A few years ago, I did a lot of reading on buying a website and (after a lot of web spam!) found some useful guides and articles on the subject. Most of these articles covered due diligence in great depth – checking financials, traffic numbers, domain ownership etc but none seemed to cover the more long term discoveries that often lead you to have buyer’s remorse, once you’ve made a purchase; you know the “oh crap…how the hell did I not see this happening” moments that are often more difficult to analyse in advance.
Unfortunately, there’s no certain way to avoid buyer’s remorse; even hedgefund managers occasionally get it wrong when choosing a company to buy or invest in and will inevitably end up with a few non starters in their portfolio, but with a simple common sense framework in place, the chances of this can be reduced massively.
The following points are many of the ‘things they don’t seem to tell you’ factors to look for during your due diligence on a site. If you find a site with a vulnerability in any of these areas, it’s certainly not fatal, but you should know the cost of remedying it should the worse happen and have an action plan in place, especially if a good part of your livelihood relies on the site’s income.
It also pays to plan ahead and have a contingency plan already laid out for emergencies. For example, some things may require a developer to fix, and if you need to recruit one and get them up to speed it could be weeks before you solve the problem. This could lead to loss of memberships, traffic (I’ve been there…and it’s brutal!) and worst of all revenue.
Getting a product at the wrong part of its lifecycle
For anyone not familiar with the product lifecycle, here a quick illustration
Many websites follow this pattern, but it does differ slightly in that external factors (such as a boost or drop in rankings) can have a huge effect on profit also. The basic theory of the product lifecycle for web businesses demonstrates
- The product is not the website itself, but the market it operates in. For example, a content aggregator such as MSN has many ‘products’ offering everything from fashion to finance quotes. A blog on a particular video game will effectively take on the lifecycle of that game, but will start a new cycle if they shift their focus to a sequel for example.
- The best stage to buy a web business is at growth (the business has started to generate a profit). The initial investment has been made so much of the risk has gone but it’s still far from being a ‘safe bet’..
- Buying a business at maturity (when revenue starts to stabilise) is probably the safest point to buy, but the longevity of the site is now drastically reduced, and prices will be highest at this point.
- Some individuals generate a lot of cash from buying sites in the decline stage and either extending the content (product) offering to prolong it’s life or, simply buy cheap and extract as much revenue as possible over the long term (e.g. people still buy older technology such as phones or consoles on eBay, and will still require accessories, just not in the same volume as when the item was new)
Theoretically, profit is made at any point on the life cycle, but you need to factor this into your plan. If the site you are about to buy is in the maturity phase of the cycle ( think IPhone 3G, Fan sites of cancelled TV shows or Social Media Fads like this) then profits could take a sharp dive just several months after you take ownership.
Likewise, buying a site at the start of the cycle could also have consequences. If it benefits from being the first to offer a popular product or service, revenue will drop dramatically when competitors enter at the growth stage. Websites with low barriers to entry (such as fan sites or scripts built on a popular website’s API) are the most vulnerable.
Over Reliance on Google
Probably the most obvious, an over reliance on Google is also the most difficult to counter. If you rely on search then you rely on Google (Ya who?) and if you rely on Google’s organic results for more than 70% of your site’s traffic, you could be in trouble should the G-tide change. Shifts in search algorithms are becoming more frequent, and sites that previously ranked well can often fall several places making a huge difference in traffic, especially if you’re no longer on the first page.
Sometimes, this isn’t necessarily a problem that needs solving; some sites earn their position by being well linked to, and should maintain their ranking regardless, but you should be weary of young sites with few links or little content that are ranking very well for certain terms at the time when you buy the site. The best remedy is to develop a plan of building links for traffic rather than pagerank. that compliment (but not replace) organic search traffic. Having relevant blogs and sites that are read by your target audience link to you within content, will guarantee traffic even if your SERP falls.
This listing for example https://flippa.com/auctions/113571 currently gets a whopping 75% of its traffic from referring sites such as Lifehacker, offering a much more stable investment in a site that contains little content and is relatively young.
The Google Slap
I’ve recently experienced a ‘Google Slap’ (a sharp drop in rankings or complete removal due to non Google compliant practices) myself; the irony is, for all the Seo tricks I (may) have pulled in the past, this was a genuine oversight – some natural, but css-hidden text on inner pages of a site that I purchased … needless to say, I’d like to deliver a slap of my own to the previous owner.
Without scouring the entire site, it can be difficult to miss non compliant pages on a website you’re about to purchase, especially if you do not have an understanding of its code. Google has changed their systems and if the rumours are true, they are outsourcing human ‘quality’ checking of high ranking sites which mean sooner or later any (successful) wrong doers will receive the ‘remove or be removed’ email at which point, ranking would have already been lost.
When conducting DD, view the site through an SEO browser and try to spot anything which looks suspicious or out of place. The same applies to Adsense sites as Google estimates that 7% of Adsense site are currently non compliant, and are stepping up efforts to remove them from the program. This part of DD is generally a pain in the rear, but worth it especially if you’re spending more than $1,000 on a site you intend to keep for a few months.
Potential Legal Consequences
Unknowingly breaking the law with a site you’ve just purchased is a catch 22; either the site makes no money and no one notices hence you get away with it, or you achieve success, become popular and suddenly everything comes crashing down!
There are several potential problems, especially with new sites, but the three most common are
- Failure to comply with PCI guidelines for storage of sensitive data. (If the site processes its own payments, then this is definitely one to investigate)
- User generated content and submissions that aren’t policed adequately and
- Copyright and Licence Violations, especially with regards to software licences (you should check that the licence is included in the sale for all the themes, plugins and scripts that come with a site)
If you discover a potential legal issue, and the seller is not prepared to help you resolve it, the deal may still be worth pursuing, but you should always factor in the potential costs of covering yourself from the start to avoid risking not only your investment in the site, but any future revenue.
Artificial Inflation of rankings through aggressive SEO
Prior to the last Google update, getting indexed and getting ranked posed a fairly significant problem. Things have changed since (remember the good old days when people would pay for getting a site indexed!) and the advent of Google Caffeine, in addition to changes in the algorithm, make it easier for sites to rank for medium – low competition keywords in the short term.
Some sites being sold achieve impressive short term revenues from large amounts of organic traffic, hence increasing their value. The problem occurs when you expect your new purchase to maintain this level of traffic, without the six or so hours each day the previous owner was prepared to put in but failed to disclose. You find yourself in a position where it’s too much time to dedicate personally, and outsourcing that amount of promotion to simply maintain what you have will seriously eat into your profits.
Without the seller fully disclosing everything they do on the site, it can be difficult to establish how much work they do to achieve its current rankings. As a precaution you can
- Use an SEO tool like SEO Spyglass from the moment you decide you’re interested in buying the site. This should give you an idea of backlink velocity at least over a couple of weeks, and give some indication as to whether maintaining that velocity is practical.
- Using the same tool, you can examine the higher PR do-follow backlinks to look for evidence of paid links. You should be able to tell simply from the context of the link (in copy or on a sidebar / blogroll) and the other types of links found with it (lots of non related links are usually sold ones). Having pre existing paid links is not necessarily a bad thing in the way many people imagine it to be, but it will affect your site’s rankings if they are short term and eventually removed.
Whether or not you buy a site that you’ve discovered has slightly unnatural SEO will depend entirely on your reasons for buying. A good site with a good reputation will still be worth the money, but consideration needs to be made towards how you will replace the traffic should your organic rankings drop.
Badly written or documented code
If your site is purely content based (especially WordPress or Joomla sites) this shouldn’t be a problem, but if you buy a web application or even an ecommerce site, clear easy to follow code is crucial in maintaining uptime.
If you outsource coding work, you can easily overlook this part of the process, assuming that a freelance programmer can easily put problems right should any occur, but this makes many assumptions failing to appreciate:
a) It can take anything between a few days to a couple weeks for a programmer to become familiar with an application, especially if it’s badly written and documented. In the event of a failure this means unwanted downtime before you’ve even begun to fix the problem itself.
b) Changing one part of a badly coded application can have a knock on effect causing problems in other parts of the app; it’s like cleaning out a closet only to wish you had never taken everything out and now it’s too late to go back!
c) A site may use an off the shelf script, but the original designer might have customised it to the owner’s specific requirements. If done incorrectly (as by nature, it usually is) any future updates to the script / application will mean the custom functions no longer work.
When I speak to colleagues who have purchased Web applications, coding issues are without a doubt the most common recurring problem. It’s amazing that people will spend $1,000 on a car and still go through the trouble of having a more knowledgeable friend or mechanic give it a once over, but spend $10,000 on a site without having a programmer give it the ‘once over’ first.
Like most of the issues here, poor code is not a deal breaker, but without consideration to how you’ll resolve the problem should one occur, you leave your investment vulnerable. Remember that isn’t just limited to custom code but also many of the off-the-shelf solutions which are badly written and have several code flaws (especially PTC, auction marketplace and incentive scripts).