Ep. 30 — Chris Yates: Buying Cash-Flowing Websites Like Apartment Buildings

5 min read

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Episode Summary

You sold the company, the earn-out is winding down, and the question nobody warned you about is louder than the deal itself: what do you actually do with the next ten years? Chris Yates ran a digital marketing agency, got tired of being chained to his desk, and started buying cash-flowing websites with a friend who’d just sold his company and had capital but no time. They built a portfolio doing triple-digit annualized returns in the early years. Today he runs that portfolio plus Rhodium Weekend, the event where most of the serious operators in this space meet each other. I wanted Chris on because almost every owner-operator I talk to is curious about online businesses but has no framework for valuing one, no idea what the categories even are, and assumes it’s all bloggers in basements. He walks through the eight business model types, the multiples (around 2.5x seller’s discretionary earnings as of 2016, with a huge spread), the two sniff tests he uses before touching a deal, and how to actually verify a P&L by screen-sharing into someone’s Amazon and AdSense accounts. The conversation gets useful when he names the trend: 40-to-60-year-old corporate operators using their nest egg to buy time and location freedom without starting from zero.

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## Top 10 Takeaways
  1. Domain names are raw land. Cash-flowing websites are apartment buildings. You want the building, not the lot.
  2. Across the industry, deals trade around 2.5x seller’s discretionary earnings, with multiples ranging from 0.5x to over 10x.
  3. Stability over many years often means the business has hit its plateau. Limited downside is good. Limited upside is a trap.
  4. If the site can’t support paid traffic with a positive return, you’re buying someone’s hobby, not a business.
  5. If you wouldn’t proudly tell your most innocent niece you own it, walk away. The shady money is short money.
  6. Ask the seller what they’d do with unlimited time, money, and resources. The answer reveals the growth gaps and the hidden risks.
  7. One traffic source driving 90% of revenue is the online version of customer concentration. Discount accordingly.
  8. Recreate the stated P&L from the source: merchant accounts, Amazon, AdSense, credit card statements. They almost never match on the first pass.
  9. Don’t spend your entire acquisition budget on the asset. Leave working capital for ads, redesign, and the growth moves that made the deal worth doing.
  10. Websites are real businesses. Ignore one for six months and it dies the same way a brick-and-mortar shop does.

Sound Bites

“Think of domain names like raw land. There’s typically not really cash flow there. What I do is more like somebody who goes out and buys an apartment building that already has tenants established.” (@TBD) — Chris Yates

“100% of the companies on the planet that I’ve ever met are underpriced somewhere. I want significant or even unlimited upside and I want limited downside. People want something that’s so stable for so long, but oftentimes the only place it can go is down.” (@TBD) — Chris Yates

“If you are not proud to tell your most innocent niece that you own this website, you should not buy it. You’d be amazed at how many online businesses are for sale that do not pass that test.” (@TBD) — Chris Yates

“The biggest myth is that websites are different than real businesses. They’re not. What would happen to an offline business if you ignored it for six months? It’s going to start dying.” (@TBD) — Chris Yates

About This Episode

Chris Yates sold his digital marketing agency to go full time into acquiring and operating online businesses with his partner David Gass, who had capital from his own exit but limited time during an earn-out. Chris runs a portfolio of cash-flowing websites and owns Centurica, a due diligence firm that inspects online businesses for buyers (the property inspector of the website acquisition world). He also runs Rhodium Weekend, the invite-style event where serious online business operators and acquirers connect. He brings a practitioner’s view on valuation, due diligence, and how online business models actually make money, which translates directly for owner-operators thinking about their next chapter after a sale.

Resources Mentioned

  • Chris Yates personal site — chrisyates.org
  • Rhodium Weekend — Chris’s invite event for online business operators and acquirers. — rhodiumweekend.com
  • Centurica — Chris’s due diligence firm for online business buyers.
  • Escrow.com — Escrow service commonly used in online business transactions.
  • Drip / Lead Pages — Referenced as a strategic acquisition in the online space (Drip acquired by Lead Pages).
  • Fiverr — Referenced as a low-cost alternative for outsourced marketing tasks.
  • Built to Sell by John Warrillow — Referenced by Ryan for the value-building framework and the eight key drivers.

Connections

Phase + Module:

Milestones:

Concepts referenced:

  • Normalized EBITDA — Seller’s discretionary earnings is the online-world cousin, with owner comp added back
  • The Multiple & WACC — Why multiples range from sub-1x to over 10x on the same earnings metric
  • Revenue Architecture — Eight online business model types as a reference frame for how revenue actually gets generated

Graph View