Episode 5 – Justin Cooke – From Mortgage Broker to Online Business Broker

On today’s show, I’m joined by Justin Cooke from Empire Flippers. Justin tells his full story from running a mortgage brokerage business leading up to the financial crisis, failing at that business and going back to getting a job before re-finding his entrepreneurial spirit and starting a outsourcing company with his former employer as his […]

On today’s show, I’m joined by Justin Cooke from Empire Flippers. Justin tells his full story from running a mortgage brokerage business leading up to the financial crisis, failing at that business and going back to getting a job before re-finding his entrepreneurial spirit and starting a outsourcing company with his former employer as his first client.

In this wide ranging interview, we cover his entrepreneurial journey including:

having to close down his first business during the financial crisis
going back to working as an employee
moving to the Philippines to start his second company, an outsourcing company with his old employer as the anchor client
winning new clients, while losing work from the anchor client
starting to build small AdSense sites and then realising they could be sold for a multiple of earnings
beginning to broker sites for other people
the future of Empire Flippers including new idea to connect operators with money partners

Sites and Resources Mentioned:

Empire Flippers
@EmpireFlippers on Twitter
Empire Flippers Podcast
Ace Chapman
Web Equity Show Podcast
“How a Russian Syndicate Scammed us for $25k” article

Featured Books:

The World is Flat by Thomas L. Friedman
Built to Sell by John Warrillow
Waking Up by Sam Harris

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Transcript

Kevin Graham: Hey guys, Kevin Graham here. Today on the podcast, we have a good friend of mine, Justin Cook. Justin is the CMO of Empire Flippers which is a marketplace for businesses online but I first came to know Justin and his business back in 2013 when I was still in my day job and looking for ways to make money on the internet. I followed their podcast for a long time. I followed their business as it changed and evolved over that period and sold several businesses through their marketplace over the years.

Kevin Graham: He's a really good friend of mine. I'm really excited to have him on podcast today. Justin, welcome to the show.

Justin Cooke: Thanks for having me on Kevin, appreciate it buddy.

Kevin Graham: For the listeners who might not know about you or your current business, can you give us a brief rundown on who you are, and what your company does today?

Justin Cooke: Yeah. My business partner and I run a company called Empire Flippers where we help other people buy, sell and invest in websites and online businesses, which you're very familiar with and I'm sure your audience is pretty familiar with as well. We can do anything from affiliate websites to eCommerce to FBA businesses to even ebook, Kindle businesses. Pretty wide ranging. Anything from on the low end 20, $30,000 websites up to seven figures.

Kevin Graham: And one of the interesting things about websites and online businesses as an asset class, is there multiples that they go for compared to some other businesses? Can you speak a little bit more about that?

Justin Cooke: Yeah. Basically if you have a, just for an example, if you have an affiliate site or drop shipping business or whatever that makes $10,000 a month in profit, let's say it's been doing that for six to 12 months. You can sell that business for a multiple of that profit. At $10,000 a month, the multiple may range somewhere between let's say, 22X and 35X which means your business might sell anywhere from $220,000 all the way up to $350,000. You might say, "Hey, well if that's a huge range, I'd much rather sell for 350 than 220, what's the deal with that? Can you give me the bigger one?"

Justin Cooke: Well that's not exactly how it works. The multiple is based on risk to the buyer. If the business is newer, maybe it's in decline it's got limited channels in terms of traffic or customers, it's going to be higher risk, which means the buyer's going to pay a lower multiple. But if it's been around longer, it's on a great growth trajectory, it's got some tenacity in terms of some multi channel and it's got lots of different ways to acquire customers, then you're likely to get the higher end of that range.

Justin Cooke: From a buyer's perspective, let's say that you're buying at 24X and you're spending a $100,000 for the business, assuming nothing changes, assuming you don't grow it at all, you can completely return your money inside of two years which is pretty amazing as an asset class compared to any of the other potential investments that are out there.

Justin Cooke: I know, because I've looked personally. Real estate and index funds and everything. One of the cool things about businesses is that you can actively manipulate the market and I don't mean manipulate in a bad way. I mean that because it's a business that you're running, you have some control over it. Whereas if I put my money in Vanguard Index Fund or whatever, I can't control any of that. Whereas my drop shipping business and my terms I set with my supplier, I can absolutely manipulate and change and work on better deals.

Kevin Graham: Yeah. Can you tell the audience about how you got started in your entrepreneurial journey?

Justin Cooke: Yeah. My business partner and I, we'd had a mortgage business back in the day. This is 2004, 2005. This is kind of our first entrepreneurial venture. We had a business. It was going okay but we were making a ton of mistakes and we didn't know much about our, the market, we were in California but in the US generally, the market started to crash 2007, 2008 and our business was shaky enough to where as soon as the market started to fold, our business folded as well. We ran into a wall effectively and had to shut our business down and go get jobs.

Justin Cooke: I kind of gloss over it now but it was terrible at the time. It was a frightening, disturbing period of time. I had to go get a job and I went to go work for an SEO company that did local SEO for plumbers and electricians and would help them get ranked in Google. I started off as a mid level manager for them and they were growing like crazy. This is out of California as well.

Justin Cooke: My previous business partner, Joe, I said, "Hey Joe, you got to come over here, check this company out. It's a cool company to work for." He was playing poker at the time, making a few bucks there but not really. It was a grind for him. You think that playing poker is fun but when you do it as a job, it's less fun and interesting. He came over, started working for the company as well and we started, as the business grew, we kind of got our entrepreneurial chops back. Taking a break from the failed business we'd had was really, really nice because now we're not focused on everything and responsible for everything. Now we can really kind of focus in on just our department and the needs for our department as part of the company.

Justin Cooke: Anyway, we were hiring people like crazy and we ended up outsourcing some of the people to the Philippines. We had, from our mortgage business, we'd had a previous contact with this girl in the Philippines that had worked for us and we had to let her go when we closed down our business but we ended up calling her back up and saying, "Hey look, we've got this work that needs to be done. It's pretty monotonous but it's a lot cheaper and cost effective for us to get done in the Philippines, do you want to help?"

Justin Cooke: She said, "Yes." She said she was interested in helping us out. We ended up outsourcing a bunch of work to the Philippines. Eventually, we were still working for this company but we started hiring people in the Philippines and we came up with the idea of why don't we go to our bosses, it was our CEO and CFO at the time, and tell them, "Look, we'll set up this company in the Philippines to do a lot of the back office work for your company and we'll make it our own company."

Justin Cooke: We went to them, kind of pitched them the idea and they went for it. That's kind of how we got started back in our entrepreneurial journey and started kind of in the Philippines and everything there.

Kevin Graham: Yeah. Just on that, that's one of the common ways that a lot of people choose to get started where their first client, their anchor client is their former employer.

Justin Cooke: Yeah, it was great because we'd built up trust with them. We'd worked for them for quite some period of time or for a number of years, a couple of years at that point. They knew us, they trusted us. Rather than going with some random supplier overseas, they're going to have people they know, like and trust kind of running their back office out of the Philippines. When you're outsourcing, particularly as a, this is a midsize company, I think they were doing a million a month at the time. It's kind of scary, you don't know who you can work with over there so having people you know on the ground was helpful.

Justin Cooke: Joe and I had already, we'd traveled to Asia before. I was in the Navy before and so I'd been in Asia before and I knew, we had thought, how great would it be to make dollars and spend pesos or baht or dong or whatever currency you're dealing with in Asia? We set up an actual Philippines corporation and starting building out a team. We set up an office. We starting hiring a bunch of our crew, Filipinos there in a place called Davao City which is in the south of the Philippines. We started kind of running crew. As we grew, we started adding more clients. Our previous employer over time, started to cut back. They had run into snags here and there and were struggling a bit and losing some revenue so they needed to make cuts. Every time we would add a client, we felt like we were cutting back on our staff with our previous employer.

Justin Cooke: We'd add a new client, which is three or four people and then we'd lose a project and lose three or four people for our previous clients. We weren't gaining any ground.

Kevin Graham: Right. How long did that business process outsourcing company go for?

Justin Cooke: This is about, over about a year timeframe. And then by the end of the year, they completely dumped our work. We were left out. It was a weird situation where we'd kind of left our jobs and left our home and traveled halfway around the world on this entrepreneurial venture and then they were, they cut back on us on completely. At that point it was about half of where we started from so to lose 50% of your revenue, the next month, after they canceled our contract, was pretty rough.

Justin Cooke: We had enough to barely pay the bills. Effectively just pay the bills. The Philippines is cheap so we were able to pay our bills. We said, "Look, we need to find something else to do." We looked at a couple of options. One of them was mechanical turf which is where you do these random odd jobs and try to make a couple of pennies here, a couple of pennies there. And we also starting building out small websites based on the AdSense model.

Justin Cooke: AdSense is program by Google where they put advertisements on your site and people click those links or click those images and then you get paid for every click.

Justin Cooke: We would build out these small sites around really random topics, bluesuedeshoes.net and catcuddling.org and these really weird topics and put AdSense on them and they would make money. They'd make 10 bucks month or 18 bucks a month or $32 a month and then they would earn over time.

Justin Cooke: We were, we had that outsourcing company was still paying the bills but we were kind of coming out of pocket to build these sites. This was additional. I think it was maybe three or four months in and we maybe put 10 grand into this. And we said, Joe didn't want to continue putting any more money in and I did. I thought, there's something to this. It's going to make money long term. And we hit a crossroads on what we're going to do. Do we continue to dump money into something that we think holds promise? Or do we just slow it down and just do it on cashflow? On the money we actually have which would really slow down the process.

Justin Cooke: We actually argued about it and came to the conclusion that a really kind of good middle ground would be to let's see if we can sell these websites and then by selling them just funnel that money, that cash from the sale, back into building more. We would sell a site, let's say the site was making a 100 bucks a months, the good ones would. And so we could sell that site for about 2,000 to $2,300. About a 20X to 23X multiple and then the site cost us, 50, 60 bucks to create and six months later, we're able to sell it for 2,000 to $2,300. We can just take all that money and reinvest into building more.

Justin Cooke: We got this snowball effect of being able to build up the sites, sell them off and reinvest the cash into more sites. We started building more and more sites based on this process and build out a whole team and a network of people that were able to build out these small niche AdSense sites.

Kevin Graham: Yeah, just as like a little tiny bit of my backstory, that's where I started making my first dollars online back when I was 13 or 14 years old, was off of these small advertising sites and then I'd left it go for quite some time because the market at that time was very immature. And then as newer advertising programs came along like Google AdSense, I started to get back into it around 2008, 2009 and then over time, probably that same sort of timeline that you guys started to operate on, where in 2012, 2013, I started building a lot of these AdSense sites and kind of the same thing. I had a team of writers and other people I worked with to do a lot of the work for those sites and then eventually sold my first one with you guys in December 2013.

Justin Cooke: Yeah, so that's interesting. The process we were using, because we were creating our own sites. We'd build them up and then we'd sell them. We were selling it through, it was AdSense Flippers at the time. What eventually became Empire Flippers. We were selling our own sites through ourselves effectively. We got a lot of requests from people to sell with us. They said, "Hey, you guys have an audience, people that are willing to buy your sites. Let me list and sell your website with you."

Justin Cooke: At the time, it was a bit scarcity but we were like, no, we don't want to cannibalize our own business. Our mindset was, look if we start selling other people's sites and what if they like theirs better than ours? Our real money maker is selling our own sites. We were pretty against it in terms of letting other people sell on our marketplace.

Justin Cooke: Then something happened to our process to where the sites we were building were not nearly as profitable. We were building up these sites and as I said, we put 50, 60 bucks into the site and then six months later it's worth 80 bucks or 90 bucks and inconsistently. It got to the point where we said, "Look, okay, now we're not as profitable as we were with this process, let's let other people list and sell their sites to an audience we've built up of people that are hungry to buy."

Justin Cooke: We were kind of, we were really resistant to the idea of becoming what we ultimately became because of the scarcity idea that we'd cannibalize ourselves and ultimately that funny enough, that becomes the real big win for us.

Kevin Graham: In a way, that was kind of the reason that you started your current business of the brokerage, was that your own sites started to not perform as well and so you started selling other people's sites.

Justin Cooke: Yeah, that's right. We ended up allowing other people to list and at first, it was still, it was sites that didn't compete with ours. Ours were in the as low as 1,000 bucks. Maybe it was even five, 600 bucks to $10,000 range. We were letting people list, 10 the $30,000 sites. We were even then we were still kind of hanging onto the idea that why not keep all the money instead of just getting a portion of it?

Justin Cooke: When other people sold their $20,000 site, we wouldn't get a 100% of the return. On our own sites, if we sell a $3,000 site, we get 3,000 bucks. Whereas if someone sells a $3,000 site with us, we'd only get 15% of that or 450 bucks. It was significantly less money at 15% than the 100% we were used to but what we didn't figure out is that there are a ton of people out there with profitable websites and online businesses that need a place, a safe secure place, to be able to sell and to be able to kind of walk them through the process. And that's, we kind of missed that early on and then the only reason we moved to that model was because A, our process wasn't nearly as good as it was previously and B, we had people clamoring for it. Our customers, or our audience was beating us over the head about it and we finally relented.

Kevin Graham: Yeah. If I remember correctly, I might have even been one of those people shaking you guys, come on, let me sell with you, please.

Justin Cooke: That's probably right. There's a bunch of people that wanted to do that and we were resistant. And then we did open it up and one of the other things I'll say that we kind of made a mistake and I hope maybe listeners get value out of this is that, we allowed other people to sell their site on our marketplace and we ended up brokering the deal for people. That was going well but we hung onto a lot of other side projects. Remember you asked about the outsourcing company? Well we kept that outsourcing company through all this time. We still were kind of running the outsourcing company while we were brokering the sale of these sites. We had other projects going on. We were selling keyword research packages and content packages and all these other, we had a Twitter background business. We had all these other projects and brands and distractions that were keeping us from really going on the brokerage or the marketplace.

Justin Cooke: We made a decision at one point, when we saw kind of the up and to the right growth trajectory of Empire Flippers as a marketplace, we said, "Look, let's drop these other projects." And these other projects were profitable. We were making money on the outsourcing company. We were making money on these other projects but we realized that the ROI on our time and the long term value of actually allowing the marketplace to grow and putting our time and effort into it was going to be more profitable and a better move for us in the long run. It proved to be right but we didn't know, we weren't sure it was right at the time and luckily it worked out really well.

Kevin Graham: Yeah. Can you tell me about a point in the business where you started get initial traction? And what do you attribute the success of that initial traction moment to?

Justin Cooke: I think we were heavy on the content marketing. We were building a brand that people could connect with, that they could relate to. We were being ourselves. We were putting ourselves out there. We were pretty open and transparent and honest about kind of our struggles and everything that was going on. We started to really connect with people. When we started getting feedback from people that wasn't just, it wasn't just a hey company. I get some of those emails now. It's like, hey I've got a problem with this or hey, I got a question about that. They're just kind of like prospect or customer service issues.

Justin Cooke: Back then, it was deeply connected to us. To the point where I was, and this is kind of when I knew that we were onto something. I was in the Philippines and I was at immigration and I was standing in line, which you do, foreign countries and while you're waiting in line. I look at over at this guy and he's there with a girl and I'm there with my buddy and he kind of looks a me funny and he comes over to me and said, "Are you Joe?" And I was like, "No, my name's Justin." And he turns his phone around and he shows me our podcast. And he was like, "Dude, I listen to your podcast. I know you guys." I was like, "Wow." This is an immigration office in the Philippines and I was like, "We're getting some reach." He was Iranian but Iranian Canadian guy and he had shown me our podcast at this crazy location.

Justin Cooke: That was one of the first signs I thought that we're affecting people. People are paying attention and it's going well. I think another, that's kind of the first one. And then later on when we started really getting, when we started growing and doing larger deals. I'd say, we started off doing 10, 15, $20,000 sites and we moved into the six figure and then the seven figures businesses, I knew. I knew this was going to be something big. I think we closed our first six figure deals, a couple hundred thousand dollars and I was like, wow. People are trusting us to sell much larger businesses and websites with us than I thought we were capable of doing.

Justin Cooke: I kind of broke through a mindset. It was a mindset shift for me where I thought we were kind of doing these small businesses and I realized, wow, that's a real direction we can take in terms of doing larger and larger businesses.

Kevin Graham: Yeah. And I remember for the longest time in all of your podcast episodes leading up to that point where you started to do the six figure and then later seven figure deals, you always used to say, "Our niche is the 10k to 100k space." And again, I came to you guys, I started shaking. I'm like, "Look I've got this site here that's going to go for a couple hundred thousand, can you sell it?" You're like, "Maybe, we'll see."

Justin Cooke: Yeah, I know. That's good. It's funny that you mentioned that buddy because I was just doing some prep work on a feature podcast episode for Joe and I and I was going to call it Take Backs. One of my take backs was the numbers. We used to say that we'd sell for 20X. Everyone knew us as the 20X guys. We would sell websites at 20 times their monthly net profit and just like you said, if you want to sell your website under a 100,000 I think I'd say. 10,000 to a 100,000 or a 1,000 to a 100,000. That really, it's weird because I really wish we could take that back now because it was limiting for a very long time after we were doing six figure deals. After we were selling at much higher multiples, people still would listen to a podcast or they'd look at something and go, "Oh, they only do up to this size." Or, "They only sell up this multiple."

Justin Cooke: We had been past that for a year or two. It was really limiting later on but at the time it did help differentiate us. I don't know if I'd change that going back but I definitely felt the pain years down the road. I think at the time it helped to say, "Look, this is our lane. We're really good in this kind of area and this is what we focus on." But we felt the pain on that, by limiting ourselves as we tried to grow, it was frustrating to deal with over the next couple years.

Kevin Graham: Yeah, apart from going around and reediting 200 plus episodes of podcasts, there's not much you can do apart from just get the messaging right going forward.

Justin Cooke: You can't. I think it would've been better maybe to use small to medium size businesses or something like, or maybe there's some wording that would've been than hard numbers. And that would've been better. It's also difficult because our competitors were able to use those numbers against us forever. Oh if you want to do small deals, you go to these guys. This is we've been doing six figure deals regularly. We just moved in low seven figure deals and they're like, "Yeah, if you want to sell your $15,000 website, go to them." And we're like, ah! It sucks because we're the ones that said that. We're the ones that put ourselves in that box and then they're just trying to keep us there.

Kevin Graham: Can you explain the business model that Empire Flippers runs on to our audience?

Justin Cooke: Yeah. It's a little challenging. There's a barrier to entry because it's a marketplace. Basically we have to sell to two different audiences, two, different sides. On the one hand, we have to sell potential sellers to list and sell their business with us. On the other hand, once those businesses are listed for sale, we have to sell people on potentially and actually buying those websites and businesses.

Justin Cooke: We lucked out in that when we started out, we were selling our own websites, as I mentioned. We kind of built up a buy side to our marketplace. We already had buyers and hungry buyers waiting for websites to be listed. When we decided to allow people to list and sell with us, all we had to do was start sourcing those websites and businesses for sale.

Justin Cooke: Because we had built a brand, we could reach out to other people kind of in or around the online business space and say, "Hey guys, we're looking for people that want to sell their websites or businesses. If you know anyone, please give us a shout." And they were happy to do that.

Justin Cooke: Since then, we've got the kind of initial effect of we lucked out because we had the buyers and we just looked for sellers. Now it's more of a balancing act. It's trying to make sure that we're able to match up the right buyers with the right sellers. What that means is, we have a whole vetting process where we don't accept just any business that wants to list. It's not a free for all. We want to ensure the quality of the seller of the site they're listing. Make sure that the numbers match up in terms of earnings and traffic. We check it for qualitative purposes but we also will reject listings that we know we struggle to sell. The chance of us selling it is low enough to where it's not even worth us listing. That's frustrating for the sellers because we come back to them, we say, "Look, your business is fine, we just don't have that great a chance of selling it unfortunately so we don't want to list it." And they're like, "Well just list anyway." We're like, "No, you trust me, we're saving you and us hassle."

Justin Cooke: But then on the buy side, we have to make sure that we're finding the right buyers. Sometimes sellers are like, "Look, I want to sell this business. I have very little time to focus on any kind of training. I need someone that's experienced to take this over, that knows what they're doing." We kind of have to match up the right person. A newbie that is looking for a few hours of phone consultation over the next couple of weeks and months, probably wouldn't be a good fit for that seller.

Justin Cooke: That's really our goal now is just obviously to keep our brand, to keep expanding our brand and get our name out there to new audiences and explain the industry but also to make sure we're matching the right people.

Kevin Graham: Yeah. I've done enough deals on both sides that finding the right seller and buyer to match together is such an important part.

Justin Cooke: Yeah, that's really important. I think making sure we provide good service to both. It's difficult because we, not everyone's always going to be happy on both sides of transaction. We look at it from the perspective of, what's the right thing? What's the fair thing between both parties? Because we do have customers on both ends of the deal, it is easier for us to kind of understand what people are going through.

Justin Cooke: I'll give you an example. When someone's selling their business and they don't have the money in their pocket or in their bank account but they do have to transfer the business over to the buyer, that's a really kind of scary time because they're effectively giving up something. They're business that they may have put, poured blood, sweat and tears into over the last year or two years or five years and kind of giving, handing over the keys to someone without anything to show for it.

Justin Cooke: It does take kind of more encouragement. I think better communication on our end with people, particularly when it's their first time doing that. Now that's not really your situation Kevin but we do have a lot of first time sellers that that's a scary period in the process of doing business.

Kevin Graham: Hey, I remember when I sold the first one through you guys and it was $3,000 or something. Being kind of worried in that handover process where it's like, hey what's this buyer doing?

Justin Cooke: The funny thing is Kevin, we have that because we spend a lot of time, most of our kind of our sales team's time and our senior exec's time are spent on the seven figure deals now. Particularly as we kind of move up more into a mid seven and high seven figure deals, we spend a lot more time there because it's newer for us. It's a growth area for us. But we still a lot of 50, $60,000 affiliate sites and drop shipping sites and eComm businesses and so but we do those like it's just clockwork. It's basically we have it mostly automated and processed out.

Justin Cooke: Someone's doing a $50,000 sale and it's their first time and we have a tendency to kind of look past it and be like, yeah, yeah, it's fine. Just transfer the business and we got the money. We're going to send you the money as soon as the deal's done. No worries. It's just because we've done so many of them but we need to be, we could be better I think about remembering that this is their first time. They're nervous about it. We could probably use softer language about that.

Justin Cooke: We do this so much and so often. We're going to do, I don't know, 280, probably close to 300 deals this year. Almost a deal a day. Those range from anything from 20, 30,000 up to seven figures. We're just banging those deals out. It becomes kind of, it's just business for us. But for other people, they're really selling their baby.

Kevin Graham: Yeah, for you guys, this is your day to day is just helping these transactions go through but for the buyer or the seller, it's a huge life decision that they're making there.

Justin Cooke: Yeah, I think helps to have and some people say, "Well, it's sucks." It sucks someone's taking 15% of deal. I understand that perspective because look, that's a big chunk of change. But they also assume that it's all we do is match up a buyer and seller. If you're a seller, all we're going to do is throw a couple of buyers your way and expect you to take care of it, sell the deal, do everything. And that's not the case with us. We're more of a full service shop in the fact that if someone, you're selling your business with us, we'll do buyer seller calls.

Justin Cooke: I have a salesperson that will prep you for what to expect on the call, has a process to go through with the buyer. Will try to ask for the deal on the phone. We'll do a followup call with the seller, "Hey here's kind of I think what we can expect and here's kind of how I feel it went. Here's what we can do on the next call." We have salespeople that are kind of driving that process.

Justin Cooke: And then when the business is, when the deal's done or the contract's signed or the agreement is made, actually migrating the business from the seller to the buyer is something we handle as well. There's some things that you need to do and the process we kind of bounce back and forth between who does what but were there kind of holding your hand through the process. I think that particularly is scary as I mentioned, but also things like there are times where if you're selling your business, you want a certain price, the buyer wants to pay a certain price and you come to this impasse. We're skilled in this because what we do, we can come out with creative ways to still get the deal done. Whether it's through an earn out, it's a balloon payment, it's tied to the profits, tied to the revenue, it's a acqui-hire. We can do a lot of different kind of structures that can get a deal done and make both parties either happy or at least reasonably okay with the deal.

Justin Cooke: I think there are reasons to I think to hire a broker. To go through a marketplace that are outside of just getting you a buyer.

Kevin Graham: Yeah, for sure. I think at least one or two of deals, all of those things have had to come in from you guys at various stages that if I was just going out there and trying to sell on my own, deals just wouldn't have been done.

Justin Cooke: Yeah. I realize that's self serving to say, "Hey you should use a marketplace," wink, wink. But if I was giving advice to my mom or my brother or my best friend, I would tell them the same thing. I think it's a smart move.

Kevin Graham: We've heard a lot about where you've been, how you got to where you are now, all of that, one of the questions I like to throw at people on the show here is, it's a bit of a curve ball. I hope you're ready for it. Can you tell me about an unexpected crisis that happened in the business and how you handled it?

Justin Cooke: Unexpected crisis, yes. There's one I can think of specifically. It was before we starting brokering deal. We were just selling our own websites that we created. What happened is, is that we were allowing sales to come in, I think even via PayPal early on. But then were definitely allowing credit card payments and we knew there were some risks there but we were doing so many small deals and had so many credit card going through, it was working and we were okay with it.

Justin Cooke: Then we had a reversal for a three or $4,000 deal. And then another reversal. And then we'd gotten multiple reversals in a very short period of time. 24 to 48 hours. We don't normally get that at all, it was really rare. We looked at it and we noticed it was different people, they were all women out of Canada. We were like, this is strange because that's not like our major demographic or anything. He's like, "What's going on with this? Why are women in Canada reversing on us on their credit card payment to buy these websites from us?"

Justin Cooke: What we found out is that someone had bought these sites with stolen credit card data out of Canada. They'd bought them and then ultimately what they were trying to do is they bought them from us and then were turning around trying to sell them privately through black markets to get the actual cash. They were buying this, they had this asset and then they'd turn around and sell it for 50, 60 cents on the dollar to get the real cash that they can take and then spend.

Justin Cooke: That was a bit of a crisis. We found out this was happening. I think it was maybe 20 grand or something we had lost and 20, $25,000 and we found out who it was. We actually dug into it and Joe and I were on the case. We put our internet, dork internet research hats and we're using our Google foo and trying to figure out who it is. We come to find out it's a couple of Russians guys that had access to this stolen credit card information and we shut it down. We weren't allowed, we weren't able to take credit cards anymore. We had to shut that down because it's just ripe for fraud and we were going to talk about it. We can't talk about it publicly and invite people the scam us.

Justin Cooke: And then we ultimately one of the sites, one of the guys bought the sites from the scammer and then listened to our podcast and came back to us said, "Hey, I think one of the sites I bought was from the scammer." We talked to him and it was. We took it back, ended up selling it to make sure that he got his money back and he walked away good out of the deal. It was so funny.

Justin Cooke: We also had a guy from Homeland Security reach out to us and say, "Look, I know," because I found out one of guys was trying to go to the US. He was like, "Look, if you find out he's going to the US, send me the info over and I'll be happy to take a look into his US trip and see if we can keep that from happening."

Justin Cooke: Yeah, man, it was a pretty wild time. It really stressed us out while it was happening. Luckily it didn't turn out any worse than that. I think it was at worst we were 20, $25,000 exposed or something. And then we wrote a blog post about it, how we scammed by Russians and send you the link for that. That was a pretty wild time.

Kevin Graham: I remember reading this post a couple years ago and it was a really interesting story. I hope the listeners get a chance to click through and give it a read because it is very interesting. Back to slightly nicer topics, what's one thing about your business that makes you excited today?

Justin Cooke: Our team. Joe and I spend a lot of time developing our managers and our supervisors right now and so I get, I can't work with everyone that closely but definitely our management team and helping to develop them and work with them on making decisions and coming to conclusion I think is, I get a lot out of that.

Kevin Graham: Right. Building the team that runs the operation for you.

Justin Cooke: Yeah, we have nearly 60 people total in our organization right now. We've got a few directors, we've got a VP and so working with this crew, and our management team is great in terms of helping them kind of develop their skills and really double down on their strengths and kind of work on their weaknesses. It's been, it's fun.

Kevin Graham: Cool. Where do you see the future of Empire Flippers?

Justin Cooke: Taking over the world baby. No. We continue to sell. I see us growing and selling larger and larger and businesses. Mid six and mid seven and high seven figure deals, we're going to continue to work on. We're working on a platform right now that I think could be really interesting. Let me back up and say, one of the things about buying and selling websites and online businesses is, don't think it's going away. We've been kind of riding a wave and I see the wave continuing to grow and get bigger. We plan on continuing the ride, continuing the ride on this wave.

Justin Cooke: One of the ways we're going to do it is make it even easier for people to invest in businesses. One of the struggles we have right now is that there are people with lots of money and no time or skills. They're like, "Look I've either a fund or I've got plenty of money I'd be willing to put into this. I'm sold on the idea of online businesses as an asset class but I don't have the time to go figure out keyword research and learn Jungle Scout and learn how to build these businesses. I just want to invest in them."

Justin Cooke: Making it easier for those people to match with people that have legitimate skills and verifiable skills, and purchase together or invest in operators that can run businesses is something that's critical to us. I think it's going to be key. We're working on a platform that'll make it easier to match those two up and that's something I'm really excited about over the next year or two.

Kevin Graham: To get this right, you'll be connecting investors with operators?

Justin Cooke: That's right. The idea is to take someone like you Kevin, for example, I know that you guys are focused on what you're focused on right now and this probably wouldn't work but someone with your skillset and you're working on deals and but you want to take it to the next level. You want to work on even larger deals. You want to kind of double or triple up on the businesses you're working on. We match you with investors that will give you funds to really kind of crash course and 2X, 3X, 5X the amount of business that you're able to do.

Justin Cooke: We have maybe a host of operators and we're able to pair them with the investors they're looking to get into those businesses. Either one investor or many investors, multiple investors, we want to offer a platform for people to make that connection.

Justin Cooke: Also, we're seeing a lot of funds start to play in this space. Family offices, private equity groups, we've got a lot of them and they're regularly looking at our marketplace for businesses. They're normally looking in mid six to mid seven figure range. The more we can to do to support them and pair them up with other people that are looking to invest, I think is going to be really helpful.

Justin Cooke: That's where we see the market going as it matures, is a lot of these kind of mid players, the funds, the family groups and the experienced operators looking for investment, I think there's going to be just a lot of stuff going on there.

Kevin Graham: Yeah, interesting. Connecting those two. What's the business model side of that? Is it more deals go through your platform? Or are you guys taking a cut? Or how would that work?

Justin Cooke: I don't know. We'll figure out, I hate to be that guy but we'll figure out to make money on it. It's a cool thing to do. I see it going that way. I see it being helpful for both parties. We'll figure out how to make money on it. You know what I mean? It's where the industry's going. I think it'll help. I think there's a lot of things that are going to happen there and we'll make it profitable for ourselves.

Justin Cooke: Look, if we make that a win and we're able to pair up investors and operators in a way that's positive and profitable for both of them, they'll be happy for us to take a cut.

Kevin Graham: Yeah. The moment that you mentioned that, it is something that I'm starting to see in Facebook groups of people that operate in this SEO and affiliate marketing space, is more and more requests for people saying, "How can I connect with an operator to buy a site and run it for me?" Or, "How can I connect with someone who has money because I want to be an operator run sites for other people." That model definitely seems like the next trend in this space. Interesting to get out in front of it and try and facilitate a bunch of those deals.

Justin Cooke: Yeah, let's say that you're regularly buying, you're building high five figure, low six figure affiliate sites and you've got a bunch of investors that come and say, "Look, I want to buy some mid six figure businesses, apply some of the same things that you're doing right now and kind of double or triple those up over the next couple of years." You've got some operators, "Look, yes, I'm willing to do that. It's not all my money at risk. I'm partnering with the investors and only putting some of my money up and I'm able to apply my skills to where they have a higher ROI. I'm willing to do that."

Justin Cooke: Definitely in the affiliate site space, we're seeing a lot in the eComm and the Amazon FBA space as well. A lot of people with FBA skills or chops can run larger FBA businesses or groups of businesses if they just had the cash and the capital to invest in the inventory needed for the eCommerce business. Because eCommerce is, it's really cashflow intensive. If you're growing at any kind of clip, you're just constantly dumping money back in inventory. All of your profits are locked up in inventory. If we're able to pair you up with someone who can cover the inventory and purchase order problem, that's a win for a growing business.

Kevin Graham: Yeah, definitely because that capital is really, the biggest limiting factor for so many of those businesses.

Justin Cooke: Absolutely.

Kevin Graham: Back to a couple more mindset questions. What books do you think had the biggest impact on you in deciding to become an entrepreneur?

Justin Cooke: I think, The World is Flat was really interesting by Thomas Freedman. And these are older books. These have been around for a while. The World is Flat was really interesting and that's right before we got into outsourcing. That was right around that time. That was helpful. I think a later that's particularly around that kind of buying and selling businesses is Built to Sell is a really good book. It talks about how some businesses are sellable and some aren't. Lays out a really good case for the type of business that is not only sellable but it's the kind of business you want to own. One of the points he makes in the book is that, look, you should build your business as if you were going to sell it because honestly it's going to be a business you'd rather hold anyway. Whether you sell it or not, build the business in a way that it's sellable because it's great business to own.

Kevin Graham: Just on Built to Sell, I've reread that book in March and really started implementing a bunch of those things in my businesses to try and move it into A, a more sellable business and B, more of the type of business where I can not have to be so much in the day to day of the operations.

Justin Cooke: Yeah, funny, I see it applying to your business particularly regarding hosting pretty heavily. I think there's a lot of takeaways there for you, for sure.

Kevin Graham: Just finally, what books have had the biggest impact in the last couple of years in terms of as you've grown and changed the business?

Justin Cooke: This is less, I don't know, there's not really business focus, I hope that's okay. I read Sam Harris' Waking Up. I don't know if you're familiar with that but I'm a big fan of Sam Harris. Talks all about kind of mindset and meditation. It's not with a business focus at all but it's been interesting and I started doing some meditation. Not like the spiritual woo woo type of meditation that I thought it was originally but since I've been doing that I've felt a little clearer, a little calmer, kind of in my head. Mindfulness I think is a really helpful tool that I'm just starting to explore. I can't speak about it well so I won't go into any detail really because it's just so new for me but it's something that over the last couple of months I've been really interested in.

Kevin Graham: Cool. Finally to wrap it up and bring it home, where can our listeners connect with you personally? Or also find out more about Empire Flippers.

Justin Cooke: Yeah, man. I'm on the Twitters. If you want to reach out to me, I'm regularly checking our Twitter account, @EmpireFlippers. And then obviously we have a podcast, it's called the Empire Flipper's podcast. You can find it Stitcher, iTunes, whatever. Also, if you're particularly interested in buying and selling businesses, I'd recommend checking out a show I do called Web Equity Show. It's with a guy named Ace Chapman who buys a lot of businesses and helps people buy businesses and kind of the two of us go into some detail there. I think it's a really good piece of content.

Kevin Graham: Yeah. I got the chance to hang out with both of you guys in Austin a few months ago and Ace is very active in doing a lot of deals.

Justin Cooke: He's crazy deal. He doesn't have a real, we've talked about this kind of privately, he wouldn't mind if I talk about it. But he doesn't have a really wide audience but he knows his customers super well. They are close. He's got, I don't know, several hundred people that he knows intimately well and does a lot of business with. He does a lot of business. He's the real deal. It's great being able to talk to him. I learn from him every time we get to do a podcast episode together. It's really cool.

Kevin Graham: Well thanks for your time today Justin. I hope our audience have learned a few things out of this episode and I look forward to chatting with you again soon.

Justin Cooke: Awesome man. Thanks, I appreciate it.

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"text": "Kevin Graham: Hey guys, Kevin Graham here. Today on the podcast, we have a good friend of mine, Justin Cook. Justin is the CMO of Empire Flippers which is a marketplace for businesses online but I first came to know Justin and his business back in 2013 when I was still in my day job and looking for ways to make money on the internet. I followed their podcast for a long time. I followed their business as it changed and evolved over that period and sold several businesses through their marketplace over the years.
Kevin Graham: He's a really good friend of mine. I'm really excited to have him on podcast today. Justin, welcome to the show.
Justin Cooke: Thanks for having me on Kevin, appreciate it buddy.
Kevin Graham: For the listeners who might not know about you or your current business, can you give us a brief rundown on who you are, and what your company does today?
Justin Cooke: Yeah. My business partner and I run a company called Empire Flippers where we help other people buy, sell and invest in websites and online businesses, which you're very familiar with and I'm sure your audience is pretty familiar with as well. We can do anything from affiliate websites to eCommerce to FBA businesses to even ebook, Kindle businesses. Pretty wide ranging. Anything from on the low end 20, $30,000 websites up to seven figures.
Kevin Graham: And one of the interesting things about websites and online businesses as an asset class, is there multiples that they go for compared to some other businesses? Can you speak a little bit more about that?
Justin Cooke: Yeah. Basically if you have a, just for an example, if you have an affiliate site or drop shipping business or whatever that makes $10,000 a month in profit, let's say it's been doing that for six to 12 months. You can sell that business for a multiple of that profit. At $10,000 a month, the multiple may range somewhere between let's say, 22X and 35X which means your business might sell anywhere from $220,000 all the way up to $350,000. You might say, "Hey, well if that's a huge range, I'd much rather sell for 350 than 220, what's the deal with that? Can you give me the bigger one?"
Justin Cooke: Well that's not exactly how it works. The multiple is based on risk to the buyer. If the business is newer, maybe it's in decline it's got limited channels in terms of traffic or customers, it's going to be higher risk, which means the buyer's going to pay a lower multiple. But if it's been around longer, it's on a great growth trajectory, it's got some tenacity in terms of some multi channel and it's got lots of different ways to acquire customers, then you're likely to get the higher end of that range.
Justin Cooke: From a buyer's perspective, let's say that you're buying at 24X and you're spending a $100,000 for the business, assuming nothing changes, assuming you don't grow it at all, you can completely return your money inside of two years which is pretty amazing as an asset class compared to any of the other potential investments that are out there.
Justin Cooke: I know, because I've looked personally. Real estate and index funds and everything. One of the cool things about businesses is that you can actively manipulate the market and I don't mean manipulate in a bad way. I mean that because it's a business that you're running, you have some control over it. Whereas if I put my money in Vanguard Index Fund or whatever, I can't control any of that. Whereas my drop shipping business and my terms I set with my supplier, I can absolutely manipulate and change and work on better deals.
Kevin Graham: Yeah. Can you tell the audience about how you got started in your entrepreneurial journey?
Justin Cooke: Yeah. My business partner and I, we'd had a mortgage business back in the day. This is 2004, 2005. This is kind of our first entrepreneurial venture. We had a business. It was going okay but we were making a ton of mistakes and we didn't know much about our, the market, we were in California but in the US generally, the market started to crash 2007, 2008 and our business was shaky enough to where as soon as the market started to fold, our business folded as well. We ran into a wall effectively and had to shut our business down and go get jobs.
Justin Cooke: I kind of gloss over it now but it was terrible at the time. It was a frightening, disturbing period of time. I had to go get a job and I went to go work for an SEO company that did local SEO for plumbers and electricians and would help them get ranked in Google. I started off as a mid level manager for them and they were growing like crazy. This is out of California as well.
Justin Cooke: My previous business partner, Joe, I said, "Hey Joe, you got to come over here, check this company out. It's a cool company to work for." He was playing poker at the time, making a few bucks there but not really. It was a grind for him. You think that playing poker is fun but when you do it as a job, it's less fun and interesting. He came over, started working for the company as well and we started, as the business grew, we kind of got our entrepreneurial chops back. Taking a break from the failed business we'd had was really, really nice because now we're not focused on everything and responsible for everything. Now we can really kind of focus in on just our department and the needs for our department as part of the company.
Justin Cooke: Anyway, we were hiring people like crazy and we ended up outsourcing some of the people to the Philippines. We had, from our mortgage business, we'd had a previous contact with this girl in the Philippines that had worked for us and we had to let her go when we closed down our business but we ended up calling her back up and saying, "Hey look, we've got this work that needs to be done. It's pretty monotonous but it's a lot cheaper and cost effective for us to get done in the Philippines, do you want to help?"
Justin Cooke: She said, "Yes." She said she was interested in helping us out. We ended up outsourcing a bunch of work to the Philippines. Eventually, we were still working for this company but we started hiring people in the Philippines and we came up with the idea of why don't we go to our bosses, it was our CEO and CFO at the time, and tell them, "Look, we'll set up this company in the Philippines to do a lot of the back office work for your company and we'll make it our own company."
Justin Cooke: We went to them, kind of pitched them the idea and they went for it. That's kind of how we got started back in our entrepreneurial journey and started kind of in the Philippines and everything there.
Kevin Graham: Yeah. Just on that, that's one of the common ways that a lot of people choose to get started where their first client, their anchor client is their former employer.
Justin Cooke: Yeah, it was great because we'd built up trust with them. We'd worked for them for quite some period of time or for a number of years, a couple of years at that point. They knew us, they trusted us. Rather than going with some random supplier overseas, they're going to have people they know, like and trust kind of running their back office out of the Philippines. When you're outsourcing, particularly as a, this is a midsize company, I think they were doing a million a month at the time. It's kind of scary, you don't know who you can work with over there so having people you know on the ground was helpful.
Justin Cooke: Joe and I had already, we'd traveled to Asia before. I was in the Navy before and so I'd been in Asia before and I knew, we had thought, how great would it be to make dollars and spend pesos or baht or dong or whatever currency you're dealing with in Asia? We set up an actual Philippines corporation and starting building out a team. We set up an office. We starting hiring a bunch of our crew, Filipinos there in a place called Davao City which is in the south of the Philippines. We started kind of running crew. As we grew, we started adding more clients. Our previous employer over time, started to cut back. They had run into snags here and there and were struggling a bit and losing some revenue so they needed to make cuts. Every time we would add a client, we felt like we were cutting back on our staff with our previous employer.
Justin Cooke: We'd add a new client, which is three or four people and then we'd lose a project and lose three or four people for our previous clients. We weren't gaining any ground.
Kevin Graham: Right. How long did that business process outsourcing company go for?
Justin Cooke: This is about, over about a year timeframe. And then by the end of the year, they completely dumped our work. We were left out. It was a weird situation where we'd kind of left our jobs and left our home and traveled halfway around the world on this entrepreneurial venture and then they were, they cut back on us on completely. At that point it was about half of where we started from so to lose 50% of your revenue, the next month, after they canceled our contract, was pretty rough.
Justin Cooke: We had enough to barely pay the bills. Effectively just pay the bills. The Philippines is cheap so we were able to pay our bills. We said, "Look, we need to find something else to do." We looked at a couple of options. One of them was mechanical turf which is where you do these random odd jobs and try to make a couple of pennies here, a couple of pennies there. And we also starting building out small websites based on the AdSense model.
Justin Cooke: AdSense is program by Google where they put advertisements on your site and people click those links or click those images and then you get paid for every click.
Justin Cooke: We would build out these small sites around really random topics, bluesuedeshoes.net and catcuddling.org and these really weird topics and put AdSense on them and they would make money. They'd make 10 bucks month or 18 bucks a month or $32 a month and then they would earn over time.
Justin Cooke: We were, we had that outsourcing company was still paying the bills but we were kind of coming out of pocket to build these sites. This was additional. I think it was maybe three or four months in and we maybe put 10 grand into this. And we said, Joe didn't want to continue putting any more money in and I did. I thought, there's something to this. It's going to make money long term. And we hit a crossroads on what we're going to do. Do we continue to dump money into something that we think holds promise? Or do we just slow it down and just do it on cashflow? On the money we actually have which would really slow down the process.
Justin Cooke: We actually argued about it and came to the conclusion that a really kind of good middle ground would be to let's see if we can sell these websites and then by selling them just funnel that money, that cash from the sale, back into building more. We would sell a site, let's say the site was making a 100 bucks a months, the good ones would. And so we could sell that site for about 2,000 to $2,300. About a 20X to 23X multiple and then the site cost us, 50, 60 bucks to create and six months later, we're able to sell it for 2,000 to $2,300. We can just take all that money and reinvest into building more.
Justin Cooke: We got this snowball effect of being able to build up the sites, sell them off and reinvest the cash into more sites. We started building more and more sites based on this process and build out a whole team and a network of people that were able to build out these small niche AdSense sites.
Kevin Graham: Yeah, just as like a little tiny bit of my backstory, that's where I started making my first dollars online back when I was 13 or 14 years old, was off of these small advertising sites and then I'd left it go for quite some time because the market at that time was very immature. And then as newer advertising programs came along like Google AdSense, I started to get back into it around 2008, 2009 and then over time, probably that same sort of timeline that you guys started to operate on, where in 2012, 2013, I started building a lot of these AdSense sites and kind of the same thing. I had a team of writers and other people I worked with to do a lot of the work for those sites and then eventually sold my first one with you guys in December 2013.
Justin Cooke: Yeah, so that's interesting. The process we were using, because we were creating our own sites. We'd build them up and then we'd sell them. We were selling it through, it was AdSense Flippers at the time. What eventually became Empire Flippers. We were selling our own sites through ourselves effectively. We got a lot of requests from people to sell with us. They said, "Hey, you guys have an audience, people that are willing to buy your sites. Let me list and sell your website with you."
Justin Cooke: At the time, it was a bit scarcity but we were like, no, we don't want to cannibalize our own business. Our mindset was, look if we start selling other people's sites and what if they like theirs better than ours? Our real money maker is selling our own sites. We were pretty against it in terms of letting other people sell on our marketplace.
Justin Cooke: Then something happened to our process to where the sites we were building were not nearly as profitable. We were building up these sites and as I said, we put 50, 60 bucks into the site and then six months later it's worth 80 bucks or 90 bucks and inconsistently. It got to the point where we said, "Look, okay, now we're not as profitable as we were with this process, let's let other people list and sell their sites to an audience we've built up of people that are hungry to buy."
Justin Cooke: We were kind of, we were really resistant to the idea of becoming what we ultimately became because of the scarcity idea that we'd cannibalize ourselves and ultimately that funny enough, that becomes the real big win for us.
Kevin Graham: In a way, that was kind of the reason that you started your current business of the brokerage, was that your own sites started to not perform as well and so you started selling other people's sites.
Justin Cooke: Yeah, that's right. We ended up allowing other people to list and at first, it was still, it was sites that didn't compete with ours. Ours were in the as low as 1,000 bucks. Maybe it was even five, 600 bucks to $10,000 range. We were letting people list, 10 the $30,000 sites. We were even then we were still kind of hanging onto the idea that why not keep all the money instead of just getting a portion of it?
Justin Cooke: When other people sold their $20,000 site, we wouldn't get a 100% of the return. On our own sites, if we sell a $3,000 site, we get 3,000 bucks. Whereas if someone sells a $3,000 site with us, we'd only get 15% of that or 450 bucks. It was significantly less money at 15% than the 100% we were used to but what we didn't figure out is that there are a ton of people out there with profitable websites and online businesses that need a place, a safe secure place, to be able to sell and to be able to kind of walk them through the process. And that's, we kind of missed that early on and then the only reason we moved to that model was because A, our process wasn't nearly as good as it was previously and B, we had people clamoring for it. Our customers, or our audience was beating us over the head about it and we finally relented.
Kevin Graham: Yeah. If I remember correctly, I might have even been one of those people shaking you guys, come on, let me sell with you, please.
Justin Cooke: That's probably right. There's a bunch of people that wanted to do that and we were resistant. And then we did open it up and one of the other things I'll say that we kind of made a mistake and I hope maybe listeners get value out of this is that, we allowed other people to sell their site on our marketplace and we ended up brokering the deal for people. That was going well but we hung onto a lot of other side projects. Remember you asked about the outsourcing company? Well we kept that outsourcing company through all this time. We still were kind of running the outsourcing company while we were brokering the sale of these sites. We had other projects going on. We were selling keyword research packages and content packages and all these other, we had a Twitter background business. We had all these other projects and brands and distractions that were keeping us from really going on the brokerage or the marketplace.
Justin Cooke: We made a decision at one point, when we saw kind of the up and to the right growth trajectory of Empire Flippers as a marketplace, we said, "Look, let's drop these other projects." And these other projects were profitable. We were making money on the outsourcing company. We were making money on these other projects but we realized that the ROI on our time and the long term value of actually allowing the marketplace to grow and putting our time and effort into it was going to be more profitable and a better move for us in the long run. It proved to be right but we didn't know, we weren't sure it was right at the time and luckily it worked out really well.
Kevin Graham: Yeah. Can you tell me about a point in the business where you started get initial traction? And what do you attribute the success of that initial traction moment to?
Justin Cooke: I think we were heavy on the content marketing. We were building a brand that people could connect with, that they could relate to. We were being ourselves. We were putting ourselves out there. We were pretty open and transparent and honest about kind of our struggles and everything that was going on. We started to really connect with people. When we started getting feedback from people that wasn't just, it wasn't just a hey company. I get some of those emails now. It's like, hey I've got a problem with this or hey, I got a question about that. They're just kind of like prospect or customer service issues.
Justin Cooke: Back then, it was deeply connected to us. To the point where I was, and this is kind of when I knew that we were onto something. I was in the Philippines and I was at immigration and I was standing in line, which you do, foreign countries and while you're waiting in line. I look at over at this guy and he's there with a girl and I'm there with my buddy and he kind of looks a me funny and he comes over to me and said, "Are you Joe?" And I was like, "No, my name's Justin." And he turns his phone around and he shows me our podcast. And he was like, "Dude, I listen to your podcast. I know you guys." I was like, "Wow." This is an immigration office in the Philippines and I was like, "We're getting some reach." He was Iranian but Iranian Canadian guy and he had shown me our podcast at this crazy location.
Justin Cooke: That was one of the first signs I thought that we're affecting people. People are paying attention and it's going well. I think another, that's kind of the first one. And then later on when we started really getting, when we started growing and doing larger deals. I'd say, we started off doing 10, 15, $20,000 sites and we moved into the six figure and then the seven figures businesses, I knew. I knew this was going to be something big. I think we closed our first six figure deals, a couple hundred thousand dollars and I was like, wow. People are trusting us to sell much larger businesses and websites with us than I thought we were capable of doing.
Justin Cooke: I kind of broke through a mindset. It was a mindset shift for me where I thought we were kind of doing these small businesses and I realized, wow, that's a real direction we can take in terms of doing larger and larger businesses.
Kevin Graham: Yeah. And I remember for the longest time in all of your podcast episodes leading up to that point where you started to do the six figure and then later seven figure deals, you always used to say, "Our niche is the 10k to 100k space." And again, I came to you guys, I started shaking. I'm like, "Look I've got this site here that's going to go for a couple hundred thousand, can you sell it?" You're like, "Maybe, we'll see."
Justin Cooke: Yeah, I know. That's good. It's funny that you mentioned that buddy because I was just doing some prep work on a feature podcast episode for Joe and I and I was going to call it Take Backs. One of my take backs was the numbers. We used to say that we'd sell for 20X. Everyone knew us as the 20X guys. We would sell websites at 20 times their monthly net profit and just like you said, if you want to sell your website under a 100,000 I think I'd say. 10,000 to a 100,000 or a 1,000 to a 100,000. That really, it's weird because I really wish we could take that back now because it was limiting for a very long time after we were doing six figure deals. After we were selling at much higher multiples, people still would listen to a podcast or they'd look at something and go, "Oh, they only do up to this size." Or, "They only sell up this multiple."
Justin Cooke: We had been past that for a year or two. It was really limiting later on but at the time it did help differentiate us. I don't know if I'd change that going back but I definitely felt the pain years down the road. I think at the time it helped to say, "Look, this is our lane. We're really good in this kind of area and this is what we focus on." But we felt the pain on that, by limiting ourselves as we tried to grow, it was frustrating to deal with over the next couple years.
Kevin Graham: Yeah, apart from going around and reediting 200 plus episodes of podcasts, there's not much you can do apart from just get the messaging right going forward.
Justin Cooke: You can't. I think it would've been better maybe to use small to medium size businesses or something like, or maybe there's some wording that would've been than hard numbers. And that would've been better. It's also difficult because our competitors were able to use those numbers against us forever. Oh if you want to do small deals, you go to these guys. This is we've been doing six figure deals regularly. We just moved in low seven figure deals and they're like, "Yeah, if you want to sell your $15,000 website, go to them." And we're like, ah! It sucks because we're the ones that said that. We're the ones that put ourselves in that box and then they're just trying to keep us there.
Kevin Graham: Can you explain the business model that Empire Flippers runs on to our audience?
Justin Cooke: Yeah. It's a little challenging. There's a barrier to entry because it's a marketplace. Basically we have to sell to two different audiences, two, different sides. On the one hand, we have to sell potential sellers to list and sell their business with us. On the other hand, once those businesses are listed for sale, we have to sell people on potentially and actually buying those websites and businesses.
Justin Cooke: We lucked out in that when we started out, we were selling our own websites, as I mentioned. We kind of built up a buy side to our marketplace. We already had buyers and hungry buyers waiting for websites to be listed. When we decided to allow people to list and sell with us, all we had to do was start sourcing those websites and businesses for sale.
Justin Cooke: Because we had built a brand, we could reach out to other people kind of in or around the online business space and say, "Hey guys, we're looking for people that want to sell their websites or businesses. If you know anyone, please give us a shout." And they were happy to do that.
Justin Cooke: Since then, we've got the kind of initial effect of we lucked out because we had the buyers and we just looked for sellers. Now it's more of a balancing act. It's trying to make sure that we're able to match up the right buyers with the right sellers. What that means is, we have a whole vetting process where we don't accept just any business that wants to list. It's not a free for all. We want to ensure the quality of the seller of the site they're listing. Make sure that the numbers match up in terms of earnings and traffic. We check it for qualitative purposes but we also will reject listings that we know we struggle to sell. The chance of us selling it is low enough to where it's not even worth us listing. That's frustrating for the sellers because we come back to them, we say, "Look, your business is fine, we just don't have that great a chance of selling it unfortunately so we don't want to list it." And they're like, "Well just list anyway." We're like, "No, you trust me, we're saving you and us hassle."
Justin Cooke: But then on the buy side, we have to make sure that we're finding the right buyers. Sometimes sellers are like, "Look, I want to sell this business. I have very little time to focus on any kind of training. I need someone that's experienced to take this over, that knows what they're doing." We kind of have to match up the right person. A newbie that is looking for a few hours of phone consultation over the next couple of weeks and months, probably wouldn't be a good fit for that seller.
Justin Cooke: That's really our goal now is just obviously to keep our brand, to keep expanding our brand and get our name out there to new audiences and explain the industry but also to make sure we're matching the right people.
Kevin Graham: Yeah. I've done enough deals on both sides that finding the right seller and buyer to match together is such an important part.
Justin Cooke: Yeah, that's really important. I think making sure we provide good service to both. It's difficult because we, not everyone's always going to be happy on both sides of transaction. We look at it from the perspective of, what's the right thing? What's the fair thing between both parties? Because we do have customers on both ends of the deal, it is easier for us to kind of understand what people are going through.
Justin Cooke: I'll give you an example. When someone's selling their business and they don't have the money in their pocket or in their bank account but they do have to transfer the business over to the buyer, that's a really kind of scary time because they're effectively giving up something. They're business that they may have put, poured blood, sweat and tears into over the last year or two years or five years and kind of giving, handing over the keys to someone without anything to show for it.
Justin Cooke: It does take kind of more encouragement. I think better communication on our end with people, particularly when it's their first time doing that. Now that's not really your situation Kevin but we do have a lot of first time sellers that that's a scary period in the process of doing business.
Kevin Graham: Hey, I remember when I sold the first one through you guys and it was $3,000 or something. Being kind of worried in that handover process where it's like, hey what's this buyer doing?
Justin Cooke: The funny thing is Kevin, we have that because we spend a lot of time, most of our kind of our sales team's time and our senior exec's time are spent on the seven figure deals now. Particularly as we kind of move up more into a mid seven and high seven figure deals, we spend a lot more time there because it's newer for us. It's a growth area for us. But we still a lot of 50, $60,000 affiliate sites and drop shipping sites and eComm businesses and so but we do those like it's just clockwork. It's basically we have it mostly automated and processed out.
Justin Cooke: Someone's doing a $50,000 sale and it's their first time and we have a tendency to kind of look past it and be like, yeah, yeah, it's fine. Just transfer the business and we got the money. We're going to send you the money as soon as the deal's done. No worries. It's just because we've done so many of them but we need to be, we could be better I think about remembering that this is their first time. They're nervous about it. We could probably use softer language about that.
Justin Cooke: We do this so much and so often. We're going to do, I don't know, 280, probably close to 300 deals this year. Almost a deal a day. Those range from anything from 20, 30,000 up to seven figures. We're just banging those deals out. It becomes kind of, it's just business for us. But for other people, they're really selling their baby.
Kevin Graham: Yeah, for you guys, this is your day to day is just helping these transactions go through but for the buyer or the seller, it's a huge life decision that they're making there.
Justin Cooke: Yeah, I think helps to have and some people say, "Well, it's sucks." It sucks someone's taking 15% of deal. I understand that perspective because look, that's a big chunk of change. But they also assume that it's all we do is match up a buyer and seller. If you're a seller, all we're going to do is throw a couple of buyers your way and expect you to take care of it, sell the deal, do everything. And that's not the case with us. We're more of a full service shop in the fact that if someone, you're selling your business with us, we'll do buyer seller calls.
Justin Cooke: I have a salesperson that will prep you for what to expect on the call, has a process to go through with the buyer. Will try to ask for the deal on the phone. We'll do a followup call with the seller, "Hey here's kind of I think what we can expect and here's kind of how I feel it went. Here's what we can do on the next call." We have salespeople that are kind of driving that process.
Justin Cooke: And then when the business is, when the deal's done or the contract's signed or the agreement is made, actually migrating the business from the seller to the buyer is something we handle as well. There's some things that you need to do and the process we kind of bounce back and forth between who does what but were there kind of holding your hand through the process. I think that particularly is scary as I mentioned, but also things like there are times where if you're selling your business, you want a certain price, the buyer wants to pay a certain price and you come to this impasse. We're skilled in this because what we do, we can come out with creative ways to still get the deal done. Whether it's through an earn out, it's a balloon payment, it's tied to the profits, tied to the revenue, it's a acqui-hire. We can do a lot of different kind of structures that can get a deal done and make both parties either happy or at least reasonably okay with the deal.
Justin Cooke: I think there are reasons to I think to hire a broker. To go through a marketplace that are outside of just getting you a buyer.
Kevin Graham: Yeah, for sure. I think at least one or two of deals, all of those things have had to come in from you guys at various stages that if I was just going out there and trying to sell on my own, deals just wouldn't have been done.
Justin Cooke: Yeah. I realize that's self serving to say, "Hey you should use a marketplace," wink, wink. But if I was giving advice to my mom or my brother or my best friend, I would tell them the same thing. I think it's a smart move.
Kevin Graham: We've heard a lot about where you've been, how you got to where you are now, all of that, one of the questions I like to throw at people on the show here is, it's a bit of a curve ball. I hope you're ready for it. Can you tell me about an unexpected crisis that happened in the business and how you handled it?
Justin Cooke: Unexpected crisis, yes. There's one I can think of specifically. It was before we starting brokering deal. We were just selling our own websites that we created. What happened is, is that we were allowing sales to come in, I think even via PayPal early on. But then were definitely allowing credit card payments and we knew there were some risks there but we were doing so many small deals and had so many credit card going through, it was working and we were okay with it.
Justin Cooke: Then we had a reversal for a three or $4,000 deal. And then another reversal. And then we'd gotten multiple reversals in a very short period of time. 24 to 48 hours. We don't normally get that at all, it was really rare. We looked at it and we noticed it was different people, they were all women out of Canada. We were like, this is strange because that's not like our major demographic or anything. He's like, "What's going on with this? Why are women in Canada reversing on us on their credit card payment to buy these websites from us?"
Justin Cooke: What we found out is that someone had bought these sites with stolen credit card data out of Canada. They'd bought them and then ultimately what they were trying to do is they bought them from us and then were turning around trying to sell them privately through black markets to get the actual cash. They were buying this, they had this asset and then they'd turn around and sell it for 50, 60 cents on the dollar to get the real cash that they can take and then spend.
Justin Cooke: That was a bit of a crisis. We found out this was happening. I think it was maybe 20 grand or something we had lost and 20, $25,000 and we found out who it was. We actually dug into it and Joe and I were on the case. We put our internet, dork internet research hats and we're using our Google foo and trying to figure out who it is. We come to find out it's a couple of Russians guys that had access to this stolen credit card information and we shut it down. We weren't allowed, we weren't able to take credit cards anymore. We had to shut that down because it's just ripe for fraud and we were going to talk about it. We can't talk about it publicly and invite people the scam us.
Justin Cooke: And then we ultimately one of the sites, one of the guys bought the sites from the scammer and then listened to our podcast and came back to us said, "Hey, I think one of the sites I bought was from the scammer." We talked to him and it was. We took it back, ended up selling it to make sure that he got his money back and he walked away good out of the deal. It was so funny.
Justin Cooke: We also had a guy from Homeland Security reach out to us and say, "Look, I know," because I found out one of guys was trying to go to the US. He was like, "Look, if you find out he's going to the US, send me the info over and I'll be happy to take a look into his US trip and see if we can keep that from happening."
Justin Cooke: Yeah, man, it was a pretty wild time. It really stressed us out while it was happening. Luckily it didn't turn out any worse than that. I think it was at worst we were 20, $25,000 exposed or something. And then we wrote a blog post about it, how we scammed by Russians and send you the link for that. That was a pretty wild time.
Kevin Graham: I remember reading this post a couple years ago and it was a really interesting story. I hope the listeners get a chance to click through and give it a read because it is very interesting. Back to slightly nicer topics, what's one thing about your business that makes you excited today?
Justin Cooke: Our team. Joe and I spend a lot of time developing our managers and our supervisors right now and so I get, I can't work with everyone that closely but definitely our management team and helping to develop them and work with them on making decisions and coming to conclusion I think is, I get a lot out of that.
Kevin Graham: Right. Building the team that runs the operation for you.
Justin Cooke: Yeah, we have nearly 60 people total in our organization right now. We've got a few directors, we've got a VP and so working with this crew, and our management team is great in terms of helping them kind of develop their skills and really double down on their strengths and kind of work on their weaknesses. It's been, it's fun.
Kevin Graham: Cool. Where do you see the future of Empire Flippers?
Justin Cooke: Taking over the world baby. No. We continue to sell. I see us growing and selling larger and larger and businesses. Mid six and mid seven and high seven figure deals, we're going to continue to work on. We're working on a platform right now that I think could be really interesting. Let me back up and say, one of the things about buying and selling websites and online businesses is, don't think it's going away. We've been kind of riding a wave and I see the wave continuing to grow and get bigger. We plan on continuing the ride, continuing the ride on this wave.
Justin Cooke: One of the ways we're going to do it is make it even easier for people to invest in businesses. One of the struggles we have right now is that there are people with lots of money and no time or skills. They're like, "Look I've either a fund or I've got plenty of money I'd be willing to put into this. I'm sold on the idea of online businesses as an asset class but I don't have the time to go figure out keyword research and learn Jungle Scout and learn how to build these businesses. I just want to invest in them."
Justin Cooke: Making it easier for those people to match with people that have legitimate skills and verifiable skills, and purchase together or invest in operators that can run businesses is something that's critical to us. I think it's going to be key. We're working on a platform that'll make it easier to match those two up and that's something I'm really excited about over the next year or two.
Kevin Graham: To get this right, you'll be connecting investors with operators?
Justin Cooke: That's right. The idea is to take someone like you Kevin, for example, I know that you guys are focused on what you're focused on right now and this probably wouldn't work but someone with your skillset and you're working on deals and but you want to take it to the next level. You want to work on even larger deals. You want to kind of double or triple up on the businesses you're working on. We match you with investors that will give you funds to really kind of crash course and 2X, 3X, 5X the amount of business that you're able to do.
Justin Cooke: We have maybe a host of operators and we're able to pair them with the investors they're looking to get into those businesses. Either one investor or many investors, multiple investors, we want to offer a platform for people to make that connection.
Justin Cooke: Also, we're seeing a lot of funds start to play in this space. Family offices, private equity groups, we've got a lot of them and they're regularly looking at our marketplace for businesses. They're normally looking in mid six to mid seven figure range. The more we can to do to support them and pair them up with other people that are looking to invest, I think is going to be really helpful.
Justin Cooke: That's where we see the market going as it matures, is a lot of these kind of mid players, the funds, the family groups and the experienced operators looking for investment, I think there's going to be just a lot of stuff going on there.
Kevin Graham: Yeah, interesting. Connecting those two. What's the business model side of that? Is it more deals go through your platform? Or are you guys taking a cut? Or how would that work?
Justin Cooke: I don't know. We'll figure out, I hate to be that guy but we'll figure out to make money on it. It's a cool thing to do. I see it going that way. I see it being helpful for both parties. We'll figure out how to make money on it. You know what I mean? It's where the industry's going. I think it'll help. I think there's a lot of things that are going to happen there and we'll make it profitable for ourselves.
Justin Cooke: Look, if we make that a win and we're able to pair up investors and operators in a way that's positive and profitable for both of them, they'll be happy for us to take a cut.
Kevin Graham: Yeah. The moment that you mentioned that, it is something that I'm starting to see in Facebook groups of people that operate in this SEO and affiliate marketing space, is more and more requests for people saying, "How can I connect with an operator to buy a site and run it for me?" Or, "How can I connect with someone who has money because I want to be an operator run sites for other people." That model definitely seems like the next trend in this space. Interesting to get out in front of it and try and facilitate a bunch of those deals.
Justin Cooke: Yeah, let's say that you're regularly buying, you're building high five figure, low six figure affiliate sites and you've got a bunch of investors that come and say, "Look, I want to buy some mid six figure businesses, apply some of the same things that you're doing right now and kind of double or triple those up over the next couple of years." You've got some operators, "Look, yes, I'm willing to do that. It's not all my money at risk. I'm partnering with the investors and only putting some of my money up and I'm able to apply my skills to where they have a higher ROI. I'm willing to do that."
Justin Cooke: Definitely in the affiliate site space, we're seeing a lot in the eComm and the Amazon FBA space as well. A lot of people with FBA skills or chops can run larger FBA businesses or groups of businesses if they just had the cash and the capital to invest in the inventory needed for the eCommerce business. Because eCommerce is, it's really cashflow intensive. If you're growing at any kind of clip, you're just constantly dumping money back in inventory. All of your profits are locked up in inventory. If we're able to pair you up with someone who can cover the inventory and purchase order problem, that's a win for a growing business.
Kevin Graham: Yeah, definitely because that capital is really, the biggest limiting factor for so many of those businesses.
Justin Cooke: Absolutely.
Kevin Graham: Back to a couple more mindset questions. What books do you think had the biggest impact on you in deciding to become an entrepreneur?
Justin Cooke: I think, The World is Flat was really interesting by Thomas Freedman. And these are older books. These have been around for a while. The World is Flat was really interesting and that's right before we got into outsourcing. That was right around that time. That was helpful. I think a later that's particularly around that kind of buying and selling businesses is Built to Sell is a really good book. It talks about how some businesses are sellable and some aren't. Lays out a really good case for the type of business that is not only sellable but it's the kind of business you want to own. One of the points he makes in the book is that, look, you should build your business as if you were going to sell it because honestly it's going to be a business you'd rather hold anyway. Whether you sell it or not, build the business in a way that it's sellable because it's great business to own.
Kevin Graham: Just on Built to Sell, I've reread that book in March and really started implementing a bunch of those things in my businesses to try and move it into A, a more sellable business and B, more of the type of business where I can not have to be so much in the day to day of the operations.
Justin Cooke: Yeah, funny, I see it applying to your business particularly regarding hosting pretty heavily. I think there's a lot of takeaways there for you, for sure.
Kevin Graham: Just finally, what books have had the biggest impact in the last couple of years in terms of as you've grown and changed the business?
Justin Cooke: This is less, I don't know, there's not really business focus, I hope that's okay. I read Sam Harris' Waking Up. I don't know if you're familiar with that but I'm a big fan of Sam Harris. Talks all about kind of mindset and meditation. It's not with a business focus at all but it's been interesting and I started doing some meditation. Not like the spiritual woo woo type of meditation that I thought it was originally but since I've been doing that I've felt a little clearer, a little calmer, kind of in my head. Mindfulness I think is a really helpful tool that I'm just starting to explore. I can't speak about it well so I won't go into any detail really because it's just so new for me but it's something that over the last couple of months I've been really interested in.
Kevin Graham: Cool. Finally to wrap it up and bring it home, where can our listeners connect with you personally? Or also find out more about Empire Flippers.
Justin Cooke: Yeah, man. I'm on the Twitters. If you want to reach out to me, I'm regularly checking our Twitter account, @EmpireFlippers. And then obviously we have a podcast, it's called the Empire Flipper's podcast. You can find it Stitcher, iTunes, whatever. Also, if you're particularly interested in buying and selling businesses, I'd recommend checking out a show I do called Web Equity Show. It's with a guy named Ace Chapman who buys a lot of businesses and helps people buy businesses and kind of the two of us go into some detail there. I think it's a really good piece of content.
Kevin Graham: Yeah. I got the chance to hang out with both of you guys in Austin a few months ago and Ace is very active in doing a lot of deals.
Justin Cooke: He's crazy deal. He doesn't have a real, we've talked about this kind of privately, he wouldn't mind if I talk about it. But he doesn't have a really wide audience but he knows his customers super well. They are close. He's got, I don't know, several hundred people that he knows intimately well and does a lot of business with. He does a lot of business. He's the real deal. It's great being able to talk to him. I learn from him every time we get to do a podcast episode together. It's really cool.
Kevin Graham: Well thanks for your time today Justin. I hope our audience have learned a few things out of this episode and I look forward to chatting with you again soon.
Justin Cooke: Awesome man. Thanks, I appreciate it."
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