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7 Most Common Website Due Diligence Mistakes

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Bryan O'Neil from Centurica explains the 7 most common mistakes made when conducting due diligence on websites and online businesses being bought.

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7 Most Common Website Due Diligence Mistakes

  1. 1. 7 Most Common Website Due Diligence Mistakes Bryan O’Neil Website Acquisitions Consultant
  2. 2. Agenda  Mistake #1 - Not understanding the differences between traditional and online due diligence  Mistake #2 - Not knowing what to look out for  Mistake #3 - Not paying attention to external factors  Mistake #4 - Taking information at face value  Mistake #5 - Ignoring minor red flags and not looking at the big picture  Mistake #6 - Overlooking seller's other business ventures  Mistake #7 - Failing to Ensure Revenue Streams are Transferable
  3. 3. Mistake #1 - Not understanding the differences between traditional and online due diligence  Main focus needs to be on traffic, rather than the internal workings of the business.  In the online world, traffic sources are often unstable and unsustainable  Especially true in cases where the website relies on organic traffic  Lack of audited books - 9 times out of 10  In many cases, online businesses are sold as assets, rather than companies  Often the seller is a private individual  Maintenance burden: online businesses are often owner operated  Sellers tend not to account with their time spent running the business
  4. 4. Mistake #2 - Not knowing what to look out for  Having expert knowledge is crucial  Educational Resources and Tools:  FlipFilter – http://flipfilter.com/  Flippa.com Blog – http://flippa.com/blog/  My own publications – http://bryanoneil.com/
  5. 5. Mistake #3 - Not paying attention to external factors  Link Profile Analysis  For websites that rely on search engine traffic, the quality of its link profile determines the sustainability of this traffic.  Website present in Spam Black Lists  Often not obvious but can pose a major threat to the website in the future, especially for sites that utilise e-mail lists for selling their products/services.  Unsustainable sources providing traffic / clients  Majority of the website’s traffic is referred by a single site  Website depends on “free” traffic that can stop any day
  6. 6. Mistake #4 - Taking information at face value  The industry is extremely prone to fraud  Especially true in cases where the transaction value is small (<$20k) and the parties never meet in person.  Deals are often international, making contracts extremely difficult to enforce.  Some sellers misrepresent unintentionally  Sellers are often missing important details, especially when the business is owner- ran and was started as a hobby.  Important to verify information live  Revenue proof screenshots can easily be tampered with.  Everything should be verified through live screen sharing or in person.
  7. 7. Mistake #5 - Ignoring minor red flags and not looking at the big picture  Each property has at least some red flags  There are seldom websites that pass all DD checks  Most red flags are insignificant in nature and easy to counter  Often there are a number of red flags that alone aren't significant, but as a collection pose a great risk  Important to look at the DD results as a whole  Categorise shortcomings into those that can be fixed/countered within 1 month from the acquisition and those that can’t
  8. 8. Mistake #6 - Overlooking seller's other business ventures  It is extremely common online for one person/company to have many competing websites  When working with organic traffic, having more than one website offering the same product/service is often beneficial  These different websites often share elements of their infrastructure and benefit from volume discounts  In many cases, only one website of the bundle is sold  Identifying these websites can take some time and effort  It is often not obvious which other sites the seller owns  Non-compete contracts not easily enforceable, especially in cases of international transactions
  9. 9. Mistake #7 - Failing to Ensure Revenue Streams are Transferable  Most common situation: PayPal Subscriptions  Subscriptions are not transferrable  Asking customers to re-subscribe typically results in losing 35%+ subscribers  Many advertiser contracts are not transferrable from one individual to another  New contract is an option, but may involve downtime  Approval processes differ from advertiser to advertiser. Buyer needs to make sure they are eligible for working with the advertisers beforehand.  Transferring accounts partially often results in the loss of special arrangements and/or volume discounts
  10. 10. Thank you! Liked it? Share it! More information: Bryan O’Neil Website Acquistions Consultant E-mail: bryan@bryanoneil.com Web: http://BryanONeil.com/

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