Video Interview: Due diligence before buying a website

In a series of interviews with website investor Joe Burrill, Flippa uncovers his secrets for website due diligence and talks about mistakes he has made in the past.

Watch the video below with Tony Barrett, CEO of Flippa, where he interviews Joe Burrill, a Flippa Super Seller, on website due diligence:

Full video transcript below:

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Tony: What we have been talking about in terms of the profit and the revenue sort of leads a little bit into due diligence. I imagine that as a buyer, that the due diligence process is very, very important in terms of your process for buying a website?

Joe: Absolutely. It’s probably the most important part. It baffles me how many people don’t do it, buy sites. It’s like, “You don’t even know what you’re buying.” Anyway, so-

Tony: What are the most important things you look for when you’re doing your due diligence? What are the two or three key things that matter most to you?

Joe: Yeah, okay. I think it’s worth noting that it usually takes me between five and six hours to do full due diligence on one website. It’s a significant time and obviously I’m not going to cover every single step of that. A lot of it has been built up over time and I add to it, and so and so. Some of the key things, traffic. You want to look at where the traffic is coming on the website, where is it coming from, how long they’re spending on the website, and all those sort of metrics.

Along with that, if it’s getting traffic through Google or organic search, you’re looking at SEO factors like backlinks. Where are the backlinks coming from? Those sort of factors, as well. Next thing is obviously profit. You want to verify every single cent of profit through screenshots, screen shares, and those sorts of things. Along with that goes with the expenses as well. Some sellers are a little bit dishonest when it comes to expenses, because they’re trying to make it look better than it actually is.

You have to be careful, which is one of the reasons why I value sites based on what my expenses are going to be, not what theirs. The next thing is the seller. Traffic, profit, seller. The seller generally is covered by just having an interview with them, just talking to them over Skype or whatever.

Tony: You want to buy from someone who you trust or someone who is trustworthy generally? Is that what you’re looking for when you’re talking to the seller?

Joe: Yeah, absolutely. I’ve walked away from plenty of deals because I just get a bad vibe from the seller.

Tony: Wow, okay.

Joe: Plenty. It happens a lot actually, because it happened literally just a few months ago. If you can’t trust a person, you don’t know what’s going to happen, it’s a big risk. Because you’re dealing with people. There’s another person on the other side of that computer that’s … Anyway. It’s definitely a massive factor.

Tony: Yep. Just to dig into the other ones a little bit more, so in terms of traffic, you spoke about how much traffic there is and where it comes from. I imagine that not all traffic is created equal in terms of valuation?

Joe: No. Definitely isn’t.

Tony: I mean, organic versus paid is an obvious one, so organic traffic would be more valuable than paid traffic?

Joe: Absolutely, yeah.

Tony: There’s some more nuances in there as well, I imagine.

Joe: Yeah. Like I said, the main metrics is like bounce rate, time on page, or time on site in general, page speed is actually another one that’s become a big thing recently. If it’s a slow website, in some ways it’s an opportunity, if it’s ranking fairly well and it’s slow. But yeah, I mean, traffic from … Another big thing that’s sort of started happening or has been happening for a while is Facebook traffic. Can generate a lot of traffic to your website, and Pinterest and those sorts of things. Each one, they have a certain attention span, so to speak. The users have an attention span and that’s usually reflected in your bounce rate, in your time on page and those sorts or things.

Tony: In terms of profit, obviously verification of revenue and expenses and those sort of things, I imagine there’s a few difficulties and pitfalls in that. You’re relying on the seller to provide all that information to you through screenshots or walkthroughs or whatever. I know on Flippa, we do have issues sometimes with people who have multiple sites who aren’t actually very good at separating the revenue or the cost between their sites, so it’s hard to tell whether it applies to this site or another site, right? Have that problem all the time?

Joe: Yes. Disorganized sellers is a very common thing, unfortunately, and yeah, it’s just something you have to deal with, you know? That’s why having screen share, actually talking with them on Skype helps a lot. There are some sites out there that literally have 10 or 15 different sources of income, and verifying that, I mean, that’s going to take a long time. But you’ve got to do it. Figure out where all that money’s coming from and what can be improved and so on.

Tony: I’m sure as a seller you organize your profit and your-

Joe: Yes, oh gosh. Yeah, every single one of my sites, I do a KPI spreadsheet that I compile. It has all sorts of information, not just profit. Not just income and expenses, it has main keywords, popular landing pages, all those sorts of things in there, too, and I give access to every buyer, to that.

Tony: Fantastic. Love to buy a site from you in that case.

Joe: Anytime.

Tony: Just to round out the due diligence a little bit, do you have any key tips for people who are looking to do due diligence on a new site? Anything that you’d recommend for them to watch out for?

Joe: To watch out for?

Tony: Other than what we’ve already covered.

Joe: Let’s see. Well, there are a lot of red flags that come up for me. Nitty gritty stuff like backlinks and things like that, it’s a bit difficult to say, “This is a good backlink profile, this is a bad backlink profile.” My number one piece of advice for people buying sites is to just ask lots of questions. You’re buying a business from someone and it’s your responsibility to find out as much about that business as you can before you buy it. Whether it’s big or small. By asking lots of questions, you will learn a lot more about the site, and have a clearer picture about whether or not that’s something you actually even want to take on.

That’s definitely an important thing and it’s not really due diligence per se, but it’s just use your head. If it’s something you don’t feel like you can run or you don’t want to run, or you don’t want to learn to run, then maybe you should pass on that one, you know?

Tony: Sounds very sensible. The last question on due diligence is do you have any tools, particular tools that you use that help you with the due diligence that some of our viewers might be interested in looking at, as well?

Joe: Yeah, yeah sure. When it comes to traffic, get Google Analytics guest access. That’s number one. You need to have access to Google Analytics. SEMrush is another tool that I use. Ahrefs as well, but I don’t use that one as much. SEMrush I like quite a lot. That gives you some fairly detailed organic search metrics. For backlink profiles, Majestic.com. There are, again, I think Ahrefs also does that. Domain Authority and MozRank, those sorts of things that come from Moz.com, and Skype, of course, to just jump on a Skype call.

Tony: To talk to the seller, to have run throughs and that sort of stuff.

Joe: One other thing, for content based sites, Copyscape is another good one. Copyscape basically just you grab a bunch of content from the website, paste it into Copyscape and it will tell you if there’s duplicate content out there somewhere.

Tony: Ah, of course. Yes, unique content versus duplicate content, big difference.

Joe: Exactly. You’d be surprised how often content gets duplicated on there.

Tony: I’m sure.

Joe: You have to be careful for that.

Tony: I’m sure. I imagine in your seven years of experience of doing this, you’ve had a lot of wins, a lot of misses.

Joe: Oh yeah.

Tony: Can you tell us a little bit about one or two of the not so good investments that you’ve made?

Joe: Yeah, sure. Sure. The very first site that I ever bought, I bought it for $700 US. It was a significant chunk of money for me back then and the site was called BlackLaceDresses.org. Basically, I owned it for about maybe three months and then it got hit by a Google update, the exact match domain update. It was ranking quite well for the keyword, “black lace dresses,” and “black lace dress” and then that update rolled out and the traffic went down.” I tried to fix it, being my first investment I’m like, “Oh, I’ve got to try and fix it.”

It went up for a little bit, I made it better, but it wasn’t anywhere near what it was when I bought it. In the end, I just let that one go. Yeah, I mean, definitely happens, and there was one other one. I used to be in the desktop wallpaper niche. I’m not anymore after what happened with this one. I bought it, it would have been easily three or four years ago now, for sure, and this site had literally tens of thousands of images on the site, none of which they owned copyright to. Of course, I didn’t know much about copyright back then and one of the photos on the website was done by a photographer and they contacted me and said, “You’re not supposed to display that.”

They essentially threatened to sue me. They sent me letters and stuff like this and I’m like, “Okay, what do I do?” In the end, I ended up losing $1000. I had to pay them a bit over 1000 US to them, just to make them go away. Yeah, that was the end of that niche. Not to say that you can’t do it, like there are plenty wallpaper sites out there that are doing it properly, but it’s definitely a bit of a risky niche for sure.

Tony: So with a bit of experience now with those two sites in particular, is there anything you’d do differently that you’d be able to protect yourself better now or you’d just avoid them?

Joe: Well, I definitely know a lot more now than what I did back then. That is for sure. I wouldn’t probably invest in those websites now. Like I said, I’m not even in the wallpaper niche anymore. Usually you can tell, generally if the site has got good content, you can see that it’s been built, it’s a proper business, you can tell that it’s got some authority, and you can tell just by looking at it that it looks real, that’s a good sign just right there. So, those two sites that I bought that I just mentioned, they did not tick that box.

Tony: Fair enough.