 grand. I started very, very small.

And so people would say now and ask me, If I were to lose all my money and all my businesses and I had to start again, what would I do? Let me tell you. Here's what I would do. I will go away, and I'd save $50,000 from working my butt off, right? I'd go away and probably get a phone sales job. If I needed to go back to plumbing, I could go away and do that. If I needed to go back and live in a shared house, I could do that. I could save a lot of money.

I could maybe do a phone sales job in a cheaper country. But I would go away and figure out how I could save $50,000. And I do get it; I'm living in a pretty damn privileged country. I'm a privileged guy, and I’m lucky in that sense that I have access to being able to go away and save that sort of money because of the job opportunities that are around where I live. So I totally understand that. So I hope you guys understand that too.

And so I try to save my $50,000, and then what would I do next? I'd go away and take out $50,000 to $100,000 of equity that I have in my properties. I've got more than that. But say, for example, that I just had one investment property and held it for a good couple of years. I'd probably have 50K to 100K in equity to take out of that. Then what I would do is go away and buy a $150,000 content site. And say, if it were today's dollars, $150,000 divided by 35, it'd be making about $4,200 a month, an average monthly net profit of a 35 multiple.

Let's just say it takes me two years to save that $50,000 and to get that $100,000 in equity from my property. I would then go away and buy that $150K business. I would buy a content site, and then I would spend $4,000 a month on some SEO, some content, some links, and some site changes. And I do a bit of work myself, to be honest, and I've doubled the size of that business. I've got the experience, right? So I could hopefully double that in a year.

If not, maybe two or three years. And for somebody who's not experienced, unless they get some of my help, they could do a similar thing. But if they’re trying to do it on their own, I wouldn't suggest it. But this is me, what I'll be doing. Then I'd get to that $300,000 valuation, and I'd start to work towards that million-dollar valuation of businesses or just having one business to purchase.

So If you struggle to save, then fix your leaky bucket or become an employee or boss that actually deserves a raise, right? Be so damn good at your job that they can't not give you a raise, right? If they won't give you one, ask for it, but be really, really good. The way I think about it is that if you want something, be the person who deserves to have it. A little bit of our personal development advice for you And don't buy lots of little sites like I did, right?

I started with 15K, and I went a little bit bigger, and then I went a little bit bigger again, and I just wouldn't suggest that. Instead, concentrate on one asset at a time, and you can either sell it and buy a larger asset or hold on to it, grow it, automate it, and then maybe buy another one to go alongside it. But to build wealth, we need concentration.

For the preservation of wealth, we need diversification. I'm going to repeat that again, and I got this from a friend of mine who sold his business via Flippa. We just went to a Flippa event recently. He got interviewed there on the sale of his businesses, I should say. And he used to have a wealth coach.

And yeah, one thing he said to me was, “Jaryd.” He said, “To build wealth, we need concentration. For wealth preservation, we need diversification.” And a lot of us have been led astray. Myself included. I put my hand up here. A lot of us have been led astray by the idea that when we start out, if we have $5,000, we need to put $1,000 into five things. Whereas some other investors say, “If you're going to put your eggs in one basket, just watch the basket and make sure that you've got a moat around the basket. Make sure that basket is getting all the energy and the love and the tension that it deserves. So it's safe and supported.” And the same with an asset. The same is true for a business.

I would say if you're trying to build wealth, concentrate on putting your money into one asset, growing it, and putting your focus on it. Where focus goes, energy flows. Where focus goes, energy flows. So focus on the asset, and the good energy will go towards it, right? And you should be able to de-risk it, scale it, and build it. And that's what I would be doing.

I would be solely focusing on that 150K business, probably for a year or two while I'm still working. So I can save some money on the side to put toward my next acquisition, but I'd be heavily focusing on it and making sure I'm in touch with the people that I use to grow it.

So there you go, guys. If you are starting out, this isn't the end of the episode. I've still got some more to share with you. But if you are starting out with not a lot of capital, set yourself a goal to maybe get to that $500,000 price range, or maybe you want to get to that $1 million portfolio size of businesses, especially online businesses. And what's really, really important is having the right mindset to do this.

I have a mindset series. I'll have to link to them in the show notes. It's a four-part mindset series on the three C's to achievement that I have coined, Three C's to Achievement, and it's basically how anybody achieves any level of success ever and the mindset they need to do so. And if you want to be successful in this or anything else, even if it's being a professional footballer, a public speaker, or anything like that, then this mindset series is for you.

Then yeah, so if you do not have much capital, maybe think about that, right? 500K to a million valuation. Give yourself time. Don't say you want to try to do that in five or six months. Because typically, what happens when you give yourself a short time frame is that you don't achieve it, then you extend it out, and then you do the opposite of building self-confidence for yourself. You start to lack confidence in yourself because you never achieve your goals because you set them too tightly and too strictly in too short a timeframe. And when you keep changing the goalposts, you lose confidence in yourself. And that's a deep-seated energy that's really hard to change and can really affect you.

So if you have, say, $100,000 in cash already, then set a larger goal to get to a $5 million property online business portfolio or a $10 million asset valuation. And maybe you start around that $200K range. If you've got $100,000 in cash, don't be afraid, in my opinion. And if you've got other assets to take something from and put it into the deal, of course, you have to do what's right for you. And this is absolutely not financial advice. It's what I would do. And you can achieve your goals faster by doing so.

And the reason I think I would be doing that with my properties is if, for example, I only had one. I'm talking about physical properties, like property investing. Say, if I only had one. The reason I would take cash out in terms of equity—what they call it in the States is a HELOC (home equity line of credit)—is to take some of that out. I'd be doing that because the interest rates are going to be far lower than if I tried to get finance anywhere else, from an SBA loan or somewhere else where the terms could be 10% to 15% interest. Interest at the moment in Australia, around 7%. That's half the price. I'd be doing that for sure, right?

So, guys, if you want help with buying businesses in any range up to $5 million, let me know. I've got full membership coaching for people wanting to buy businesses up to the $500K range, and then I do consulting for those $1 million to $5 million deals. So just reach out to me. Yeah, I do coaching and then strategic acquisition consulting from $1 million to $5 million above. Yeah, so reach out to me at [email protected].

Also, please do me a massive favor and give me feedback to let me know if you liked this episode. What you can do, the feedback, you can do wherever the podcast is. You can leave a review on the Apple Podcast, ideally. Or you comment on YouTube. Or reach out to me by email, [email protected], and give me some personal feedback, letting me know you like this. Because if you do, then I can go on these rants again and get things off my chest. And I have no doubt that it's been insanely valuable for you. I really do.

So, yeah, please let me know and confirm that. Otherwise, it probably just won't do these ones, and I'll keep getting guests on and stuff. So, please, please, please, feedback, feedback, feedback. Even if it's constructive and you think my voice stinks, let me know. Or if there are things that I could do better, let me know. I'm here to help and serve. I'll speak to you, guys, soon. Bye.