Andrew: Hey, everyone. My name is Andrew Warner and I’m someone who hates being late. And I’m 25 minutes late to start this interview. And the reason for that is I want to make sure that my interviews aren’t just me hanging out here with the guest saying, “Hey, I don’t know anything about you. You tell me and the audience and I will learn together.” I want to do some research. I want to make sure that I’m not missing something, that on one is using my interview as a way to gain popularity for something that is underneath the surface, a scam.
So Justin Cooke, my guest, I’ll tell you as I tell the audience, I spent 25 minutes talking to people about you who are in your industry to make sure that this wasn’t like–that you’re not just a nice guy who happens to have been a long-term Mixergy listener who now is going to get to take advantage of me. I’ve got some stuff. I’ve told you before that I have some things and I wanted to talk to you about them, nothing especially shocking, but I wanted to make sure there wasn’t anything underneath that would mean that you shouldn’t really be on Mixergy.
Justin: Totally fair.
Andrew: Good. And I should introduce you. You’re Justin Cooke. You’re the founder of Empire Flippers. Empire Flippers is a website where people go and buy and sell websites. In fact, if anyone is listening to me right now, they can go to EmpireFlippers.com and just browse through a list of websites that are available for sale, what their revenues are, what they do, etc. And then of course they can buy those sites.
This interview is going to be about how Empire Flippers came to be, what Justin and his cofounder did before, how they failed and had to close up a company where they came up with this idea, why a marketplace actually works, etc.
And this whole interview is sponsored by two great companies. The first company will help you close more sales. It’s done that for me for years. I urge you to check out Pipedrive. The second one will help you hire great developers, designers and even finance people. I’ll tell you more about them later. They’re called Toptal. First I’ve got to jump into this interview. Justin, hey.
Andrew: All right. The big thing that legitimized you for me was that you were in the Inc. 500 list, right?
Andrew: What was the revenue that you guys listed with Inc. for 2015?
Justin: So, in 2012, we did right around $200,000 in total volume, total sales. And then we did right around $4.7 million in 2015.
Andrew: Now, $4.7 million for Inc. means revenue but that’s not really your revenue, is it?
Justin: Well, it depends on how you count revenue. So, if you look at our QuickBooks and our profit and loss, everything, we count that as revenue, as topline. We view it as kind of an ecommerce, so like we’re selling products. So we view our websites as product sales.
Andrew: Except you’re not buying the website and then selling it. The $4.7 million includes the price of the website that was listed on your site.
Justin: Yeah. That’s totally true.
Andrew: But you didn’t buy it and then resell it. What you did was you acted as a marketplace, as a way to help facilitate a sale. The money kind of passed through you because of something that’s interesting that you guys do, but you don’t keep that money. It’s not your real revenue, is it?
Justin: No. In fact, we keep a much smaller percentage of that. That’s topline. All the transactions we’ve done, we keep a much, much smaller percentage of that.
Andrew: Okay. So, $4.7 is the total deal sale and what you guys collect.
Justin: That’s right.
Andrew: Bottom line, excluding the value of the sites that are sold and bought on your site, what’s the revenue?
Justin: Probably about 15%. So we did maybe $700,000 total. We probably had expenses of around–not counting our pay, maybe $500,000. So I think we were about breakeven in 2015 in terms of our expenses. So not counting Joe and I’s pay, which is maybe $100,000 each.
Andrew: Got it. Okay. I heard there was a controversy with YEC, where they only accept people in if they have $1 million in revenue. You guys got accepted in. I can see that you know–
Justin: Oh yeah.
Andrew: Talk to me about that. What happened there?
Justin: It was horrible. So we were dealing with YEC, which I thought was a great company, a great place to be. I had some conversations with them. They said, “Where are you located?” I said, “Well, I’m located overseas.” They said, “This is for Americans.” I said, “No, I’m an American. I’m living abroad. But I am an American. I have an American company, American LLC.” So, they had some issue with that.
Then they came back and they said, “Well, I need to understand exactly what your–I don’t understand. It doesn’t look like actual revenue that you’re bringing in. That doesn’t look like the right dollar amount.” I said, “You can talk to our accountant. This is the way we track the books. This is the way we’ve done it for years.” They went back and said, “Okay, that’s fine. No problem.” Then they came back and said, “No, you can’t be a part of YEC.”
So this was a bit of a bummer. I was pretty bummed about it, actually. It was really disappointing. So I don’t understand why that was an issue for them. I don’t understand where they were coming from, but it was their decision, their company. They can choose who they want to have on and who they don’t.
Andrew: Part of the challenge is the way you guys handle escrow, that if you were Americans living in America, running an American company, you couldn’t operate this way. By the way, for the audience who’s listening, I’m not beating up on Justin. Before the interview started, I said, “Hey, Justin, do you want me to tip you off about where we’re going? Do you want me to go a little bit lighter and build up to it or are you comfortable with me just addressing the big tough issue up front because that’s the way I’d like to do it?” And Justin said, “I’d love it if you just went honest with me.”
Andrew: I know the way you operate, Justin. I’ve done a lot of reading about you, so it’s not like I’m kicking a puppy here. I’m in the ring. We’re talking. We’re really understanding this business, and I wouldn’t have you on if I didn’t respect what you built up.
But the issue is the way you handle escrow. Most of your competitors handle escrow by saying, “Look, you want to buy on my site, you have to pay up front before we transfer the site to you,” right? If you want to buy a website off of my service, you have to pay up front and you put the money in an escrow service. Once the money is transferred and everything is handled, then the escrow gets released and the money goes to the seller. You guys do something different. What do you guys do with it?
Justin: Yeah. So one of the problems with using just a third-party escrow service, especially one that doesn’t understand the transferring of online businesses, it’s problematic because they don’t know how it works. So, whenever there’s a dispute or if there is a dispute, it may be very difficult for them to moderate. In fact, many of the companies don’t do that. They send you to an arbitrator who has very little understanding of online businesses.
So what we do generally–this is for like five-figure, maybe low six-figure sales–is we’ll handle that for you. We don’t act as escrow. We simply facilitate the transaction. So the buyer pays us. We make sure the site is transferred to the buyer from the seller. They verify that. We verify it with them and then we pay out the seller directly. We do that for most of the smaller transactions. The larger transactions we do actually use escrow. We just don’t use an escrow company. We use attorneys.
So generally attorneys are bonded and they’re able to act as escrow for those larger deals. Especially if it’s like a new customer for us and they’re a little uncomfortable with us doing the transaction for them, we will go through an attorney, generally our attorney, but we’re willing to use other attorneys as well.
Andrew: Doesn’t that create a problem where you in the past have said, “Hey, you know what? This deal went through. But we don’t think it actually should have gone through. We want to take the money back and transfer it to the seller and take the money back, give it to the buyer, take the website back, give it to the seller and a seller who thought he had a deal suddenly is back with his website after having completed the deal.”
Justin: Yeah. That can happen. It’s really rare. We have any kind of problem, like issue with the deals we do, probably less than five percent, so one in twenty. And actually reversing the deal is even less than that, but it does happen. It often happens in situations where there’s an issue, something wasn’t disclosed. The earnings for the buyer aren’t matching what the seller stated or there was some material issue in the deal.
So, when deals do get reversed at that point, it’s very clear. Often times the sellers are either okay with it or understanding of it because of what happened. They know what’s going on. They see what’s going on with earnings, with the site. So, it’s not necessarily a problem. When it is a problem, it generally should have been reversed because it wasn’t a fair deal to begin with.
I think that a lot of–like if you’re using a third-party escrow company with an arbitrator that doesn’t understand the transfer on online businesses, I think it’s much more risky than dealing with people who understand the deal. Do you know what I mean?
Andrew: I do. I guess what it comes down to is you guys saying, “Look, we get it better. You have to trust us.”
Andrew: The reason people trust you is the same reason why I felt comfortable hitting you with the tough questions. You guys blog very openly about how you do your business. You’re out there as podcasters. You’re talking to people all the time. Before they even list on their site, chances are good that they’ve gotten to know you as personalities. They’ve gotten to see photos of where you are and know how you’re traveling, etc.
Justin: Yeah. That helps when people understand our business. They get to know us or get a feel for the way we do business. They’re going to approach us in a way that works for us. They’re going to come at us in a way that we know and understand and it makes it a lot easier to do business.
Andrew: But you guys are different. Usually the marketplaces, especially when it comes to something like this where you’re essentially kind of brokering businesses, people have to be not just on the up and up, but have to be super clean. Meanwhile you guys are much more personality-driven, much more aggressive, much more–I think the best way to explain it than to come up with another adjective is to talk about the “Russian Syndicate Scammed Us” post that you guys did. Do you know what I’m talking about?
Justin: Yeah. I do. But it’s interesting you say you’re either clean or you guys are very personality-driven. So, you’re making it like it’s one or the other.
Andrew: Sorry, I shouldn’t have said clean. I mean more like suits and ties.
Andrew: Versus, “Hey, we’re real guys here. Here are the photos of how we’re doing business.”
Justin: Yeah, Hawaiian shirts. Yeah.
Andrew: I shouldn’t have said clean as in like you guys do dirty business.
Justin: We’re dirty. We’re on the dirty side.
Andrew: No. That’s definitely not what I’m trying to say. Frankly if you were that, then I just wouldn’t have you on. I mean it’s just different way of doing business in an industry where people are much more proper, much more buttoned down, much more, “We need escrow, so we’ll get escrow,” and so on.
Justin: “Let’s fill out these 50 pages of contracts.”
Andrew: Right. That’s another thing. You guys don’t do contracts with people.
Justin: I don’t know where you got this information, Andrew. We do do contracts. So, we’ve done quite a few contracts. Generally for the larger deals, we don’t do contracts usually on smaller deals. So let’s say it’s a $50,000 Amazon affiliate site, we won’t do a contract in that case because it just doesn’t make a lot of sense.
If you have an American in Hong Kong selling their business to an Australian national in New Zealand–okay, so, you don a contract, where are you going to go after them for this $50,000? It doesn’t make a lot of sense. Clarity makes sense and being clear on the deal does, but not necessarily a contract.
Now, when it comes to an $800,000 transaction, a $600,000 transaction, generally there are contracts in place and we help facilitate that with attorneys. We do on the larger deals, but we don’t do it on the small ones.
Andrew: Let’s go for one last tough question and then we’ll understand how you got here or last tough topic. The topic is this blog post you guys did about how a Russian Syndicate scammed you for $25,000. And I saw a lot of people cheering you on because–can you describe what happened there?
Justin: Yeah. When we were starting off, we did a lot of PayPal transactions, credit card transactions. We allowed people to buy–this is like much smaller sites, like $5,000, $8,000, $12,000 websites from us. They’d pay with a credit card or PayPal. We knew this was problematic because it’s easy to charge back. You can take the money back in PayPal. We knew this was a problem but it hadn’t become a problem until that point.
Then we had someone that had a couple of guys out of Russia that had stolen women’s credit cards in Canada. It was like a bunch of women’s credit cards in Canada. For whatever reason, they got access to these credit cards and started charging the sites and then the women charged back and we lost about $25,000.
When we realized that happened, we said, “Oh shit, this is bad. We need to button this up.” We immediately stopped credit card transactions, PayPal and then kind of went after them. We went after them in the way that we knew how and eventually decided to blog about it. That wasn’t an easy decision because it makes us look bad. We didn’t just get scammed. We allowed ourselves to get scammed, which is putting ourselves in an awkward position and then talking about it publicly.
As a company, you don’t generally do that and it was one of those things where we were like, “We shouldn’t say this,” or we normally wouldn’t. It’s an uncomfortable thing to talk about it. We said, “Look, let’s put it out there because the uncomfortable stuff is generally what’s good. That’s what resonates with people. So, let’s put the post out.” And it was super popular. Not everyone liked where we were coming from. You said people were cheering us on. Some were but some weren’t.
Andrew: Yeah. It was very polarizing. Part of the reason it was polarizing is you said, “Here are the photos of the two people who scammed us. Here is the ID of one of them, the actual official ID. The other one, I think, you linked to Instagram and you said, “These guys we think are scamming.” And did you log in to their Gmail account to find this stuff?
Justin: Joe did.
Andrew: Joe did, logged into their Gmail account. The way you did it was they used the same username and password on one site as they did on their Gmail account and you said, “Let’s test it out,” and you logged in and that’s how you go it. You even got a picture of their credit card information.
Justin: Yeah. That’s right.
Andrew: How do you feel about that now that you saw the controversy where people said, “You can’t do that?”
Justin: Not bad at all. I don’t. I’d feel bad if it were a customer of ours or someone that we had a dispute with or something. That’s clearly horrible. But that’s not the case here. These were absolute frauds. It was scammers. I don’t feel bad about it. No.
In fact, because of that post, we had someone reach out to us from Homeland Security or something like that and said, “Look, one of the guys had a plan to go to the US.” So, he reached out to me and said, “Look, I have that picture. Don’t mention my name in particular, but I’ll look into this and make sure the guy isn’t able to go to the US.” I guess he had a US trip planned or something.
Andrew: Yeah. You showed pictures of his paperwork to apply for a visa to come to the US.
Justin: Well, he showed it on Instagram. But yeah, for sure.
Justin: And I think he took it down off of his Instagram account after that.
Andrew: Did he?
Justin: Yeah. I’m not sure. One of the things we took a hit over was people were saying, “Well, if he logged in with like a username and password on your site and you’re not protecting that information, then that is horrible of you to not protect customers, passwords.” That’s not the case. We didn’t have their password from a login on our site. We don’t have username–
Andrew: How did you get his password then?
Justin: He had a password for one of the sites that he wanted us to use that we were transferring to him. So that’s it.
Andrew: So he emailed you his password and said, “Hey, use this.”
Andrew: Oh my goodness. Wow. That is such bad password protection. Has he reached out to you after you called him out?
Justin: No. What did happen though, surprisingly, I’m surprised there wasn’t anything at all–and we tried to reach out to him, couldn’t get anything. We did because of that post and it was pretty popular, we got one of the guys that ended up with the site, he ended up buying it from the scammer at a discounted rate and then came back to us and said, “I know you guys. I think this might be involved. Can we check it out?”
We checked it out. It was one of the sites, ended up selling it for him, giving him back the money we lost and we recovered a bit of money on the deal. I forget how much it was. It wasn’t $25,000, but it was a bit of money and it was pretty crazy. By actually doing that post, we got one of the people that bought the site from him, got that site back and resold it. So, that’s crazy.
Andrew: This is what makes you guys. . .
Andrew: No, not–
Justin: I know what you mean.
Andrew: I marvel–when I listen to someone like Kara Swisher, she comes up with the perfect word to express what she’s thinking and I don’t have that talent. What I have is the deep interest to understand how something works and how to use it to grow something else. So, many times in my interviews I’ve used the wrong word and I can see that it creates a flare up in my guest that sometimes causes them to shut down and I’m glad you didn’t get shut down by that. I get it.
But this is what makes you guys so captivating to watch. You’re unapologetic about it. You say, “Here’s the way we work. If you trust us, we’re going to do this and we’re going to be champions for you.” If you don’t trust us, we’re not afraid to mention companies like Flippa, go use them and your content marketing strategy is what even your competitors have told me is the enviable part of your business.
Part of the reason you can do it is because you live outside the US. In the US, before I get to ride a horse, I have to sign tons of paperwork. I go outside the US to other countries, I get to just go freaking ride a horse. The reason you get to do this is if you were in America, maybe you’d be bigger targets.
Justin: I think that’s wrong, Andrew. I think that’s an interesting point. But I think that’s an easy excuse for our competitors to use. So, like, “Oh, we’re in the US. We have stricter regulations. It’s too tough for us to do that. We can’t talk like that. We can’t say that kind of thing.” I think that’s exactly one of the reasons it is successful is because people are fearful in our industry. It’s a very fragmented industry. No one has like a clear market share. Everyone is secretive and not so upfront about what they’re doing and what their business looks like.
So the fact that we are and we’re willing to say, “Here’s where we’re at. Here’s what we do. This is how it works.” There are people in our industry that aren’t fans of our process overall. We charge a deposit upfront before you can see any sites. There are industry people that won’t do business with us. There are potential customers that won’t.
Andrew: What do you mean before I see? I’m on your site right now. I get to click the view all listings. What I don’t get to see are the actual names of the companies, but the rest I get to see.
Justin: That’s right. You won’t get to see the niche. You won’t get to see the actual URL or any of that information without paying a deposit. So, what that does is it keeps you–you have to pay, let’s say it’s a $100,000 online business, you’ve got to pay a $5,000 deposit. So, a lot of people are like, “I’m not paying money up front. I absolutely refuse to do that.”
You might do that and that’s okay and we would probably lose your business. Maybe you go to a competitor. But you probably wouldn’t be a good fit for our business. We’d lose a few legitimate potential buyers out of that, but the vetting it does for everyone else is completely worth it. So, it’s something our competitors, other industry people are like, “That is crazy. I can’t believe they do that.” But what they don’t understand is we’re happy to do something that works and it works.
Andrew: I see. So, for example, I clicked on shopping. I see a site that’s selling for $928,000, roughly. I just happened to click on it. It says that it’s making $32,000 a month in net profit. If I want to see it, I have to make a deposit first of $9,900, about $10,000 just to see what the site is. That’s because you don’t want looky-loos. You don’t want everyone out there to see what’s selling and what the sites are. You want to make sure that if I’m interested in the site, then I’m willing to at least trust you with $10,000, which I could get back if I don’t buy it.
Justin: Absolutely. Completely refundable. In fact, if you do end up buying it, we’re going to refund you anyway and require a wire because of our previous credit card issues and PayPal issues. So, we’re not going to allow that. That’s problematic for us. We’re going to require you to send the whole wire over anyway.
So, yeah, it keeps you from reviewing the business. A lot of times some businesses are maybe easily copyable. So a looky-loo or someone just scrolling through our listings could copy that business. Some people think it’s the seller we’re protecting. It’s not. We’re protecting the buyer. Andrew, if you were going to buy that business, you don’t want to end up with a dozen copycats.
So we’re ultimately protecting you, the end buyer. Now, with the deposit process, it doesn’t protect everyone, but kids in their parents’ basements with no credit cards, it keeps them from trying to copy the business.
Andrew: Which happens a lot. I’ve even had interviewees on here who have talked exactly about how they built their business and then they email me afterwards and say, “Andrew, this guy recreated my site and now he’s selling it or this guy is trying to recreate my site. He’s putting a request up for developers on this other site to do it.”
All right. Let me take a moment here. I’m going to talk about one of my sponsors and then we’ll come back and talk about how you got here. We’ll get into the nice questions that most people ask when they get to talk to someone for the first time instead of the, “Hey, why did you do this or how did you do this?”
Here’s my first sponsor. My first sponsor is a company that frankly if anyone wanted to copy any one of my interviewees or any other site or build up their business, they can go to it. It’s a company called Toptal. Here’s what Toptal does. They’re a network for the best developers out there, just phenomenal developers. They make it really hard to be part of their network. If a company wants to hire from them, all they have to do is go to Toptal.com/Mixergy and say, “I need a developer who does WordPress development, Ruby on Rails developer, etc.” They’ll introduce you to someone who fits not just your needs but also the way you work.
Let me ask you this. If you could build any website, you’re a guy who’s seen tons of websites built, Justin, if you had nothing but a great developer from Toptal, what website would you build that would make money quickly?
Justin: A marketplace to buy and sell online businesses.
Andrew: No, that’s a hard one to build. We’ll get into how hard that is.
Justin: It is. I don’t know. I think–
Andrew: What about one that takes a while to build?
Justin: Here’s one I really like, an industry and a niche I think would be interesting is one targeting seniors and retirement homes and really good like high quality content, easily able to navigate. A lot of baby boomers are retiring. I’d start in a place like Florida and have a really nice layout and great UI, UX to be able to navigate through the site for people looking for retirement homes for their parents.
Andrew: I see, buy a retirement parent home for your parent. Here’s a website where you can do that and you want not just great developers on it–frankly, it’s not that expensive a site to build, but you do want really good design to that people who are older who want to go through it won’t have to struggle.
That’s one of the great things about Toptal. They have not just developers but they also have designers. You hire the best of the best. You put them together and you end up with a really good team of people. One of my listeners, by the way, a guy who runs a company called Tatango, actually had a business. It was up and running. It’s the same stuff that you could do via email, email marketing but do it via text. That’s his business. A lot of companies hire him.
The guy is doing really well. He told me his revenues, I won’t reveal it. He said, “I’m not starting out. I have a business. I have a real company here. I need more developers.” He went to Toptal, hired a great developer, CTO-caliber developer. Had such a good experience, he ended up hiring another six people to fill out his team. His team consists largely of Toptal developers.
All right. Anyone who’s listening to me who’s either starting out with an idea like the one that Justin just gave you or building up the way that Tatango did when they were listening to me, could just go to Toptal.com/Mixergy and hire a developer or designer. Here’s the way their process works. You go in there. You fill out a form and then they get on the phone with you to understand your problem and match you up with a developer.
If you love it, you get to go and work with them. If you don’t, you don’t have to. But if you use the special URL I just gave you, you get 80 hours of Toptal developer credit when you pay for your first 80 hours and that’s in addition to a no-risk trial period of up to two weeks. It’s a phenomenal offer made just for Mixergy people. To get it, go to Toptal.com/Mixergy.
Justin, let’s get into how you got here. You’re a guy, you were in college, you met your buddy, Joe–is that where you guys met up?
Justin: No. We met before that. But we had talked for a bit and we’d hung out a bit.
Andrew: And then the mortgage business got–well, you got into the mortgage business how and what happened there?
Justin: So he was making some money working for a company selling mortgages–California, big market, was making good money. I was in college at the time and he said, “Look, come join this business. You can make some good money. I can get you in.” We went and did that for a while working for someone else. Great sales guy, great sales organization, kind of learned the business and eventually said, “Why don’t we do this on our own? I think we can do this.”
Andrew: And you guys decided you were going to start a mortgage brokerage business?
Justin: Yeah, we did. So we started a mortgage brokerage. We were still doing our own loans, originating our own loans but also started bringing on people to do loans underneath us and started giving them fairly large splits. Business was good.
But shortly after that, not too long after that, we started seeing the mortgage crisis early. So, like lenders started closing up what they would allow to go through. So deals we had in the pipeline, we couldn’t push through, we couldn’t get them done anymore. It’s funny looking back. We were right in that, Andrew. If we’d had any way to capitalize on it, it would have been really interesting.
Andrew: Capitalize on the fact that the mortgage industry was. . .
Justin: Was going to crash. Absolutely. It was so clear in hindsight. We were right in the middle of it. We saw it before anyone else did. Everyone else was on TV saying things were fantastic. We weren’t able to get loans closed. It was interesting.
Andrew: The way that business worked was you would go and find people who needed mortgages and they’d fill out the paper work and then you’d take it to banks and you’d say, “Here’s one my clients. Will you give them a loan?” If the bank says no, you go to another one. If they say no, then you go to another one.
Justin: Banks would wine and dine you, actually. They would come in and take you out and, “Please, do you have any loans you can give me?” And then when that started drying up, we started going to them and saying, “Will you take these loans?”
Andrew: I see. So, how did you get the clients? How did you get the people who were looking for mortgages?
Justin: So a bunch of different ways. When we were working for a company, we had lead gen. When we had our own brokerage, we were doing some phone leads. We were paying a good bit, anywhere from $80 to $100 per call, whether you closed the deal or not. It was pretty pricey. That was a whole other business. Lead gen to mortgage companies at that time was through the roof. There were a lot of Filipino call centers that were making a ton of money on that.
That’s actually when we originally kind of connected with the Philippines. We were hiring people, loan officers and we were putting ads on Craigslist and trying to find people to close deals. We didn’t want to do that. So, we hired a virtual assistant–this is like pre-oDesk and Upwork or anything–and had a Filipino putting ads out all over Craigslist to try to find these loan officers. She was fantastic, doing great work for us all through–
Andrew: She was just going to different Craigslists, SanFrancisco.craigslist.com, NewYork.craigslist.com, etc., writing a different post each for each one with enough of a change that it won’t get caught by their spam blocking system and then who would take all the calls that came in from those ads?
Justin: I forget. We would. It was either myself or Joe or whoever was–there was another guy named Mark. So we would take the calls and then we would kind of like weed them out. So, she would post. This is pre-ghosting, I think, too on Craigslist. We’re talking like 2005, 2006.
Andrew: What’s ghosting?
Justin: Well, it turned out to where they would hide–you put up a Craigslist ad and it was not you or whatever or it was a repeat or similar and it would go–you would think it’s live and it’s not live.
Andrew: Oh . . .
Justin: That was something that happened way later. That was something that happened way later. At this time, it wasn’t a problem. Airbnb later on put a ton of stuff on Craigslist, just to expand Craigslist to do some business and shortly after that they got ghosted too. Everyone was getting ghosted later on.
Andrew: I wonder if I’ve ever posted something on Craigslist, thought that it was posted and then it wasn’t. I didn’t even know ghosting was a thing.
Justin: Well, if you’re not doing a lot of posts, it depends on how many couches are you selling, Andrew?
Andrew: No, it was like one of two things that I did and not even that many posts, but I never got any responses, so maybe it was a crappy ad, not that I was ghosted.
Justin: A crappy ad, maybe it ghosted, I don’t know. What we did is we realized there was super value in this Philippines thing, right?
Justin: There was a time where my business partner and I, we were cruising down the road and he was on like a Windows mobile phone like chatting with our girl in the Philippines at like 10:00 a.m. or something. He’s chatting with her on the freeway while I’m driving and we’re like, “Holy shit, this is the future. This is something that’s going to be amazing.” So, our mortgage company ended up going out of business but that Philippines connection came in handy later.
Andrew: Later on or soon after that, you ended up working for an SEO company, right?
Andrew: And then Joe joined you at the SEO company. You then went back to the guys who you were working for and saying, “Hey, look, we know about the whole Filipino VA system. Can we do something here?” What did you propose to them?
Justin: So we’d already hired a couple of VAs to do some kind of side tasks. They were performing with well. It was successful. I went to my boss at the time who was like a part-time COO. He was in like one week and out another. And I said, “Look, I want to put this proposal together.” He kind of gave us some advice. We sat down, went over it, put it on PowerPoint and came in to our CEO/CFO and said, “Look, here’s what we want to propose.”
We setup a meet. They knew it was coming and kind of like laid it out. We said, “Look, we’re not going to be firing our team.” It was our team at the time. Most of operations worked for us. He said, “We’re not going to fire out team. We’re going to let them go through attrition. As they leave, we’ll let them go. Here’s how much money we can save over time by replacing them with a Philippines staff.” They totally went for it.
So, we could have done that through the company, just manage it remotely. But the idea was, “Look, we can build this offshore company in the Philippines as our own.” So, eventually we can outsource our own jobs and join them in the Philippines and run a company from Asia.
Andrew: And you guys were going to do this for them or start your own company of virtual assistants?
Justin: Start our own company.
Andrew: Start your own company of virtual assistants then go back to the SEO company and say, “Hire my company.”
Justin: Well, yeah, just hire our company now and we will quit our jobs and start working–
Andrew: I see. Did they do that?
Justin: They did, signed a no cut contract for like a two-year contract with them. Joe moved to the Philippines. We’d visited already to set some stuff up. Joe moved to the Philippines. I stayed in the US and continued to go into the office even though I was just a contractor at that point.
Andrew: Okay. So, you’re doing this and then you say, “Hey, I want to go there too.”
Justin: Yeah, “I’m out of here. I don’t want to be here. I’m not interested. I’m with a company that’s not mine. That’s not ours and I want to get out.” So, my mentor was like, “No, you should stay. You should find new clients in the US. You’d be much better off. I just went anyway. So, I left. And a months later, they ended up cutting our no cut contract and cutting back on us, basically.
Andrew: What’s a no cut contract?
Justin: Well, it was a deal where they couldn’t cut the amount of money per–they couldn’t go below a certain amount of agents per month. If they did, they had to give us plenty of notice and like a fee. Here’s the problem–we were in a position where they owned us as like our only major client. It wasn’t much of a business when all of your business is through them. We’d started hiring new customers but like it wasn’t enough to replace them fast enough.
So, when they say they’re going to cut back on us, we have no leverage, zero leverage. A contract isn’t leverage. So, maybe it is, sure, if you want to get into this. But at that point, could we sue them? Maybe. But Andrew, they would have just cut us out completely and been like, “You’re done,” and there goes 70% of all revenue we had coming in.
Andrew: Even if you sue them, your costs would be so high that whatever money you want back probably wouldn’t be worth it if you want it back and at the same time you’d be so distracted that you wouldn’t be in the virtual assistant business. You would be in the legal business.
Justin: Collect money business. Yeah. So, that didn’t work out well.
Andrew: What happened?
Justin: So they cut back slowly but surely over time then finally cut everything. We had enough clients at that point to kind of still get by. We were making it but not making it. We weren’t doing super well. It was like, “Okay, survival mode. We’re getting by.”
Andrew: By the way, this is the second time that you’re in this big low as entrepreneurs. The first time with the mortgage business, I don’t want to overlook the fact that you leave the mortgage business or you have to close the mortgage business–
Justin: That was horrible. I was broke.
Andrew: What happened to you?
Justin: I was broke.
Justin: I looked for a job on Craigslist. I was like, “This looks like kind of a cool company,” applied for them. It was good. It was actually an interesting company, but I was just broke.
Andrew: And you were top of the world in the mortgage business. You were bringing money in, having clients. What was the big thing that indicated to you in your head that you’d made it in the mortgage business?
Justin: We took a month long vacation to Asia and travelled all around Asia toward Christmas break or whatever. It was fine, had plenty of money, had no problem, so could leave the business.
Andrew: And then you lose the business and your friend gets married and suddenly what happens at the bachelor party?
Justin: Yeah. I can’t pay for my portion of the bachelor party. It was horribly embarrassing. Yeah.
Andrew: Awful. And then again, this new virtual assistant business is coming to a crash. What happened there with that crash? How did you personally handle it?
Justin: So it sucked that we weren’t in a great financial position, but it got worse. We had an office. We had an office in the Philippines that we’d go into regularly. It got to the point where like Joe, my business partner was like, “Look, let’s just close the office. It doesn’t make sense.” It’s fine for him.
It wasn’t that big of a deal but it was a real pain point for me. I was like, “If we close the office, we don’t have a real business. We don’t have a real business and we might as well–not might as well, we’re probably going to be stuck quitting and going home to the US. We’re screwed. But it made sense. We fought about that. Eventually I agreed, “Okay, let’s shut down the office,” but it was pretty painful to the point of like I thought we were done.
Andrew: And at that point, if you were done, what does that mean for you? Did it mean going back to a job? Did it mean your life was over? For me, when I was in a tough spot it meant, “I’m never going to find a girlfriend. Forget it. I can’t even get air to breathe, let alone find love.”
Andrew: What was it for you?
Justin: I thought I would have to get a job. I didn’t think my life was over. I didn’t because of the mortgage thing. That was pretty horrible. But it’s like that showed me that no matter how bad business gets, you’ll make it through.
Andrew: I see, that because you got over the mortgage business, this next hit was not so bad. You said, “I’ll get over this too.”
Justin: I was a lot less afraid of failure. It still sucked, but I was a lot less afraid of failure. I still had a storage unit worth of apartments worth of stuff in the US. I figured, “If I’ve got to go back, I’ll pull the stuff out of storage and get an apartment and go try to figure it out.”
Andrew: I see.
Justin: So, it wasn’t great. But I would have hated to have to go back to the US and get a job. It would have been horrible. It was close to that. Yeah.
Andrew: One of the hard parts of having put together a team is–I’ve been in situations like this. I look around and go, “These people are freaking terrific. They’re brilliant. They’re great people. I’m lucky to get to work with them. It’s hard to assemble a team like this.” Now the company is going down, I could lose them all and it’s not because they’re all failures. I’ve let people go saying this, “You’re not the problem, I fucked up. I’m the one who screwed up.” That’s the worst feeling, right? You’re letting people go. You’re losing this big thing you put together because of a screw up that you made.
Justin: Yeah. You feel like you’re letting people down. You feel like you’re screwing them over. The worst thing is they think they’re just horrible. They totally blame themselves.
Andrew: Right. And then they have to go back to their wives who might think they’re horrible or their husbands who now have to readjust their lives because of what you–that’s an awful feeling. You had that, what did you end up doing with this team of people?
Justin: We did let some people go. We had to. So we let some people go, but we kept others. These were the best and brightest and they’d been with us for years at that point. We said, “Look, there’s got to be something we could do with them.” We tried a couple of different things. We tried like Mechanical Turk and a few other things.
Andrew: You mean passing them to Mechanical Turk so they do some work on Mechanical Turk?
Justin: Yeah. They were making like $0.80 an hour, just nothing good.
Andrew: One of the other things we tried was building niche websites, so something around a particular small keyword that would rank organically and get paid via AdSense. It makes a couple bucks a day, we’re good.
So we started doing that and we spent a few thousand dollars and a whole bunch of my time, Joe’s time and our agent’s time and made like $50 and then $100 next month, a couple hundred bucks next month and it was really not going well until maybe the fourth or fifth month and it started making a bit more money. I was disappointed with it and Joe’s like, “We’re just beginning,” because he saw the recurring start to kick in. I was like, “We’re screwed.”
Andrew: What was the website that you guys built that was earning AdSense?
Justin: Here’s a good one. It’s so long, ConstipatedCat.net was one of them.
Andrew: ConstipatedCat dot what?
Andrew: .net, okay.
Justin: It’s probably not even there now, but there are a lot of cat owners out there are really worried about their constipated cats, apparently.
Andrew: And so your virtual assistants in the Philippines ended up–yeah, the site is down. I’m going to go to Internet Archive to see if I can find it–your virtual assistants in the Philippines put together that website for you with what kind of content?
Justin: Outsourced content from, I think, like Text Broker and HireWriters.com, a couple of different companies out there that provide text. So, they would order the text from there. They wouldn’t actually do the writing. They would order the text and publish it on the sites. In some instances, we actually had Filipino staff ordering content from the US. So, we had our Filipino team outsourcing to the US, which I thought was cute. So, they would have US writers writing for the sites.
It got to the point where we were doing a lot of these. Some of these would fail and wouldn’t make money. Others would. So, we’d have one that makes $1,200 a month. A bunch of others would make $350 a month. The ones that were making good money were winners. The ones that were not, maybe mid-range were making $50, $80, $100 a month.
Andrew: It looks like the business was called TryBPO.com?
Justin: That was our outsourcing company, yeah.
Andrew: That was your outsourcing company. Got it. Okay.
Justin: TryBPO, business process outsourcing.
Andrew: I see. Okay. And this is the thing that then turned everything around because you guys started building these websites as we’ll see in a moment. You started selling them and then that led to a site where anyone could buy and sell their own websites, right?
Justin: Yes. We built up kind of a buy side to the market. We started off selling on Flippa.
Andrew: Let me take a pause before we get into the next stage in the story. I want to understand how you then developed into a marketplace. I’m also so scared of marketplaces because you have to get two groups of people together and you only make a small commission on the overall sale that you’re generating, but at the same time I’m seeing through my interviews that these marketplaces are phenomenal.
When I asked you what would you create, you didn’t say, “Andrew, I’d create something completely different because this is a tough business.” You said, “If I could create anything, it would be another marketplace.” Let me take a moment to talk about how you built this marketplace and how anyone else could build a marketplace based on what you’ve learned.
But first, I’ve got to tell people about a company called Pipedrive. Dude, Justin, I’ve been telling people about Pipedrive for years. Frankly, they don’t need to pay me for me to talk about it. If you go back to the transcripts, you’ll see Pipedrive being mentioned for years. The reason is this–are you a driven person?
Andrew: I’m super driven. I hate when someone shows me their CRM and people love their CRM because it does something cute like keep track of whether someone opened up your email or not. I love that. Those things are cute. But I’m so driven that if I have a CRM, if I have some place where I can put people’s contact information, I want to know, “What am I driving towards? What’s the goal of this?”
What Pipedrive does is it takes my energy, my need to drive a conversation, a relationship towards a goal and lays it out in a way that allows me to actually hit that goal and maybe brings in a team of people to help me. Here’s what they do. They say, “What’s your ultimate goal? Is it a sale?” In most cases, of course, it is. For me, it’s getting a guest here on Mixergy.
Great. They say, “That is now your finish line. Put that into Pipedrive.” They say, “What are the steps involved in getting to that goal?” I lay them out. Every step has its own column. Every time I add someone now to my Pipedrive, they get a card that goes in the very first column and my goal as a human being, as a business owner is to drive as many of those cards from the first column to the end column, meaning I hit the goal with them. For me the goal is to get you here on Mixergy. You originate it as a card on column number one of my Pipedrive. Column number one for me is suggest a guest.
Justin: Is it marketing automation or CRM or kind of a hybrid?
Andrew: It’s CRM. It’s a way for a team of people to see or even an individual to get someone to close a sale. It’s software that helps you close sales. So, you were a card on the left most column, which is suggest a guest. I have someone else on the team say, “Is this guy, is Justin Cook really appropriate for Mixergy?” Someone else said, “Yeah, he is.” I moved you to the right.
Then we did a pre-interview, which means we move you another column and so on. If at any point you lose touch with us, which sometimes happen, people have other things going on in their business, your card turns red. It means, “Justin hasn’t spoken to us. He’s ignoring us.” Someone else goes in and makes sure that you’re given enough love and attention that you come back in our system so you do the interview.
Justin: You can setup automations to like remind people, “Oh, this guy hasn’t checked in for a bit.”
Andrew: Right. Yes. If we as a team haven’t checked in, your card goes red. If you haven’t checked in with us, your card goes red because we know that if we haven’t had any communication in a while, we’re much less likely to close you as a guest on Mixergy.
Justin: That makes sense.
Andrew: If Andrea sends you an email, I get to see it so that I know what other people on my team have said to my guest.
Justin: Sneaky, Andrew. Sneaky.
Andrew: It’s fantastic. I’m revealing the whole thing. Anyone out there who wants to close a sale has got to try Pipedrive. If you’re doing it by yourself, it will hold you accountable to make sure you’re really adding as many new people to your system as possible, as many new sales calls as you say you’re going to or as many sales emails as you say you’re going to. It tells you where are you failing, where are you not closing your sales? If you bring in a team of people, you all collaborate to close sales.
All right. The best way to see this is to go to Pipedrive and try it out. I’ve been talking about it for years and when I did, nobody got anything for free. You had to actually be just like everyone else. Now that they’re paying me for these ads, they’re giving us something free, two free months of Pipedrive for anyone who’s listening to me. The offer is still available for a limited time.
Go check out Pipedrive.com/Mixergy, Pipedrive.com/Mixergy. You’ll get this tool that’s very hard for me apparently to explain here that will help you close your sales in a very easy way. I’m telling you, it’s fantastic–Pipedrive.com/Mixergy. I haven’t gotten a single complaint about Pipedrive. Any other sponsor, people will tell me, “Hey, it doesn’t work for me. I actually like it, but it’s not a good fit,” Pipedrive, no one has ever said, “Actually, this sucks, Andrew.” Not a single person.
Justin: Not bad.
Andrew: No. Frankly, if anyone doesn’t like any one of my sponsors, email me. I want to know directly. If you don’t like Pipedrive, if you think I’m overselling it, my email address is Andrew@Mixergy.com. If you love it, I’d love it if you tell me about that too.
All right. You start selling on Flippa. You guys were called AdSense Flippers, that was your name?
Justin: Yeah. That’s right.
Andrew: Okay. You’re starting to make money. Is this actually generating sales?
Justin: Yeah. So, we could have just kept building sites without selling the websites on Flippa. We started selling because we wanted to recoup some of our cash outlay. I think we spent like $10,000 or something. So, we said, “Look, let’s bring some of that money back by selling the sites and then just reinvest that into building more and scaling up the process. That was really helpful. We made some money selling those sites and then just kind of like incubated the sites, grew them out and the ones that popped, that made money, we’d sell.
So we started selling on Flippa. Then we had a bunch of buyers that asked us, “I like buying with you guys. The problem is that you’re starting to get popular and so you’re starting to get all these copycats. So when I buy a site, there are a dozen copycats. Can you just sell it to us privately? Don’t take it to Flippa. Don’t even put the URL out there, just tell me you’ve got a site and how much it makes and I’ll buy it from you.” We were like, “That’s really strange, but we’ll do it. That makes sense.”
Andrew: It makes sense because all the sites are essentially the same. It’s not like you suddenly were offering a Shopify store one week and a WordPress site.
Andrew: It’s all WordPress sites. It’s all content-based. It’s all AdSense-based.
Justin: Very straightforward. We started selling those privately on our site. We put up a–you can do Wayback on this, it looks ridiculous–there’s like an Excel spreadsheet with a button you can click and buy now. It’s really bad.
Andrew: I would see that on AdSenseFlippers?
Justin: AdSenseFlippers.com. Yeah.
Justin: A few years ago, yeah. That was on our marketplace. You could go and you click a button and it would take you to a PayPal link. You would go buy the site from us and we would do the transfer from you. That’s how we started building up kind of the buy side.
You talk about marketplaces are difficult because there are two sides to it. Our cheat was that we were creating our own inventory and selling it. So, we could create our own inventory. We could scale up or down as needed. So, we started building up buy side. We got a lot of people asking us, “Can I sell with you? You have a ton of buyers.”
Andrew: Before you did that, how did you get buyers? What was it that you were doing?
Justin: Content marketing. We were explaining to people exactly how we built the sites. So, we were, I think, building some–we said step by step, this is exactly what we do. This is our keyword research process. This is our process for building them out. This is exactly what we do. We were attracting some attention with that. So, it just got some people kind of in our space.
Andrew: You had an income report going all the way back to I think 2011?
Justin: Yeah. They weren’t that popular back then, but enough to get some attention. Plus we had our buyers from Flippa previously that had bought from us and like had followed us and joined our email list. So, as we were putting more sites up, we had more and more buyers and would attract new buyers with our content marketing. That’s how we built up the buy side.
Then sellers knew about it because they knew us from Flippa or knew us from our content marketing and said, “Hey, can I sell with you?” And we kept saying no. The same reason you mentioned earlier, Andrew, is like why would I take a crappy margin on this transactional business when I can basically create my own inventory whenever I want? I own the factory, right?
Justin: So that’s great when you’ve got a great ROI on your products. When you don’t or when that slips significantly, that transactional business seems much more interesting. So, basically the sites we were building weren’t nearly as successful. They weren’t as successful. So, we built it for like $50 and we were selling it for $200, maybe like a year down the road we were selling it for like $60 to $80. So, it’s just not nearly as profitable. So, we started looking back, letting other people sell and said it looks a lot more interesting.
So what we did is we said, “We’re only selling like four-figure websites. Why don’t we broker like five-figure websites?” So then they’re not directly competing.
Andrew: Let me just say this. I’m looking at old screenshots of your site. It’s not unusual to see a site going for $500.
Andrew: Like we’re really talking small, small amounts of money. They were making $26 a month in sales. That’s the kind of thing that we’re talking about.
Justin: Yeah, super small.
Andrew: Super small. Okay.
Justin: What we would do–we did it on Flippa and then a bit on our site–is packaged them together. So, if we have like a $25 a month earner, we’d package it with like five others.
Justin: If we had five $100 earners, we’d package them together to a $500 earner. Whatever we thought would sell better and like give us kind of a bigger bang for our buck. So, we were doing a lot of those and said, “Why don’t we broker deals that are in the five figure range so they’re not competing directly with us? Why let people sell with us and they’re competing with our factory? Why not get them at a different like level?” Does that make sense?
Justin: I don’t want them competing with us because then they buy their sites and not ours and we’re making of a lot less money on the deal.
Andrew: So you guys handled the small deals by yourselves, by making these sites and selling the smaller sites, but if someone wants to make and sell a bigger site, that’s okay. They just can’t compete in your $500 space.
Justin: That’s right. And then we ultimately let some people do that and over time–this is maybe like we’re doing other things in the meantime and over time, there was like a transition that happened where the brokerage continued to do better. The sites we were making weren’t nearly as profitable and so we cut making sites completely. We took hits too like on Google updates and other things along the way. So, finally we said, “Why don’t we just continue the brokerage? That seems to be the thing that’s working well.”
At one point, maybe a year later, 2013 or so, we cut out everything else. So, we had like keyword research packages and like other products and services and we discovered everything and said, “Look, the brokerage is what we want to focus on.” It worked out really well for us, let us focus in on just doing the brokerage and it did really well.
Andrew: Your writing got you traffic. Your guest posts on other sites helped get you traffic. Your podcast, did that help get traffic?
Justin: I don’t know, Andrew. To be honest with you, I don’t know. Traffic, I don’t know if it got us new customers. I know that it strengthened relationships with customers. So, I don’t know how many new customers it drove, but it definitely does a thing where if we’re getting on the phone or one of our sales guys today is getting on the phone with someone who’s listened to our podcasts and is familiar with us, it’s not like we have to sell them on who we are and why you should trust us.
They already know, like and trust us. It’s really a matter of like finding the right with for what they’re looking for, like here’s where my budget is. Here’s where my risk tolerance is. Here’s kind of what my skill set is. What do you think is a good fit? It’s a lot easier than like, “Who are you guys? I don’t know if I want to pay a deposit. What is this crazy deposit process you’ve got? How do I know these sites are any good?” All those kinds of things.
Andrew: I see also that–I can’t get SimilarWeb up. My computer is slow for some reason. Where are you in the world?
Justin: Right now I’m in Saigon or Ho Chi Minh City, Vietnam.
Andrew: And you’re a guy who travelled a lot. You’re just not settling into Saigon. I wonder when you’re doing all this travelling, how do you get work done? How do you find high speed internet that you can count on in all these places?
Justin: Well, it’s not like all tiki huts out here, man.
Andrew: I’m in San Francisco. It feels like tiki huts. My internet sometimes is so freaking slow. Right now I was trying to find my list of stuff about you, my list of referral links.
Justin: I don’t know, man, that’s like 40 down–
Andrew: How do you find high speed internet when you go to these different countries?
Justin: It’s like 40 down, 30 up here in Saigon. There’s Wi-Fi at most of the coffee shops. It’s pretty fast. It’s reasonably fast. There are service apartments all over Bangkok, Manila, Saigon. If you’re staying in major cities–just don’t go to Bali or some of the island places. If you’re in major cities over here, the internet is super-fast. Plenty of cafes to work from if you need to do calls. I have a nice apartment here. It’s pretty easy, man. You’ve never been out here, right, to any of the conferences or anything? You should come sometime.
Andrew: No. I haven’t. You’re right. Bali, I did have internet trouble there. I was just traveling through it for a while. It’s tough. But I remember actually moving to DC. My internet was so slow. I would actually show them, “Look, here are the countries I’ve gone to. Internet is better in these freaking countries. Make it work. Find a way to solve it.” I had to pay extra just to have like I think it was $150 a month just to have my own internet brought into an office that came with internet already.
Justin: I think we’re paying like $40. We’re able to operate online pretty easily. Our whole team does this, where most of us are traveling and we get together every few months, like every three or four months we’ll bring our whole team together to work for a month. We’ll do it in random places, Chiang Mai, Thailand or Saigon, Vietnam or we’ve done it in Phuket, Thailand.
Andrew: How can you afford to do that? When you guys are bring in $700,000 a year, $200,000 of that goes roughly to sales to you guys. How much are you paying to fly all these people into the same room?
Justin: Well, it’s pretty cheap over here, man. The other thing is we grew a lot. We’re going to do maybe $10 million or $11 million this year in sales.
Andrew: You’re basically saying closing 2016, not including values of the sites that you’re selling, $10 million or $11 million?
Justin: No, the value of the sites we’re selling, total sales.
Andrew: Including the value of the sites?
Justin: Including the value of the sites.
Andrew: What about excluding the value of the sites?
Justin: Probably $1.5 million, $1.4 million.
Andrew: $1.5 million, okay. So, then what does it cost you to fly your whole team to get together?
Justin: Not that much. We just brought on three new sales people, so it cost a bit more. We budget maybe $15,000 to $18,000 for the month and usually end up spending maybe $18,000 to $20,000.
Andrew: $18,000 to $20,000 to fly your whole team to get together?
Justin: And to rent out the places and the penthouses.
Andrew: That’s worth it for you?
Justin: Oh yeah. Look at our Facebook page, Andrew. Look at the places we get to stay. It’s an awesome thing. We get to stay in these crazy villas on like the beaches in Thailand with super-fast internet and work and play together for a month, totally worth it to us.
Andrew: I’ve seen that.
Justin: Absolutely. It’s like not–it is like, “Well, you guys are doing this beachy, villa penthouse thing.” Yeah. Because it’s awesome. It is. Like, unabashedly, I feel great about it. It’s great. So, when we get to bring our whole team together in terms of like team culture and having everyone together, I love it. Our team loves it too.
Andrew: I wonder if I should be doing more of that. I definitely don’t get together with my team enough.
Justin: The Buffer guys do that.
Andrew: I’ve never seen everyone.
Justin: They did it in Thailand. I think they were doing it like once every six months or something. They did it in Thailand where they rented a villa and did a little bit of play. Ours is more work–keep in mind, Andrew, that we’re doing this all the time anyway. Most of the people on our team are doing the travel thing. They’re staying one month here, one month there. We just kind of like round everyone up and say, “Hey, in April, we’re going to be in Saigon.” So, we’re bringing them back here.
Andrew: I see. As long as they’re traveling, they might as well travel to the same city the rest of the team is in and hang out and work together.
Justin: That’s right.
Andrew: You guys used to have a pretty high failure rate, as you called it, when you talked to our producer, which means you told her 30%. 30% means what?
Justin: I don’t know.
Andrew: Here’s what I got. “We were building these sites. It wasn’t successful. We were getting a big failure rate in the beginning.” I see. I think it was 30% of the sites didn’t sell.
Justin: No. That’s back when we were building our own site. We did maybe 30% of our sites that we built were what would do well and like a bunch wouldn’t. It got even worse over time to the point where that’s what I was saying we get a great return on the sites we were building and that kind of whittled down and got worse and worse. So, ultimately the sites we were building ourselves just weren’t as high ROI and it just made more sense to broker other people’s deals.
Andrew: I see. Okay.
Justin: Our process for building sites wasn’t as good as it was previously. Other people had better ways to build businesses.
Andrew: I’m seeing these marketplaces. They seem to do really well. Most people don’t do the kind of work you do. They don’t want to touch the money between the client and the customer, especially not to your degree. They just want to match people up and get a cut of the revenue. It seems like a tough business to be in. Can you talk first about the difficulty of creating a marketplace and then we’ll talk about what you can do to make it work well?
Justin: Yeah. The biggest difficulty in creating a marketplace is the chicken and egg problem. Which side do you go after? It’s kind of interesting. When you think about our marketplace, the sellers are really what you need. If you have the sellers, the buyers will come. So, with us and our competitors, it’s always–we’re always kind of like racing to get new listings. That’s what we’re doing. Not only are we trying to get the new listings, but you want to have a high quality of listing.
If we took every listing that came across, the quality of our marketplace would be lower and buyers wouldn’t trust our marketplace. So, they have a vetting process. We have to kind of like do the Chinese wall where you have sales out there shopping for deal flow and then you have now me and the operational side saying, “Okay, this isn’t good enough. This isn’t good enough. This doesn’t meet our quality guidelines.” It’s interesting. It’s a battle, actually.
Andrew: I’m taking notes as you’re talking because I want to ask follow up questions. It’s kind of weird when I type as you’re talking. It feels like I’m not paying attention, but in fact I’m actually super paying attention. Here’s what I wrote down. I’m wondering why you need more sellers than buyers.
If I were just to look at this space as an outsider and try to predict which side you’d want, my hunch would have been if you have a lot of buyers, the sellers are naturally going to come because they want a crowd of people to potentially buy. Why is it that sellers then draw buyers more than the other way around?
Justin: It’s really growing industry. So, there are a lot more people that are looking to buy online businesses. So, there are less people that have taken the time to actually build them out and more people looking to get in. So, as the industry continues to grow, I would imagine the buyers would continue–there would continue to be more and more buyers looking to get into this.
One of the really interesting spaces–I just talked to a guy recently–is trying to help baby boomers look at only businesses, not someone who has like zero internet skills, but someone that’s somewhat savvy that could possibly run an online business. How do you get them from that to actually being able to do it? I think that’s a really interesting niche to be in right now.
Andrew: When you do have these sellers, how do you get the buyers to know that you have them?
Justin: A lot of us share buyers. So, whether it’s Flippa, other brokers, us, we have a lot of the same buyers.
Andrew: You mean there are people who do a lot of site buying?
Justin: Yes. There are people with hundreds of properties earning anything from like $1,000 to $10,000 a month and they’ve got hundreds of them.
Andrew: How do they manage these guys?
Justin: Huge teams. They have multiple partners. They have investors. They have multiple operational teams.
Andrew: I see. All they do is they buy these websites, content mostly?
Justin: No. They do ecommerce. They do FBA businesses. It depends on what they’re looking for and what their portfolio needs.
Andrew: What’s an FBA business?
Justin: Fulfilled by Amazon. Yeah, they’re shipping from China to the Amazon store and shipping our from there.
Andrew: And there’s not much action that happens on their website?
Justin: Yeah, very little. It’s all sold through Amazon.
Andrew: And that’s also sold on your site?
Justin: We sell FBA businesses. They’re pretty new. We had our first listing for Amazon in December, 2015 and then we sold more than a dozen of them already this year. So, maybe I don’t know, 12 to 15 probably this year, Amazon FBA businesses alone.
Andrew: That’s amazing. So, the whole business happens on Amazon and that’s what people are selling. They’re selling all the old reviews, they’re selling the connection to the place in China that makes it.
Justin: People don’t care. It’s not like you’re buying the website or the content. You’re buying the cash flow. You’re buying the brand. It’s a lot of goodwill. That’s really what people are buying. So, when they’re doing their due diligence and they’re doing their vetting, the question is like, “Number one, how likely is it that those earnings are going to continue?” and number two, “What’s my real opportunity to take this over and grow it?” So, that’s what buyers are ultimately looking for.
Andrew: If I were to buy a website, I’ve never bought a website before, what’s an easy one for me to buy to get started?
Justin: It depends on your skill set, Andrew.
Andrew: Let’s say content. That’s what I’ve been doing.
Justin: Something that is particularly interesting, something that with your current team, your team at Mixergy, you could leverage their skill sets and like add into the mix pretty easily. So, you’ve got people that vet the guests. So, someone that like vets like guest posts or something might be interesting. You could add them to that, vets particular guests for the blog interviews or something. So, something that fits your team’s skill sets, your personal skill set would be ideal, something that’s in your budget, obviously.
I think it’s generally better to buy a larger site rather than buy a bunch of smaller sites. I’ve changed on that over the years. I think I’m leaning more towards the larger site rather than multiple small sites because of split focus issues. But that’s generally what we look for.
Andrew: What if I wanted to get out of the content space or not get out, but I wanted to diversify away from the content space? Knowing my audience, what’s one type of business I could buy from you guys at Empire Flippers that would fit with my audience and allow me to diversify away from ads and content?
Justin: Do you like physical products?
Andrew: Sure, if it fits.
Justin: A good ecommerce business.
Andrew: A good ecommerce–do you have one listed on your site that I can look at?
Justin: I don’t know, Andrew. I’m not the listing guy. I actually don’t know.
Andrew: What are you? What’s your focus in the company?
Justin: More marketing and I just recently took over operations and customer service. I took that back from Joe. Joe is running sales mostly. We just hired three new people to be on our sales team. So, with his hiring them, I just recently took customer service back from Joe.
Andrew: So, I’m looking at–
Justin: I’m mostly marketing.
Andrew: That’s why you’re doing the interview and not Joe.
Justin: Yeah. He’s good though. He can do an interview. He’s alright.
Andrew: Yeah. You guys are good personalities. It seems like from the start, you were big about showing your photo on your website, talking about who you were, telling your story. I saw one post you did 2011 I think it was where you said, “Here’s how little money we made from AdSense, $43, ouch.” You’re big about saying, “We’re not happy. This is what we’re not doing well.” I think that helps personalize you and makes you more interesting as guests too for me.
Interesting. So you wouldn’t be able to recommend–what about someone listening to me who says, “I’ve never bought a website. I keep thinking about how I can start another business. I just want to get started by testing buying a site. Are there a whole bunch of issues when you buy someone else’s product that you don’t know about if you’re doing it for the first time? What’s a type of site you recommend they went and bought?
Justin: So, for fist timers, I really like Amazon affiliate and like lead gen. So, for the last couple years, it’s been a lot of sites in the lead gen space. Generally this is like in the educational space. There are companies like QuinStreet that have networks of paid for institutions that are looking for leads to send to them.
If you have a site in that space, let’s say some kind of medical education or some technical job, they’ll pay you for those leads. People are looking for those tech schools. So, setup a lead gen site with them, they’ll pay you $30, $40 a lead and then some of those sites make $2,000, $3,000, $5,000 a month. I think those are super interesting. I think the content is kind of interesting. I think Amazon affiliate sites are pretty straightforward. So, they’re making normally anything from $500 a month, $1,000 a month, up to $15,000, $20,000 a month.
Andrew: Meaning they’ve got a content site that links to Amazon affiliate products.
Justin: Yeah. It links to products on Amazon. It will do like a lot of reviews. It will do like a this versus that product. Generally if you’re going to buy those, I like the higher quality content, like real quality images are generally better. So, Amazon affiliate sites are easy. I’d say lead gen sites are easy if you’re just starting off. Like a full on ecommerce business is a lot more complicated where you’re actually warehousing the product.
If you really want a physical product business, I’d say FBA is easier, where you’re shipping directly to Amazon. They’re shipping out to you. You don’t have to worry about sales channels. Now you have to worry about how to stay relevant and on top of the search engine in Amazon, which is another challenge. But for physical products-based, FBA is pretty easy.
Andrew: I see. As a marketplace, if someone’s listening and wants to build up a marketplace, what advice would you give them based on your experience?
Justin: Good luck.
Andrew: Good luck?
Justin: No. One of the things we did is we didn’t worry so much about the tech. So, we didn’t have a whole bunch of development going on, on the back end, not originally.
Andrew: Yeah, originally you guys were just a WordPress website. You guys didn’t even have smart URLs or Google-friendly URLs. It was like p=115 is the end of the URL.
Justin: Did we? Maybe super early, maybe like five years ago.
Andrew: I might be looking at really old versions.
Justin: It was still super ugly and not particularly pretty. We cleaned that up. So, what we did is we ultimately made like the kind of front end cleaner, but not very sophisticated on the back end. And that was a way to kind of like hack it where we didn’t want to pay for all the development work. We wanted to make it pretty on the front. Now even like last year and this year, we’re doing a lot of like catch up work to clean it up on the back end, but you can do that, have like a nice prettier front end and then clean it up later on. That’s one of the things we did to make our marketplace better.
Andrew: Did you guys create the marketplace software yourself?
Justin: When we originally did it, yeah. We were selling our own sites.
Andrew: What about now? I guess in the beginning it was a WordPress website. Now what is it? You guys are still running on WordPress.
Andrew: It’s your own custom theme. I see. People need to create listings through you. You don’t need a site that allows them to create a listing and then have it powered and up online fast.
Justin: It’s a pretty like–we tell developers when we hired our latest developer team like, “We work in WordPress.” They’re like, “Ugh, WordPress is boring.” We’re like, “No, it’s actually kind of interesting.” They looked at it like, “Okay, that’s a little more complicated. It’s kind of interesting. Yeah.” It’s straight WordPress.
Andrew: I see what I mean about the URL. It’s not that in the past your URLs were numbers, it’s today. Every listing of a URL is a number.
Andrew: The URL for this one that I’m looking at is EmpireFlippers.com/listing/40701.
Andrew: Instead of I guess you couldn’t put the name of the site in there.
Andrew: You’ll only tell it to people who put down a deposit.
Justin: That’s right.
Andrew: All right. Well, you did it. You feel safe now or do you still feel this sense of, “At some point this whole business can go away because two of my past ones went away?”
Justin: Well, yeah. There was a point at which I crossed over and realized I’ll never have to go get a job, like no shit, I’m not going to have to go get a job again. So, that’s helpful. Now it’s a question of like are we going to screw up and make–I’m fine. I’ll be fine either way. Like I’ll get out of this and do something else. I’m totally comfortable with that. But do we screw our employees. Do we over-hire and have to let people go because we screwed up? We’re growing really quickly? Like I said from 2015 to 2016, we’re looking to double again in 2017. Do we over-hire or under-hire for that? Do we leave our staff screwed?
Justin: Those are the questions I’m wondering now. That is tough, man. Either way it’s tough. Do I worry about that shit? Yeah. I worry about all the time.
Andrew: One of the people you hired is the guy who introduced us, Alex Champagne. He was a producer at Mixergy, helped us find guests among other things and as soon as he went to work with you guys, he, I guess, emailed us and said, “You have to find out about Empire Flippers and that’s how we connected.”
Andrew: And before I did this interview, I didn’t check to see how I met you because I didn’t want that to keep me from researching you heavily. If I knew it was Alex, I wouldn’t have been as aggressive in my research. I would have said, “Let’s just go light. It’s a friend of a friend.” How did you feel about that intro, the first 20 minutes of this interview where I was hitting you with kind of hard questions?
Justin: It was aggressive, man. The other thing is too is I felt you took too much from competitors that don’t necessarily like our position in the market or the fact that we’re taking market share from them. So, it felt a little bit like you were taking too much of their talking points and bringing them up, which is fine.
It’s reasonable. I think that’s how we’re viewed by our customers. I don’t think that’s how we’re viewed by potential customers, which is a little different. The industry is not happy with us because we do things really differently. So, because we do things so differently, industry people aren’t fans. Now, customers, potential customers that are leaving them and coming to us, they’re fans. That make sense?
Andrew: That is a fair point. It’s true. I couldn’t figure out who your customers to go call them up. I was checking to see if I knew someone who was a customer of yours. But I could talk to people who had been in this space and as a result knew you guys. That’s absolutely true. That’s fair feedback.
All right. Well, the website has been vetted by me in a very aggressive way and I’m proud to say that we did this interview and you’re up on the site. At the end of it, does it feel overall like a fair interview though?
Justin: Yeah, man, it’s fair. I’m a fan of yours, Andrew. I know you ask tough questions. I know you like to dig, man. You didn’t ask any really weird questions.
Andrew: Like what? You used to hear me ask weird questions as a listener. What did you hear me say?
Justin: I don’t know. What have I heard? I have to go back. I don’t know, man, you’ve asked some weird ones, like, “Did you ever feel like killing yourself? Have you ever thought of it?” Like crazy person, like what are you doing, dude? What are you doing?
Andrew: I get that. Did you ever feel like killing yourself?
Andrew: Never did.
Justin: No. I never felt like killing myself. Not seriously.
Andrew: Not in relation to business.
Justin: No. Never.
Andrew: Okay. All right. It’s EmpireFlippers.com for anyone who wants to go check it out. And of course the two sponsors that I had, one I did I think a good job for and the other one I don’t think I was clear enough on. One of the reasons why I like having a guest on while I do the ads is I can tell when I’m not very clear. So, the one I think I did a good job on was Toptal.com/Mixergy. The one I feel I didn’t do such a great job on was Pipedrive. Fair to say?
Andrew: It was a little confusing how Pipedrive is going to help you grow your sales, which is why at the end I said you better go check it out if you really want to understand, but that’s not what they paid me for. They want me to explain what it does, not to offload it back to them. It is Pipedrive.com/Mixergy and Toptal.com/Mixergy if you want to check out my two sponsors. I’m grateful to them and I’m grateful to you for doing this. Thanks, Justin.
Justin: Thanks, man.
Andrew: Bye, everyone.