flippa

uWant to be your own boss? Earn income passively? Make a small initial investment and then stack paper on auto-pilot? If so, Flippa will seem like a marketplace where you can fulfill your greatest fantasies.

The tagline on the landing page reads “Work from anywhere, anytime. The #1 marketplace to buy and sell online businesses.” Flippa is a place where website owners sell their turnkey businesses, Amazon FBA stores, apps, and undeveloped domains. Since starting an internet business takes little initial investment, there are tons of listings for the curious entrepreneur to check out.

The first thing you’ll have to do on Flippa is create a free account. You can only see partial listings as a guest user, and that’s not a particularly fun situation to be in. Once you have an account, the blood starts pumping. Viewership. Revenue. Profit. Prices that seem reasonable. It seems like ground zero on your path to becoming a titan of the internet.

You’ll probably not be familiar with the majority of businesses for sale. They aren’t brand name websites and are usually niche derivatives of a few typical business models. The most easily understood model is this: someone creates or curates compelling content. The website gets traffic. Once the website gets enough traffic, the owner starts running advertisements. As a result, the website generates revenue.

What makes the business model attractive is that it’s inherently passive. Once you’ve established your search ranking and earn, say, $50 a month from advertising, you’re going to make a similar, though probably lesser, amount the next month even if you don’t touch your site. This is the brilliance of organic Google search ranking. Establishing yourself in a niche market guarantees profit and guarantees future profit albeit at some rate of decay.

What’s glossed over in most listings–especially the inexpensive ones–is that $50/mo in ad revenue resulting from organic traffic is a significant accomplishment. It’s easy to overlook this because it’s a small amount of money, but the truth is that the majority of websites lack the traffic required for AdSense to pay their hosting costs. All of my websites included!

This is a helpful post from Chris Lee explaining just how hard it is to make a site generate “livable” revenue of $100 per day. This is 60x more revenue than I’m talking about, but the method of calculation would be identical.

The rule of thumb for web-based businesses is that they are worth 15-30x monthly profit. A website that generates $50 per month might sell for between $750 and $1500. In this price range, the Flippa listings won’t look like garbage. Unfortunately, this range is considered somewhat affordable because would-be entrepreneurs tend to grossly overestimate the success rate of their own ventures. Unlike real estate or exchange-traded securities, internet businesses that can be purchased on Flippa often have no established value and can be really hard to sell even if you realize early on that you have no idea what you’re doing.

On one hand, sure, it’s possible that you might earn your investment back after roughly two years and then begin seeing real return on your investment. That’s the dream. In reality, the seller has informational advantages that you don’t have. A seller may be aware of new regulations, new competitors, or a major loss of traffic that is unrecoverable. A seller may have used black-hat methods to boost traffic, or, in the case of a business that sells a product, may have even purchased his own merchandise in order to inflate revenue numbers for the purpose of sales. What everyone seems to forget is that, though the barriers to entry are low, not having any experience in a niche is also a sure way to failure. To say the least, it’s a shady business.

For many looking for a short path to success, blowing $1000 on a business in a niche you don’t understand that ends up generating very little revenue can be a painful lesson. There are plenty of stories on the internet and various forums where people recount their negative experiences with Flippa. It’s these stories that I have referred to each time I have found myself on the cusp of purchasing a business on Flippa. Up until this point, I haven’t made a purchase and have probably saved myself from unnecessary stress.

There is a crowd that claims to have reduced listing valuation down to a science. They’re confident that they can reap profits and filter toxic listings. I don’t hold these people in particularly high regard (unless they’re showing revenue numbers and logging how many man hours they spend), yet I still desire to be one of them. Salacious title aside, over the next few months I plan to purchase an inexpensive website on Flippa and journal my experience.

The Flippa Myth