Ep 323: Buying Your First Online Business & What Multiple Acquisitions Can Teach You with Michael Frew

How much should you spend on your first business? And should you dip your toes in the water, or should you go all in? Hi, I'm Jaryd Krause. I'm the host of the Buying Online Businesses podcast.

And today I'm speaking with Michael Frew, who is the &A advisor for Web Street, which was formerly Empire Flippers Capital. He's received his BS and MBA in business and economics while studying in China, Hong Kong, and the Netherlands, as well as several post-graduate information security certifications.

Having been a successful software developer and consultant for over two decades, he's pivoted to collaborating with other developers on small side projects to help them gain traction to grow their bootstrap business.

Now, this led to a deep dive into the niche world of digital businesses in M&A, where what he started with acquisitions, a small Amazon affiliate site, led to managing eight eight-figure portfolio of e-commerce businesses, SaaS businesses, content sites, ad sites, and a decade later.

Michael's business acquisitions insights have been featured in dozens of media outlets like FE International, Indie Hackers, and Empire Flippers. And in his pod, Michael talks about his experience of how he got started buying businesses, buying his first Amazon business, how he moved into larger acquisitions, what he learned through acquisitions, values he made. We talk about deal structures in terms of financing that works for maybe buyers, but not sellers. What to stick away from in crazy deal structures that can scare sellers away.

Scare them away from you buying a great business from them. We always talk about AI, is AI gonna replace all business models, and if so, how and wh why, not yet likely, and why there's so much speculation, fear, and doubt around that, and how we can use AI to our advantage.

We talk about dipping our toes in, where you're at with your cash levels, should you buy a smaller business, see how it goes, test it out, and then buy a larger business, or is that a flawed strategy, and why, or is it the right strategy?

Now, Michael's got so much experience in buying businesses and as an operator. This is such a valuable podcast episode. I know you're gonna love it. We do talk about acquisitions so much. Make sure you get my free DD framework. It's what I use and my clients use that takes the guesswork out of buying businesses. It's free.

It's made people millions, and it saved people millions. You can get it at buyingonlinebusinesses.com for free resources.

See you on the inside.

Michael, welcome to the pod. Thanks so much for coming on. Appreciate your time.

Yeah, it's awesome to be here after listening to you for all these years. Excited to be here.

Yeah, absolutely. Now, you've been in, how long have you been buying an online business for? Buying and selling an online business for now?

Yeah, so I've reached it. I'm at the decade mark here. I had a career. Love to say it was 20 years, about 19 years in corporate, and then kind of took a sabbatical, stumbled into this a little bit. It just made sense.

Coming from an engineering background, developer background, consulting background, all of a sudden to be able to be the boss and run your software projects that you own yourself, just suddenly clicked, and it made sense. Why am I continually trying to build these kinds of things instead of just buying them on the market?

For sure. It's cool. Developing software into consulting, I'm assuming that's kind of your path. And then from consulting, went into working and running one of these businesses, for what was called Web Street, which is now Empire Flippers Capital.

How did you bridge the gap from consulting? Well, how did that opportunity come up for you? Were you already looking at businesses, and you're like, actually, I could do this.

Yeah, so a decade ago, right? So I had done a lot of information security consulting. And as some of your listeners will know, there's a lot of money in that. And so I had some cash sitting on the side, and I thought, okay, let me take a few months off, figure out what I want to do for the next 20 years.

And that's where I started looking at what kind of software projects I would enjoy running, waking up every day, and want to do. And that's where I kind of put my first cash opportunity into, and bought a cloud infrastructure business.

So over the next eight or nine years, I continued to acquire, build, and learn the operational part of all of that. And that's when Web Street, which was the empire flippers' capital, reached out and said, Hey, we're looking for some experienced operators for our funds.

Would it be something you're interested in? And so that quick sentence, you know, that actually takes up a whole decade where you have that eight or nine years of experience of doing this and doing, having success, also having failures, which I actually feel is more important to talk about the things that we do wrong so that we try not to do it again.

But that worked out well to set me up for working with Web Street.

Yeah, cool. And then coming into web street, does it work? Is it, find a business, and they do all the DD and everything. And then you are like, here we go. Here's the operations. Or do you have a little like input with DD, and like, does that work for you?

So it's a nice combination of two things. One, you have the side that needs to raise money, deal with the legal part of that, go out to investors, and put all the marketing out. That's something I would just naturally never do.

Everything I acquired was my own money. I was 100 % the owner. And so in a weird way, if I messed it up, I was just embarrassed by myself and my family. They do all kinds of work that I wouldn't do.

And then they say, listen, as the operator, you run this 100 % yourself. And a lot of times, you hear that and you think, okay, I've got to see that in action. If that's true, is there somebody with their fingers in my computer every day checking to make sure everything's going okay?

And it turns out it is a hundred percent true. They're very hands-off. They let me make all operational decisions. And to go back to your original question in the DD part, we kind of both worked on it together. There are pieces Web Street has real good experts in financial analysis and rebuilding P and L's.

And I felt that was perfectly good to hand off to them because the only thing I'll do is I'll just make a mistake. And they helped a ton with trying to find businesses. But in the end, it all came down to, This is a business that Michael feels like he can run? Something that I would enjoy doing.

And that's the best part is that I get to choose businesses that I'm going to wake up every day wanting to run instead of something where they kind of put it in your lap and it's something you're half invested in. And you've seen this a lot with PE firms and another institutional kinds of businesses that buy companies from entrepreneurs, and then they just stall out because there's nobody passionate about it who thinks about it after 5 p.m.

Right. So in this situation, like yourself, if we're always thinking about our businesses, and with this Web Street scenario, it's the same thing because I kind of feel like I'm 100 percent owner since I operate it all the time.

Absolutely. And that's so cool. And so, have you got one business that you've been operating, or what does that look I started around about a year ago. And another thing that's great about Web Street is that they don't pressure you to buy something just because we have capital.

So round is about a quarter long. That first round, we couldn't find anything that felt right, that had a good price. We went all the way close, we passed LOI, but we walked away from one opportunity. So did a second round. And in that second round, we found a business that we liked. This is a WordPress plugin business.

It was something that I had a lot of experience with, my team could work with, and it already had a team coming with it. The group that we were buying it from is also an acquisition company. So we're speaking the same language. Instead of a lot of times you and I both experienced trying to acquire from an entrepreneur, you have to educate them a little bit about what we're doing here.

And it's as if somebody's doing a real estate transaction has never done that before. So that worked out well. So at the moment, just doing one acquisition with Web Street. And the goal is maybe for me, like once every year, to look again at the next round.

And they have multiple SAS operators. They have multiple operators for different niches. So they continually kind of keep that cycle running forward.

Yeah, cool. So, as a new year comes in, will you operate a second business and then another, maybe a third business? Is that how it's going to look?

Yeah. So the goal is to keep increasing the business acquisition size and the entity value. So again, it depends on kind of what's available out there. So let's say in a year, if we can find something that's in the good seven figures, that's another second business that you would like to run.

I don't like to layer on a lot going on at once. My philosophy has been that my first acquisition was 10 years ago. I ran that for about three years before I got my second acquisition. Ran that for a year, and that was the one that didn't go well. And that's where you learn all your lessons.

A year later, with the next acquisition, I still run that business. A couple of years later, with the next acquisition, I still run that business. So for me, it's a slow process of acquiring and operating. I enjoy acquiring businesses that I like running, instead of something I want to flip and sell, where I don't have that emotional attachment to it.

So, for me, I just keep the businesses. So I have that cash flow in the background that's working with me. And then it allows me to build capital to buy the next business. So on the Web Street thing, I let them know, it's like, listen, I'm looking at every 12 to 18 months to look for something new, get the team working around it so they don't need me all the time. Then we look to the next thing.

Cool. So, are you with employee flip as capital? Is there a timeframe to sell and then give money back to investors, or like give most of their capital gains back to investors? Cause I'm sure they're getting paid as it goes, but is there a rough timeframe? Yeah. And what does that look like normally?

Yep. The goal on paper is, of course, quarterly cash flow, which is fantastic, hopefully getting everybody their money back already. Then, in a three to five-year period, we're looking at a sale. So that is comfortable for me. It's not something where, hey, in 12 months, we're looking for 100 % appreciation.

You can sit down at this point. This operation that we're running, we're at about five months. You can lay that groundwork, all right, so if I'm looking to sell this in four years, what's gonna get me there in four years? Like you can put that legwork in now so that it accelerates over that period. So it's kind of nice to know when your sale period is.

And of course, it depends on what the economy is doing and everything. Our goal is just to be at that point where, all right, we can either sell it or, if we're just getting good cash flow, we want to wait till the market gets better. We can just wait.

Cool. Cool. Well, let me know when you're ready to sell any of these businesses. Can buy for sure. If not for me, definitely for clients. So yeah, keep me posted. That's a beautiful thing about this podcast and networking: you get access to deals.

Yeah, they keep their network going as well. And that's one thing, again, going back to an earlier question, that I can rely on them. They're talking to everyone. I don't have to do that work myself. Yeah.

And I'm sure, as we all know, Deal Flow is the hardest part of this job. If you're looking for a good acquisition, everybody's looking for the same business. It's whoever finds it and whoever can have that relationship fastest that gets the opportunity.

Yeah, it's funny when I start looking for business for people, it's not like you just get things all the time coming across your desk. Hey, do you want to buy this? Hey, I want to sell this and whatnot. But when you are active, then you can start to see this, like you can go into the active pool.

Like, there's a part of my network that's like really active. You just dip into that and then come back out. Like you can get a dip in. It's very active, and then you can come back out. It's very, very cool to see because there are a lot of businesses moving a lot of the time behind the scenes that people don't know about. Like, I know you've got Empire Flippers and you've got a bunch of other brokers, but there are a lot of great off-market deals. There are a lot that are not great as well.

And that's the big challenge is what it is, and I think we can probably do it doesn't take a short time before you start to be able to sniff that out pretty fast. Right? Yeah. And once and that's again, it's really good to make mistakes and to do bad investments because then you can sniff that out faster as you get older and you're dealing with larger pools of money. So if any of your viewers have anything where like, man, that didn't work out. Trust me that these are all failures until you get that one success, right? And you just need…

Yeah, absolutely. That's why I have a job is buying. I've done this for so long. Looked at so many deals, knowing what is the right thing for somebody based on their likes, yeah, yeah. Just like, you know, just that's the shortcut. It's a cheat code. So you bought your first business about a decade ago, right? Like, what was that business? Where did you buy it from? What did you learn?

We know so fast.

So it was, I reached out to FI International. I think it was FII at the time. I talked to one of their brokers and said, Listen, I'm coming from a tech background. This is what I'm interested in. And he said, he called me back a couple of days later, and he said, I've got a business.

I don't understand what the heck they're talking about. Let me just send it across your desk. And it's just a cloud infrastructure, a super simple concept, but it's just not going to be something a broker understands. And I was like, this makes perfect sense. So I'm an engineer. Talking to an entrepreneur who's an engineer.

So very much you, me, same, same. Let's just figure out how to make this work. Loved the business. I still own it 10 years later. We've run it something like 12 times as much. I'm always wondering if the guy who sold it would ever look back and find me on one of these interviews and wonder what happened.

That there's an advantage to being able to have your first acquisition work out, right? It just gives you that confidence to go through the ones that don't. But even if you start and your first acquisition isn't good, you still can get paid.

But yeah, that business has been fantastic. So that allowed me to build up my team. So I've got engineers and marketing and AV people that we can then say, all right, is everybody ready to take on a new one, are we all starting to get a little bored? Let's keep growing.

Let's find something close to this, but that allows us all to learn new skills and move on to something else because this thing's pretty much on autopilot. And that's what we've done for the last decade, pretty much working with the same team the whole time.

Yeah. And so, what have you bought moving forward then? Yeah. What we did. The way and the growth are awesome.

Yeah, so because we had the same team, what we focused on was the software stack. And so on the outside, the marketing could look like a completely different business. And for those of us who looked 10 years ago, companies like Quietlight and FE, and even Empire Flippers, didn't list what the tech stack was.

You had to request the prospectus, then send an email and be like, hey, honest to goodness, all I care about is what kind of software is this made on? Because if my team can deal with it, then we're interested. If it's on C sharp, sometimes I don't even put that in the listing these days as well.

And so that started to pick up a little bit sometimes, where it helped, especially like acquire.com. It's much more technical, so we can look at it and say, Oh, this is our stack. So, as odd as it sounds, the two things I cared about were what the tech stack is and whether I would care about running this. I'm an introvert.

Everybody on my team is an introvert. We're all engineers. The last thing we want to do is run like a social media marketing company, right? So like there's no chance we're going to buy that. So it's something like, is this cool? Do we get to talk to engineers all day? So the next acquisition was another kind of high cloud thing. We're only going to talk to developers and engineers.

After that, we bought a deployment platform. Again, all engineers, if any business people, right, they talk to me because I guess I get stuck with the business stuff. But yeah, the goal is if my team's all engineers, we want to talk to other engineers, build stuff together. So I'm looking for those types of projects. And that's just that's my small niche, and everybody else can make their small niche like that as well.

Yeah, great. So, congrats on just acquiring and sticking to your niche. And now I've had other entrepreneurs on and helping people as well. Just buy in that range in that specific acquisition target. If you know it and you've done well with it, just stick with it. Right. And a lot of people who think they'd like it, what is that for me?

Well, typically the first business that you put, like, if you don't have skills in software, like yourself or an engineer, typically the first business you're going to buy, you're going to learn so many skills. You might be hiring some operators, but you're still going to learn skills. And just by doing that role of running that business for a year or two, you're going to have so much confidence that you can get that result with another business anyway.

So you just stick with what you get typically, unless you get super bored. He's like, I just hate e-commerce or I hate this. And you know, you changed the line, but what are some of the things that have been challenges in your acquisitions, either finding at the start, due diligence, like what are some of the tough ones that you've learned? He's like, Wow, I want people to know this so they can avoid these things.

Yeah. So when you're acquiring anything that's got a software component to it, there's no way. I mean, there are ways to do due diligence on software, but you're not down there inspecting the code, figuring out how resilient it is, where it's going to break.

So the thing that I kind of always say now is if I'm buying a software company that first year, we're dealing with scalability issues. We're dealing with all the mistakes that the original entrepreneur made. And remember, these aren't mistakes. The original entrepreneur never thought this business would get big enough to sell. So they didn't build it for scale when it was on day one.

So by the time it reaches someone like you and someone like me, where it's in the six to seven figure value, it's built on something that was planned to be $5 a day. And so that first year, you're just trying to fix problems with scalability.

It's hard to show anybody on the outside that this is any good. It's frustrating because all you want to do is grow it. So for me, knowing that you're going to have that little bit of a tech hangover when you start, that's a challenge. And then every time you go through due diligence, you're just going to learn more things.

There's, I've never actually met anybody that's intentionally tried to hide something, but unfortunately, there are so many things that people don't realize that they don't know. And yeah, it almost becomes worse because the more you do this, the more you look at a business and say, these are some of the problems that you may not even recognize because this can't get to the next level because of that. I always go with the example that I always use is like annual plans. Annual plans are very hard to sell because it's very hard to quantify.

So you should not have, or excuse me, not even annual, but lifetime plans. You'll find companies like, I've sold all these lifetime plans. Well, that's cool. That means I never get to deal with the best customers of your business, other than them costing me money.

So you got the value, and I got the liability, a nd there's no way for me to get that value back. So that's one of those things, know, see AppSumo, right? People are selling lifetime plans. Horrible, horrible idea if you're ever actually going to sell your business. But every internet guru is telling people to get on AppSumo to get all that exposure. So there's a lot of stuff as you step back looking at it as a question that you'd run your business a little bit differently, just so that the enterprise value is higher in the future.

Yeah, I love that. What are some of the businesses you've walked away from, I guess, like some of the things you like, this is too much of a risk. For example, a reason to ask is that a lot of people just like to put in our Facebook group in our community, or ask a question, is this a red flag? Well, the reality is it's not just one thing that's a red flag. Like, it could be a major one, but you've got to look at all the other things because maybe that is a slight red flag, but everything else makes the business a worthy acquisition.

So what are some of the things that you've found that like as a whole, have made the business a no for you?

Yeah, so it's not that you're going to find red flags in every business, even businesses I run have everything's got risks, right?

Far out. Looked at it, and I'm like, here are the problems of the company if I were trying to sell it. What you're trying to find are things that you can't fix and that are out of your control. So you're looking for uncontrollable problems in the business that you want to stay away from.

So to make it more relevant for today, one of the companies that we were very close to acquiring and walked away from at the end was cashflow positive looked good for the next few years, but I was pretty sure that by the time we sold it, the buyers would look at it and say, AI has either already replaced this or it will be very soon.

Was, AI is not a threat to that business today, not in the next few years, but it is something that a machine could figure out. And right now, it's just a human putting all that together. So that was a different approach for me than usual. I always look at it like, Hey, I can do cashflow for this for a few years, get it to pay back.

And then that's great. With the Web Street perspective saying I have to sell this in the next three or five years. I was thinking at that time it's not going to be sellable and we're going to lose that enterprise value. So that's some of the DD changes I think that I've seen. But yeah, is it something that's out of your control, like AI that you can't mitigate?

But there are a lot of red flags where it's just like, hey, I've got two people that can solve this. Like I've seen this red flag before in my own business. And that's a great opportunity for you because most people walk away from it. So yeah, there are a lot of red flags where you might look at it and say, this is something I've solved.

Love to tackle this and get it at a discount.

Yeah. When I hear you, I agree. There are things that I know how to do in business that are easy, and I get great results, that may be hard for you, and vice versa. I'm like, for me, software is just like, don't, I just don't go near it. It's not my thing. Instead of in terms of like the actual development side of it, I'll just buy software and just use it and have their team maintain it for me.

So I want to bring up this AI thing, though, cause a lot of people are listening, and I just have to cover this because a lot of people listening will be like, okay, aren't most businesses going to be affected by AI, and should I walk away from all businesses? The reality is that AI is going to change so much for us. At the moment, it's just LLMs, right? Like really, like it's not like there's talk to people like AI is going to build out your marketing strategy.

Yeah, it can build out your marketing strategy if you know how to prompt it in a very specific way that's going to get you a very specific result. If you cannot do that, they're going to give you a marketing strategy that is going to tear your business apart, and you will fail. Let's talk about that.

What's your thought on like, cause people will give me like, I can't buy an online business, cause AI is just going to be able to create that business in two years. The reality is like, no, it's going to be very tough. Like that's a speculation by everybody. That's just running fear and doubt marketing around AI. So what are your thoughts on this?

For us, who don't freak out about it. So that's a good buying opportunity. And I think you're right. So AI is going to catch the kind of lower-level businesses that maybe anybody could run. But that's understandable. I get that. And so you're trying to look a little bit upmarket, something that's a little bit more complex, right? And so for there, it seems like that's a ways off.

And I completely understand what you mean by the prompt, basically the prompt engineering of here's what I exactly need. So all of my businesses are very, very niche software marketing opportunities. It's almost impossible to do ads for it. They're so niche and small, and there's nobody I can, there's no agency I can hire that can deal with the technical problems in the business that can put out marketing that helps with that.

And there's not an AOA way to do it either, having tried a little bit. So I think what you're going to find is, as expected, the very, very low-level businesses, sure, that's not going to be something you would want to acquire. And I think if you're coming into this space, that's what scares you is that's where you were looking, maybe to step into.

But once you kind of get above that, where you're dealing with a little bit more complex businesses, AI is only going to augment that business and help it out. I'm old enough. Got some gray, silver hair here. Like, I was born before the internet. And so when the internet came out, and that was supposed to be all brick and mortar businesses would be gon, and we saw that didn't happen. Just augmented many of them and just changed the landscape.

AI, though, is making it more accessible to businesses. Like this is like what you're saying is that people can be scared of AI, but people are typically just scared of what they don't understand, which is the same thing about buying a business.

Of course, a business is risky, or investing in anything is risky if you do not understand it. Like it's once you understand it is a tool, and tools can be destructive if you don't know how to use them. But once you do know how to use them, my God, it is every business is at an advantage of this now.

Yeah, like you said, it's just a tool. One thing that the way you asked the question, I thought you were going in this direction. Everybody keeps putting AI-enabled SEO, sir, AI-enabled market. Man, you don't have to put its AI.

Like we all know that now. That's not, it's kind of like saying online business. Like I get it. So it's funny to me that we're in this phase where everybody keeps putting, you know, it's AI in the subject line of what the business does. Someday, that'll stop, hopefully.

A lot of people ask me is like, So Jaryd, do you use AI in your business? And I'm like, well, I don't seek out to use AI in my business, but with all the tech that I use, development, the AI has developed that it is embedded in all online businesses now. Like if you're using email, they're using AI to make your email account better.

Can't use it now even if you don't.

Yeah. So, everything, like most tech, is using AI. So, of course, you're using AI without even realizing it. Like it's just, yeah.

It seemed like AI, so you and I both know that AI caused a big seismic shift in the content sites over the last couple of years. And that, as far as I understand, kind of came to a halt, and I wasn't on the content side, but nobody knew how to value those anymore.

And I don't know where that is anymore at the time, but content in many ways is just, it's a different kind of business. So if you're, I would say, if you're looking to run a real business, it's going to have less exposure to something like that.

So I think content was the one that got hit home. Sorry, content websites. Using our shorthand.

Yeah, content websites, that's what kind of dried up fast. I don't know what the throughput for transactions for it is now, but it did take a moment where people were like, whoa, wait a second.

Yeah. Well, what's been tough with content websites is that Google changed its algorithm to deal with a lot of fluffy content. And let's be honest, it was a long time coming. It's not AI.

AI did push this over the cliff, which is good because we need a shakeup in terms of content, because people are just sick of just Googling things for hours for a simple answer. Right now, we've got ChatGPT and all these other ones, which is great. We still do need content sites, though.

Like we still do need them, and the people aren't buying them because, like, yes, AI can create great, quick, short answers for necessary people. And, that money that can be made from those content sites is just shifting to algorithms, more so. And so yeah, it's a bit risky unless you buy a specific content site or content. Web-like content business that has content that can't be replaced by AI, like somebody who's got like me, I'm not going to be able to be like my first personality.

My personality is not going to be able to be replaced by AI, right? Like, and the value that I give can't be replaced by AI and likely never will, hopefully. But people are always going to hire me in the future because what I'm good at is asking questions, right? And that's what you need to drive AI is asking the right questions. And I think very out of the box. So maybe I could be replaced, but at the moment.

In the next 10 years, it's going to be pretty tough for AI to replace somebody who is a professional surfer, who's creating content on how to be a surfer or a professional fisherman. Not just a personality, but it could also be because people are pretty worried about,l ike, what if I buy a personality business and the personality doesn't come with it?

Well, you can buy a media business that has a lot of different personalities and an operator like yourself, Michael, who's behind it, too. Not to be defensive against content sites because a lot of content sites do suck at the moment. I know it's just because LLMs have joined it.

Yeah, a lot. It just kind of came to a stop when everybody figured it out. Yeah. So yeah, we'll see how it goes. I mean, everything adapts, right? It all works.

Awesome. So, have you sold any businesses?

Yeah, so the one that I didn't do very well with, did sell it and we sold it for a small profit, but it was something where I realized I had moved a little bit outside of what my expertise was. I think we all go through this. If you get a couple of businesses that do well, you're like, I can do anything. Right.

And so that's good hubris to have beaten down and to have a rough time with. And so I moved over a little bit into e-commerce, and right. I'm a software SaaS person. So there I was, n't in my environment. I wasn't in the crowd. Didn't go to those conferences, and it just, it was very quick.

I realized maybe I should just stick to what I am good at, even if those businesses don't come up very often. So I did sell that one for a little bit of a profit. But outside of that, I think I mentioned earlier, I love buying for cash flow. And as long as the business keeps running, I still get to talk to engineers whom I enjoy talking to and chatting with.

Couldn't be happier. So I haven't quite yet found a business that I kind of bought a few years ago and decided to sell. So I don't have a whole ton of expertise on that. I'm more on the buy side and operations.

Yeah. In terms of buy side, what sort of like when you've been buying for yourself, what sort of structures have you used in terms of financing and the other deal structure?

Yeah, so I went through, if you can imagine, 10 years ago, there wasn't a whole lot out there. There was a kind of you, and it was just like a couple of people talking about this. I was pretty amateur back then. I paid all cash for the first business. So the ROI is going to be a little lower.

And I matured over time, and then, maybe the second business I realized, oh, maybe 10 % seller financing, but still, it was like almost all cash. The third business I should have realized this was the one that didn't go so well when the seller offered 50 % seller financing.

Off the top of my head, so I should have caught on, but I wasn't sure what I was doing, and I was still learning. And so now I've reached the point where there are a lot more people in this. There are a lot more different ways to structure. I'm pretty much always going to bring my own money.

I'm going to look for some seller financing. I'm going to work with someone like Bupos, which is fantastic for getting it. Expensive cash, but it's great to finish like that last 10 to 15 % that you need, that you're going to pay off pretty quickly. And then Web Street kind of came in with its whole new operating model.

But yeah, don't do too many really weird things. Try and deal only with entrepreneurs, and I don't particularly think they like hearing, Hey, here's my six-level structure. There are 10 different directions this is gonna go. They're looking for something that they can understand. They wanna move on to their next project, probably an AI business.

They're just looking to sell this so they can understand, I'll give you this amount of cash, let's do this amount of seller financing. Why don't you keep 10 % of equity so that you, if the business goes well, you still continually get rewarded. Simple stuff like that, I'm gonna bring in 15% from this outside financing firm like BUPO, and then let's just put it all together, and then it's easy for everybody to digest.

And I get that there are a lot of people who love putting together really interesting negotiations. I applaud them for that. I'm always surprised at how well they put that together. It's just not how I tip.

It's also not how on like people that are selling their business, they don't want to be like we're entrepreneurs. Our goal is to make difficult things and make them simple and comfortable. It's just how we work.

Once you start sounding like a PE firm, or you're like, there's a lot of stuff that I've got to look up, they'd rather take a lower offer from just somebody that they like. And yes, I don't want to make it complicated, right? And that's, and I also want a seller who doesn't want it complicated.

We've, and you and probably both had this, where, especially with Silicon Valley entrepreneurs selling something, they have different valuations in their head than everywhere else in the world. And so, you know, when you accidentally have written one of them and you get this long kind of term sheet thing and I'm like, never.

Even people who are sort of Silicon Valley types who just have a regular job in Silicon Valley, they're earning good money. When I've worked with them when they're on the acquisition side, they've got this SBA loan that they can get, and they've got all these other terms and this structure.

It's like, dude, I don't know what you have in your head about how to do it is making business more difficult. And the market is going to say, Why would I sell to you when I've got something else? So it's not just like, this is the funny thing is people come in with a negotiation or a structure.

Think like, this is super smart. This is going to work for me. Well, what might work for you is not maybe what will work for where the market's at, or the seller and the seller is the market. And this is why people say, Oh, can I buy a business? You know, for like. That's massive seller financing, like 50 % seller financing.

Well, yeah. That's never going to happen on a deal under 400K, 500 K. The market would just be like, well, I'll just get all my cash from somewhere else. But then, hang on a second, I've seen all these people do it. Like, yeah, okay, 50 % seller financing or 70 % seller financing.

Well, yeah, that's going to be a distressed business. Like you can buy it, but you're buying a liability. Like you found yourself, Michael, was like you said, I'm glad that you brought that up, because why would somebody do that? It's like they need to get whatever cash they can up front out of the business.

And then the benefit is like, I get a little bit of money as this thing tanks. Like this is why no-money-down businesses work. Like, people who are sharing that sort of content is like, can go and buy these businesses for no money down. Yes. For your first acquisition, not really.

You need to put a bit of cash in unless you've got an investor that does the deposit, and then you're SBA. But typically, if it's, if you're not using financing and it's a money-down deal, you're buying a liability.

It frustrates me. There are people in your interview podcast space who are always trying to pitch to new investors. Hey, you can get this no money down, and it's all passive. You and I probably both find that very frustrating. That's very true if you've done this for a long time, you've got a huge reputation, and like your no money down is because they're inheriting your reputation. It's not for new buyers.

So I don't have a word for it, but it just is discouraging that that's out there because it's leading the people that we're trying to help. Like, so my goal is always to help engineers and developers kind of travel the same path I am. The advantage of being an engineer and developer is that we know a lot of the hard parts, which include managing engineering teams and dealing with engineering projects.

The business stuff we can all learn. So if I can help engineers and developers go out and buy software companies, that's my goal. So the thing that derails them is those kind of people who are like, hey, I can do this for no money down. And I'm like, listen, you're going to have to put some skin in the game. Like I said, you're buying a job, act like you're not, and you might have to do two until it makes up to what your salary was, and just more of the harsh reality of like, this is kind of what it is.

It's not going to be a money-down passive. So yeah, frustrating, but that's the algorithm that rewards that is frustrating. But yeah, that's what gets views is these lofty expectations that just don't meet reality. Talking about that, lofty expectations not meeting reality. Before we even hit the record buttons, were talking about people, us just, investors wanting to get started in this space and putting a bunch of money and then wanting to test that, the orders, dip their toe in the water, see how it works and wanting to do that with like minimal money.

And my experience of what I found is that if you are getting the business, you shouldn't just be testing the waters and just dipping your toe into see if businesses like right for you or if buying a online business or buying a business is right for you because the expectation that you buy a 10 or five or $10,000 business, which is typically a startup is not going to be the same as buying something that's 100K to 500K.

It's a very different experience. And even your level of commitment psychologically will not be as committed to a five to $10,000 business versus a 10 to 500K business. So what are your thoughts on this? Because I see so many people come to this space, and like, this is all I've got.

And it was like, well, test it out. Like if you are fully committed, you could get access to 50K and buy with SBA a 500K business. And that would be massively life-changing for you versus buying a $5,000 business. What are your thoughts on all that?

Yeah, I agree with you, and my thoughts have changed over time, which hopefully shows some maturity because when I started, I had a small business, was an 18,000 Amazon affiliate site. That was my first acquisition. And that was just to see if I enjoyed working with myself as the boss. And I was like, Oh, this is cool. And then I went, my next business was six figures.

Right. So I made that big jump, but that was because I was fortunate enough to have the cash to be able to do that back then today. Like you said, if you've got the SBA continues to get more lenient and more helpful on the online side. If you're able to do something that you can buy at $500,000 business, even after all that debt and everything, that's life life-changing amount of income.

It changes so many other things in your life. And so to spend the time and the capital on a thousand-dollar business, which is 10 % of your money that you would be working with for the SBA to learn, some skills that aren't going to help at a business that's that high. I agree with you that that may not be the right use of time. And it's a little bit what would you say, active procrastination, where you feel like you're doing something, but you're actually kind of going backwards?

Yeah. I'm sure Hormozy has a better way to explain all that becomes a frustrating experience, and you feel like you've got no confidence because you're frustrated, and it's not going to be the same experience as if you buy something like 500k.

So if you're serious about it, and that's, I think the hump that people have to get over is, is this the direction I'm going? Or a lot of times, they're trying to hold two sides. Like, I want to keep that job. And I also want to do this and see if this takes off. But boy, when you're doing the bigger SBA loans or you're doing seller financing where you do have to pay somebody back, I do think it's better to, as long as you, this is what you're doing, put all of it in that one spot.

Like you said, you're going to stay focused on it and give it a try, especially if you're younger, you're always gonna have other opportunities. And if you have to go back, that's one thing at least for developers and engineers, we can always go back, right? Maybe not with the same role, but it's like, hey, I tried something for a year, it didn't work. Gonna go reapply to the old tech companies and do some consulting and then try this again in a couple of years, but with more knowledge.

Yeah, exactly. And you mentioned having your job and then buying a business. Can do that with a 500k online business, might take five to 10 hours a week, maybe 15 hours a week. You can do a bit of that work on the side whilst you're working in the afternoons and all the weekends.

Say, for example, you've got a 500k business, you buy it for $50,000, that's 450k of debt. That debt's going to cost you, know, interest and repayments are going to cost you 45k a year.

But a 500k business is going to make about 200k. So you're going to be left with what? You're going to be left with about 150k in semi-passive income for five to 10, maybe 15 hours a week. You can have that whilst you keep your job and keep your job for maybe a year to see like, actually, no, I can do this, right? It's very possible.

You're informed on both sides. This is my life with a job, which has plenty of benefits. I am not one of these people who say Quit your corporate career and start a business tomorrow. I was incredibly rewarded. I did 20 years of career because I think of who you're selling back to. You're selling back to corporations.

You have to understand how budgeting works. All the stuff that happens inside these organizations, if you're not part of that for a while, it wasn't remote work back when I was out there. So I had to work with real developers and watch them code and realize, wow, I stink. These guys are amazing. So, just getting all that experience, there is value in having that corporate side and doing the real business.

And then you would have that business where I'm making a six-figure income, which one is right for me? And you get to make an informed choice that way. And you could sell the business if you decide that's not the right thing.

I think most people do move in the business direction, but yeah, and you kind of get the best of both worlds because you get to see the small business, and small businesses are always selling to big businesses.

Yeah. And it's a slow, it's a life-changing transition, but you're also doing it with a comfort, a blanket over you, like a comfortable blanket over you, where you can still keep your job.

For example, if you don't like the business in a year, you can still sell it like, and you still get your money back, pay off, pay down the loans, is there's gonna be people that do like it. Like I did, I bought the wrong business, and I sold it to somebody who enjoyed this type of e-commerce. I look at the website every once in a while, like, man, they're killing it. It's just me.

Exactly.

It's the right owners who feel bad. And you probably have some of the same feelings as each business that I have. It's like a child, right? Like you care about it. And my wife will always say Like, you're you don't want to sell it?

I'm like, you know, I'm like offended. Like, how would you ever say something about this? So yeah, you get attached to them, and the business needs to find the right owner. And if you're not it, you need to move it on somewhere else so that you can focus on what you're good at. And the business can grow and serve its customers with someone who enjoys running it.

Right. I agree.

Michael, thank you so much for coming on and sharing your experience. So many businesses bought, so much experience in operations.

Where can we send people to reach out to you if they need?

Yeah, nothing crazy. I'm not selling anything, but you can always come to its michaelfrou.com. I keep logs of, I'm busy, but I try and keep updates there of like what's going on with the businesses, what I've learned.

And I just try and put out kind of the odd stuff where, hey, I've never seen anybody mention this, but I ran into this in due diligence, and I'd never seen this before. Just throwing this out there, that kind of stuff.

So hopefully it helps, but always reach out to michaelfrou.com, or you can find me on LinkedIn. Just send me a message. I'd love to connect.

Awesome, Michael, thank you so much for your time. Everybody who's listening, thank you for listening, and I'll see you in the next one.