In addition to being the co-founder of Kingmakers, Hayden Miyamoto is the founder of No Hat Digital and co-founder of Wired Investors. He has built and scaled several six and seven-figure businesses and has deep experience developing systems to scale websites.
In this episode, we cover the building blocks of online business. For some of you, this information might seem fairly basic, but we think for the majority of you, this will be a fantastic overview of different online business models, their pros and cons, and how we think about risk mitigation and growth opportunities for each.
Covered In This Episode
- Common traffic channels, worst to best
- Facebook Organic (and FB IA)
- LinkedIn Organic
- Google News Organic
- FB groups/Pages
- SEO risk diligence
- Email risk diligence
- Special use-case platforms
- Amazon (FBA)
- FB paid traffic
- Affiliate networks
- Monetization methods (worst to best)
- Physical product
- Direct lead-gen
- Info product
- The Kingmakers diligence calculator
- Kingmakers preferred acquisition targets
Kylon: Welcome to the Kingmakers podcast. Kingmakers is an accelerator for business buyers. We help entrepreneurs acquire their ideal business and provide them with the tools to succeed post-acquisition.
I’m your host Kylon Gienger. Join us as we explore and unlock the secrets to successful business acquisition, growth, and exiting strategies.
Hey guys, so if you’re enjoying the podcast and you wanna take the next step in your business buying journey, there’s a couple of different ways that you can do this.
First, check out our business buying workshop. The Kingmakers workshop will give you a backstage pass to a private equity firm that acquires and operates six plus new businesses per year. This is an opportunity for you to peek behind the curtain and understand the entire process of finding, buying, and growing an online business. The workshop is limited to a small amount of serious business buyers so you can count on it being intimate and you can plan on spending plenty of one-on-one time with some of the best and brightest entrepreneurs in the M&A space. So go to kingmakers.co/workshop. Again, that’s kingmakers.co/workshop to get more information and to apply.
Second, if you are serious about buying a business. I would love to have a quick chat with you and see how we can help. Go to kingmakers.co/call. Tell us a little more about yourself. And then you can schedule a free consultation call and we’ll see what we can do. Again, that’s kingmakers.co/call. Talk to you soon.
Hey guys I’m really excited about this episode. It was really really good to get Hayden back on the show to give us just a great overview of different types of online businesses and their pros and cons specifically breaking websites down into their two main components—traffic channels and monetization methods. And then ranking each of those worst to best while explaining a reasoning behind that. You’ll also hear Hayden talk about our favorite and preferred types of online businesses here at Kingmakers and how we think about doing diligence on these.
This episode is much less of a dialogue between Hayden and I am more of him teaching from a depth of knowledge that you can only acquire by operating for years in this space and treating the acquisition and diligence and growth of these businesses like a hobby. So I hope I hope you guys learn a ton. Don’t be afraid to take some notes and remember if you’re wanting to buy one of these businesses and you feel a bit overwhelmed by the process, well that’s why Kingmakers exists. We would love to buy a business with you so please give us a call.
What is up business buyers? And welcome back to another Kingmakers episode. Today on the show we have once again the great Hayden Miyamoto. Hayden how you doing, man? Welcome back.
Hayden: Thank you! Yeah, I’m great.
Kylon: And so what have you been up to? What’s been going on in your life since the last chat we had here on the podcast? That was about a month ago now.
Hayden: Yeah, I keep being really busy. We have a bunch of deals going into sort of LOI phase and yeah it’s been fun working with a bunch of smart people.
Kylon: Awesome. So today we’re going to cover some of the building blocks of online business. And then for some of you, this information may seem fairly basic but I think for the majority of you, this will be a fantastic overview of different online business models, their pros and cons, and how we think about risk mitigation and growth opportunities. And how we think about each one of these in general. So let’s let this episode kind of serve as a foundation for future episodes of the podcast and we will take deeper dives into each of these specific areas. But with that said I’ll turn it over to you Hayden and yeah man, teach us and then I’ll ask you any questions and we’ll dive into any specifics if that’s needed.
Hayden: For sure. So I think a good place to start is actually defining what an online business model is and I think I have a pretty simple explanation—it’s that a business model at least in this business is a combination of traffic channels and monetization methods. So I mean you have what we call the publisher model it tends to be focused around traffic from Google whether it’s Google News or Google Organic. It tends to monetize through simpler monetization methods like ad networks or affiliates.
And then you have SaaS, which has traffic channels that can range from PPC to organic to sales. And your monetization method typically it’s some kind of monthly recurring revenue which then you have to look at metrics like turn, and lifetime value, etcetera. So starting with that, generally speaking, I’d say most businesses that we’re acquiring we’re actually acquiring the traffic channel as that traffic channel could take years to grow organically. Monetization methods are a lot cheaper and faster to add. It’s actually quite common for us to purchase a business and change its monetization method within one to two months. So generally speaking what we are first focusing on is buying traffic channels. So I think it makes sense to go over some of the common traffic channels that we all look at when we’re buying businesses. And I’ve actually kind of tiered them for people from worst to best. And I can explain why I feel some are better than others.
So I’m gonna start with what I call tier three traffic channel. Tier three—the traffic’s free, it’s not very targeted, it’s highly volatile, and it has a high cost to sustain. By high cost to sustain, I don’t mean you’re paying for each click but I mean you might have to be constantly producing content and the production of that content cost money.
So one of the traffic channels that I call tier three is Facebook organic or Facebook instant article. Both are sort of in the same tier and this is because. Well let me explain first what it is for those that don’t know. Basically it’s traffic from Facebook news feeds. And the reason I feel it’s more volatile is because well Facebook’s history on changing its news feed algorithms has been a lot more volatile and for that reason I’ve more or less ignored it as something that I like to acquire or something I like to add on to a business. I do know several people that we can bring in and we have brought into deals who specialize in this. And this one is also very hard to create and so with something that’s hard to create, it’s better to buy.
Another sort of tier three traffic channel is Linkedin organic. So Linkedin traffic’s actually (currently at least) it’s very easy to get traffic especially if you’re using video. The algorithms just tend to love if you just post everyday and post videos fairly often. The algorithms tend to just love you. I assume that’s probably going to change because these things tend to change so I still consider it a higher volatility. I’d say if this continues for like another year, I might move it up a tier because it is decent traffic. It actually tends to be more business oriented and the cost to sustain is still probably (I’d say) lower than Facebook in the sense that with Linkedin, if you just post something every other day, Linkedin tends to love you.
And then the third tier three is Google news. And so I’ve gotten many many sites into Google News. Basically you just need to publish three times a day for up to three months straight. It can be a shorter period of time if you happen to be in a niche where there’s not a lot of supply. Content can be a lot shorter like two hundred fifty words is generally fine. Interestingly enough the content can also be completely unrelated to what you end up wanting to post long term in Google News like I’ve actually gotten sites in the past posting celebrity news for like half a cent per word articles and then posting in finance outlets. That was a while back.
Kylon: And that’s just in an effort to get them into Google News first and then you can post what you want?
Hayden: Yeah, this was a while back and this is when I was doing a little bit shadier things. But yeah, basically we would get like Filipino writers to write sort of celebrity content get them into Google News. Once they were in Google News, publish a bunch of finance stock articles. I’m not recommending people do that by the way.
Hayden: So that’s tier three.
So tier two traffic channels are free unlike tier three. They’re highly targeted and they are low volatility. However they still have a high cost to sustain.
So one example of a tier two traffic channel would be subreddits. I’m not sure how many people have actually attempted to stay active on Reddit, but it’s actually a really really great traffic channel. It’s very very targeted. You tend to have what we call the Linkerati hang around the popular subreddits. So if you create value there, you tend to get a lot of links. In fact, that’s one of our SEO tactics. To sort of create comprehensive guides and then sort of promote them within popular subreddits and that tends to bring dozens if not sometimes under the links. This requires you to be active long enough to be actually respected by the community as an expert. And you actually have to be pretty expert. It also requires a bit more hustle and it is a bit more of a time exchange for traffic.
The second tier two traffic channel is Quora. It doesn’t apply to every business but it applies to many. It’s very highly converting. It’s very easy to rank on. It goes hand in hand with SEO in the sense that you can tend to either answer questions or even ask and answer questions on Quora and if your answer is first, you’re basically taking up a position in the top ten of the result pages. And they’re also easy to create. So because they’re easy to create I tend to prefer to create them than acquire them. So that kind of goes in this as part of our growth strategy.
The third tier two traffic channel is Facebook Groups or Pages. It’s slightly different from news feeds. If you’re looking at a deal that has a large Facebook group or sometimes a collection of Facebook Groups, this can be a pretty consistent traffic source. And this in itself can be monetized. However, it actually requires a lot of posting. And when I say a lot of posting, I mean like at least ten times a day. So that in itself is an entire sort of business model. This is obviously quite hard to create. So it’s something that I tend to only look at purchasing.
Kylon: And when you say posting like ten to twenty times a day, are you talking about just like admins in the group or just the community in general could also cover that post amount?
Hayden: I mean the committee can cover it but realistically what you want is you want people clicking through and going to your site, right? Because your site is gonna show how you monetize. There may be instances where you know you really just want to sort of grow your brand a little bit, which sure, you can just post interesting things. But generally speaking a lot of these things will be like you buy a video game community and that video game community or part of that video game community involves you posting frequently to get on Google news. So you link to every piece of content that you post…that type of thing. And sometimes you link to all
Kylon: Yeah makes sense.
Hayden: So in between tier two and tier one I have tier one point five. And this is basically free highly targeted. Not so volatile but not highly volatile. A low cost to sustain but it’s very costly and hard to create and that’s Youtube and other video sites that really work. And with Youtube, it’s less competitive than obviously Google organic. There are more ways to get traffic. It’s not just based on search and you know having the right keywords. It’s also heavily based on related videos. You have other benefits in other traffic channels if you create video. That’s in Google itself. The videos itself can just rank. Again, what I’ve mentioned with Linkedin. Facebook also gives some preference to video. However, I wouldn’t consider it tier one for two reasons. One it’s hard to send that traffic off of YouTube into your site and monetize it. And two, high quality videos which is mainly what we want to do are expensive to create.
So there are two one point five. There are ways in our business models that allow you to create decent quality videos cheaply. And you know that’s something we can probably get into in the future which if you are able to do like templated videos, that effectively are curated videos. Let’s say like a top ten that looks to…let’s say a video series that looks to like get off you know a lot of the keywords behind like a big name, Elon Musk. You have like top ten lessons from Elon Musk. And then you have a Filipino literally like curate the internet and splice everything together and you record you know a thirty second intro. That’s actually a really cheap video to create that can still be fairly high quality. And if you are able to do that, I would probably put Youtube to tier one.
Kylon: But you still would have an issue driving people to any website or anywhere off Youtube though?
Hayden: Yes it’s still an issue. It just converts worse than actually owning the property that you’re being promoted on. It converts worse but if you happen to get a ton of impressions from it, it can be worth it.
And then tier one traffic channels are free, highly targeted, medium to low volatility, a low cost to sustain. And also generally hard to create. The creation difficulty isn’t so much about the traffic channel so much as this being tier one for me wanting to acquire it as opposed to create it.
And there are two traffic channels and these are predominantly the traffic channels we choose to use and that is SEO and email. So we can dig in a bit on each of those.
Kylon: Yeah, do it.
Hayden: So for SEO basically I think everyone here knows what SEO is. But basically when we look to acquire a business because of its link profile because of its content you need to look at those two specific pieces. So yeah, through content analysis and we look at that. Our diligence is sort of split into two pieces/two sides. There’s a one it’s the risk of it going to zero basically if you do nothing and the other is the opportunity for growth. Do you want me to dig in to this or are we looking at more of a sort of overview of everything here?
Kylon: Let’s dig in a bit.
Hayden: Okay. So if I’m looking at a property to buy, like I said I’ve been looking at the content and the backlinks. And in both cases, my first step and this is usually done pre LOI, is to look at the risk. So content risk would be if there’s low quality content, if there’s duplicate content, if there’s thin content, if there’s over-optimized content. If I find that the content across the landing pages is undiversified meaning all of the traffic across landing pages are not diversified. So if most of the traffic is coming to one or two pages, there’s a fairly large risk of you dropping a few positions or losing most of your traffic. So that’s the risk side. Again, it’s more about if I buy this website and I literally don’t do anything to it for the next three years what’s the probability of it having a severe drop, right?
And on the backlinks side, I’m looking at spam. I’m looking at over optimization of anchor texts. I’m looking at the link velocity of my site versus the competitors’ sites, which is basically how many link is this site naturally getting on its own because it already ranks for stuff versus its competitors?
I’m also looking to make sure like with spam there is an allowable amount of spam. Pretty much everything will have some spam and it may not have anything to do with the actual owner of the website. So what I’m mainly looking for is are there specific links that I don’t feel are natural that are actually propping up the site’s backlink profile. And same goes for identifying PBNs, identifying paid links because you know at any point some of those could just be revoked.
Kylon: Yup makes sense.
Hayden: And again that’s just the risk analysis and that happens pre LOI. Post-LOI we do more of a growth analysis. So specifically on content, one of the first things we do is we look at content gap analysis, which is basically I look at my domain. Let’s say my domain has a domain rank of sixty. By my domain I mean the target the domain to acquire. And I’ll take ten competitors who have a domain rank of say fifty five and I’ll do the content gap analysis to see what keywords are they ranking for that I’m not ranking for. After that content there might be a thousand, there might be two thousand. After that analysis, I’ll take a look to see okay, have we actually written content for these pages and is there a reason we’re not ranking for it or is it actually we just haven’t written the content and usually it’s the latter. So basically that gives you an idea.
We can compare that in an apples to apples comparison versus our average deal and basically tell partners, hey this is an A or this is a B or this is an F compared to sort of the apples deal. And we actually go pretty in depth. So our pro team actually works on the deal post LOI first and figures out the revenue per visitor for each type of content. Then we actually try to project out the ROI on content
There’s also like SERP CTR optimization, which is effectively going through search console checking for examples where your click through rate is fairly low for your position and attempting to rework your page titles in meta descriptions so that your click through rate increases which almost always gives you also ranking increase. And the easiest way to look at that is we basically identify the killer content of a business. We take a look at each of their titles and meta descriptions and we just see how well optimized they are. And again you need access to search console so this is post LOI.
Another part of that is answer box optimization. So answer boxes are the sort of featured snippets of the top of the SERPs and basically I want to look for whether there are other competitors up that I can steal from. And actually something that we also look at in the risk side that I didn’t mention is if we actually already hold answer boxes. Those answer boxes have a high likelihood of disappearing, let’s say within a year. I’d say it’s all close to a 100 percent that someone else will take it at least for a period of time. So I actually look at that as a risk. And likewise, I look at ranking number one for a keyword as a risk more so than an opportunity.
Kylon: Because it can only go down.
Hayden: Exactly. I mean there are benefits to ranking number one because ranking number one means you tend to actually get more links. Ranking well is the best form of link building because more people find you. So that’s the one benefit, but I tend to think that like being number one is more than a risk than a benefit.
Other areas of growth within content is like seeing how well content overall are siloed/interlinked. You know, are we linking to the pages that actually matter (most sites or not).
Kylon: What do you mean by siloing exactly?
Hayden: Siloing means basically making sure that like types of content are always sort of linked to each other. So if I have a site that’s about widgets and the site has categories around large widgets and small widgets and blue widgets and red widgets, siloing would be making sure that all of my red widget content links to each other and all of my large red widget content links to each other. But my red widget content doesn’t necessarily link to my blue widget content.
Kylon: Is this something that Google is searching for or is looking for for you to optimize?
Hayden: Yeah Google wants to see that you are a comprehensive resource on a topic. And so if you’re a site that just has like one page on everything, you’re not a comprehensive resource on the topic. You’re more breadth than depth and they want to see depth and that’s what siloing helps you do. And in many cases if you already have a page of pillar content that’s ranking for red widgets and you want to rank it better, you can just write new content around very specific red widgets—whether it’s red widget reviews or whether it’s more specific posts on red widgets under $500 or you know large red widgets in South Africa. The more you write and interlink back up to red widgets and silo together, the better red widgets as a parent topic will rank.
Kylon: Makes sense. Again, for people listening I know like some of these stuff can sound complicated and technical and just hard to grasp, but what’s interesting is you can always just go back to thinking from first principles and you put yourself in the shoes of like Google and as Google or any company for that matter all you want to do is make sure you’re providing the highest quality valuable content to customers/consumers. And so thinking from first principles like yeah—you said Hayden you don’t wanna… if you’re creating a site on like how to do push ups or how to have a comprehensive workout or something you don’t want this breadth of knowledge like exclusively you want to have have depth and have that be well organized and consistently updated. So I find that just going back and thinking from first principles often helps you grasp a lot of these more in-depth concepts quite a bit faster.
Hayden: And if you want to own a business that gets traffic from SEO yeah I do think this is required knowledge and that’s actually why we have training specifically for everything that is related to onpage. So all of these items, we actually have training for our partners. So actually this is quite important and feel free to interrupt me if I tend to speak in acronyms. So feel free to interrupt me and make me explain things more simply. But essentially, we have a procedure in place that allows us to very easily look at a site, take its top (what we call) pillar content and give it a grade as to how well it’s siloed and how well it interlinks and how much growth opportunity exists by us. So applying that procedure and you know siloing it as best as we can.
And then the last part on growth which is…you know it’s also part of conversion rate optimization is looking at high traffic pages that are not being monetized properly and almost every business has this. So I think that goes without saying. We’re looking at a business right now, their top 3 pages have the lowest RPV because they’re really not monetizing it the way they should. They’re literally just monetizing it on advertising when they could be making probably an RPV of more than 10x if they monetize with a proper affiliate.
Kylon: Right. And RPV of course stands for revenue per visitor and why is this such an important metric to understand?
Hayden: I mean it’s math so if this page in general is getting about 60000 visitors a month, its RPV right now is 3 cents so it’s not making a great deal of money—it’s like 2 grand or something. If its RPV is what it should be which is closer to $0.40 you can do the math, the business will be making a lot more money 25 came out of that 1 page.
On the backlink growth side what we look at is something I called a thirst analysis which is basically how hungry or how thirsty for link juice are your top pages. And basically that’s a very in depth analysis of how much more traffic you’d get if they are ranking better and how many more links would you actually need to make them rank better. So what it comes down to is it is essentially saying like what is your revenue per link…potential link and so we go over that very in depth.
Hayden: As an example you may find that you know a single page again if we rank number one you have 0 thirst. It’s only preventative maintenance—linkbuild that page. However, if your rank number 4 and we do an analysis of you know the competitors who are ranked above you and they’re not Wikipedia or things that you just cannot usurp. We realized if we just probably send a few links to this page as well as let’s say a few dozen links to the actual root domain as a whole, there’s a good likelihood we could rank here therefore a link to this page is worth a lot more than a link to this other page where you’re ranked number 2. And for those people don’t know like the click through rate on SERPs, this has changed a bit because I think universal search has made things so different. But on your first sort of standard template, the first result gets about 30 to 40 percent of the clicks and the second result gets about 10 to 15. And that goes all the way down to you know under one percent for everything between 7 and 10.
Kylon: So you really want to try to be up in that like between 1 and 5.
Hayden: Really like I would say you want to be between 1 and 3 because as there are now so many different personalized SERPs that come up that kind of takes some screen real estate away. That being said, like so much of stuff is is also long tail which I think is probably a whole other conversation.
So that’s it for SEO in terms of…a very brief overview on how we sort of do diligence on that traffic channel.
For email, I mean email in my opinion is by far the best traffic channel that exists. It’s platform agnostic, it costs you basically nothing and most people just don’t use it right. When you’re doing diligence on email, the main things you’re looking at from a risk point of view is like high unsubscribe rates, very low open rates or click rates. You know that can indicate a very aged list. You know too frequent email frequency is a problem and also too infrequent of an email frequency in combination with a low open rate is actually big problem as well because we’ve had businesses where you buy them. You know they might have a very large list and then you email them and there’s so many sort of because I haven’t been emailed in ages there’s so many unsubscribes. Or spam complaints that if you’re using a marketing tool, they may shut you out. They may just close the account or they might literally purge it.
Kylon: Yeah what would you say is the spectrum there of too infrequent versus too frequently?
Hayden: Too frequently I would say is generally speaking is probably sending emails every day. It really depends. Like it’s totally fine to have an autoresponder that exists for a period of time and sends emails every day. If you’re a daily deal type of site, it’s probably fine to send it once a day.
Too infrequent is probably less frequently than like once a month. In fact, at this point like I’d probably say even even once a month is too infrequent. People are just getting so many emails, they won’t remember who you are.
Kylon: Yeah makes sense.
Hayden: Also when looking at it like you want to make sure that the opt-ins aren’t spammy and getting like artificially high conversion rates, and that you know they’re not violating you know CAN-SPAM or any other type of email compliance—you know…there’s unsubscribe links, there are addresses or phone numbers etc. And that when they you know the way they’re asking for your email you know what they’re delivering is what they’re promising to give. If they are violating those things you know I would probably look at the existing email channel as close to worthless. And look at it more as like the potential to grow that email channel in the right ways.
And then in terms of growth diligence for email, there’s always a huge amount of opportunity here. I think this is probably the greatest place of opportunity and that’s mainly when list expansion is very low. A lack of autoresponder, a lack of segmentation… You know if you have a business that’s selling tiles, you should know that a percentage of your business is going to be customers who are doing the bathrooms, a percentage of the contractors, and a percentage might be like designers. You should have that segment. You should have a separate list for each.
Low email frequency, lack of offers, that type of thing is also you know a very large piece of growth potential. And I do have some you know I guess the metrics that I think people should look at which is—let’s say a business is getting the majority of this traffic from Google. If you have a decently designed and targeted sort of blanket popped into your email. It might be a pop up that happens 30 seconds after your second page or something like that. You should be able to get one to 2 percent conversion rates to email. Meaning if you get 100,000 visitors a month, you should be able to get one to 2 percent of them which is like one to two thousand, I guess. If you have a content upgrade which is basically a specific opt-in that’s written for a specific landing page—so again let’s say you have a site on blue widgets or you have a site on widgets and you have a landing page that’s getting 10,000 visitors a month specifically related to blue widgets under $500. That opt-in, if you create a content upgrade that you know let’s say gives people a buying guide around it or you know gives people a calculator, gives people like a really useful pdf or printable thing, you should be able to get opt-in rates between let’s say 5 and 15 percent. So that’s a huge…most sites are not doing that and that’s a huge piece of growth potential. And one of the things that we always did with Wired and one of the things we continue do at Kingmakers with businesses we buy is…the first thing I look at is Google is inherently risky as the traffic source because you’re relying on this black box that you have no control over. So how long would it actually take me to replace the revenue that we’re earning through Google by simply moving all the traffic over. Most businesses should be able to do it within 18 months to 2 years.
Kylon: I like it. Best case you’re increasing revenue by 100 percent. Worst case you’ve totally replaced it.
Hayden: Exactly. And maybe something terrible happens and you know 6 months down the road you tank and you’ve only replaced a portion of it. You still at least replaced a portion of it and that’s very unlikely to happen but not impossible. There are obviously other like many many other traffic channels. I’m not going to cover everything. I’m mainly gonna cover the stuff that I have experience in and I like. I would say there’s like a special use case platforms like Amazon FBA. So if you own and have a physical product just ranking on Amazon. Adwords and not only is it applicable if you have high RPVs. Same with Facebook paid traffic only applicable if you have higher RPVs. And then finally affiliate. So basically if you have high RPVs and you have an affiliate manager—with strong relationships or you are close to someone who could be an affiliate manager, you can bring a lot of traffic in that way.
Kylon: Makes sense.
Hayden: Anything I can clarify on the traffic side?
Kylon: No I think that was a great overview and yeah I appreciate the teaching there. But yeah let’s definitely move on to monetization methods now kind of that the second component to websites.
Hayden: Sure, so with monetization methods, again, I kind of organized sort of what’s the best and basically here you’re organizing it by RPV or revenue per visitor. So I’m gonna go over just like 6 monetizations. Obviously there’s a lot more, but basically I’ll just list them here from worst to best.
You have advertising, affiliate, physical products, direct lead gen, SaaS, or other forms of monthly recurring revenue, and info product as the top. And we’ll go over sort of each of these—why I think they’re better or worse.
So first, I’ll start with ad networks. Basically ad networks are very simple. They are by far the simplest to implement and that you don’t actually have to do anything. You literally just put down a script code on your page and suddenly you’re monetizing. If you want to improve your RPV, it’s a very simple formula. You either expand your pages per visitor, your sessions per user, or your revenue per thousand impressions. That’s basically all you can do. Ad networks also have within them their own tiers which all sort of go from worst to best. And so like the worst of that would be just entire entirely like third party controlled ad network like Adsense. Your next would probably be partner managed ad inventory meaning you’re working with a partner, an ad partner that’s taking a percentage of the sales but they manage the contracts and they manage everything. And then the best of those within ad networks is direct ad sales where you actually hold the relationships with existing clients. So this will have the highest RPVs. In some cases and actually in many cases this can work with other monetization methods in the sense that a lot of the time the advertisers are paying for brand, they’re not paying for click. Meaning you can have ads for people that sort of give them the brand awareness but you can still monetize with affiliate within the content.
Kylon: And the advertiser’s not gonna get angry at you essentially.
Hayden: Exactly, they’re happy because most the time and a lot of the time these advertisers are more you know let’s say B2B manufacturers, right? Like Intel might be an advertiser but you know Intel is not selling B2C. So if you’re promoting, if you have a tech site and you’re promoting like CPUs, Intel’s CPUs or whatever… and you’re also monetizing by sending you know leads to Newegg, or Amazon or something like that. Intel’s happy. You’re helping Intel sell more CPUs. If you’re advertiser is Newegg, Newegg is not going to be happy about that.
Kylon: Makes sense.
Hayden: And I can go if we have the time, I’m gonna go over this quickly. If we have the time we can dig into some of the actual diligence that actually ask for each of these monetization methods. So we actually have this I think you’ve probably spoken about it. We have this diligence calculator that we built in-house and the latest version of that which is sort of an alpha right now is actually you basically select your…when you look at a business you select your traffic channels and your monetization methods and it actually spits out all the questions for our team to ask and answer. And then based on those answers it automatically grades and it automatically points out anything (we call them) red alerts with the business. And along with those red alerts, it actually gives advice as to how to structure an offer to mitigate certain risks. So I am sure we’ll go over that in a future episode, but yeah let me just go over this quick and if you have questions on the diligence side we can shoot into it.
So next is affiliate. For those that don’t know, affiliate is basically when you’re promoting someone else’s offer to an affiliate program. Generally speaking your RPVs here are a lot higher. In some cases, they can actually go higher than some of the other methods were talking about but it’s really dependent on the business. After affiliate we have physical products. You know physical products meaning you actually own the product. You’re not just like drop shipping. Drop shipping is a form of affiliate. This is more capital intensive. You know it’s interesting in the sense that as a monetization method, it opens up traffic channels. So it gives you Amazon, it gives you e-commerce, it gives you a bunch of different things. Why I kind of don’t put it as high as some of the others is that it is more capital intensive. Supply chain management’s a real pain. Customer service can be a real pain. So I don’t put it as high as the next one which would be lead gen. So lead gen…there’s often…I call it direct lead gen because lead gen is often affiliate but when there’s… in spaces, where there’s no clear winner for a lead gen affiliate program, you can find (we’ve done this multiple times), you can find it nurture relations of the service providers as well as basically create assistance to track and qualify leads and then bill your customers. This is a bit of work but you lose the middle man. That middle man usually takes you know fifty percent or so margin. And then you have the ability to actually create your own affiliate network for the space which is like a whole other business for you.
I actually know a guy who create an affiliate program for his own basically for his own use in a finance space and then basically charged all of the future affiliates of that program one percent of their sales. It continues to make millions for doing nothing.
Kylon: That’s incredible. You have another story too about a pretty niched down website, somebody you worked with, right? It’s like French nails salons or something like that.
Hayden: Oh yeah. It’s like the most niche business in the world. It was a French business and I don’t know the words in French, but basically it was nail salon schools in France. There’s a surprising amount of traffic for it and he had an Adsense site on it and he was actually in Mexico at the time and I was kind of just giving him advice on why don’t you try to do lead gen with it. And he was…I think the Adsense site was making like two hundred or three hundred euros a month and within about two to three months he signed up a couple schools like he just gave them their first sort of two weeks of leads for free which is a common thing to do. And he’s in like thrive leads and just sending them basically Google sheets with like leads. It was pretty ghetto, but the business went up to like almost 10k Euro. Literally almost like 50x.
Kylon: That’s incredible.
Hayden: Okay and then after that we have what I call SaaS where products are services. Generally speaking, MRR or monthly recurring revenue with basically a low cost of sales, so obviously that’s software as service—that’s a lot of productized services that have you know low cost of sales. The lifetime values here are super high and they’re high enough to open up a whole bunch of traffic channels for you like paid or whatever. If you were to sell a business that has SaaS, multiples are often higher. You get it large enough and you can sell it on you know multiple revenue.
Cons are that it’s a lot more work to run a SaaS business. I would actually say anyone who’s looking at acquiring a SaaS business, they should be looking at deals that are large enough to actually support a separate product person and marketing person. They should not assume that they themselves are able to do both product and marketing unless they’ve done both at the same time before. And they should or if they’re not the ones planning to do it or if they’re buying a business and it’s coming with staff, that staff needs to have a separate product person and a separate marketing person.
Kylon: It’s a good point.
Hayden: Otherwise, one of those two things or probably both of those two things are not gonna be done well.
And then finally my favorite way of sort of monetizing is info products. This could be in the form of either monthly recurring rep memberships. Obviously there’s no cost to sales here though your turn tends to be a bit higher and the ticket price a bit lower. Or courses. Specifically like higher ticket courses. I’m talking like a thousand dollars and above. They’re probably the strongest LTVs. They’re much simpler to manage than let’s say a SaaS business. There are ways that you can also create this very cheaply. In fact there’s ways you can be paid to create this. So our go-to is generally you know buying a business that has some of those tier one traffic channels I talked about whether it’s you know I’ll get it like SEO and email or SEO and we’re going to implement the email right away. And then ideally it’s monetized as badly as possible on the monetization sites. Ideally it’s monetized by AdSense and we can go in and basically immediately either monetize through affiliate or lead gen or we can actually look at creating an info product.
Info products also open up webinars. You should probably get Adam on here to talk about webinars.
Kylon: Yeah we definitely will.
Hayden: Adam’s the guy we work with to do webinars for a lot of our businesses and he loves webinars. Yes, did you want me to dig in any more of that or are there any specific questions?
Kylon: No, I don’t think so I mean unless you feel like there’s anything else to speak to in regards to just our preferred acquisitions as Kingmakers and what you’re personally looking for. I know you just touched on that a bit, but if there’s any other detail there go ahead.
Hayden: The process is always to stick to what we know. So with Wired we got a lot of businesses and we realized like our wheelhouse really was SEO. Mainly SEO with affiliate and in some cases well for me personally I’ve actually done a lot of them for product and I’ve done a lot of SaaS separately. So by sticking to what we know I really tend to prefer to buy businesses that are SEO based. If they’re PPC based or if they’re like you know Facebook organic based, I won’t do them unless the partner we’re working with has direct experience. And then it would more be I’m relying on the partner to sort of maintain that aspect while I sort of bring in SEO as a growth channel for that business.
And in terms of monetization and obviously you know everything we do every business we touch, you know the first thing we do is we put in good content upgrades and we start to put in a good email responder/autoresponder, segment the lists and immediately try to like I said basically replace the income that SEO’s bringing with email.
Hayden: And then it in terms of monetization, I’ll look at anything. Obviously the best thing in the world would be to be able to buy an Adsense site and immediately convert it to like an info product or info products and lead gen hybrid or something like that. But I would say you know because monetization methods are a lot cheaper to add or to create yourself, it is better to buy the traffic yeah but also go lower in the tier list on the monetization method. It’s not to say we won’t buy it, a SaaS business because again SaaS is actually quite hard to make. It’ll take you six months and it would probably cost you 50k, so yeah I actually have a decent SaaS business built out.
And likewise lead gen like direct lead gens are fairly hard to make. It’ll take a smart person probably you know at least three months of full time work to figure that out and you could fail, right?
Kylon: Yeah makes lots of sense do you have any other parting advice before we jump off here for people listening who are trying to determine the right type of online business model they want to get into?
Hayden: I would say stick with what you know or if you’re working like buying with a partner like we do stick with you know what you know as a group. Do your diligence like the way we separate diligence really is risk based. If I just buy this thing and I don’t touch it how likely is it to fail, right? So if you don’t have your own sort of calculator or your own system to actually calculate that, then you probably shouldn’t buy a business or you should work with other people have it. Simply because you know, every business has a risk and you’re not really able to make it a true apples apples comparison if you’re shopping around on multiple deals. And don’t focus heavily on the growth side. Like I would say, if something doesn’t pass the risk analysis don’t look any further. Growth is great, but things not falling is much better.
Kylon: Agreed. Sounds good, man. Well folks, you are the average of the five people you hang around the most and today you’ve been hanging out with Hayden and Kylon learning how to build your business empire. For more information or to get in touch, head over to kingmakers.co and always remember to build beyond business.
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