Ep 223: Are Multiples Decreasing For Investors Who Are Buying An Online Business With Greg Elfrink?

Are we now in a buyer’s market? Are online businesses actually cheaper to buy? Hi, I am Jaryd Krause, host of the Buying Online Businesses podcast and today I am speaking with Greg Elfrink who is the director of Marketing at Empire Flippers. In this podcast episode, Greg and I talk about what most beginners do wrong when actually buying their first online business and how you can become an attractive buyer and buy businesses for less than your competitors wanted to buy those businesses.

We also talk about what actually happened with FBA aggregators and how and why they lost so much money but also were able to increase the multiples and prices of most online assets. We also talk about different types of online businesses Empire Flippers sell and then we move into talking about sellers, the people who want to sell their online business how they are not actually getting the prices that they used to be able to get to and why we would be moving into buyers’ market, something that Greg and I predicted back at the end of 2022. We also talk about multiples of businesses for the rest of the market, what that actually looks like and we then dive into some AI chats, talking about AI and affiliate marketing.

Is affiliate marketing doomed? Are we all doomed because of AI? I am not trying to fear selling you into anything. I am a big advocate of AI and so is Greg and we talk about why you should use AI? Also, how AI could look for our industry in 2-5 years and what should we actually be looking for and how we should shape our online businesses using AI? We also talk about how buying and selling online businesses could evolve in the future for the online MNA space? So there is so much value in this podcast episode, I am sure you will love it.

We also talk about because we talk about buying online businesses here, I also want to make sure that you don’t rush into buying online business, make sure you go away and get my due diligence framework, it’s what I use, all of my clients use to go away and buy businesses from Empire Flippers and other market places and brokers as well and it has helped people make millions of dollars just through use of this framework, so get that at www.buyingonlinebusinesses.com/freeresources. Now let’s dive in and talk to Greg.

Greg, welcome back.

Greg Elfrink:

Thank you my friend, it’s good to be back here. I am a big fan as always and it’s good to be back.

Jaryd Krause:

I checked the last time you were here and we chatted live or recorded something on the BOB channel was Episode 19 and we are up to about Episode 223 so we have done over 200 episodes by now.

Greg Elfrink:

It was before the beard.

Jaryd Krause:

Yeah it was pre beard and you have had 20 episodes to grow this awesome beard. The podcast was called the most valuable business to buy according to $50M of Data. It would have been 4-ish or 3-ish years ago and I think it’s when Empire Flippers started actually gathering or at least publishing the data of sold businesses and we broke that down which was great.

Greg Elfrink:

I didn’t know it was so long ago, I could have sworn I did this with you not even a few months ago but yeah time flies I guess.

Jaryd Krause:

Yeah, time absolutely flies. So this is just going to be a chat and I just wanted to record it because I knew a lot of value will come off it for everyone. So first thing that I wanted to chat with you about is obviously online businesses and beginners and where do you think most beginners go wrong when they think oh I am going to buy a business and they come to Empire Flippers and may be they have just found my stuff and they are like oh Jaryd said buying a business is good and we send them over to you guys.

Greg Elfrink:

Ahh stop sending us people. Usually your crowd is pretty good and new buyers, if they have been doing their research on YouTube and stuff like that it’s very common for a new buyer to fall into this trap and I call this Zero Money Down Trap, they see a guru and they say hello you can buy this business for no money down and all this stuff and well it’s true that you can do something like that, but it’s extremely unlikely that you will be able to do that at all with our businesses because their very asset light with nature being the online business but you can do no money down stuff and I am not saying that doesn’t exist but it just doesn’t exist in the way a buyer thinks.

It exists by over leveraging yourself, so basically taking out a massive loan to make this work. The reality of the deal is that it’s nowhere near as sexy as a new buyer initially thinks. Also it’s extremely hard to do those so don’t recommend trying. The other thing that new buyers make the mistakes on and this isn’t so much like a glaring error but it’s more like they don’t just know and that is asking the right questions and knowing what questions to ask.

So if you don’t know anything about backlinks for example like you don’t know enough about SEO to even know backlinks are important, you are not even going to ask about backlinks profile you don’t know what you are looking at like yeah that all looks good to me. That’s an extremely important part of SEO, like you need to know about this, about the distribution of inker tags, all that good stuff, right? So a big problem new buyers run into, probably the biggest problem they face no matter where they are coming from is just not knowing what questions to ask and that’s where people like you and me come in handy and we can help guide people, right?

Jaryd Krause:

Yes, spot on. We have specific questions against a particular business model and in our group, in our members area people ask what sort of other questions I should be asking. We just had an episode go live with somebody who had just bought a business like as a case study and I am talking about some of the questions I asked the sellers and people in that group are like hey can you send over those questions and they did and they shared the questions I asked the seller on seller’s calls and throughout just doing due diligence but I also came in with a caveat that hey look these questions may be really good questions but each question should be specific to each business because

a) you don’t want to waste the seller’s time asking irrelevant questions

b) you don’t want to be wasting your time and c) you don’t want to look like an unattractive website buyer by not knowing what questions to ask or what information to look for.

Greg Elfrink:

Yeah 100%. The way I usually describe it as having your due diligence checklist system is that I view it in multiple stages; the first stage is the quickest stage where you are just trying to disqualify a business as quickly as possible. Your 5 minute check could be like it must be an affiliate site, it must be 4 years old, it must be making this amount of profit, this amount of traffic across this many pages, so may be like 5-10 things like really quick to check off your list without even talking to the seller even just looking at the PNR and traffic signal like the information we provide on market place, it’s enough for your 5 minute check.

Then you go deeper and your second phase could still be very systemized. It's the same question for every business but this time it takes you maybe 30 minutes to go through it all or 30 minutes to an hour, still not too long. Your goal is still to disqualify the business because it’s easier to disqualify a perfect opportunity then try to make an okay opportunity into a perfect opportunity. So it’s really good to be strict with yourself but after this second phase that’s when I really recommend talking to the seller because at this stage you should have those unique questions that only the seller could really answer and that’s when you go into that kind of conversation and to your point you are right, you need to come equipped like be serious, show them that you have done your due diligence.

Like there is no lucky way to turn off that seller, you want that seller to be motivated to sell to you especially if they like you, most of the time a seller will take a lower offer to work with you versus someone with a higher offer that they like less so it’s all very, very important. You have got to show you are listening to the seller.

Jaryd Krause:

I am so glad you shared that because you said most of the time a seller will sell their business for lesser to work with someone who knows what they are doing because they are going to hand over their business to someone who has talks the talk, walks the walk and it’s going to be easier transition, they are going to be able to have a better relationship, it’s going to be far better experience for everybody so that’s why I even have a business, that’s what it’s all about.

Greg Elfrink:

I have only one thing to add on that, you don’t need to be an expert to succeed; you just need to be a nice person. You just need to be nice, you could be brand new and the seller would prefer to go with you for multiple reasons; 1) they like you because you are a nice person and 2) they want to help you out because you are new, they want you to succeed almost more than they want to succeed themselves. So you don’t have to be an expert to make that work you do have to show you are listening and paying attention to what the seller is talking about.

Jaryd Krause:

Correct. Most of our buyers who I teach people to become attractive buyers, which is to ask specific questions, focus on the relationship then the asset, not just the asset and forget that there is a person that you are buying it from, you need to win them as well.

Greg Elfrink:

Absolutely. I often joke with, because most buyers and sellers in our market place we get a fair share of new crop of people coming in all the time, but lots of our buyers and sellers are pretty established now a days, I just think it’s really funny because most of them have a pretty serious background in marketing especially at a higher level of business evaluate i ions but they always forget marketing 101 when it comes to buying and selling a business and they are like yes I am going to focus on top of funnel marketing I am going to understand the pain points of my audience and solve those points for my affiliate site or e-commerce business and the moment they go to sell that business, all that marketing knowledge they throw it into the trash can like they don’t care at all about the buyer’s pain points or buyer’s problems where this is the most important customer, your end of the entire marketing funnel right now.

Jaryd Krause:

That’s the end of the line.

Greg Elfrink:

Yeah, it’s the same for buyers too. They just throw away the business principles when they get the MNA.

Jaryd Krause:

I think it’s really because, do you think it’s because it’s so much emotion involved like oh I just want to make sure I do the right thing, I also want to make sure I sell for the right price or buy it for the right price, I don’t want to get ripped off like you think is that why their judgment is clouded by the emotion aspect of selling something that’s like been their baby for the last 5 years?

Greg Elfrink:

Yeah. So, as a marketer I can empirically say everything is based on emotion. Definitely yes, everything is emotional. Buying and selling businesses is especially emotional as it’s never easy even if the process is simple. We try to make it as simple as possible, but even with us there are tons of challenges that will come up. There are things that are amiss like things you didn’t think about like there are cold feet; there are angry feet because you got into a cat fight with the seller or something. So there are always problems when you are coming to sell or buy a business as even the simplest version of it, it’s challenging and that’s okay, that’s part of the deal.

I see emotions that range the gamut, higher end buyers during their aggregator craze for example, I had this one buyer who was an aggregators one of the guys who make millions and millions of dollars, he actually lost deals because of his own ego or he was so arrogant about everything like anytime a seller will get on a call, like most sellers were super bootstrap they are brutal 7 figure business, and he was worked in Business school, talking about spreadsheet math and how he won these awards and I was like dude none of that matters, you are trying to make a deal happen here, you are literally killing every chance you get. Funny enough that guy was a spreadsheet jock, but he was terrible at running an e-commerce store and he was one of the aggregators that I believe collapsed on in itself which is ironic.

Jaryd Krause:

How do you teach somebody who doesn’t want to learn? Like I learned from people in my business that work with me that everybody just from editors to contents, links, everything, this hierarchy shouldn’t be a hierarchy, I don’t believe it in terms of learning and becoming better.

Greg Elfrink:

That one is true for constant learning, to that one I agree.

Jaryd Krause:

And just for people listening, when you say the aggregator phase for people listening, Greg’s I am presuming you mean FBA, consumer by Amazon, people were basically aggregating those businesses.

Greg Elfrink:

It’s a classic MNA roll up for FBA.

Jaryd Krause:

Yeah, Basically, through 2021 to the end of 2022, right?

Greg Elfrink:

I would say the season was more from 2020 to 2021 but 2022 was when everyone started bleeding and dying. That was the slow stagnation to the doom where they realize that we were very good at the MNA part of it; we are not so good at running the business part of it.

Jaryd Krause:

I remember mid-2021 I went to a big Flipper event and there was a guy there from Sydney and they were aggregators and the amount of money that they were spending and willing to buy business. And they wanted to get me on board and it was insane the amount of money was being thrown around; it’s insane how many people got burnt through that. Do you want to speak to that a little bit and the rise and fall of that?

Greg Elfrink:

Oh sure, weirdly enough they were our best customer on the buyer’s side for obvious reasons as they are buying big businesses but they were also my competitors and they ha really smart dudes like in the marketing team, it was hard to compete with them especially when they like I can’t compete against them when they are giving away a Tesla if you sell your business with them like this is impossible for me.

My income based on selling businesses is finite and theirs is potentially infinite especially if they are able to grow the business like they end up owning the businesses. But the rise of aggregators like we knew it’s going to happen in some shape and form, we didn’t know what business model we just knew it will happen in the online business world so it happened with FBA; the first one was Thrasio, I am still good friends with some of the founders at Thrasio but to give you a spoiler warning the corporate board at Thrasio basically kicked the founders out so they are not even part of their own company that they built now and that is a million dollar company and I know another billion dollar company that’s not too dissimilar from this situation now.

So what happened was Thrasio rose up, they started buying all this up, making all this hype other PE guys were like that sounds really cool because what they were doing was really unique and innovative, Thrasio’s original founding team at least were a lot fewer and amazingly talented e-commerce people, they weren’t just PE people they actually ran e-commerce and they were agency owners for e-commerce clients and they knew what they were doing, so they came in and started buying all these FBA business for low multiples back then and fast forward we see other people started to come in the space back in 2019 wanting to get involved and then boom COVID happens and everything shuts off and now everyone’s moving online because there were no other place to go as you can’t even go outside your home back then, so what ends up happening is all the other PE firms who normally would invest in a lot less risky things like stocks and real estate, they started investing into these alternate assets too because they want to get in on the same hype as Thrasio’s on.

This creates a whole hype train, a virtuous cycle where we even have real estate developers and real estate investors like commercial people get out of their commercial real estate and buying FBA businesses because they got so sold on the aggregator hype, and the aggregators were using Thrasio and Perch who raised enough money to be both worth a billion dollars, I think Perch was worth a billion as well. This created a massive hype storm and I remember realizing this is the fall and I remember realizing this in late 2021 or it was middle of 2021 when this happened, I was listening to a call and one of the buyers looking to buy a business they asked that if Thrasio had made an offer and of course we didn’t want to tell them that or that there were other offers but sellers are like yeah Thrasio made an offer and so the person was like good enough for me.

Their entire due diligence was based on whether or not another aggregator that they knew made an offer and there was no other research that they did and in my mind I am like this is crazy, this is a 3 million dollar business and it’s not the biggest thing in the world, for us it’s quite big. Your due diligence is based on you trying to copy your competitor, this isn’t good.

Jaryd Krause:

That’s ego, that’s just ego.

Greg Elfrink:

Yeah, it was good enough for them, good enough for me type of mentality so it’s like swamp land in Florida and like let’s see who gets scammed first and it all comes crashing down. So after COVID started winding down in 2022, we saw a few different things happen; suddenly online traffic got 30% less to what it was, still it was much higher than it was pre pandemic but there was a significant drop as people started going outside and amazon saw the most critical loss of traffic out of all the internet properties which obviously effects FBA dramatically. So you see that and you also see things like the Ukraine and Russia war which ironically I was selling people supply chain will probably get back to normal barring any other black swan event and boom war, who would have thought, this is just a decade of black swan events.

That creates all this fear in the market especially in the public market and you see in the public markets like stock market you see perceptible dips like cliffs always in the private market it’s ten times worse, the private market doesn’t have people like internet meme bros that keep stocks alive by investing in game stuff like private capital doesn’t work that way it’s just much more rigid.

Public markets get hit but private markets get hit harder, all the aggregators they were loaded up on debts from these private markets, now roosters are coming home like what is going on and the realization that they are not good at running the e-commerce businesses like the vast majority of FBA businesses that these guys had bought had either stayed the same or doing marginally worse or incredibly worse, very few of them actually gain money.

Now Thrasio, they did really good but they were actually e-commerce people, most of these other guys were PE people which is the major issue for failing that’s the unwinding of it all; hype train, too much debt, not knowing what they were doing made them fragile, economy gets punched in the stomach and I am like well I guess we are going under.

Jaryd Krause:

It was so wild to see. I remember speaking to even sites from your business Empire Flippers and some other places come across our desk when we were reviewing these before people buy them, looking at the multiples of FBA businesses compared top content sites I am like how and these people, a lot of people coming to me Jaryd I want to buy an FBA business FBA is the way to go and I am like have you owned any online business ever in your life before and they are like no, the FBA is the way to go and I want to buy an e-commerce business FBA and the multiples are sky high compared to a content site like creeping up towards some good SAAS and membership type multiples and it was wild to see that people got lured into it. It was only a matter of time when people buy e-commerce businesses and they don’t know what they are doing; typically those business models are the most fraught with a lot of work that needs to go into them for them to work and also profit margins are quite low compared to say blogs and other types of businesses so it’s a very slippery slope.

Greg Elfrink:

I think the growth potential in an e-commerce store is better than affiliate site and when I say an e-commerce store I mean DDC not Amazon and FBA, I think Amazon, FBA is great training wheels but it also handicaps you if e-commerce is the thing that you want to do but I am a fan of affiliate sites like you, affiliate sites are easier to understand and it’s a very simple business model and there’s only a few things you need to work on to make it happen.

Jaryd Krause:

I agree with you on the e-commerce businesses that are off Amazon, you can scale them a lot quicker typically and I want to explain why to everybody listening, it’s typically if they have marketing campaigns that are working and you can put more money into marketing and it’s like jet fuel and they scale a lot quicker. Obviously I am not telling people to go and do that unless they understand digital marketing and understand how to run one of those e-commerce businesses.

Greg Elfrink:

Scaling comes with its own set of death traps if you don’t know what you are doing.

Jaryd Krause:

Well what I always see with scale in my business and other people’s businesses is we get the scale and then you have to reorganize system and team and you get to a level that you only go so fast and then parts of the business or vehicle break down and then you tie them up and then get other people involved to make sure that those pieces don’t fall apart in that business.

Greg Elfrink:

Yeah you scale to inadequacy and you have to stop because if you keep scaling in spite of the inadequacy the small problems only become gaping holes that will destroy your business so you have got to change the system as things change.

Jaryd Krause:

Yeah, re-invent. Its work I am talking to somebody with content site helping them grow the content site, and what the person did to the level they are at and I am pretty sure they bought it from you guys; they got the content site I don’t know say 4 grand a month and I think they have got 400-500 posts or something like that but what got them to that level is not going to get them to 5K-10K.

It’s going to be a different strategy typically and that is something that a lot of people that buy businesses don’t understand that it’s not just continual volume of content and just buying links it is a lot more of different types of business strategies that are unique to the businesses as well, even affiliate sites and content sites. I wanted to chat about what sort of businesses you guys sell more of at Empire Flippers these days, you know through from 2022 up until now in 2023?

Greg Elfrink:

So I would say in 2022 we were still selling probably predominantly amazon FBA and as 2022 came to an end we sold less and less of those so now we sell very few FBA businesses, like we still have them and we are still selling them but I would say pendulum has swung back to affiliate sites as our predominant site because a giant cohort of our customer base just died, the aggregators there are literally none left anymore and that obviously sent ripples of fear in throughout anyone who wanted to buy a FBA business like oh my God this billion dollar company died.

How can I buy an FBA business? If you are paying attention you are probably in a better condition as you probably understand e-commerce better than these guys so just keep that in mind. So there is still plenty of money to be made in FBA so don’t let their billion dollar mistake stop you from creating your own wealth if that’s what you want to do. But in terms of our marketplace affiliate sites and content sites in general are really big. I would on content sites display ads in particular that are really big right now.

I think part of that is the hangover of just physical supply chain it’s because a lot of affiliate products are physical products that you are promoting right and I think there is a certain level of passivity and hands off kind of style of monetization with ads and I am a big fan of display ads at scale. I think a content site at scale will make more money with display ads then with an affiliate and it allows you to go after all the super low hanging keywords that are the informational articles like why are castles grey, you know you are not selling anything there that might have a display ad that someone can click but yes that’s what we are seeing.

Also we saw an uptick in kindle businesses so these tend to be like modern day publishing houses and we have always sold them but this year in particular we sold quite a few big ones and I think it’s so strange this is like the weirdest business model we sell. We almost never talk about it but we have sold several million dollars of worth of these businesses that are like you know though I have a pen name, ghost name of an author who is writing random romance novels, sci-fi novels or low content books and it’s whole modern day publishing house which I find so intriguing but yeah that’s basically where the market is at the moment.

Jaryd Krause:

I remember seeing a lot more of those on your marketplace like 2018, 2019.

Greg Elfrink:

I would say that was the Heyday of that business model. That's when they came online, Amazon FBA not too far before that. Amazon FBA came on the market in 2017 that’s when that hustle started getting really big.

Jaryd Krause:

I like the digital products selling those books on Amazon. One thing that I typically tell people to check is that if they are going to buy those types of businesses having a single source dependency on maybe one book, having most of the revenue and making sure that you maintain that listing.

Greg Elfrink:

Actually I would always recommend that the book should be related to each other enough to where you build an email list because like playing on someone else’s platform is a dangerous thing because you never know what is amazon going to do and there is so many tools now like if you want to sell digital books, you can even sell some on a DTC store selling your own novels and e-books directly and cutout amazon completely nowadays, there’s plenty of tools to do it but yeah if you are prepare to buy one you better build an email list don’t be platform dependent.

Jaryd Krause:

Such a good piece of advice Greg, I typically when people say, when I ask people that do they own a business and they say yeah I own an amazon business, I believe they don’t actually own the business, amazon actually owns the business and they are using their platform as a channel, it’s like yeah I own a Facebook business and you sell your products on Facebook well Facebook can take your page away at any time.

Greg Elfrink:

This is why I am a big fan of let’s say Shopify stores over amazon and I get asked this question many times like which one is easier and my answer is amazon FBA is definitely easier one but if you want to make crazy good money you should go the shopify route if you have a shopify store that has a funnel that’s converting and is profitable it’s not that hard to put that product on amazon and get a halo effect of it like if you are running an ad to your shopify store for a mic and people really like that mic but then they forget what was your stores name and they type in amazon for that type of mic and they see your mic come up and they are like that’s the one, your ad convertalized and it contributed, true you cannot know that that’s the reason it happened but that’s the halo effect and if this was the other way around; if you were selling this just as an amazon product you have no bottom of funnel data, you can’t know what is working at the time even when you are using Amazon ask because they don’t give you all the information so if you tried to make this into a shopify store, it is way significantly harder to make that campaign work then you would expect. And you have priced this to be competitive on Amazon not prices to be competitive on a Pete’s funnel that would convert so your chances of failure are way, way higher going from an Amazon FBA to shopify then if it was the other way around.

Jaryd Krause:

It is very hard to take something from Amazon to shopify or whatever e-commerce. It is far harder and I have helped people do both and it’s been rough. I have got one client that we helped him scale his business significantly and he started off in Amazon FBA and he does 8 figures and we took it off Amazon and he makes more profit margin off Amazon and then he moved it from a Shopify business to a global market and also started to then look at affiliates and he then got set up with big affiliate programs that run his affiliate campaigns so he is selling in stores in Europe and England and stuff like that.

It’s a medical device and has got approval from FDA and stuff like that and when people see something in a store or see something on an affiliate, then they can still go back not only to the shopify store but also to the amazon store and are like oh cool it’s the same product from amazon and you get the halo effect from multiple channels. That’s a really cool way to scale.

Greg Elfrink:

A 100% and what he is doing there by the way that’s the reason why like even if you are into affiliate you should eventually look into e-commerce like you run an affiliate site that’s a great testing bed on what kind of product you should buy like look if you are just doing amazon affiliate you see what’s the most common thing my audience is buying and build an email list of those people and then launch your own version of that and that is one of the softest way to enter e-commerce and then you can do the stuff that he is doing which he owns all the bottom of funnel data which is where the real money is.

Jaryd Krause: Yeah exactly. So what about some other differences, we have gone through your FBA and you are also selling content sites, SAAS and membership businesses as well, what about newsletters and YouTube channels, these different types of businesses are the online businesses, right? What other unique ones and how often do you sell those unique types of businesses?

Greg Elfrink:

So we don’t sell many YouTube channels which is a real shame because we definitely would love to as long as they are not personality branded if they are more like faceless YouTube channels where it’s easy to put someone else in place, it’s like we love those, we sold one for a client I think she bought it for $30,000 or something like that and it was a very small YouTube channel and now it makes $30,000 a month like it makes the same amount every month that it was bought for. I love it. I mean mostly my friends in affiliate space add on a YouTube channel as an afterthought and now most of them before they start a new site will start a YouTube channel first to see if it works because it is so much easier to get traffic in their view, so that’s one.

We do sell info product businesses it’s like your traditional like course that might be worth $200-$700 or whatever usually not making money online space but what we found is in making money online space things so often that the owner does need to be an expert or they just stop updating the course completely and the course loses all its validity but in other spaces like certain engineering exams, architecture exams stuff like that, those are really good niches because one they are really boring.

No one wants to get into them but there are tons of people who need that information and it doesn’t change that often so you rarely need to update anything and it's not that big of a hassle like go and hire an architectural student to update the course for you or professor whatever its relatively straightforward so those info courses are really, really good. It’s been a hot minute since we sold any mobile apps but mobile apps are also quite intriguing as long as that you are building a list because you are playing on Apple or Androids platform in that case, and there is always a platform you are playing on so the most common advice I give is build your own email list.

Jaryd Krause:

Yeah, definitely own your list otherwise you don’t own the business. We helped somebody buy an Instagram account once and they used that as a lead flow into a business they already had so they plugged it in the primary business they already had. It was a really good channel for them. I love what you are talking about with YouTube affiliates and content site owners starting up a YouTube channel.

What I see is those businesses that are content businesses or any sort of websites that has a YouTube channel alongside it, is that traffic when you look at it in Google analytics 4, that traffic that comes from a video is the highest engagement rate and typically is that’s where you are going to get your best ad revenue and the highest intend as well for affiliate too they are closer to buying like they have watched a video of may be an unboxing or a video about a certain product or two different products and they are ready to buy as soon as they come from YouTube to your site.

Greg Elfrink:

We started YouTube two years ago and we got more serious about it, the sheer I handed off the reins to one of my content specialist who was supposed to take over from me, our view counts are low like it is not uncommon for a video to get like 100-120 views, some will get around 600 and some we would really knock out of the park and get a 1000 views which is super rare but if you look at the views at our channel and compare us to Mr. Bean it’s like we are a complete failure, those guys are pathetic and they are awful at it.

Jaryd Krause: But there is a huge difference there. It's like you might have a small channel but you are in a very different niche where the money is so good with a small channel in this niche.

Greg Elfrink:

That’s exactly what I was trying to say you are building out a YouTube channel and it is getting smaller number of views, do not fret because these guys convert and over time it will become one of your best traffic asset, for us it’s our third best performing channel now and yeah even if we have such low channel views we made millions of dollars off of this thing so you can’t ask for a better return on the spend its just as good if not better than SEO in some case.

Jaryd Krause:

Like surely Empire Flippers’ main channel is the blog because that thing is an absolute beast, I have done the absolute opposite right? With BOB, I went hard on the video content and YouTube and then slowly I started to get into SEO and I haven’t done SEO like literally I hadn’t done any SEO on my site until 2023.

Greg Elfrink:

Wow that surprises me with all your knowledge of affiliate and SEO I would have thought that would have been the mainstay for you.

Jaryd Krause:

Yeah, it wasn’t. Blogging is, I just didn’t really in this space I guess I went into a pool where there wasn’t a lot of people looking to buy a business especially on YouTube and I got lucky to sort of carve out that sort of space and own a chunk of that sort of market domain on YouTube and you guys paved the way with blogging and now I am like maybe I should do something like that and go down that path.

Greg Elfrink:

Oh yeah it was a good move, because you were attacking the blue ocean versus the red ocean with us and other guys blogging and we were podcasting too but I don’t think anyone was doing any videos like us going on to YouTube, I guess we were the first brokers on YouTube which we absolutely weren’t, there were other ones on there but like one of my competitors had 27 subscribers and like 80 videos and none of them ha above 30 views and I was like wow the bar is set pretty low.

Jaryd Krause:

Yeah, it was set very low.

Greg Elfrink:

It is still very low, I think it’s basically us, you and there is one other person that talks about Buying Online Business as some modicum of success but there is no like huge breakout channel and everyone else is doing pretty bad, there is one channel there shorts were even low, 8 views on a short and I am like wow that’s bad, I didn’t know that you can get those kind of views for shorts.

Jaryd Krause:

Setting new low records.

Greg Elfrink:

Yeah, that makes me feel better because Nick and I, Nick is the man running our YouTube channel so we are like man you know we are missing something, which we are but we don’t know, there is something that we aren’t doing right and we are trying to figure it out but when we look at other channels it makes us feel better, at least we are doing better than them.

Jaryd Krause:

I have got some more questions that I want to come back to regarding Empire Flipper business and stuff like that and multiples and what not trends, but speaking of YouTube channels guys please go and check out Empire Flippers YouTube channel, it has done a great job in fact there was a video that you put out it wasn’t that long ago about AI, “Did AI just kill affiliate marketing” I want to talk about a little bit more about that affiliate marketing and AI and what AI could possibly do?

Greg Elfrink:

Yeah, so I am super into AI and I am embracing the robot overlords but there is all this hype in this space like SEO’s are a bit of drama queen it's like the most dramatic form of marketers of any marketing team and I have been in a bunch of big Media groups and stuff like that, no one is as dramatic as the SEOs so like everyone is talking about SEO is dead which is like what you and I both have heard over the years many many times but they are like no this time it's serious because its AI and Google is dead and Google is going to die overnight.

So I started looking into it and started using AI a lot in our own processes and like this is amazing and AI is good enough as is to blow away low end writers right away, no doubt about it. You just don’t need someone who is super skilled to give up plumbing in Perth, you just need someone competent because nobody is reading that article, right? Like they go to the plumbers website just to click on call us now button so I started looking into it deeper and then we lost 300 I think it was $300,000 site I keep forgetting the number but we lost that deal because the buyer backed out because they bought into the hype that Google was going to die because of ChatGPT and OpenAI and I was like okay this is getting a bit ridiculous and people at once were over rating and underwriting AI, underrating in the sense that I noticed a bunch of people say that Google will never allow AI like what do you mean of course they will allow it, they probably will spend more money building an AI then ChatGPT.

Jaryd Krause:

I said that at the very start to the others and now I am like okay this can’t be ignored.

Greg Elfrink:

Yeah, like it doesn’t make sense for Google to punish AI, maybe they would but it seems so counterintuitive with what their mission is. I never believed that they were going to punish AI but then there was that writers were like oh it doesn’t have the human touch but you don’t need that for most things you are reviewing.

If I am reviewing this microphone then it doesn’t have to be Ernest Hemingway level of lyrics sinking into their heart. And I am saying this as a writer like I write poetry and novels and I am a big fan of literature but I see the writing on the wall so there is that sort of underrating and then there is overrating that Google is going to die so I decided to dive very, very deep into this, the research and all the numbers and that kind of stuff and the ToDR is if Google actually did switch over to ChatGPT style of search, or Google did die as we know it at least Google will literally bankrupt their entire business because the cost involved is so dramatic.

For example, OpenAI that people who built ChatGPT the entire development cost of laborious labor, the GPA server farms and everything all the coding that they did and the cost to make something as revolutionary as ChatGPT that entire cost is eclipsed in one week of people using ChatGPT, the token burns of just using it as current user base is more in one week than the entire cost of making the thing.

That’s wild so I forget the exact numbers but the cost of search, the google search is 0.000005 sets so a fraction of a fraction of a fraction of a set so when you do a search using LLM language and learning model, its like 5 or 6 times more expensive so just that alone will increase Google’s OpEx by a hundred billions dollar that is wildly costly and then you have to factor in that okay all their GDN network; Google’s Display Networks which does include YouTube so it’s hard to understand the separation but it’s not just YouTube ads, it’s all the people using AdSense on their websites and if they put ChatGPT in there, if they took it over or something akin to that they would overnight destroy 2 million publisher websites who get a lot of their profit from Google, Google will destroy their own profit centers themselves. That’s about 19 billion dollars that they would lose right out of the gate.

Then there are also their search ads, the actual when you type in Google at the top search bar like no one knows how to monetize such AI chats so we assumed that they would also be destroyed or at least severely wounded. So right here we are looking at the roughly a 39 billion dollars of additional cost of Google for doing these two things and that’s just advertising game, that doesn’t include language learning model cost of each search that would happen which would be significant because they would be in Google market share so when you add that in Google would be making negative 9 billion dollars a year which is not great, so they would absolutely destroy themselves.

So in the article I go through this whole thing with actual numbers that I researched and I think if something untoward was to happen it would probably be Bing as Bing has a lot less to lose than Google and it makes up about only 5% of the Microsoft’s revenue versus Google makes up probably 99% alphabet’s revenue so Microsoft could be like CEO actually did say that he said that he wants Google to come out and dance, like he actually wants put the fire at their feet, right?

So he is going aggressive and what he could do is turn Bing into a history’s largest loss leader in the world where he just absolutely destroys Bing’s revenue by making LLM and just totally destroying Google and forcing them to compete and making Google’s profit margins thinner and thinner with no real goal of actually having Microsoft replace Google like that battle would never happen and I think it would never be won but it can seriously wound Google if it won’t mind causing some self-affliction upon itself, I think they are okay with that because any new market share with Bing it can be used to upsell other Microsoft products. So that’s kind of the landscape and I think nothing would change within the next five years.

People think that everything is going to change today, no they won’t, in 5 years there will be significant changes and most likely it will go through a transition similar to back when we had the yellow pages and transition to search engines. Search engines accomplish the exact same thing as yellow pages but it is in a completely different media and I think once we figure out how AI works it will be very similar like search would go away completely and there would be replaces of a new rendition that does the same thing and there is going to be an opportunities for us there too.

Jaryd Krause:

Yeah, so grateful for your breakdown there and so glad that you said that it's not going to happen these three months, four months and five months.

Greg Elfrink:

Like I said in the article if everything went perfectly maybe this is going to happen in two years because certain Bing’s AI is having existential breakdown and telling people to divorce their wives. We can already see this is not going as well as they thought it's going to go.

Jaryd Krause:

Yeah, I mean you have got these big million dollar companies that haven’t just come out and just flat out opened an AI and Google could be I dare say these big billion dollar companies have some cards up their sleeves; they have got the resources so the landscape can change massively. Greg Elfrink:

Google in my view has a much better AI than OpenAI, the reason why Bard is doing worse than Bing and ChatGPT is, Bing and ChatGPT are the same thing, but Google didn’t want it to go public because it wasn’t ready in their eyes. They never trained their model for public consumption, that’s why Bard fell flat on its face. I don’t know this for sure but my guess is Google’s AI is significantly stronger than OpenAIs.

Jaryd Krause:

Yeah, they have so much data, so much resources and I get tools sent to me, AI tools sent to me so regularly and it’s cool to see that there is a possibility that you can start using these tools but I don’t know which one to actually go with yet because I might learn one and put it into system in my business and then in a year's time something else could be a lot better and I am already locked in with the stickiness of SOPs of team and training in one thing so I have been admittedly quite, I am learning about it but I have been slow to add it into my business because not that I am ignoring it completely.

I just feel like in the next 2-5 years then we are going to start seeing the real opportunities. I think we have just started to peel back the curtains slightly with this AI stuff and I think eventually over time that’s where the amazing opportunities are going to be. What do you think about that?

Greg Elfrink:

Yeah, it’s hard to stay abreast of everything so I joke that the first job and companies that AI is going to kill is the previous AI companies so there’s like Jasper or Jarvis, I think they go by Jasper now, they have changed their name so many times but they were the hard shit because they sponsored the Inbound and Boston and I mean that’s not cheap, that’s the hub’s that were found, I was there for it and I was shocked that oh my these guys are doing really well but if you look at all these AI companies, almost a 100% of them are OpenAI companies because they are all using OpenAI’s API to make it happen, they just built the model base on top of that.

So I have a friend Matt Zimmerman, he came out with Zimmwriter and Zimmwriter is a way better version of Jasper like the UI is really shit, it’s very conky and it's not great but you are not paying for it, you are paying for the results, right? And it lives on site on your computer so instead of being cloud based it’s a desktop app that you have that plugs into your own OpenAI API so Jasper, the way they make their money is significantly charge an upsell on OpenAI tokens that you are burning through their API accounts versus Zimmwriter you pay a lifetime or very small monthly fee and you burn as many tokens of your own as you want and it's way cheaper like a 5000 word blog post only cost me 20 cents like on Jasper that would have been much more expensive.

So that’s why I am joking like the new AI companies will kill the previous AI companies especially now that everyone realizes that all the AI companies are just like OpenAI API but yes the answer to your question to staying abreast of those, I just interviewed the one of the leaders for marketing for AI institutes and he gave a really good advice, he said you should get on Twitter and create some Twitter list of people that are talking about AI you should use a brand mentioning software like mention.com or petematrix.com whatever you like to use and put in all the AI tags you can find, just to stay abreast of it as everything changes so quickly.

So that article that I broke down about AI killing affiliate marketing, one of my friends really wanted to know what I had to say about it and he decided to deep fake me by taking 1 minutes to 2 minutes of me speaking on YouTube and throwing it in 11labs and he was like you know what this needs some visuals and he threw it into Pictory and throw together charts, graphs and imagery with a background music so now there is a fake version of me reading 5000 words blogpost and to him it took him less than 5 minutes to do, so these are tools that are really, really powerful tools and as an affiliate site owner you can literally throw your blogpost in ElevenLabs, they have the best synthetic voices out there or you can just deep fake yourself and throw it into Pictory and it will make the entire video for you. And it isn’t going to be like Die Hard or some Oscar nominated video, no it doesn’t have to be to work and be successful.

Jaryd Krause:

And that’s just now, I mean I remember and this is what a month or two ago, I saw that on Facebook and I am friends with you on Facebook and I saw that you added this with hey my friend just created a deep fake video of me reading an article.

Greg Elfrink:

Yeah, because I thought it was so funny.

Jaryd Krause:

And that’s just now, right? It’s going to be very different in 2-3 years’ time. The landscape and I think a lot of people are freaking out now about it. I think the real good stuff is yet to come.

Greg Elfrink:

Oh yeah, I mean right now we can’t do what we are doing right now, we couldn’t make a video of an actual person talking like this without tons of CGI effects but I bet down the road with AI that you can record 20 minutes of you talking with body language and all that kind of stuff and you can just create endless videos of yourself of doing that way.

I would say I would recommend using, for you and your audience I would recommend deep diving into AI tools today because there is a golden window that allows us 18 months or maybe 16 months where not everyone is utilizing AI and you can destroy the competition. So for example I am deep faking myself for the team, I was going to have Nick do it for the YouTube channel but he was uncomfortable so I was like Nick, you know you have already done enough videos I can just deep fake you but I won’t force you into it.

So I am deep faking myself to where my team can have me say anything for shorts and now we can basically use ChatGPT, our own MNA knowledge and strategy of the content that we know is working and if I wanted to I can produce a 100 shorts a day without me actually having to record anything and you just put it on a background and picture or something like that it does all of it for you so it’s a Golden window of opportunity for people to really, really double down on it and it won’t be around forever because like you said eventually everyone is going to catch on and you are going to be back on equilibrium point. So I would recommend anyone listening to go hard in AI now and figure out how to use it and really double down on it.

Jaryd Krause:

Love it, love it. Now coming back to Online Businesses and Empire flippers, what trends do you see like data on businesses sold, multiples, how fast are they selling, how slow they are selling and what’s the landscape being like lately compared to what it has been like?

Greg Elfrink:

Sure, so in 2020 and 2021 we called it the season of seller and seller had the best time ever and best life ever, nowadays the seller is having a very bad time, they are not having nearly as good a time. Their choices are much more limited on who they can sell to and they have to take deals they would have never thought to take back in 2020, 2021.

Though it was 2019, they would still think it’s a good deal but recently buyers with all the fall out in the private equity market, capital markets and all that kind of stuff like the amount of buyers just do not exist at the same level as it did before and not even the same number. Like there is still buyers but they are afraid to deploy capital because a buyer can buy in a bad market or in a good market and make it a good deal but what buyers are afraid of the most is the uncertainty of the market and I feel like right now as the elongated uncertainty of what is actually happening and that paralyzes capital, capital doesn’t like uncertainty, it likes to know what it’s doing. So that creates a vacuum of no buyers and sellers. There are still deals getting done but it’s just much harder so this is really good news for your crowd when it’s bad for sellers, it’s usually good for buyers.

So because there is less competition, sellers are willing to take offers they would accept before and what we are seeing is between 10-20% lower than our list price where a lot of deals are starting to happen and this is after rigorous renegotiations and all that kind of stuff, back and forth so like you don’t go in and then are like that’s 20% less than list price, easy I will just do that with every offer, you have to fight for it, right? Because seller expectations are still living in 2020 or 2021 not in 2023 so it's an adjustment where the seller has to come to terms with reality.

So what I think will happen over the next few months is you will see the multiples slowly start dropping on our marketplaces and that’s something I have been predicting for months nothing new. I should have thought it would have already happened by now.

Jaryd Krause:

I thought it would start happening at the end of 2022 and it started to happen around February 2023 for what I have noticed anyway.

Greg Elfrink:

I think you are going to notice a more significant drop like when it comes to these drops, it’s not like the stock price you know it falls down the cliff and Wall Street bets can get in on it, usually it’s like much slower and kind of like real estate in the sense that we lagging in the catcher of the asset value because when real estate drops usually something bad happened once before that drop and real estate is catching up on that but I think the valuations are going to go down, right now it’s great for buyers if your good at negotiating but keep in mind seller expectations are unrealistic because they are still high on the 2020-2021 party that is now over.

Jaryd Krause:

Yeah, I saw a deal just yesterday, I am going through it and reviewing the due diligence and I am looking at this deal and I didn’t know the price of it until I got closer to the bottom and I am like wow this is like a lot of good Metrics here and this business is looking good and it’s going for around 42-45 multiple and it hadn’t sold yet and it was at 31.5 multiple and it was a great deal and I am usually very pessimistic about deals and I try to tell people not to buy that. My main job is to show people what I like to do.

I like to prove that a business is a bad investment and if you can’t, you must buy it. And in this one I was just sitting there and I was like I can’t just say no to you not buying this and it’s a good deal, obviously understand the risks and if you’re good with it, go forward and do it. But that was just very eye opening for me and I believe that as the economy has a bit to do with it too which is what I came out with my predictions in last year and with interest rates topping up cash flow, people having to spend more to pay their home loans and their good debts and bad debts and some people are needing to sell their businesses for a lesser price than what they would ideally want to and I am starting to see some buyers really get some absolute deals.

Greg Elfrink:

Yeah, a 100% and for the sellers out there, they feel diminished by this but I get it and multiples are higher than what they were in 2019 by a significant amount so at least they weren’t selling in 2019 which wasn’t a buyer’s or a seller’s market even, I think it was even more of a buyers’ market back then because multiples being lower like multiples were significantly lower in 2019 and 2018 than they are today so you still have plenty of opportunity to make the life changing exit, you know what I mean. Yea it’s the same as 2020 and 2021 but a few million dollars in your pocket and you will be still smiling.

Jaryd Krause:

Definitely. We need to sort of make sure that people understand that online business market doesn’t follow and parallel crypto, stocks and ETFs and what not I say it like you just said as well it’s kind of like a real estate market its way slower moving and the drops or the little kickbacks are not as significant if you look at the overall trend it’s a very fair over from 2005 to 2025 it’s a very steady line increasing without too many troughs.

Greg Elfrink:

I was going to say that your opportunity to monetize is so much better than real estate, real estate is less risky and more stable but you know you can’t double your rent in a year unless you want to get into a lawsuit. Don’t try to do that but you can double your affiliate site income within a year and that’s completely reasonable in the realm of digital marketing like going from $2000-$4000 a month often it's not that crazy of a job usually it's easier than going from 0-1000 dollars a month I can tell you.

Jaryd Krause:

It is. 0-1000 is a tough gig and I have been there but when you have got resources and time and can make strategic moves it’s a lot easier. Last thing I want talk to you about Greg is buying and selling online businesses and Empire Flipper has evolved a lot since I got into this game and started buying businesses from you guys and since I started teaching, you guys have made some cool changes, where do you see like in terms of asking for proof of funds, your marketplace has changed a lot, how you go through a deal 0 to hero, start to end with the seller and with the buyer so many cool things you guys are putting in place, how do you see the MNA and the buying and selling of businesses evolving, can you see some cool things coming down the line?

Greg Elfrink:

Yeah, I think there is no major changes to the stuff there we just keep on improving on the processes and our custom platform has been huge on that front and I think one thing that is quite big and it is unforeseen and I don’t know what kind of changes but I have some ideas but I don’t want to talk about it yet as it won't be a surprise if we do it but one of the things that has always somewhat bothered me was we lean into being a broker versus an MNA marketplace but the actual audience views us as a marketplace, like you just said marketplace, versus if I was one of my competitors.

I would have used the word broker and I have always leaned into trying to tell people no we are really a broker with a marketplace, we are just white gloved service and all of that. White glove and this is a hot take and people don’t like it sometimes but I think white glove is stupid and when somebody say that they want a white gloved service they don’t know what they are talking about, everyone wants an assembly line, no matter what, they want something that works is predictable and the outcome is guaranteed or at least certain what it would be versus white glove is like I am telling you I don’t know what the assembly line looks like but I am going to feed you some chocolate and feed you some whisky and we will see what happens.

Jaryd Krause:

You are being very vulnerable and opening yourself up to a lot right?

Greg Elfrink:

This bespoke kind of a thing is I don’t think it really exist and I don’t think people would really want it so we are an assembly line with a veneer of a white glove service like we treat our customer very, very well but we are not truly bespoke like that so one of the things that’s interesting and this is one of the conversation I had with probably the founders and management team recently and so far seem to be interested in what I am seeing instead of leaning in being more a broker we have learnt more into being a market place because we have invested so much into technology with our engineering staff and all that kind of stuff that I am like what are we and that’s where the asset is for the business.

I think in the future we are going to be unleashing a lot more marketplace features, capabilities that are going to help expand our footprint across the industry and ideally if I have it my way it just won’t be helpful to us it could even be helpful to our competitors thinking about how we roll it out. So that’s my tease for us learning and growing our market structure and it is going to be a big, big thing over the next year or two.

Jaryd Krause:

I love it and that is a good note to finish on, guys stay tuned for those changes and how buying and selling a business is going to evolve. I am excited to see that. I just want to say thank you for all that you guys do at Empire Flippers and it's awesome to watch your evolution and be in the sense of being able to buy people some businesses and thanks so much for coming on Greg.

Greg Elfrink:

Thanks Jaryd, always a pleasure man.

Jaryd Krause:

We will put links to Empire Flippers in the show notes and also the previous episode that we did 200 episodes ago Greg.

Greg Elfrink:

You can see the non-beard me and bearded me and tell me which one you like? Fat, regular, broke Greg or thin and nervous Greg?

Jaryd Krause:

I have only got a headshot of you with no beard so if you want a headshot with a beard you will have to send that over.

Greg Elfrink:

I will send over my speaker picture.

Jaryd Krause:

Perfect. Okay thanks a lot Greg.