Ep 393: The AI Lie That’s Killing Your Chances of Buying a Great Business

AI isn't just disrupting the online space; it's likely disrupting your mindset about how valuable acquiring online businesses can be so valuable right now. So most people are using AI disruptions as a reason not to buy rather than a lens for finding undervalued assets.

They're not missing it; they're just throwing in the towel. The buyers that are crushing it right now, they're not ignoring AI. They're using it; they're using that fear of it as a sourcing strategy. Where people leave the market, they see opportunity. It's an incredible time to buy. AI is an insanely good tool.

Hi, I'm Jaryd Krause. I'm the host of the Buying Online Businesses podcast. And today you're speaking and listening to me. I'm doing a solo podcast episode on AI and how AI isn't just disrupting the online space, but it's likely disrupting your mindset around how acquiring online businesses can be so valuable right now. So most people are using AI disruptions as a reason not to buy rather than a lens for finding undervalued assets. This is so wild to me. Some people aren't missing great opportunities. They're just walking away from them. Right?

Like just throwing in the towel because they don't understand and see what opportunity is there. Because of buying a business that's undervalued and just adding more value to it, cheaper and easier using AI to scale the business. Like, there are so many people out there that are retiring,g and they have in their they're you know, maybe they're between 40 to 7,0 and they're getting rid of their businesses. They've been in the business game for a long time.

They're online businesses,s and they just haven't really spent time optimizing their systems, their procedures, their team, their time. They're just running the same tracks, and there's so much value to be made from optimizing these. So what's the thinking behind this whole people missing great opportunity?

They're not missing it; they're just throwing in the towel. Well, the buyers that are crushing it right now, they're not ignoring AI. They're using it. They're either using that fear of it as a sourcing strategy where people leave the market; they see opportunity.

And that's what I see. It's an incredible time to buy. AI is an insanely good tool for the best. You know, we've it's it's it may be the best we've ever had, like in terms of time since the internet, to optimize, like and make businesses better, cheaper, and easier. Like it's a wild, wild time. And I get it, there are some things that there's not to love about it.

Right. And we need to talk about those as well, especially business models that are too risky to buy because of AI. And they do exist, but so many aren't. And in fact, are we able to enhance them massively? Yeah, absolutely. As I said, it's making online businesses cheaper and easier, plus far better when done very, very well. So of course, I'm not saying this is a substitute for human labor and rem removing humans from online businesses.

Nah, this is for human enhancement. Like, don't make a great business bad by over-optimizing it with AI. Instead, optimize yourself and the team and be powered by AI. This is the way to make the business better. So the best deals of the next few years will be bought from people not scared of AI, by people who decide to use it as a as a leverage.

And as a tool, as a growth opportunity. And I'll give some examples of those businesses in a second. But first, what business models are easily affected by AI versus what aren't? And why? Well, firstly, the ones with high AI exposure, you should obviously, of course, be approaching them with caution. We're talking generic content blogs that are reliant on Google traffic. Anything that's too reliant on Google traffic.

That's something to be very wary of because AI answers are replacing clicks. That's called zero clicks. And I'm even seeing the same thing with AI. People are using LLMs and not clicking through from short links like Claude, ChatGPT, and other LLMs to go to websites. They're getting the answers extracted from the websites. So websites that are too reliant on organic search traffic.

Even from Google, and I'm not sure; I'm skeptical, but maybe from LLMs as well. Okay. Then other sort of businesses that you should be wary of are,s like, marketing, digital marketing businesses, like they're writing articles for you, service like content agencies. They don't exist now, right?

Simple research or aggregation tools, like these are, you know, little software businesses that are research tools and aggregation tools, like this is done for free by Claude and ChatGPT. But basically,y any website built entirely on SEO content, Google traffic, and it's it's just not a thing, right? Likee I said before, even AI traffic- people that are staying on the platform. So they're the businesses you need to be wary o, is blog, anything with Google traffic, any sort of scraping tool, outreach sort of stuff.

Like writing services in terms of just content creation, even like creating images and things like that, any of those things can be disrupted. Like you got AI image creation tools that that can that can be built into an LLM like Claude and ChatGPT, which has already been done.

So they're the high-exposure AI businesses. What are the low-exposure ones with opportunity? Firstly is physical product businesses, physical product e-commerce brands. AI just can't manufacture products, right? Like if you're selling hobby products, physical products for exercise equipment or surfing equipment or guitars, AI's not doing this, right?

Yeah, maybe eventually we're going to have a 3D printer, but these have been around for a long time. They're still not there to create tr to create products for us in high demand and good quality. So physical product e-commerce businesses are getting enhanced massively with AI to tighten up their systems and help with marketing.

So these have the lowest exposure, I would say, except for physical, like manufacturing businesses. If you own a manufacturing business, then yeah, AI is not going to come in and replace that. But physical product e-commerce stores selling on Shopify, selling on Amazon FBA, selling on any vertical-, these are great businesses.

The next vertical is niche SaaS businesses with data locked in and integrations. What I'm talking about here is a software business that has stickiness and incredible retention. Yeah. So something that is a tool that is specific, very specific for a type of niche business.

And you have just niche business owners using that tool, and it might be a sample size of fifty people to fifteen hundred people, and the retention's really good. Maybe even the user experience and the user interface are a bit clunky and not very good. These are great ones to buy, in fact, because then you can optimize the user interface and the user experience with AI.

Pretty fast and pretty cheap to make the tool even better. Add free features very fast for your members, which creates stickiness. And it's free for you to create because you're using AI to create them. And it's really cool. In fact, I would say that's an advantage in these niche SaaS businesses. It's a massive advantage.

Just like it is with e-commerce brands that old, established e-commerce brands that just don't have good systems and procedures. Another type of business model that's really good is membership and community-based businesses, where people pay not for information but for being in the community. Yeah. These are great businesses. You also have service businesses with real operator relationships.

Even just like lead generation businesses that sell leads to service-based businesses. You might even have an online business and a website and a marketing channel that generates so much traffic and audience that you can sell that to service-based businesses, right? Those people are gonna always gonna need leads. Always.

And AI just makes it easier and cheaper to get leads now as well. So there's those. And then another business model that I like is YouTube channels, right? Not fully algorithm-driven YouTube channels or dependent on Google. I'm talking about faceless YouTube channels or YouTube channels that have multiple creators on it and a great brand with strong expertise and authority.

Great, great channels. Like AI is not going to be replacing, you know, humans creating great content and videos in the short term anyway. I still think humans are gonna wanna watch mostly humans on video versus just AI doing stuff. I know that for myself. Like when I see something that's AI, I'm just like I just don't wanna I just don't wanna watch it. Yeah, it's interesting, but AI can create anything, so I'm not gonna be wowed, and I'm not gonna be super entertained personally.

So the key distinction here is like businesses that have high AI exposure that you should be careful of, and businesses that are low AI exposure that are massive advantage is the core value of the business information or a product or an outcome or a relationship, right?

That's what you need to think. Is the core value of the business information, which is like a website, like a blog, content, getting organic traffic, or is it a product, is it an outcome, or is it a relationship? Because those product, outcome, and relationship businesses or results are the ones that are the best. Information businesses are just so exposed.

Everything else is just far safer than most people are actually perceiving and thinking, right? So, SaaS and e-commerce through the lens of AR, it's SaaS is less disrupted than most buyers actually assume. And I want to give you an example of two. I'm gonna give you two SaaS examples, and I'm gonna give you one e-commerce example. So, for example, a niche scheduling SaaS tool with, like, under 150k revenue a year, and it's a tool that, for example, can book software built for a single vertical, like for Tattoo Studios, mobile pet groomers, massage therapists; they're generally AR-resistant, right?

Where you've got these mobile pet groomers or tattoo studios are locked in paying this monthly fee because it's helping them schedule things in. You know? It's generally AI-resistant, right? Now, why?

Because sure some tattoo parlors can build this sort of scheduling thing on themselves using Claude, but they're also gonna have to pay an extra fee for hosting things and it's gonna be buggy and do they have even have time to do it when they might be paying, you know, twenty to forty, fifty dollars a month for your tool that you on this business you're gonna buy?

Like that's why would they why would they bother, right? They've got switching costs, right? They've got customer data, appointment history, integrations, team using it; sticky recurring revenue is what you're looking for. So zero dependency on Google traffic, right, as well.

Yeah, MassageBook services, for example, they serve independent massage therapists specifically, you know, in the sixty grand monthly recurring revenue, and they've been quietly growing while broader SaaS businesses have just gotten really noisy. So Massage Book is this great type of business, and that's obviously a larger asset that is just crushing it because they've got massage therapists.

They have a higher retention of using their booking scheduling service. And then a micro version of this on a smaller scale, something under 50k revenue, you know, you can find these great ones on acquire.com, and they're trading at two to four times annual revenue. And as you know, they're available today.

You can go check them out. I'm gonna break it up now and give you an e-commerce business example. And what you should be looking for is niche e-commerce physical product brands. So Flippers 2024 acquisition data showed that pets, beauty, and fashion dominated transaction volume, together making up roughly a third of all deals, right? So that's pets, beauty, and fashion.

So a niche dog supplement brand or an outdoor gear brand selling physical products doesn't get disrupted by ChatGPT, Claude, and AI, because AI can't just ship the product. It can't just manufacture a product. These businesses benefit from AI instead, right?

Because AI can help them write better copy, better customer service, smarter inventory forecasting, without being threatened by AI, they're using it. So e-commerce profit multiples stabilized at a three point nine eight X on flipping in twenty twenty four. So at under a hundred K revenue, you're looking at entry points well under the two hundred K for a cash-flowing physical product business. So these are the types of businesses that are just crushing it. And we should be looking for them.

The last example is a software business, you know, recurring monthly subscribers, eighty-plus percent profit margins. Profit margins are insane, right? And that's what you get with software companies, and there's zero content dependency. This is the category that Acquire.com has, right? Formerly MicroAcquire. This is what it was built for, is for bootstrap, profitable, boring, sticky SaaS businesses, right?

And the medium profit multiple for a SaaS on acquired is sits at around 3.9%, 3.9 X out of 3 to K, 3 to 4K monthly recurring revenue, that's a sub 200k acquisition with cash flow straight away. And AI doesn't replace a tool where people have, you know, their payment workflows built around. It just makes it easier to market. Right. So understand there are some sticky software businesses. And what model people are walking away with.

And thinking software is completely off the table in the acquisition space, it's absolutely not. So these are the things that you should look for when you're doing due diligence to ensure a deal is not gonna be disrupted by AI. First of all, traffic source: if it's eighty percent or more Google organic traffic, then that's just danger, right? It's just a massive danger zone. Email list, direct traffic, YouTube paid- all so much safer.

Revenue model: subscription, recurring revenue, typically the best. Customers locked in by habit and workflow, not just content, right? But if it's one-time products through a physical product, that can't be replaced by AI as well. Okay.

So the content type versus tool: is the business built around answers? Right? Just information? If so, that business is quite v vulnerable. Or is it a tool? Like, is it actually providing a result? Is it doing something? Then obviously that type of business is the same.

What about customer switching costs? Well, if a user has 12 months of data inside a platform, they're not leaving because they're building their own ChatGPT tool or clawed tool, right? They're staying. Like I've alluded to this before. And then you have AI as an enabler versus AI as a competitor. So the thing you need to ask is: does AI make this business cheaper to run, or does it replace what the business sells? Right? If it makes it cheaper to run, amazing.

Like, if the business is gonna be replaced, then obviously that's something to consider walking away from. But there's there's i you need to be careful on the line and the happy medium-ness of: can I replace this? Yes. And it is a different answer sometimes as well. Because can I replace a booking scheduling call or an invoicing tool? Yeah, it can replace it. But will it replace it?

Because these people that are paying for these invoicing tools or mess message booking scheduling tools have stickiness and retention and customer data, all that locked in there. So you need to be very careful with how you ask the question as well.

So AI is a tool to leverage, but for what businesses should we be thinking about, and how do we leverage it? Well, obviously, in customer service in businesses, AI can handle 70-80% of support tickets without human involvement.

Right. That just immediately reduces operator time post-acquisition. And then we have businesses using AI for ad copy and product descriptions. What used to take a copywriter a week now takes an hour. It's relevant for e-commerce brands immediately from day one.

Then the big thing here in businesses is financial forecasting, financial analysis, and tracking. And even using it in due diligence, it can be valuable, but you've to realize that there is it is AI, and it is a lot wrong a lot of the time, and I see this when doing due diligence.

If you haven't seen my YouTube video around the dangers of using AI during due diligence, make sure you watch that. It's on YouTube. It's a pretty important one. I think the title is How AI Nearly Costs Hundred and Seventy Two Thousand on this One Deal. And it's a story of a deal that I'm looking at and was looking at buying with a client of mine.

So yeah, AI and these tools can process months of transaction data in minutes. It gives you a massive edge in, you know, due diligence, finding deals, a massive edge in running these businesses. It predicts demand more accurately than spreadsheet reduces, you know, and reduces so much time in your business. There are so many things you could do be doing. And then content repurposing, you know, how it can repurpose content in great ways.

And build out marketing funnels and campaigns and email systems for you. The point is every business you buy becomes more valuable in your hands because you know how to use AI, right? And if a seller's not using it. That's the point, right? So valuable. So what's the biopsychology trap that people just aren't really understanding? Well, AI fear is just the latest version of a pattern, right? And this pattern repeats every three to four years. We had Google Panda, Google Penguin.

Mobile First, Core Web Vitals, HCU- every single time people get scared, right? And then they leave, right? Or never enter the market, and you know, calm buyers come in and buy these great deals, right?

Yeah, Google Panda, wow, okay. People thought that was the end, right? And then people still bought content sites for, you know, years and years and years and just crushed it in the content space, built, scaled, and bought and built amazing businesses in this space.

The market doesn't punish risk; it punishes uninformed risk, and these are completely different things. So your brain is literally wired to weight potential losses two times heavier than equivalent gains. This is the Nobel Prize-winning behavioral economics from Kahneman, who calls it loss aversion. And it means the average buyer who fears AI, their respon response is mathematically double what the actual risk warrants.

So it's important to understand that we have this loss aversion and we you know, we we scare more than we we're scared of losing far more than we are of winning. So let's think about this moat here, right?

The business is most protected from AI are often the most annoying, frustrating, clunky ones to use. We're talking legacy tools, just ugly interfaces, outdated design because their customers, you know, they've been there for seven years and their entire workflow is built around them.

These are the most protected because people are staying in there, right? Buyers walk away from these because they look terrible, but that's exactly what we should be looking at, right? Is like a 2009 era invoicing tool with 400 monthly subscribers, paying $30 a month, and it's just an ugly, clunky U UI. You know, it has something that ChatGPT is never gonna have. It's got inertia; nobody's migrating their billing history to a new tool because it's better looking, right?

So churn tells you everything here. If a bad-looking SAS has under two percent monthly churn, the customers are not leaving, right? Buy it, improve the UI, raise prices, and watch the multiple expand, right? That's what this is about, is understanding that AI you shouldn't fear it if you don't know how to use it.

You should fear it if you don't want to learn how to use it and you're not excited about it. For me personally, and speaking very personally, is I I didn't fear it, but I was hesitant to start using it in my business and start using it at all because I didn't want to lose too much cognitive brain function because there are some stats and data around that.

And I didn't want to be too reliant on it, and I just didn't want to have too much of my customer data and all that sort of stuff. And I still have awesome and cr incredible protections in place for all of this. At the same time, if I didn't bring myself around and push some of my fears aside, then my business wouldn't be operating the way it is now with me using AI.

I think it's a phenomenal tool. It's made things so much more beautiful. And it's not great just for me; it's great for my clients, it's great for my customers, it's great for you as a listener. And that's the way we need to think about it is we don't need to when we lean in, we don't need to adopt it fully and have it take over us.

But we need to understand this is an incredible time in history. And we can use it; it's a tool that we can use to our advantage, and we can use it well. And I'm just super excited for those people who are all my clients that are buying businesses because the things that we're doing and we can do are incredible, and we can move the needle so much faster and so much easier, so much cheaper.

So I'm super excited, and I think you guys should be too. If you're not looking at deals, look at deals. If you need help, reach out. I've got so many free tools. I've got a free due diligence tool that saved people millions of dollars and made people millions of dollars. There'll be a link to that in the description. I've got evaluator tools. Jump on my email list. That's a massive tool itself. And if you have questions, just reach out.

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