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Onfolio Podcast

In this podcast mini-series, I walk you through some of the most important factors of Onfolio’s strategy, including some case studies (positive and negative).

I’m Dominic Wells, the CEO of Onfolio. Thanks for listening to this mini-podcast series. The purpose is pretty simple. For those of you who are not familiar with Onfolio or who just want to become more familiar with us, I’m going to walk you over the course of the next few episodes through everything about our strategy, what it is we’re doing and why, what our investing and acquisition philosophy is, how we came to create and develop these strategies and philosophies. And then I’m going to walk through a little bit more about some of the smaller details, what exactly it is we do when we take over businesses, what kind of businesses we look for, what the truth about diversification is, and more importantly, exactly how it is that we’re going to make money for our shareholders.

So with that being said, today’s episode is really a very introductory episode. It’s about the Onfolio strategy. I’m going to give you some background into really how we got to where we are today and why we’re doing what we’re doing, what it is we’re aiming to achieve, the pros and cons of various strategies, not just our strategy, and really just why is it we’re going public on why is it we’re offering preferred shares. So to really get started with this, I want to talk about the background of Onfolio.

Me, personally, I’ve been buying online businesses since 2012, and I didn’t start Onfolio until 2019. In between that, I was running a different business, a service-based business online, and I really developed a lot of my skills there. When I started Onfolio, it was because I had seen a lot of opportunity to make money buying online businesses, growing them, and sometimes flipping them, sometimes just holding them. There was also a lot of demand from investors who wanted to work with people like me, essentially, “Hey, we’ll put up the money.” Onfolio does the work and we’ll share the profits. And so, for most of 2020, most of 2019, we were growing, we were attracting a lot of interest from investors, and we were really developing the philosophies that we have today.

So I think it’s important that I do start from the beginning, because a lot of people who are interested in the space of buying businesses, investing in online businesses, they come in with this initial perception of what the space is and how profits made. And that’s the perception that I had, too, when I first entered the space. And so, really, I’ve been down that path already. Myself and my team, we do things the way we do now because we’ve seen how they work other ways and we see what works and what doesn’t work. So sometimes people may come to us and think, “Well, why do you do things this way and not the way that everybody else does?” The answer is because we’ve done that. We’ve tried that. We’ve seen the pitfalls that other people haven’t seen yet. So, we are the experts. We’ve been down that path. Today, in this episode, I’m going to try to share that path with you and what it is we learned.

So if I back up a little bit and I say what exactly is the opportunity in the space, essentially, there are dozens, hundreds, thousands of profitable internet businesses in existence and a lot of them are for sale. And so, the opportunity that you can have there is you can come in, you can buy these businesses. Not only can you grow them to increase your profit, but the price that these businesses are sold at is such that even if you don’t grow them, you just hold them, you’re going to achieve good ROI. A lot of these businesses are sold at three times EBITDA. What that means is even if you don’t grow them, you can still get around 30% ROI just from holding them and cash flowing them.

So a lot of people are aware of that. They come to the space and they think, “Wow, that’s fantastic. I want a piece of that.” But the thing is that it’s not that simple. You can’t just come in and throw some money at an online business and enjoy it. You have to have the technical expertise. You have to know how to run a business. You have to know how to run that specific business or internet businesses in general. This is where a lot of people fall down because they misunderstand the difference between the fact that online businesses are not that cash intensive and a lot of what they do is passive in that you might do the work once and get paid for it over and over again, or traffic comes to your business. Customers come to your business and make purchases without you being there. They mistake that to mean the entire business is passive. And so, a lot of people fall down here.

And so, the solution is, okay, you have to hire people to run your business, or you have to work with companies who offer services, like Onfolio used to offer essentially kind of like operators or asset managers, portfolio managers, property managers, these kinds of things. But of course, the problem when you do that is that increases your expenses, which is okay, because there’s a good budget. But really, in order to make it worthwhile, you have a few options. If you buy a business, which is just making, let’s say $3,000 a month profit, that might cost you 100K. So it’s a significant outlay, but again, that’s a good ROI. But for $3,000 a month profit, you can’t really hire someone full time to work on your business. A lot of these businesses that are sold are sold by a solo operator.

So the person built who the business, they ran it for themselves, none of their time or the expenses required to replace them are factored into the purchase price. So when you take over that business, you’re either going to have to run it yourself or you have to hire someone to run it. Now, can you hire a good person to run your business for $3,000 a month? Maybe, but then all your profit is gone. So really then your option is to work with a company who maybe they just charge $500 a month or $1,000 a month. They’ll work on running your business along with running dozens of others, which now it’s profitable. You sacrifice a little bit of your profit, but this company is operating your business for you. Hey, they may even grow it for you, which will therefore make back the cost of hiring them. But the problem is that company is running 10 or 12 other businesses, so you’re sacrificing focus.

The other problem is a lot of these cheaper businesses, this $100,000 businesses, they don’t have all that much defensibility. So an update in Google’s search algorithm, Facebook might decide to change something, Amazon may change something, suddenly that business isn’t that profitable, even if you have a good operator. And so, the next issue people run into is they say, “Okay. I’m going to buy multiple businesses.” So now what happens is that 100K either gets spread around, so maybe you buy three 30K businesses, which gives off this kind of air of diversification. I’m going to do a whole other episode later about why it’s not through diversification. But the thing is now you’ve got three businesses. So now, you either need to operate them yourselves and you got even less focus or you need to hire a company three times to run your businesses.

So, the other issue people will come up with then is they’ll say, “Okay. So I’ll just deploy more capital.” So maybe now you’re deploying 500K so that you get that kind of feeling of diversification, but the profitability is still there of hiring people to run multiple businesses for you. It can work, but it’s not ideal. So this was the situation that we were coming up against. We were running around 40 businesses. We had a very good track record. Out of 40 businesses, maybe 38 of them would be successful or very successful and two of them would, through no fault of our own, just go south. That’s just the nature of business. As a percentage, that’s actually pretty good. But the problem it isn’t good if you’re those one or two investors who sites went to zero.

It’s great if you’ve got a portfolio of 40 and only two go south. But if there’s 40 individuals and two of them lose their business, well, that’s not great. So, we started thinking, “Okay. What can we offer where we don’t have these problems so we can have everybody sharing the same pie?” So if one business dies, it doesn’t matter because maybe all 40 people own a 40th of all 40 businesses rather than 100% of one. And then people can also pull their money together to buy bigger businesses because bigger businesses have better profit margins. Typically, a lot more of their expenses are baked into the P&Ls of these businesses because as they get bigger, the solo operator can’t do everything themselves. And so, a lot of the team comes with the business.

Also, bigger businesses are just typically better because they’ve got more defensibility. It’s a lot harder for someone to copy them. They’ve been around a lot longer and they’ve demonstrated that they are top quality businesses. So not only that, but you don’t need to buy as many of them, because one $1 million business is probably more diversified than say 10 100K businesses, because it’s got more about it, which has got more channels of income. It’s got more channels of marketing. So typically, you can concentrate your efforts a lot better when you go bigger. So everything points to rather than going for quantity, it’s about quality and it’s about size.

So the natural place we started looking at was, well, we should raise a fund, which is what everybody does in the M&A space. A fund has a lot of advantages. People can share the same pie. The team can spread their efforts among multiple efforts. The management company can have the management fees, which can pay for a lot of their work. Investor is very passive. You’re turning an active investment into a passive investment and it’s diversified and all of these good things. But for us, a fund didn’t quite get it done and it was because… Really, we don’t have anything against funds, but it doesn’t line up with our philosophy, because essentially, the way we see internet businesses going is not these kind of mediocre or generic flippable assets.

Maybe 10 years ago or even five years ago, you could just buy a business, do a few things, tweak a few dials. You’ve doubled its profit, flip it, job done. But now, businesses that are kind of… They either have something bad about them, so there’s room to do these flips, or you’re just dealing with these smaller businesses that have left cash on the table. It’s actually a lot harder to just make these small tweaks. What often happens is you buy a small business and then… Or you buy a bad business and all that happens is you’ve bought a bad business. We think the fund structure, particularly internet funds, which typically run around five years in their lifetime, they’re based around buy a business, grow it, and then sell it all in five years.

A lot of them struggle for deal flow because they’re constantly having to buy businesses and sell them and buy more and sell them. When you struggle for deal flow, your standards drop and you end up buying more terrible businesses. And then investors in the fund aren’t really protected from the downside if more than one or two businesses go down. And then they’re going to get under average returns. Their funds are locked up for five years. There’s not much transparency because it’s a private fund that works with accredited investors. It can work, but it can also not work. Investors don’t really… Once they’re committed, they don’t really have any ability to say, “Oh, this isn’t working. I want my capital back.”

So, what we wanted was more of a holding company structure, where it was more of a permanent capital structure, because that means we can deploy capital slower. It means when we buy a good business, we don’t have to sell it after a few years. It means that we are not coming in with a flipping mindset, where we’re trying to look for a distressed business or a cheap business or basically a bad business and thinking, “What can we do to grow it?” Instead, we’re thinking, “Why is this business great? Why should we buy it? Can we afford it? Does the person want to sell? Would we feel happy holding this for years?”

Those of you who are familiar with Warren Buffett will know the quote, “It’s better to buy a great business for a fair price than a fair business for a great price.” There’s another Warren Buffett quote about never buy a business unless you’d be happy holding it forever. That’s not the exact quote, but the concept is the same. It sums up exactly what we want to do. We want to buy businesses. We want to hold them for as long as we can, and we want to make incremental changes. We do want to grow them. But if we don’t grow them, it’s okay because we’re getting a lot of cash flow.

When we were looking at this, we realized this aligns with our philosophy. It aligns with the type of websites we like to buy, which is what I’m going to cover in the next episode. It is just something that we feel we’re excited about pursuing and it’s something we’re excited about taking investor money to pursue, because we know we can get a good return and we can protect that capital. And then we started looking at, well, what are the different ways that holding companies operate? Some of them are public. Some of them are private. Some of them, every time they raise more money, they spin up a subsidiary. The public ones just issue more shares, that’s preferred shares.

We really started digging deeper on these, and we realized that there was an opportunity to operate as a public company without having to spend years growing the business privately, and then doing an IPO to much fanfare. We realized if we become a public company first through a direct listing on the OTC markets, all of the negative reasons about associated with IPOs, which is typically the costs and the fundraising roadshow and all of that, we didn’t have to do that, which would mean it was actually a viable strategy because we are still small, but all of the benefits of being public, such as investors can exit whenever they want, because they can sell their shares. Investors are more likely to give us money because we’re public. We have SEC audits and we report to the SEC and all of those public company transparency, disclosures, and so on. We realized we can hire some of the most talented people and give them stock options and other incentives.

All of these things are fairly underrated almost to the point where other people maybe don’t realize the importance of them, but it really is the difference for us. We realized we can list and people can buy our shares, and then they’re diversified. If they don’t like what we’re doing, they can sell the shares. But if we grow, then the shares are going to appreciate as the market realizes what we’re doing. So, it’s a great win for investors and it allows us to do what we want to do in the space and to seize all of that opportunity. As we were doing this, a lot of people said, “Well, I want to invest in the space for cash flow. I don’t want to just buy your shares now and wait for them to appreciate.” So we said, “Okay. Well, how about preferred shares, which in addition to the common shares, which will appreciate over time as demand grows?” Preferred shares essentially don’t really appreciate. They just stay at the $25 per share that they’re sold at. We can issue a fixed dividend, which allows people to get that cash flow.

And because of the nature of online businesses and the fact that we’re allowed to… We’re not allowed, but the fact that we’re able to buy these businesses for prices that basically give us 25% and up returns, that means we can offer a 12% dividend to investors. Still have a nice margin between what we’re paying as a dividend and what we’re earning ourselves, which allows investors to capture a lot of the gains in the space without necessarily having to worry about the downsides and businesses going to zero and the increased cost of diversification. And then we can list the preferred shares on the over-the-counter markets as well, which means investors have the ability to exit their position if they want to.

When we looked at all of that, we thought, “Well, why wouldn’t we do it this way? Why would we do it a different way? Why would we try and stay private? Why would we lock investor capital up? Why would we buy businesses and try and sell them again in a few years?” Because our big philosophy and understanding of the space is that the modern media company is evolving and online business is evolving. People in the future won’t be getting their news from the Times or the Wall Street Journal or the traditional media. They’ll be getting their news from niche publications, things like Morning Brew, things like The Hustle, or if it’s stuff that is very related to what you’re interested in.

If you’re interested in sports, you’ll go to a sports publications. If you’re interested in cooking, you’ll go to food publications. If you’re interested in investing, you’ll go to investing publications rather than just generic news that no one really trusts anymore and the quality is arguably in decline. You can’t do that with a fund structure. You can’t go out there and try to build and buy and grow the best properties on the internet. And so, we just thought, “Okay, this is what we want to do. It allows us to give great options for investors. I can’t think of any reason not to go down this path, which is why we’re going down this path.”

I think it’s important though for you, as a potential investor or whoever else is listening, to understand what it is we’re trying to do and where it is we’ve come from, without knowing all the details to just understand that we’ve come to this point through an evolution, through operating businesses for years through seeing what doesn’t work through, seeing what people think works, but again, doesn’t work and through seeing what does work and thinking really about the future and what structures are going to set us up best. And so that’s why I appreciate that you have listened to me up until this point where I’ve gone through that journey that we went on. Over the next few episodes, I’ll go into more specifics.

In the diversification episode, I’ll talk about more about diversification issue. And then other episodes, I’ll talk about, well, what is it we do when we acquire businesses, how do we grow them, and some of the other pros and cons of different structures. But ultimately, we believe that this structure and these preferred shares will allow us to build a substantial business, which will allow investors and enthusiasts of the space to capture above average gains for below average for the space risk, and to be able to focus on buying the best quality assets we can rather than trying to pull leavers and find distressed businesses and hope for fixer-upper jobs and quick flips, which is a model that we do not believe has a long-term future.

 

Hello, this is Dominic Wells, CEO of OnFolio. Welcome to episode two of this miniseries. In this episode, I’m going to really just be focusing on our investing philosophy, and give some examples of what I mean, and how we came to this philosophy. Because it was definitely an evolution over the years. A lot of the stuff I’m going to cover, I did touch up on in the previous episode, but I’m going to go a lot deeper in terms of examples and specifics.

As I mentioned in the previous episode, I’m a big fan of Warren Buffett’s philosophy, and in particular, his quote about it being better to buy a good business for a fair price than a fair business for a good price. To break that down, it really means if you’re focusing on trying to get the best deal, or pay the cheapest you can, then you’re going to end up buying lemons more often than not. Whereas if you just focus on buying quality businesses, growing them where you can, but really just maintaining them and cash-flowing them, then you’re going to do a lot better. In fact, I would go out as far as saying the only way to not make money in this space, the only way to lose money, is to fail to maintain a business. You don’t have to grow it. You don’t have to do these fancy things to try and triple it overnight. You don’t have to get in and get out before the market changes. You just have to not mess up. That sounds obvious, but you would be surprised how many people either don’t think about that, or just don’t seem to embrace it with their actions.

So let me go into detail about exactly what I mean, and exactly some real examples. Again, what you’ll learn through this is why we settled on the holding company, the kind of media company structure, rather than the fund. A lot of the businesses that are for sale online are very simple. We focus on content businesses, although we do have some e-commerce businesses, we do have some software businesses, and we will go more into those spaces in the future. But content is fundamentally what we do, which is why I refer to media companies quite a lot. When you have these simple cash-flowing businesses, that maybe there’s not much different between the revenue line and the profit line and the P and L, because they don’t have a ton of expenses, they can seem great on the surface, but what it’s hiding is the fact that these businesses don’t actually have a lot of defensibility.

You might have a website that just reviews products. So a well-known business might be Wirecutter. In fact, you could type anything into Google right now, such as, “Best water filter,” and you’ll just find a bunch of websites that just review water filters. Some of them will review a ton of different products, and some of them will just be very specific like water filters, water softeners, humidifiers, and that may be all they do. These businesses are great to own, but they’re not necessarily great to buy, because when you buy them you’re taking on a risk, because there’s a very asymmetrical risk with the amount of capital that you’re deploying, what could happen to that money if the business dies, versus how much you might be able to grow it.

Now, if you’ve grown that business up from zero then, yeah, cool, you’ve got a nice business that gives off good cashflow and you don’t have to do much to it. Well done, but that’s not what we’re trying to do. Now, if you look at the opposite of that, like a real media business, a real brand, where the website may rank in Google for some keywords, but that’s just one aspect of it, then suddenly you have something a lot more defensible. So we have websites.

For example, we have a website about pet fish, and how to take care of the fish, and how to breed them, how to clean your tank. This business comes with a Facebook group that people can join. It has a very active email list. People are engaging with the website and engaging with each other in the Facebook group, and they’re asking questions. Now, they would be upset if that business, if that website, suddenly died. If we suddenly lost some rankings in Google and we didn’t get as many people searching questions in Google and finding us, we would still be able to make money because we have an audience. We have people who engage with the website. You can probably think about websites that you visit, ones where you just click there, read something and never go again versus ones you return to, and you’re familiar with the domain name and you type it in. You don’t really care where it ranks in the Google searches because that’s not how you interact with it.

These are the types of businesses that we’re bullish on. You can only really run these types of businesses if you’re operating a holding company model, because if you’re operating through a fund, or an individual, a lot of your incentive is to try to make a certain amount of profit so that you can make profit, because usually you’ll be giving your investors a hurdle, or you’ll be having a hurdle where your investors get paid a certain amount first, and then you get a share of anything above that. So your goal is really to try to maximize the profit of the business, which means you’re not always going to do long-term things like, “Let’s hire a bunch of people to put out really good content and focus on building an audience who love our content and are delighted by everything we do, and we’ll make a ton of profit down the road.” Instead you’re thinking, “Okay, I just need to get above this hurdle. I need to reduce expenses. I need to think about a business where maybe I’m buying it cheap and I can do a few things to grow it.”

It’s just not the mindset that we have when we’re thinking about, really, the opportunities in this space. Truth be told, a large part of that is down to experience because we were operating that way for the first 18 months to two years of our existence. All that happens when you do that is, businesses get neglected, or you don’t think about them in the right way, and so another business will come along and just take its market share. It’ll put out better content, or it will do better SEO, and it will rank higher in Google, and suddenly your low-cash-intensity business is just producing less cash as well. So it’s really, we’ve learned because we bought these businesses. We thought, “Yeah, we can just tweak these things and we can double their income,” and that happened more often than not, but then you hold the business and you think, “Great, let’s buy another one,” and eventually those businesses just die. Whereas instead you have to think, “Okay, let’s hire talented people to run these businesses.”

If we’re going to do that, we’re going to need to think about businesses that might take a year for us to grow. We’re going to think about businesses that maybe are not that profitable in the beginning, but we’re going to launch new products for them, and really operating like a modern media empire should operate. The other thing is really our investing philosophy is about buying as well as we can. So the largest part about the wins we’ve had is because we turn away 80 to 90%, maybe even higher, of the businesses we look at, and we look at dozens a day. That’s because the average one just doesn’t have anything remarkable about it. You might come to the space and you might look at some brokerages, or some marketplaces and think, “Hey, these businesses are amazing. Look at that one. It’s making 500K a year off 550K revenue. Wow, look, it only costs 1.5 million. I’m going to get that.”

But when you approach it from that philosophy, you’re really missing the fundamentals. Like, what is this business? Why is it making this much money? Why does it deserve to keep making this much money in the future? Because a lot of the time that’s a much harder question to answer, and that might be why the seller is selling it because they’ve thought, “Yep, okay, I’ve grown this to a great level, I’m going to pull the ripcord,” or, “I’m going to pull the ejector seat before it goes down.” An unwitting investor comes in and buys it, and it goes down.

This isn’t the approach we want. We want to basically go with, “Let’s try to just buy the best businesses that exist on the internet,” and make sure that we can continue their success and then think about growing them rather than like… Okay, there’s that quote about, “You make money when you buy.” That is so true, but a lot of people interpret it to mean, “You have to buy it for the cheapest price possible,” instead of, “You have to buy the best business possible.” That’s the most important thing.

Without wanting to ramble too much, I just want to go with another example where I bought a business when I was first starting out, for around $80,000. So it wasn’t a large purchase, but this was a business that really was growing quite rapidly. So it should have been worth about 100 to $150,000. It just wasn’t there yet because it had only just started hitting those numbers, and the seller wanted to sell now. So I said, “Okay, well I’m going to offer you $80,000, because it hasn’t been at this higher level for long enough,” and the seller said, “Okay, great,” and they agreed.

So then, over the course of the next few months, I made a few incremental changes to the business and just time factored in, and the business trajectory was great. Without really doing anything, the business was now worth about 160K four or five months later. I thought, “Great, I’m going to go and find another one and do the same thing again.” In the end, what happened was there was a Google update, a large part of this website’s traffic came from Google. Google updates its algorithm all the time, and the business went down to making probably 75% of what it was making when I bought it. So now instead of being worth 160K, it was worth about 110K or something like that. So it was still higher than what I paid, but then three to six months later after me putting in a lot of effort to try and grow it, it declined again, because the reality was I had bought this business simply because the price was good, not because there was anything great about it.

It wasn’t a terrible business, but there was nothing about it that deserved to be making a continual growth, and when the business started declining, you look at it objectively and you think, “Well, yeah, this actually isn’t that great.” It was a content website. It reviewed various products that were for sale on Amazon, and long story short, I got what I paid for. So now we’re not thinking about, “Okay, let’s buy this business because it’s half the price it should be.” Instead of we’re thinking, “Well, yeah, there’s a reason you’re selling it for 80K, and if I buy this, I’m going to have to pull out within three months because who knows what’s going to happen.”

It’s just the wrong mindset. Whereas instead, we want to buy a business that maybe is worth 100K, or a million dollars actually, obviously we’re thinking bigger these days, or $5 million. Even if it’s only worth 4.8, we will pay a fair price for it. We’d be much more likely to say, “Well, this one’s worth 4.8, but the seller wants 4.9, but we’re in love with the business. We think it’s fantastic. We think we can turn it into a $6 million business over the next few years.” So that’s something we’re excited about, and the reason we would do that is because the business is something that has an email list, it has an audience, it has fans. We can build an e-commerce element to it, we can sell digital products. We can keep focusing on expanding how much content it has. If you think about all the best media businesses that you know, it has those elements that they have as well.

When you think that way, investing gets a lot easier. It gets harder in some ways, because you have to reject the vast majority of businesses that you look at, but it gets easier because once you’ve bought them, you’ve bought something which is amazing, and it will often grow itself. So, if you really want to know more about some of these specific case studies, we do have some case study articles. Just go to onfolio.co/articles. Also, I will most likely do a case study episode at the end of this series as well. So that’s really it about our philosophy. It might seem very intuitive and obvious to you, but we do think it is actually pretty unique in the space. Again, it’s why the structure of the holding company that we have chosen is really suited best to what it is we’re trying to do. And it’s why we’re positioned very well to be able to share a lot of the profit we’re going to make with our investors as well.

 

Hey, welcome back. I’m Dom Wells, Onfolio CEO. And this is the third episode of our mini podcast series. This episode is a pretty interesting and exciting one because I’m going to be walking you through the Onfolio grand vision for want of a better title. And really what this means is I see various different phases that Onfolio is going to go through over the next few years. And I’m just going to lay them all out because you can have an idea of where you’re going to go, but the work you do right now isn’t necessarily tied to where you want to go in a linear fashion, in the sense that yes you do have to do A before you get to B and you have to do B before you get to C, but what you’re doing and A may not be directly related to C because it part of the path.

So, without being ambiguous, let me just jump into it. So really what I see as phase one, and this is the phase Onfolio is in at the time of recording, and phase one is we’re really accumulating businesses we’re building a team and we’re developing our playbook. Accumulating businesses and websites, it gives us the audiences we need and it gives us the feedback on what audience are ideal, really, for our grand plan. And it also gives us very important revenue and profit that we need to grow our team and the platform for the team to learn and grow. And the playbook will be an important part of Onfolio as well. It’ll form the collective brain and will give us the ability to execute on larger opportunities and move into new spaces systematically.

So, really what I mean by all of this is we don’t want to be a company that just runs a collection of mediocre websites. We don’t want to just buy a bunch of uncorrelated businesses and run them in a standalone fashion. There’s not necessarily anything wrong with the latter, but it’s just not what we think the big opportunity is. I’ve talked in previous episodes about how I believe the real opportunity is building a modern media company. And so in order to do that, you need to have large audiences, you need to have a large team and you need to have a team that knows how to work together. But if you try and start with that and you try and start with building something wonderful and amazing, you may struggle because you may, it’s the whole don’t run before you can walk thing.

So, what we’re doing now is we’re learning to walk and we’re accumulating everything we need, laying the foundations and really what that is is, well, we need to accumulate audiences. So, maybe we buy a business in the pet space, and then we buy another business in the pet space, or it could be the same pet, or it could be a different pet. Maybe we then buy a business in the home and lifestyle space. And after that we might buy a business in the cooking space. So, now these are standalone businesses, but at the same time there’s a lot of overlap between the audiences. So, that means in future, if we launch other businesses or buy other businesses that have overlap between all of the ones we’ve already bought, then suddenly there’s a lot of synergy. And this is kind of what I mean by phase one. It’s just accumulating all of that.

Not only that, but we’re going to need a strong team in place to run all of these businesses. And to some extent, when we buy a business it will come with a team and we will be able to just put one or two people in general manager or CEO positions. But at the same time, we have our core central team, which I’ll probably go over in another episode, and that core team will be able to collaborate on multiple businesses or on any given business as needed using the playbook to do the things that we want to do. And then the playbook itself is going to be things like, “Okay, when we buy a business, what are the leavers we can pull? What are the improvements we should make? What are the expenses we should get rid of?” And even earlier on in our process, the playbook’s going to tell us what type of businesses we should be buying in the first place.

And so phase one really is the platform upon which everything is built. And it’s hard to know exactly how long it’s going to take, but for me, I believe phase one will be completed when Onfolio is a public company listed on one of the OTC exchanges. So, whether that’s OTCQB or OTC Link, we’ll know later when it comes to the time. We’ll have over $1 million in EBITDA and we will have sold some of our smaller sites that don’t fit into the broader plan. And finally we’ll have enough team members and specialists that we feel confident we can handle all the different requirements, whether that’s certain e-commerce things, social media, general marketing. So, this is what I mean, we’re building the foundations.

Now one million in EBITDA is obviously quite small and being on the OTC markets is quite small, but this is why I’m just talking about phase one being the initial foundation. Once that is in place, we move on to phase two, which is where a lot of the work we’ll be doing is similar to phase one, but it’s building on top of the platform and the foundation.

So, yes, we might still hire people, but the focus isn’t building out our team because we will have built a strong team already. And yes, we’ll still be acquiring businesses and acquiring new audiences, but instead the focus will be on building on top of all of that. Building more robust businesses, really understanding the audiences within any given business, turning and exploring weaknesses and starting to innovate as well, starting to create product. I also believe, and the team do as well, that it’s important for traffic to any of these websites to become a flywheel.

So, by that I mean, maybe we buy a successful website about dogs, keeping with the pet example. Now maybe at the time of purchase, it’s just a website about dogs and it gets a lot of visitors. The visitors enjoy reading the content and then they leave. And there’s nothing wrong with that. We can make money from that. But what happens if Google decides not to favor our business as much and the website gets less traffic suddenly, fewer people are visiting every day. That is a risk. For us, we want that traffic to become a flywheel where maybe we launch a paid community or a free community and they join, they have a great time. They enjoy interacting with the website. And now the website is becoming a brand and not just a generic website. And once that happens, two wonderful things happen. The first is if Google changes its algorithm so the website loses organic Google traffic, it doesn’t really matter because people are coming to your business, buying stuff from you, from all different sources, from social media, from email lists, from referrals and so on.

But secondly, Google sees that happening and it knows that this is a real brand rather than a generic website. So, it’s far less likely to down rank I think as much because you’re a legit brand. Google says, “Oh, you’re a legit brand. I’ll give you more traffic.” So, I will consider phase two to have been achieved when five to 10 million in EBITDA. We are building out our traffic flywheels. We don’t fear our traffic or the fundamentals of the business could be taken away at any given moment. In terms of an organizational point of view, our teams have been split into semi autonomous hubs with clear goals and plans for executing them. We qualify for Nasdaq. We don’t necessarily have to list yet in phase two, but we’re big enough to actually be considering it. And we’ve raised enough money from preferred shares and other debt forms that our longterm cost of capital is going down. Maybe it’s 10% or below, or even lower, 7%. And in terms of valuation, we would at this stage probably be a 50 to $100 million company.

Of course, the goal is an isn’t to grow the valuation of the company because it is because of course that’s why shareholders invest, but of course the motivation should be building these brands and the valuation comes later. And then in terms of the brands, they have fans. We’re not just running random non-descriptive websites or companies, which is hard to measure, to some extent it’s subjective, but essentially we could ask ourselves, “Have people heard of these websites or are they just generic websites?” So, I’m thinking around late 2022 or 2023 that we’ll be looking at this. It really depends on how well we raise money and how well phase one.

So, phase three is really just building further on phase two we’ll be dominating the niches we’re in. We’ll be showing our ability to move into new spaces, and even new mediums. We’ll be still fundamentally a content business and a media empire, but e-commerce will be a large part of what we do, selling physical products as well as digital products. Potentially we’ll have conferences, if the world opens up again. And really throughout phase one to three we will also be acquiring various launch vehicles. By this I mean, properties that can be leveraged to launch new properties or new businesses. So, things like deals websites or general content websites that cover a range of topics and have a large fan base. So, if we want to launch something else, the fan base can be the initial seed to launch that.

And just to give a more tangible example of that. I mean, if you think about big brands, for example, let’s say Morning Brew. I’m a big fan of Morning Brew. And if they wanted to launch another newsletter, which actually is part of their business model, they’ve launched several new newsletters since the Business Insider acquisition. Obviously, they have their existing audience who loves them and they say, “We’re going to launch a different newsletter,” and certain segments of their audience think, “Great, sign me up. I’m going to subscribe to your new thing as well,” which allows them to slowly move sideways into different niches and topics.

So, once we’re in phase three, this is where we’ll really be leveraging that skill. We’re no longer thinking, “Okay, what are our weaknesses? Where are our gaps? What do we need to acquire? What team members do we need to recruit?” Instead, we’ll be thinking, “Okay, we’ve got a pretty good thing going here. We’ve got a bunch of great brands. How can we really pour fuel onto the fire and send this thing to the moon?” And phase three is essentially the final phase, although there probably will be more phases that come out as we’re going through the phases. But right now, early in phase one, phase three is really the current goal that we’re working towards.

So, phase three is really going from thinking, “Okay, we have a foothold in a niche,” to, “Okay, we’re building out our presence in the niche,” to, “Okay, we dominate this niche,” and we’re never going to fully be able to dominate a niche because there’s always other players in the niche, but we will be considered one of the leaders in virtually every niche that we’re in. So, phase three really will be achieved when, in terms of valuation, we’re at that 100 million plus range, we have top properties in the niches that we’re in. As I mentioned earlier, we don’t fear a Google update or Amazon changing their affiliate commissions or changing how they work with their e-commerce partners. And a much more important metric is we can influence the niches we’re in. And by that, I don’t mean we can influence how people think. But I mean, if we’re in any particular niche, we are thought leaders in that space. So, if we launch a new product or we start discussing a new thing, then people in the space will be talking about it and will be interested. And so for this, we’re looking really, but by the time we get there, I’m sure we will have a phase four and a phase five mapped out already, which I will of course share with everybody along the way.

So, that’s the plan, that’s the vision. And it really goes back to what I was saying before in earlier episodes and what I’ve talked about on our preferred shares offering page, where I said, “I really believe that traditional media is breaking up. People are not just relying on a typical broadsheet newspapers or print media or typical news websites to get their news or to get their learnings or their education. Instead, people are going to niche publications that engage with them and entertain them. And frankly, put out better content than traditional media.” And we see a fantastic opportunity to buy these businesses and improve what’s not working. Well, okay, let’s me go back a sec.

We see an opportunity to buy smaller properties and businesses in the space and turn them into these modern media brands that people love. A large part of that is because many of these websites are sold by somebody who has kind of single channel competency and only one thing that they’re good at. And when we come in with our very talented and multi-disciplined team, we’ll be able to double down on what’s working, improve what’s not working and create additional avenues for those businesses and really turn them into the brands that will lead the future in modern media. So, as I mentioned at the beginning of this episode, you can’t start out trying to do that, but you can absolutely start out with that aim goal in mind.

I know it might be slightly big headed to compare ourselves to Amazon. So, I’m not going to do that at all. But the story of how Amazon grew is interesting because Jeff Bezos right from the start imagined an everything store that sold many, many different things, but he knew they couldn’t start out just like that. They had to start out by going for something easy. So, he chose books and then from books they went into DVDs and then over the years and decades they’ve expanded into being the everything store that they are now. And we have a very similar viewpoint about picking a path and starting out with one aspect of it. And so that’s what we are really working on right now. And as I mentioned, we are in the early days of phase one, but we know exactly where we’re going to go. And we have a pretty good idea of how we’re going to get there. It’s just about time and execution. So, that’s it for this episode. I’m going to end it here and I’ll see you in another episode to continue the series about really what Onfolio is and what the opportunity is and what it is we’re trying to do.

 

Hey, welcome to episode four of this miniseries, and the topic for this one is really simple. It’s just why you don’t necessarily need to grow a business in order for it to be a good acquisition or in order to make money. This was really inspired by a podcast interview I did a couple of weeks ago on somebody else’s podcast, where they were really trying to dig into the weeds on exactly what levers I pull when I buy a business and what things and what tactics I employ in order to grow. I had tried to make my point a couple of times, and in the end, I kind of just had to say explicitly that really it’s the wrong way to think about the space.

Because listen, every time you buy a business, you absolutely want to grow it. Of course, you do. The faster you grow it, the more money you make. But what stood out to me was that all the questions I was being given was, okay, so what tricks do you have to grow it? What things do you look? What sort of special secrets are there when you’re looking at a business so that you can double it or triple it? I just felt like it was the wrong way to really approach the space. Because to some extent, those quick wins are largely nonexistent. Yeah, you have them on some businesses, but those businesses usually have something else unsavory about them or something that you make sure you want to pass on the business.

Also, the best businesses, the really good ones that you want to own forever, they don’t necessarily have any quick wins and you don’t necessarily know if you’re going to be able to do anything to grow them. Yeah, you’re absolutely going to try. But what you really need to do is say, “If I buy this business and I pay this price and I don’t grow it by a single dollar, will I be happy with the acquisition?” Not, will I be delighted? Will it be amazing? But will I be happy? Because what happens a lot of time is people when they do see quick wins, for example, oh, hey, this business has a really bad marketing funnel. I can buy it and put some good marketing into it and grow it. Even though it’s slightly overpriced right now, it doesn’t matter because I’m absolutely sure I can triple it.

What normally happens is they can’t triple it or they can’t even double it for whatever reason, maybe just the business is inherently bad. Maybe the sellers already tried those things and you’re not going to be any better. Then when you take a step back and you think, “Well. Hold on, what have I actually bought here?” You end up buying lemons more often than not. Instead you think, “Okay, if I buy this business, are there things I can do to grow it? Cool. There are. But if they don’t work, is it still a sweet business to own?” If it is, then that’s when you pull the trigger and you go for it.

Because in this space, one thing you really need to think of is if I buy a business and I pay three times or four times profit, four times EBITDA for this business, what’s my ROI going to be? The answer might be 20%. So that’s pretty good ROI. So I’d rather take 20% from a solid business that makes me feel confident it’s going to continue to give me 20% long enough to get paid back than buy a business that maybe is going to give 40%, or I think is going to give 60%, and then six months later, the business has died. Because as I said on the podcast I was interviewed on, the only way to… Look, the best way to make money in this space is to just not buy a business that dies. It sounds obvious, but that really is that simple.

You don’t need to buy a business and do some magic in order to triple it and then flip it for profit. No, you just need to buy a good business and hold it and cashflow it. So the only way to really get burned and to lose money, conversely on the opposite is to do the opposite, to buy a business that dies. So when we look at businesses that we want to buy, this is exactly what we’re asking ourselves. Yeah, if there are two businesses that passed the test, like, yes, if I buy this and it doesn’t grow, will I be happy? Well, then yeah, we’re going to look at the one with the better upside and the better growth potential, because of course, there’s an opportunity cost with deploying your money on the wrong business that can’t grow. But the point is it shouldn’t be your strategy. Those are all tactics. Your strategy should be I’m going to buy this business. I’m going to hold it and life’s going to be good and then I’m going to do all the other things.

Now, that being said, if you listened to these podcasts episodes in the correct order, you’ll know that in the previous episode, I talked about all the different phases and how Onfolio is currently developing our playbook. So we are going to be employing a playbook to assets we buy, and we are going to be thinking what things do we do every time, but we’re not going to be approaching from the sort of fixer upper flipper mindset that a lot of people have where they really think, “Okay, I’m going to buy a distressed business or I’m going to buy something with a lot that’s bad about it, so I can make some quick improvements and flip it.” I don’t have a ton of problem with people who want to do that. I don’t think it’s a scalable business model, but I think it’s viable and so it just doesn’t suit what we do.

We are much more in the kind of Berkshire Hathaway buy good businesses and hold them forever mindset. Really, this is just a short episode. I just wanted to explain how really you don’t have to grow a business in order to make money in this space. Please don’t interpret that to mean that Onfolio doesn’t try to grow businesses. Just take it to say Onfolio tries first not to lose money and then it asks itself how it can grow businesses. Really, if you can do that and you can do it over and over again, then the sky is the limit and you don’t even need to worry about creating money from thin air.

 

I’m Dom Wells founder, CEO of Onfolio. This episode in this miniseries is all about the myths of diversification. So for clarity, I don’t think diversification is a myth. I think it’s important aspect of any successful strategy with operating and acquisition-based business. However, I think a lot of myths do exist around diversification itself, how to do it, what it means, and so on. Particularly in the internet marketing space, buying online businesses, a lot of people just think, “Okay, the best thing to do is diversify. That means by multiple businesses.” Let’s say you’ve got a million dollars, it’s better to buy ten 100K businesses or one $1 million business. Then debate kind of is okay, should I get ten 100K businesses or should I get two 500K, three 300K and so on?

When really, I think, diversification is more about the businesses themselves. You could have ten 100K businesses that are all super reliant on the same source of income. They could all be making money from Google. They could all be making money from Amazon. They could all be getting their traffic from the same place. While it’s unlikely that all of the sites would get sort of hit by a Google penalty at the same time, it’s absolutely possible that all the sites could lose their Amazon revenue or have their Amazon revenue impacted at the same time. That’s happened throughout history. Amazon have reduced their commissions on two occasions. So if you had 10 Amazon sites, you would not have actually been very diversified after all.

Not only that, but there’s obviously a sweet spot with diversification, because the more you diversify, you’re also diluting and impacting your results because you’re spreading yourself too thin. This is something I touched upon in that very first episode of the series, where if you have too many different moving parts, then you kind of achieve maybe 50% efficiency with every part. So for example, let’s say you were trying to operate in the space itself and you deployed a million dollars just sticking with that example. You bought 10 businesses for 100K. Cool. Let’s say each one of those 10 businesses doesn’t rely on the same method of generating income. It doesn’t rely on the same method of traffic.

So on paper, you are diversified, but now you have to run 10 websites or 10 businesses. So what happens? Well, either you just completely failed because it’s really hard to run 10 businesses, or you have to hire a team to help you run them. The team might not be very good at their job. They’ve increased your expenses and so on and so on. The ideal way to do it is to buy businesses that already have a team so you are a passive investor. Then the team have the knowledge and the ability to run the business, because they’ve been doing it already. When you buy a business that comes with a team, it doesn’t increase your expenses because that team’s expense is already baked into the profit and loss statement, which the company valuation is determined by.

But you’re not going to be able to do that for a million dollars. You’re to want to buy businesses that cost a million each and up in order to get that level of autonomy. So you either need to spend more money, or you need to say, “Well, hold on. I’m going to scale back and maybe I’m just going to buy three businesses,” which again can work, but you’re still going to achieve better results with one business. Now, what people don’t seem to entertain is the notion that one single business could still be more diversified than 10 individual because of what it’s got going on.

For example, would you rather buy a business that has established itself as the leader in the space? Let’s say it’s a content business. It creates content. Everybody goes there to read it. They type the name of the company into Google or into their web browser. They subscribed to the email list. They engage on Twitter. They’re not just randomly searching for something and being presented with that website, the fans of that website. Now, it’s unlikely that that website is going to lose all of its traffic or revenue overnight just because of the nature of a business like that. Again, I’m kind of repeating myself from previous episodes, but that’s the whole point is that a business like that is going to be more diverse than 10 mediocre websites.

Not only that, but that business is probably going to be easier to grow because you’re going to be able to leverage the fact that it has such a strong brand and fan base. Yes, perhaps that business has less room to grow because it’s already at the top of its game. But as I talked about in previous episodes, we’re not in a flipping business. We’re not trying to buy a business that has loads of money left on the table and 10X it in a short period of time. We’re trying to buy great businesses that will cashflow and then we can reinvest that cashflow. There’s different ways to skin a cat, and the most important thing is is that you don’t accidentally stab the cat. So that’s much less likely to happen if you’re working with these strong brands.

So I think it goes back to as well, people look at things like Berkshire Hathaway, which I’ve referenced a lot, and they say, “Well, I want to be the Berkshire Hathaway of online businesses.” So they think, well, that means go out and buy as many businesses as you can. But the thing about Berkshire Hathaway’s model is, first of all, they’re not necessarily operating these businesses themselves. They’re just buying them and letting them do their thing. So all that’s really changing is the ownership, not the operations. Second of all, if you stripped away most of those businesses, and let’s say you picked any one of those businesses and said, “Berkshire just owns that one. So it just owns Geico. It just own See’s Candy. It just owns Coke.” All of those businesses are solid businesses to own.

So Warren Buffett’s not going out there saying, “I need to diversify.” He’s going out there saying, “I want to buy great businesses that I’ll hold forever.” So again, that’s kind of why when people make these references, I feel like, well, you’re kind of thinking the wrong way, and yeah, your comments are rooted in the right idea that, yeah, you want to protect the downside, but is that the way to do it? That being said, and Onfolio, we do operate multiple businesses. We don’t just buy one business. I do say one of the best reasons to invest in our preferred shares is because we’re diversified. But the point is that we’re buying these multiple businesses, but we would happily own any one of them just as the business we owned, like if we just had to do one business, that would be happy.

We don’t think, “Well, this business might die so we’ll just buy nine more of them.” It’s kind of a weird… Yeah, this business isn’t very good, but if we buy 10 of them, we’ll be fine. It’s just kind of a weird way to go about it. So, yes, we are diversified and we do protect the downside through our preferred shares. But that’s not why what we do works. It’s because of the things we buy work, things we buy are great and we operate them well. Or they come with teams that operate them well and we just optimize them. That being said, we’re very happy to present an offering to people where we can also say, “Look, our entire portfolio would have to drop by 50% or more,” which is highly unlikely because if one drops by 50%, not all of them are going to. Some of them are going to increase by 100% so it was all going to balance out. So we do have that diversification element.

Another thing to think about as well is that diversification is just one element of the picture of creating a strong business that can grow. It’s one tactic within a greater strategy. But when you kind of go out, it’s just I’m going to buy 10 businesses that have room to grow and are diversified with the kind of examples that I talked about at the beginning of this episode. That’s really all you have because there’s not much more you can do. So you just say, “Okay, I’ve got 10 businesses. What do I do now? I’ll buy another 10.” The problems I highlighted with that model just get exacerbated, whereas how we’re doing it is a lot more scalable.

So this is kind of all I wanted to summarize in this episode is just, yes, diversification is important, but how you diversify. It doesn’t necessarily mean quantity of businesses. There’s a lot more to it. Like everything in life, there’s nuances. I think I did a pretty good job of getting my points across so you can understand exactly how I think about diversification and how we approach it as a business.

 

Hey, I’m Dom Wells, CEO of Onfolio. And this episode is all about the levers we pull when we acquire a business. And it might sound a little bit contradictory as we start the episode, because I’ve just spent five episodes talking about how you don’t need to grow a business in order to succeed. People who want to buy fixer-uppers have the wrong mindset, or at least not a mindset that we share. That being said, I do want to grow businesses, that’s just not the make or break of my success. I mentioned earlier, I set myself up in a way that if I can’t grow a business, I still succeed. But that doesn’t mean I’m going to sit back and do nothing, of course, I want to grow. There’s so many reasons why growing is important. It’s pretty obvious.

And so this episode is going to be like, “Well, okay, I’ve explained to you why growing a business isn’t the ‘be all end all.’ But here’s what I do when I try and grow and business, so hear me out.” Sometimes the levers that you pull are different, and sometimes you can pretty much try the same thing across multiple sites. Sometimes it’s little wins or tactics that exist, and you can implement them with pretty much every acquisition. And some of them, it’s just going to be very dependent on what it is you’re buying. So examples of them are, almost every business when we acquire it, a lot of these businesses are SEO heavy, even if they’re not, they still have an SEO element. So we always do an audit of the site’s SEO, because there’s always something which is broken.

Now, the thing which is broken is always different. It could be, there’s a bunch of broken links on the website, it could be Google search console is throwing up a bunch of schema errors, it could be the page speed is just super slow, maybe the hosting needs upgrading, a bunch of articles are out of date, and need rewriting. If it’s an e-commerce business, there’s probably some things that are indexed that shouldn’t be indexed or… I’m going to bore you with the details, but the point is I don’t think we’ve ever acquired a site, and then done an audit and said, “That was solid. It was perfect.” I’d love to, but there’s just always something that can be improved. And a lot of it is also down to different interpretations of best practices and opinions as well. So even if someone has a site that is flawless in their eyes, we might want to do something differently based on our own experiences.

Other things we’ll do are, a lot of businesses we acquire, they have an email list, but it’s not very good. Maybe the seller is not a sophisticated email marketer, or they just threw it up there, but they don’t really do much with it, or they just don’t email that much anymore. Especially if you’re selling a business, you lose your enthusiasm for marketing heavily to your email list, so you just stop. There can be some good wins there, because often an email list drives a lot of revenue for a business, and so if you just email more or better, then there is a lot that you can do. And I have talked about in other episodes. This is also somewhere where I think a lot of people make mistakes, because they look at a business for sale, they see something like, there’s a 100,000 email subscribers that have never been emailed, and they say, “Fantastic”.

But then when they actually try to email, maybe no one opens the emails, or maybe people are thinking, “Well, who’s this suddenly emailing me?” And so, it’s not always such an instant win, and you shouldn’t buy a business just because of that. But it’s absolutely an area that you can improve on. The thing that is really important when it comes to email is understanding exactly how it is the email generates revenue for websites anyway. For a lot of people, email is a simple communication method, and people use it really in ways that are perhaps not the most efficient, or in ways that don’t get the most out of the medium, because really, what email is, is it’s the best way into a customer or a potential customer’s life. You can email them with a message, or with a promotion, or with a question, and it’s a much more personal, and intimate way of communicating with them compared to say, social media.

And the advantage of that is that it allows you to really, obviously communicate with them on a much deeper level. Now, if you take them out, and you just email people once or twice a week with something such as, “Hey, here’s our latest blog posts.” Or, “Hey, here’s the sale, do you want to buy it?” Then you’re really falling short. So you might get some results, sure, and you could increase the frequency of those emails, and increase the results. But going back to what we’ve been talking about over the last five episodes about building an audience, and creating fans, then suddenly email plays a much more powerful role. So for us now, one of the first things we’ll do when we take over a business is run what’s called a Deep Dive Survey to the audience. And a Deep Dive Survey was made popular by Ryan Levesque, who has the course called The Ask Method, and a book about it as well.

And I believe it was also touched upon in the famous 80/20 marketing book as well. But essentially the idea is you’re surveying your audience in a way that helps you to understand specifically what their problems are, and what struggles they’ve had in finding a solution, because that then allows you to really think what else you can offer. Because if you zoom out and you think, “Rather than just being an affiliate website in the space that isn’t saying anything differently, or helping our audience in a different way, that another business isn’t doing the same.” Then your reason for being is pointless, and you’re not a good business, really. Within reason that there could be some times when it’s perfectly fine, for example, if you’re just reviewing a piece of software, which people really get value out of, they might not have greater problems, but when you bear in mind, what we’re trying to build, and the businesses we’re looking to acquire, then you bet to see why a Deep Dive Survey is really important, because maybe we acquire a dog site, for example, and we ask our audience, “What problems you have?”

And they might say, “Well, no one really is talking about this problem I have with my dog.” Or, “No one is solving this problem.” In the dog space, that’s actually quite unlikely, but in many other spaces, there’s a lot of unmet needs where it could be a particular product, it could be an info product, it could be a service. And a Deep Dive Survey is a really good way of learning about your audience and figuring out what those unmet needs are, so that you can then discuss the merit of, well, creating a solution. And it’s not a silver bullet. Sometimes we do a survey that’s inconclusive, or sometimes we misinterpret the data, or we know exactly what we need to do, but just creating it doesn’t necessarily mean it’s going to make money straight away. You then have to market it, and so on. But it’s absolutely something that helps us to not only understand our audiences better, but to take steps towards serving them better as well.

And it ties into that long-term mindset that we have at Onfolio. So in addition to that, we might also look at what is already there, whether that’s in the space, or something that is already being served for our audience, maybe we acquire a service-based business, or we acquire a business that has info products. We can also think, “Okay, well, is there anything we can do better to serve our audience better or to make more money from doing this?” And actually there is where you can find a lot of quick wins. For example, we bought a business, it was selling an info product, the info product was selling quite well. And I think it was $7. And we looked at it and thought, “Well, this is worth way more than $7, and frankly, if someone’s going to pay $7, they’re probably going to pay $19.”

So we put the price up, and gave our audience warning before we were going do it and everything, and we put the price up to $19. It didn’t really affect sales, they carried on, and we had now doubled that revenue source, close to triple that, actually. And so, what we have now is the same revenue source making two and a half times the profit it was making before, just by tweaking a couple of numbers on a sales page. And then in addition, I touched upon this earlier, sometimes people have an email funnel, which emails someone once a week, and it’s a profitable funnel. So you can simply say, “Well, what happens if we email them twice a week or three times a week?” And in many cases you’ll just make more money.

And of course there is a sweet spot, if you go from once a week to seven times a week, then it might become counterproductive, people unsubscribe and so on. But you’ll be surprised how much you can increase the frequency by. And then there’s other things as well, such as, “Well can we improve the marketing?” And these ones are harder, because you never know for sure. So it could be, “Let’s see if we can make a better sales page.” Or, “Let’s see if we can have a better messaging for our audience.” Or, “Let’s see if we can just design something to look better.” And those things, they’re in our playbook, but they are things that I consider them as the most questionable in terms of the predictability of their results, because you just have no idea what kind of results you’re going to get. And sometimes an uglier page actually performs better.

So we can’t sit down and say, “We buy ugly businesses and make them pretty.” Because, sometimes the ugly businesses are the ones that make the most money. But it is absolutely something we look at, and we did buy an e-commerce business three or four months ago, and we are currently completely overhauling the site, because to some extent, even though what I just said about how an ugly business can sometimes perform better. And by ugly, I’m talking purely superficial, like how the business looks like, the website, the marketing materials and everything. Sometimes they do perform better, but in this case, we think this website is pretty ugly. So, we need to redesign it and, we’re bringing in extra functionality with that redesign as well.

So far, I haven’t really talked about traffic, but increasing traffic is another great way to grow a business, particularly if you’re increasing a traffic source, which is fairly autopilot. So something like SEO, where if you ranked number one or number two in Google for certain phrases, then you’re just going to get traffic over and over again. So increasing the SEO is something that we pay attention to, and also adding in additional traffic sources. We have a Pinterest agency, and so we’re good at growing Pinterest traffic. Social media can be good avenues. Sometimes there’s things like Reddit, or there’s paid advertising, which can be very profitable as well. And again, in two of the businesses that we’ve recently acquired, we have either started a paid traffic campaign or reactivated one that a seller had maybe tested in the past, and then given up on. And if you can do that profitably, then you can control how much you want to grow your business by. If you can acquire a customer for less profit than that customer would generate you, then traffic is no longer a problem.

And so we have had a business that was producing around $30,000 a month revenue, so fairly small, but it was highly profitable. We had pretty good markup on that, so that $30,000 might make around $15,000 in profit. And when we started running Google ads, the Google ads may bring in an additional $10,000 to $15,000 in profit, and cost less than $10,000 to $15,000 to generate that profit. So really simple maths, getting it profitable is the hardest part, but once you get there, you can generally scale it pretty well before it becomes unprofitable. And so a lot of the sites that we run, we haven’t yet really maximized the potential with our paid traffic, but it is something in our playbook that we are fairly, quickly building out. And so, it’s an area that we are pretty aggressive, pretty bullish on.

And it can be really simple, it can be, “Okay, let’s start running Facebook ads, let’s start running Google ads, let’s do retargeting ads, so people who are already visiting our business, and not buying something for whatever reason, we’ll just advertise to them to bring them back.” And that can be one of the cheapest forms of getting traffic, and it can also be the most profitable, because they’re not a super cold lead. And once you start bringing in profitable, paid traffic, then it’s just a case of scaling it, and increasing the ad spend. So I don’t really consider that something that we do to try and improve a business, it’s just saying, “Okay, this is a profitable business, it has product market fit, how can we get it in front of more people? And will those people… Can we get it in front of them for less than the profit we get?” So it’s really simple.

Some other areas we look at are seeing what competitors are doing, and thinking, “Can we do something better than them?” And again, that could be, “Could we beat them in terms of producing better content? Can we beat them in terms of producing better services? if we’re affiliates, and we’re all promoting the same thing, can we create better content that will rank higher in Google?” Or, “Can we create content which will convert better?” Or, “can we just…” Sometimes there’s a competitor, who’s just doing a great job, and so you don’t necessarily want to beat them, you just want to be inspired by them and say, “What do they do that’s great that we can also do?” As non a copycat way as possible. Because again, it goes back to everything I’ve been saying so far, and I’m really trying to hit this point home, but the idea is to be a leader in every space we’re in, and have competitors think, “You guys are doing a good job.” And have audience members think, “Those are one of the best people in the space.”

And how can you do that without looking at what other people in the space are doing? Now, I’m going to step back a little bit here and say, there’s more that we can do, and a lot of it depends on the specifics of the business. One thing is that the majority of things that we do, we will identify during the due diligence phase. And so one, we’re looking at these businesses, and we’re thinking, “What’s the risk with this one? How does it compare to other opportunities for us? Why should we deploy our money on this business as opposed to something else?” A large part of that is going to be, “Well, what can we actually do to grow it?” And again, first question is, “Can we make sure this business doesn’t die?” Second business is, “What can we do to grow?”

And once we’ve identified all of those things, yes, in reality, when you then take over the business and you start doing that work, it’s not always going to go to plan. So we’re always considering as we are onboarding a business in the first few months of taking it over, we’re considering, “Well, what don’t we know? What do we need to uncover? What surprises lie ahead. And also what are the opportunity costs?” Because a lot of this marketing, a lot of these things I’ve talked about, it’s difficult, and I think people often underestimate how difficult it is, and they overestimate their ability to execute. Many people think, “I can buy that business, and do one, two, three things, and it’ll double in value.” And you have to remember if it were that easy, the seller would probably have done it already, because they’ve probably spent more time than you have thinking about this business already.

So we’re always asking ourselves, “How confident are we in our ability to do this? If we are right, how much effort will it take us to do it? Is the juice worth the squeeze?” And then of course, we’re also asking ourselves, “If it goes wrong, or it doesn’t work?” Or whatever, “How much effort, and manpower do we want to have wasted?” And well, in business, there’s always going to be times where you do something and it doesn’t work out, and you can’t just avoid doing anything because there’s a risk it won’t work out, but you also have to approach it from the mindset of, “Is this the right lever to pull?” And, “Is this where we should spend our effort?” And again, that all ties into what I’ve been saying about how, if you buy something and it doesn’t grow, is it the end of the world?

And what that means is you can buy these businesses, and you can look at all the opportunities you have, and you can pick your battles and say, “We’re going to do that thing, because it’s probably going to result in a decent ROI.” And “This thing is a good opportunity, but it’s a ton of work, and we don’t even know if it’s going to work, so maybe we’ll spend those resources somewhere else instead.” Rather than creating this pressure for yourself, where you’ve bought something, because you think you’re going to get these amazing results, and if the results don’t come, then you screwed yourself. And so that’s not what our philosophy is. And we’re always exploring, and looking into new opportunities, but we’re also keenly aware that there’s a moderate chance that they’re not going to succeed, and we’re approaching it from that angle.

In future episodes, I’m going to talk a bit more about some actual specific case studies. And so you will get more details there. For now, I’m not going to reveal our entire playbook, and talk about some of the other things we do. I think the purpose of this episode has really been to help you just understand some of the things we do, and some of the things we’re looking at, and the considerations we make while we’re doing them. And from there, you can understand what I mean when I say, “Of course we want to grow stuff, but it’s not the ‘be all and end all.'”

 

I’m Dom Wells, Onfolio CEO, and welcome to episode seven of this miniseries. This one is probably one of the most interesting in that I’m going to be covering some specific things we’ve done that have been, well, things that we’re proud of, things that are successful, things where we bought a business and we were able to do something cool with it, or we just were able to… The purchase itself was cool. I’m also going to talk about some of the things that we’re not so proud of, some of the things that have gone wrong, some of the things where we failed, just things that maybe only people who have operated as many sites as we have would have experienced. Again, some of them completely our fault, we messed up. Some of them just completely out of our hands.

I think both of those will be equally important because while everybody kind of looks at themselves through rose-tinted glasses and thinks, “I’m not going to make those mistakes,” and it’s important to know that sometimes not even something you can control. Some of these things, they’re also going to be really kind of entry-level because I’m going to share everything that I have done successfully since starting Onfolio. We did start out fairly entry level managing sites that were only making a few thousand dollars per month profit. Then obviously as we scaled over time, so they may or may not be applicable to what we’re doing now, but I think they’re still important and maybe they’ll help you understand how my philosophy has been shaped over the years as well.

So in no particular order, I’m just going to get started with all the successes. Got to start with the success first. I think the most exciting thing that I started out with was buying websites that had large amount of traffic and did not have any display advertising on them. This is something which can still be a big win. Essentially, maybe it’s a website that got hundreds of thousands of visitors a month or tens of thousands of visitors a month, and was monetized with maybe affiliate content. So promoting other companies’ products, but it didn’t have any adverts on the site, so any banner ads or anything like that. Banner ads can be pretty lucrative, but a lot of people either think they’re not as lucrative as they are, or they just have an aversion to them.

We’ve all been on websites where we see annoying banner ads and we wish they weren’t there. So some people just don’t want to put them on. But we’ve bought sites that were making $4,000 a month and added display ads to them and within sort of 21 to 30 days, they were making $6,000 a month or $7,000 a month. So that’s almost 100% just by adding display ads up. Now, there are some debates about whether display ads will get you more likely to get penalized and lose some of your Google rankings or whether users will hate them. So what you earn in display ads, you will lose in income elsewhere. But it’s very easy to test that, and our experience shows that actually it’s usually not the case. If you just add display ads to your sites, then you can just make more money.

Now, we don’t always do this strategy anymore because typically we’re not just looking for these kinds of generic sites that don’t have much going on. We’re looking for sites that have an audience who is a big fan of the business. So in those instances, display ads maybe will be detrimental because you might make one or two grand a month extra at the cost of losing tens of thousands of dollars in other revenue because you’re putting your audience members off. So yes, there’s a sweet spot. So if you’re operating these smaller content businesses, then it can be an amazing win. But if you’re trying to do bigger things and create more amazing content, then you have to do it in the right way.

For example, if you look at what the big publishers are doing who work specifically with advertisers, they make hundreds of thousands of dollars a month, or maybe even more, just by charging large sponsorship. If you look at things like Morning Brew, which I’ve referenced a lot, their adverts can cost 50,000 to $100,000 just for one or two adverts in an email newsletter. So I guess it’s an interesting shaped curve, but essentially you could say if a site is small, it can be a great thing. I mean, small in terms of revenue. You need to have good traffic to make ads work. So a site could be small in terms of revenue. You add display ads to the site and it could double the revenue. Then if a site is getting a bit bigger, maybe the gain you’ll get from display ads are not worth it because you might gain one or two grand, but damage user experience.

So if a website is making 30 grand from affiliate ads or selling services, then they may not want to put on ads. But then if it gets a lot larger and the advertisers get a lot larger, suddenly it makes sense, and it’s a very, very viable business model again. So yeah, that’s definitely one of the quickest wins and it can be as simple as adding display ads to a site that doesn’t have them, or it can be as simple as changing the display ad network to something more lucrative, for example, removing AdSense and putting on Ezoic.

Now, one of the other easiest things we’ve ever done with growing a business is simply just buying a business that’s trending upwards because a lot of these websites and businesses are sold on their trailing 12 month profit. So a business may have been making let’s say $5,000 a month average over the past 12 months, but the last five months it’s making 7,000 and you might pay based on it making 5,000 and it’s really making 7,000, and then if it continues that trend, it might be making 9,000 without you actually doing anything. Then when you couple that with the fact you are going to do stuff as well, then you can really ride that trend.

This is actually really an entry level thing though, because the types of businesses that we want to buy have stable history and have been around for a long time and they’re not just starting to kick off and the seller’s thinking, “Okay, I’m going to get out while they’re going’s good.” Instead, we buy businesses that are much more mature and the seller probably knows about the fact that, yes, they’re business is valued on a trailing 12 month, but they’ve also had an exceptional six months. So they’ll just ask for a higher multiple. So you’re just still going to be valuing it based on maybe the last 12 months average, but you’re going to pay a higher, maybe you’ll pay 4X instead of access to the 3.5 or you’ll pay 3.5 or instead of 3. So it’s going to net out anyway, but that can still be a great business to buy because it’s trending up in the right direction, which is obviously a good thing.

So I find if you’re acquiring something in the 100K range or below, then it can be a great technique. But we really have grown out of the viability of that strategy. Also, it’s just not the type of businesses that we want to buy anyway. So it doesn’t fit in anymore, but it definitely was one of our early successes.

Now, another good success we’ve had is actually, I didn’t really talk about it in the last episode, but conversion rate optimization has yielded pretty good results for us over the years. By that I might mean you buy the website, you see the pages on the website or the emails that are generating the revenue, and then you just make tweaks to them, whether that’s through split testing or just intuition, but you make tweaks to them and it can increase the revenue. Sometimes, as I did mention in the previous episode, it can be as simple as changing the price or increasing the frequency of emails. Sometimes it can be a bit more complicated as doing some deep dive surveys, researching what customers want. Sometimes there’s a disconnect between the messaging of our offer and what customers really want, or the messaging that customers are using and so changing that can yield great results.

The best thing about conversion rate optimization is you don’t always nail it on the first attempt. You do often have to iterate multiple times, but when you find an iteration that works well, it can be something like, okay, the fifth version of a sales page and they definitely follow power laws. So we’re talking, you can have a 2X or 3X or a 10X improvement, and that improvement will carry through every day. Maybe it took one month’s work or even one hour’s work. I think my record was something like a 500% increase just by spending a couple of hours tweaking something on a website.

Then some of the other best things we’ve had has been adding additional traffic sources, which I did talk about again in the previous episode. So one business didn’t have any Pinterest traffic, and after three to four months, Pinterest had grown to be 10 to 20% of that website’s traffic. It was a website that was monetized by display advertising. So every additional visitor to the website brings in some money. We had another website where we changed the display ad network, as I talked about before, but I guess I didn’t give a specific detail where the website was making around $12,000 a month, of which I believe 10,000 was from display ads. We changed network and it made 20,000 the next month.

Another thing we did for that business was it was getting one million page views per month. So probably around 800,000 unique visitors to the website every month. The seller hadn’t set up any email because they just said they weren’t good at email marketing. We set up email. So just some simple email capture forms. We offered a free download. I’m sure you’ve seen them before, a free eBook, and the business was making… Then the email list was growing by around 100 new subscribers a day so 3,000 a month. Then we launched some paid eBooks based on problems that the people in our audience have said, and we offered them solutions and that brought in a few thousand dollars a month more. Then we just kept bringing out new eBooks and launching them and so on. So the end results in all of these cases was often something that we had to just change one time or two times. Yes, sometimes we had to iterate to get it right, but the results will pay you over and over again.

Some of the other wins we’ve had include negotiating a higher payout with an affiliate partner or adding in a different affiliate partner. So the business might be promoting one or two people and we add in some more, or we replace some because we think a different one is better. Or yeah, someone pays us let’s say $25 per sale. We can say to them, “Can you pass 35?” It doesn’t always work, but a lot of the time it does, especially if you’re thinking of leaving or changing partner and that can result in significant earnings increases as well. Bringing in paid traffic, I talked about in an earlier episode, has worked for us pretty well on several occasions.

Also, one of our secret weapons has been really just hiring good people to run the business. It’s sounds obvious, but having people focus on your business who are talented are the best way to grow the business because, yes, so you can give them these playbooks and ask them to go through them and say, “Hey, try doing this, try changing that,” but at the end of the day, having the right person focused, they’ll be telling you what changes need to be made, and they’ll be using their curiosity to think of new ways as well. In fact, one of the first things we did after we raised money in late 2020 was hired about half a dozen people to be basically mini-CEOs and general managers of our bigger assets. Some of them will run a handful of businesses, and some of them will just be all-in on one depending on their skillset and on the size of the business and the requirements of the business.

But four or five months later, I can see that it’s the best hack you can have in terms of growing your businesses. It’s going to contribute to a large part of Onfolio’s success. So being able to afford talented people and get the right bums in the right seats is absolutely a game-changer there.

Now, we can move on to the less fun part of the podcast, which is talking about the things that have either gone wrong, or the things that we failed to do. Hands down the biggest thing that has impacted the results of any of our businesses has been Google. Second is Amazon. Really, what that means is when you buy a business that relies almost 100% on the whims of Google’s search engine ranking algorithm, then you really are at their mercy. You can have a fantastic business in terms of the SEO, the things you’ve done to show Google, hey, look, our business is great, users love it, and they tweak their algorithm and your traffic goes down 10, 20, 30% overnight and your revenue along with it, which is why I’ve hopefully done a good job of explaining throughout this miniseries why we no longer want to buy businesses that just rely on Google and are essentially anonymous to the users who visit them. They land on the website, it could be called anything. They read some information and then they leave. That’s not the type of business we want anymore.

The same with Amazon. We had businesses that were making really good money, and then Amazon last year said, “We’re going to reduce your commission from 8% to 3% because we can.” That’s a significant drop in revenue. So then you have to ask yourself, “Do we look for other partners? Do we just try and grow traffic? Do we just take it on the chin? What can we do here?” But either way, it’s very frustrating when you don’t have that control. That’s another reason why we really don’t rely on Amazon almost at all these days. It’s a shame because they were a good partner over the years until they weren’t a good partner.

Now, some of the other things that sometimes these things have been our fault, maybe we acquired a business that wasn’t as good as we thought it was. Maybe something slipped through in our due diligence. Maybe we just bought something that was too reliant on Google and we trusted, it’s okay, it’s a good site, Google won’t do anything to change that, and Google said, “Hold my beer,” and changed its algorithm and this website loses its traffic overnight. We’ve had other things where affiliate partners we work with who would be paying us for leads or we’re sending them customers or candidates, and they’re paying us for them, suddenly, they just changed their standards and said, “We don’t want these anymore. We’re not going to pay you. Bye,” and you’ve got all this traffic and nothing to do to monetize it. When that happens, you just say to yourself, “Okay, I’m not going to buy this type of business anymore,” and you learn and you change your philosophy to the philosophy that I’ve spent seven episodes explaining to you.

There’s been other things that have just been our mistakes. Maybe we bought a business, we changed some of its SEO or we changed some of its content, didn’t have good results, and we changed it back. I’ve had a website where talking about earlier, like I was talking about earlier, we thought, “Okay, the email marketing funnel is not very good. The sales pages are not very good. We’re going to redesign them. We’re going to redesign the eBook,” and then it just bombed. It didn’t make any sales, maybe even made fewer sales than before. So you’ve wasted a bunch of time and effort, and yeah, you can go back to the old way. You can revert everything back to how it was before, but it’s still got to go down as a failure because you failed to grow.

Again, if you have the mindset that I talked about in the previous episode when I said, “We approach everything with a question in mind, where we say, ‘Well, what happens if this fails? Do we want to spend 5,000 man hours working on it and it might only bring in an extra $1,000 a month if it crushes it, or nothing if it fails’?” Then we’re probably not going to do it. So that kind of mindset saves a lot of these mistakes, but we definitely learned the hard way that humans have a tendency to overestimate their abilities. Especially if you’ve had a few wins, you get kind of survivorship bias and you say, “I’m going to crush it every time I do anything. It’s going to be amazing,” and then turns out things are more difficult than you expect them to be.

Some other failures we’ve had been just trying to do too many things at once, not having a good project management system. When you do that, things slip through the cracks and maybe customers ask for refunds because they didn’t get a reply in a timely fashion. Maybe they weren’t happy with the product and there was an opportunity to fix that, but you left it too long, they got upset, and then you just have to part ways. But if I had to summarize everything about all of our losses, as I’m speaking through here, I would say the thing that connects everything together has been even the businesses where something has gone wrong and it was completely out of our hands has really just been that we should have acquired a different business.

This is really why in the first few episodes I talked about the philosophy and what types of things we are trying to buy. We’re not just trying to look for some generic websites. We want real businesses. It seems obvious, but in this space, there are people that seem to just not be aware of this. They think of an online business as passive and hey, I’ve got this thing that just reviews water filters and it makes money and it’s great. But it’s very dangerous buying those types of businesses because if Google says, “I’m not going to rank you number one anymore. I’m going to rank you number five,” then your traffic dries up and your income dries up. You don’t really have anything in your pocket that you can do. You don’t have any levers that you can pull.

Whereas instead if you buy amazing businesses where they have fans, then you just don’t have to fear this. If I look back sort of in my head right now, thinking back to every big loss we’ve had, and that could be a financial loss or it could just be something that just went wrong, it’s not always permanent, but all of them came down to just not getting our acquisition strategy right, which is why we now have a very sort of time tested, weathered, battered acquisition strategy, which has evolved into something much more robust, which sets us up for perhaps it doesn’t leave us as much upside because we’re buying very strong stable assets. Yeah, maybe we can’t grow them, but by now, you should have got the message that that’s okay as long as you’re not buying businesses that are going to die.

I don’t think we’ve ever done something where we just destroyed a business through our own incompetence. It was mostly just we bought something and we were running it and something happened that was outside our control. We perhaps could have avoided it if we had, well, frankly, if we had avoided buying that business. So this is really why the Onfolio strategy exists as it does. It’s why we’ve evolved into a holding company. It’s why we’re going after audiences and customers rather than just generic traffic. It’s why we’re trying to build brands rather than websites. It’s why I have this philosophy.

Well, to be honest, I think this is a great place to end this miniseries. At the time of recording, I don’t intend to record anymore, but if something else pertinent comes up, I will. So if you’re seeing this and there’s more episodes listed in the series, then at the time of recording this, this was where I intended to stop. Because I think it really encapsulates everything we’re trying to do, which is buy businesses where we are the keepers of our own destiny and where people will be upset if our businesses suddenly vanished. As a result of that, their interest in the business preserves the longterm future of those businesses. So I’m Dom Wells, CEO of Onfolio. This has been our miniseries, all about what we do, some of the things we’ve learned, some of the things we’ve learned painfully, why we do everything and what we think about the future and how you can be involved. Yeah, thank you for listening. Thank you for your time.