Ep 182: The Due Diligence Mindset You Need When Buying An Online Business with Dave Rodenbaugh

Jaryd Krause:

If you want to buy business or even just earn income online, this could be the most important podcast episode of ours you will listen to. Hi, I am Jaryd Krause, I am the host of the Buying Online Businesses Podcast and today I am speaking with Dave Rodenbaugh who is the founder of www.recapture.io which is an abandoned cart SMS and email marketing service for World Commerce, BigCommerce, Shopify, Magneto, Easy Digital Download and a bunch more stores. This was founded in 2015 and he put and pre-purchased this and it’s processed over $2 billion in Gross Merchant Volume and recovered over $200 million from stores worldwide. Now, Dave started his entrepreneur back in 2011 having built a business directory, he is also the co-host of “Rogue Startups Podcast” and “WP Minute Ecommerce Show”. He now works exclusively on e-commerce and has a passion for making merchants of all kinds more successful with their stores and he truly loves email, dark beer, lifestyle, businesses and family not necessarily in that order of course.

In this episode, Dave and I spoke about the mistake he made when he bought his first website business and what you can learn from him. We also talk about brand penance in business and what it can mean when you want to purchase a business or sell a business. But one key discussion that Dave and I had was on risk versus opportunity. Dave believes it’s good to buy business based on opportunity more so then risk and I am quite the opposite. I think risk versus opportunity and it really depends on what seat you sit in and how much experience you have in online business. We talk about this as more of a debate than discussion. We talk about which one is better and why so I think this is a very valuable discussion to just sit in on and listen to. Then Dave and I talk about long term game with long term people, what happens to people who actually rush and I share an example about how to put time on your side rather than against you which is what most people do; put time against themselves and it squashes their growth and they run away and try to chase the shiny object syndrome and end up doing that for years and years and not getting any results. So we also talk about not just jumping into a bigger business that you don’t understand and what are some of the steps you should take e.g. Dave bought a SAAS business and he has bought 18 businesses in fact in his duration of buying sites and being in online business and how he worked his way upto the SAAS business. Now this podcast is such a valuable podcast episode. If you are not just buying an online business but want to make an income online this is going to be such a great episode that you listen to based on the miles you need to have to be an online business owner.

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Dave welcome back to Buying Online Business Podcast.

Dave Rodenbaugh:

Thanks so much for having me Jaryd. I am so glad to be back and our last conversation was hell of a fun and I am looking forward to this one.

Jaryd Krause:

It was, it was. In fact if you guys haven’t checked out, that’s episode no 175, at the time of recording it went live 1 hour ago today. I wanted to get Dave back on to dive into some of the stuff that you talked about. That episode we talked about you bought 18 businesses and worked your way up to this SAAS business that you have now recaptured.io helping people make a bunch of money through abundant cot sequences via email and SMS and all that sort of stuff. It is really cool and we can probably dive back into some of that stuff especially before we hit the record button we were talking about some of the things you have been doing in your business and hiring and stuff like that. There are so many things that I think are beneficial to unpack but I wanted to get you back on to talk about due diligence because buying 18 businesses you have done a lot of due diligence because you don’t just do due diligence for each business you buy, you do it for multiple businesses before you purchase. So what do you reckon you have done 100 of businesses like what do you think? For each 18 would you say you have looked at 10 each one?

Dave Rodenbaugh:

I have never thought about that number until just now.

Jaryd Krause:

I will give you an example of what I tell people that start is who want to buy businesses, they only want to do due diligence on the perfect business and what happens is that they aren’t skilled enough to execute on the business fast enough to be able to purchase the business because other investors, say that I have taught can execute on that very fast because they have practiced and have got experience and training. So it’s not just doing due diligences on may be handful of businesses, what I tell people is they should be doing due diligences on 10, 20, 30 businesses may be up to 50 before they even find one that’s like let’s put an offer on it. That’s what I am training people to become great investors. I know when I started, I didn’t do due diligences on as many as I should have.

Dave Rodenbaugh:

Now that you have pointed that out, I am looking back at ten years that I have been buying on here I would say that one of the early mistakes that I made in this whole thing was I was trying to do due diligence on the perfect business so I was like trying to pre-qualify things by looking at a prospectus or a listing saying oh that’s not going to work. Really I did myself a disservice then because during due diligence you are really looking at two things; you are looking for opportunities where you can do better and the risks that you want to avoid at all costs. And I think people lean a little too much towards risk side of that and less towards the opportunity side of that. I certainly did when I was starting out because I was trying to find the perfect business that was going to make me money and had no risk.

That doesn’t exist and if it did why would they be selling it like this is obvious when you say it but it’s not obvious when you are going through and doing that due diligence for the first few times. So of the 18 businesses there, I have definitely done multiple of those 3,5 I don’t know but as I got more into it I realized I had to kiss more frogs before I was actually going to find a prince so to speak.

Jaryd Krause:

The tricky one is risk versus opportunity; you said most people end up being too heavy on the risks and not looking enough at the opportunity and that’s a really good case like this is a really good thing to debate because I am at the opposite end of the spectrum where I like to find and uncover all of the risks before buying a business or at least I know what could possibly happen and what I like to do is I like to use those risks as opportunities because all problems are just opportunities in disguise and we like to use those as growth opportunities which is how I help people scale their businesses day by day risking it.

This being said depends on how much effort time and energy the investor has to put into the business because if a business has a lot of risks, it may be selling for far less and people may want to pick up a bargain, do a whole lot of work on it and change those things around. Personally that’s not my philosophy and it’s not what I prefer to teach but you do have people out there who like that are like trying to flip sites really quick and just looking at it and potential upside to own it for six months and get rid of it and make some quick cash. What do you think about risk versus opportunity side there because it is such a good discussion?

Dave Rodenbaugh:

Oh I mean this is the core of due diligence in my opinion to understand these two. And I would say that there are really two kinds of risks; let’s call them controllable risks and then there are risks that are literally out of your hand. I can give you an example of one of the business that I bought so there was a risk there that I didn’t identify at the time of purchasing this business. So this business was a notification business for students at a university about waitlists opening up for certain classes. So there was this guy who wrote this app and basically the university didn’t have a very sophisticated registration system and it would put you on waitlists but it wouldn’t tell you when it will have an opening in the class. So he saw that hole, built a system out of python and figured that he could have a little SMS and Twolio and send these notifications and it was a very good business and it had bunch of other flaws but the main one that I missed during due diligence was and actually it’s not totally fair I did see it during due diligence and I didn’t see it as a big risk at the time and it was a platform risk and basically you were dependent a 100 percent on that university’s API being available for you to go in and query the classes and query the waitlist and seeing when things were open and allowing your app to query that API at a certain rate, those are all things that he was able to pull off for a number of years.

And I am pretty sure that was the reason he wanted to get out of the business, he saw this as a long term risk and wanted to take the chips off the table while the getting was still good and I realized that was a risk too but I wanted to take it and spread it to other universities and what I didn’t realize later was that he had an advantage with boots on the ground being a university student there that I didn’t have at these other universities because I was long out of college when I was trying this so I didn’t have that advantage for word of the mouth that he did where he could literally talk to people down the hall and his dorm or any of these classes and say hey try this out and then the thing just spread like wild fire on campus because it was wildly useful. So that was the risk that was totally out of my control, I kind of down played it and it ended up biting me eventually but there were other risks in other businesses that I did and I am like okay they don’t know how to overcome that I do know how to overcome that, they see it as a problem and I see it as an opportunity so it had a lot to do with your experience, your willingness to work you pointed that out like I bought these and a part of it was learning experiences for me so I was willing to dive deep and go broad and do whatever it took to bring the business back to life.

Because that was part of the learning experience for me and I learn best by doing so I had to dig into it and just fix as much stuff as I possibly could. And it was a ton of work and I didn’t have a lot of money to go and spend and get a team to do that or whatever but later on it was like I don’t want to do that again like I am in a different place now and when I buy something I want to have a certain set of things that I can hire out to go fix those more quickly so you know it’s kind of almost like flipping a house, a condo or some kind of real estate. The first time people do it they are like oh I will just do it myself and we will paint this and change these out and suddenly you realize this is a ton of work and I had no idea why I signed up for this and later you are like I am hiring contractors to deal with this. I feel like it kind of was like the same process in buying a business as you sort of identify those things and figure out risks and opportunities there but yeah it’s very much a learning process.

Jaryd Krause:

Yeah it’s very much a learning process and it’s a journey and this is what I like to tell people that you can’t just come in and find a site and you just don’t go I am going to go to a shop and buy a site. No one is going to pull one of the shelves that suit the market. It’s not like that. It’s like you have got to go to the shop multiple times, you have got to look at multiple products come home and stew over those decisions and really, really think about it. And to your point on the risk of that person having boots on the ground in the university, I think it’s really, really good that lots of people miss out on. In fact in my due diligence framework, if people who don’t have my due diligence framework, it takes the guess work out of buying a business, go to the end of the episode there will be links in the show notes, get my due diligence framework its free it’s what all my clients use to buy sites.

But in that framework we have a question, does the owner of the business have any way bringing business into the business personally outside of the traffic that it is getting online and that is super key and super important because sometimes people may have a brand or they might be a personality in the space even if it’s a content creator and they are selling affiliate products, may be they are making a lot of money through selling affiliate products and they are really big into mountain biking and they got to these mountain biking days or are in the club and they have got this big personality and a lot of their friends asking them about what sort of gear to use and then making affiliate sales through that and these are the hidden things that people don’t think about and sometimes when we buy business and I will be like this as well. Sometimes when we buy business we get caught out that oh we really didn’t think about that but it’s just because you are a beginner.

Dave Rodenbaugh:

Yeah and flip side of that is that if you are trying to sell something and your business is so tied up in you that you are brand and you are the main reason that people come to that business it does make it more difficult to sell so when you were creating that business or brand and if you can’t set it up that it can run without you and it can’t exist without you it’s going to be a lot harder to sell. I had a friend of mine who had a meal plan say and his wife was the main personality around that and they tried to sell it and they really struggles because of that. It actually made it a lot harder to sell because they were like she needs to come with it and she was like I don’t want to come with it and then they were like well then we don’t want to buy it so that was a risk that the buyer was not willing to take on and say without your personality I don’t have this community, I don’t have your sway I don’t have the story and the background and all of that and it was true so yeah that’s a big risk.

Jaryd Krause:

Yeah it is a big risk and I have been seeing discussion by emails and with clients in the community that are buying sites and looking at how they can remove that single source of penalty if they are going to buy the site and sometimes just trying to make the shoe fit when we really shouldn’t for personal branding and it really depends on how like if you are buying a content site with a big personal brand attached to it, out of most of the returning visitors coming back to the site because the content is being written by this key person in the business and will that change when you just add a new writer in so that’s something to think about. You did mention before about opportunities buying based on the opportunities and sometimes we just need to know if we have got enough experience to take on those opportunities and actually execute them really well.

For example sometimes people come to me and say Jaryd I want to buy an online business and I am like cool and usually they say I want to buy an ecommerce business and I am like great, have you ever run an ecommerce business, no okay cool so do you know how to do digital marketing and have any experience in digital marketing, no. That’s just for me two big questions I like to ask because it just scares me and I ask them to scare themselves as well because usually ecommerce businesses are heavily dependent on page traffic and if they don’t have any experience in it then it’s really not an opportunity. Some people may think it’s an opportunity oh I will just put all my money into ads but it ends up being a risk. What’s a risk to somebody may be an opportunity to somebody else and I think us identifying how much we know in the space before we purchase something is pretty big thing to understand.

Dave Rodenbaugh:

There is another component to that too like if you like to learn how to run an ecommerce business and let’s say you bought something that was small 5 figures and wanted to just try it out okay the stakes are low enough so that’s cool, go learn that way but if you are going to get an SPA loan for 7 figure ecommerce business that’s been around for a while and you are just going to wing it then that’s a recipe for disaster, that’s a recipe for personal bankruptcy at that point. I would not recommend that. I think you can use that, like its okay if you want to learn those things, I learned how to market by buying smaller business to do marketing for smaller businesses to hone my marketing skills I didn’t have those things but I was only risking less than $10,000 at the time. So if it all dried up and went away, my wife and I agreed that look its fine, learning experience and didn’t ruin us financially we can move on and do something else like that’s okay but 6 figures or 7 figures.

Jaryd Krause:

Yeah it’s crazy to think about because when you do it on a startup or a smaller business of course opportunity far outweighs the risk versus a bigger for example similar to you I started a drop shipping business well I started multiple online businesses to try make money online. This is my journey, my story and I started a blog, made a little bit of money from a blog and then I was like this is not really cutting the mustard and I need to make some serious coin and replace my income so I started a drop shipping business, got all these products set up the site and had no idea that digital marketing was important and I needed to run paid ads to just make sales I thought people will just find them online and I will be rich, not really but I would at least make some money so I had to learn marketing on an opportunity business like a startup and cut my teeth on that and I think that’s a really good thing that you said Dave is learning on something is that it is a bigger opportunity than it is a risk. For example buying a business 7 figure ecommerce business and never running an ecommerce business and not knowing, I mean you can hire somebody at that stage to run the ads but you would want to have real proof that they have had real experience in that particular niche with that type of product and that type of audience that they are targeting so I think you are bang on with that.

Dave Rodenbaugh:

Yeah I mean there are a ton of risk that’s involved when you don’t have the experience running the thing, it’s really hard for you to evaluate the people as to whether they are good or not, there is a lot of flowery language and BS that they can amaze you with during an interview and then when the rubber hits the road you are like wait a minute, how come my conversion rates so low and they are like bla, bla, bla we will figure it out and then you burn another $10,000 and you are like it’s not going up and they are again bla, bla, bla and then you are like if you don’t know that they are lying at that point, they don’t have experience, they are not getting it, they are not rotating creatives and you are not saying hey you need to try this, hey what about this, you have got to know those pain points to squeeze when push comes to shove to make sure that they are doing what you need them to do and that’s a hard thing to do like coming into it.

I come from a technical background so hardest thing for me was to evaluate if I was hiring somebody from sales or somebody from marketing, how do they real know their stuff. It all sounds pretty good and you can eliminate the lame proposals from the good ones but once you get down to the real person do you really know that they know their stuff because you have to know your stuff to know whether they know their stuff.

Jaryd Krause:

Yeah you do and this is what I tell people is that you can just go away and outsource something, fine great. But people that you do hire can, what we like to say is, take the mickey or take the piss because you don’t know if they are doing the job correct, you don’t know if they are good because you don’t know how to at least understand what they are doing or sort of oversee some of the work, you don’t need to be expert or boots on the ground type person but you at least need to know enough to understand that they should be getting x results and use the lingo, the language and the terminologies speak to them and drive them to get a result otherwise it’s a huge risk that you are hiring the people that you have task that you have no idea about. Another thing with the hiring somebody for marketing or hiring anybody at all, yes its so tough to know who to hire and when you first start out I have spent $10K here, $15K here you know different ad $30K on marketing people like each these three different price points I have done in the past and one of them worked likely the one that was more money; the $30 K over the other ones but that’s $25K lost on the other hand.

Not just money lost; what’s more important to me is time, lost a lot of time in fluffing around and so with the start I feel like you kind of need to I think it's kind of like a piece of the journey of making an income online is trying different contacts, trying different workers and getting burned and learning the hard way and getting that experience because eventually as you start to grow then you start to build a bit of a network of people in the space and this is why I am telling this story is because what I like people to have a listing to understand that the goal shouldn’t be just always, yeah find the best people to work with and hire but how you get there is in my opinion through network and route or road to that is building a good network of people that can refer you people that they have used and trust. So for me when I bring people in and I work with people somebody that I have got a referral from, even with my health or anything I am not just going to Google someone and go I will try this person, I am going to ask for a referral from somebody I know that’s in that space that I trust. Have you done that in your space in sort of SAAS world, I mean have you tried to build a network and you tap into that when you have got work and use people?

Dave Rodenbaugh:

Oh 100 and thousand million percent I cannot agree with that statement more if it was humanly possible. In the SAAS world there is this particular conference called MicroCOM and when MicroCOM was first, I was around when the very first happened in 2011 and it was like one of those amazing events where I suddenly found my people, like I found the other builder of businesses just like me and every single year I went back to that conference and I made more friends cultivated relationships, learned more tactics, understood what other people were doing in their own businesses and eventually that turned into long term relationships to where mastermind groups performed, we have got biannual retreats that we do at this point with the other founders that are kind of doing the same thing. These people and you know we are in a slack channel and we are constantly bouncing stuff off of each other and doing updates so everybody is staying updated or up to speed on what’s going on, at the same time everybody gets to ask questions you know like a very trusted network.

And this was not something that developed overnight and I cannot quantify the value that these people bring to my business or to my life but I can tell you it’s huge, it’s massive. I would not be where I am today without that network. When somebody says some saying like your network is your net worth they are not lying about that. The more people that you know that can benefit you and you can benefit them, it is a two way relationship, it can’t be one way because nobody wants to be around a leech right? There is a reason why and there is a reason that they are in the warmest part of the swamp like you have to provide that value as well so that means it’s on you to go out and learn stuff be interesting, do speaking opportunities and that’s the thing that sort of helped me build up my network because people were like he is kind of interesting and I want to get to know that guy and then I would use that to intro other people that I wanted to get to know and then we would exchange information and ideas and that turned into a really big deal so you cannot understate that network effect there.

Jaryd Krause:

Oh it’s so good and I want to put a cherry on top on what you have said here Dave and what we are discussing is that there is a really good book or there is a really good podcast “How to Get Rich” by Naval Ravikant and in that he is saying you should play the long term games with long term people. I feel the people that turn to internet to make money I was one of them and I was in this position and this state of mind that I need to make money fast as fast as I can and I don’t have time for long term stuff. I just want to replace my income and earn an income online and I want to do it fast and I wanted it two years ago but what I try to teach or instill in people is that the value isn’t in like you doing the work for one, two or three years, value is in the compounding effect of you being in the space and to look at this not just as a tool or vehicle to earn income but it should become bigger long term journey and move into it if you love the space because that’s where compounding returns going to come from; networking and being in the space for a long period of time playing long term games with long term people is what’s going to help you win because

I found what you are doing then is something that I like to call and I have spoken about it in other interviews or when people interview me on different podcasts, its where you can change from the view of you having time against you to putting time with you and putting time on your side. When you are trying to achieve a goal very, very fast, you are putting time against you what happens is you are trying to do it really fast, piece things together and you are not in the best proper state of mind and you are coming from a place of fear and a place of lack and when you do that you become stressed and when you try to make decisions stressed you don’t make the best decision and you drop the ball more times than you want to hold onto it. On the opposite side when you put your journey out longer say over 5 or 10 years you can relax, you can have a better time, you can make better decisions because you are less stressed and you are not trying to put time against you, you flip it around to say hey time is on my side and the longer I am on this journey the better results I am going to get and I think that’s something that’s really important for people to understand.

Dave Rodenbaugh:

When you were saying all that something came to mind; fast burn fast churn. So faster you are trying to do something and make it happen, it’s more likely that faster it’s going to fizzle out because it’s all a marathon it’s not a sprint, I mean you can make it a sprint but you will find that you will have to keep doing more and more sprints and that’s unsustainable in the long term you just can’t do that. So the more you can build up something and leverage that over time means that you are going to have more success in the long run.

Jaryd Krause:

Yeah I love it. Fast burn fast churn. This is the way I would look at it if people come into the space and try to buy a site they just try to go real fast and they just burn themselves out and they can’t find site within three months they say this is crap, this doesn’t work, and this vehicle doesn’t work. While we see people that stay six months, 12 months, 18 months they buy business they get results their life is better faster actually in fact than the person who came in for three months and then moved onto the next shiny object syndrome trying to find how do I make the money real quick, how do I replace my income like this like all this market is telling me that I can do it in 20 days and what not. For me, it probably took me 3-6 months to find my first business and then after that one it took me even longer and then longer the third one and now as I go through buying more businesses I just got myself a longer time frame on the horizon. For you what did it look like when you first started, were you similar and were you trying to buy a site as quickly as you could or you were a bit smarter than me in the start and had a bit more time?

Dave Rodenbaugh:

I love it that you are giving me so much credit. No, I was so impatient and all I, it’s like I had this wad of cash burning hole in my pocket and I am like I got to buy something right now. So fortunately I did have this other guy who had some experience to kind of advice me but even so the both of us were still relatively new, he had probably about three years’ experience compared to my zero at that point. But even then you know 3 years’ experience in that space isn’t a ton if you are getting and buying businesses and I think he only had 2 or 3 businesses at that point and over time he started turning to those businesses and upgraded to other businesses and as a data point to your previous thing there my last business that I recaptured it took me 18 months. Going through businesses and due diligence to find the right one. I am so glad I waited it was absolutely worth every pain staking moment but I tell you those 18 months sucked.

Jaryd Krause:

Especially when you are on the precipice of purchasing something and you are just like this is good. I will give you an example a guy that I do some one on one work with he bought a business and we are helping him scale it, the business is really good and he is crushing it and he just on our mastermind call two days ago, for people who just joined and looking at buying businesses and wanting to do it real fast obviously we are trying to slow them down much to them disliking it but he came up with this story that look I was this close to buying a business with a broker, he got his offer price locked in and he just had to wait 20 days until some extra money came in because it’s mid sixty to content site deal so just a bit longer like 20 days to 3 weeks or something to get the extra money to be able to pay it and he said I will give you cash.

Anyway the deal fell through and he wanted the business and it was a good business and it didn’t end up happening and that was the best thing that could have happened. Not in the time to him and he was like oh it’s so frustrating and I finally got close to buying a business and it was not his fault at all. He could have got the deal and in hind sight what he said and what we were talking about in the call the other day is like it’s the best thing that could have happened and he is happy that this happened unto him because then he bought an even better business. Sometimes when we are so close to buying one and all the things just don’t work out, it’s okay. You can’t make the shoe fit and then butcher it but sometimes it’s just not the right fit and its worth waiting for the right one. We were just talking about this before, before we hit the records button, right? You had been looking for somebody to hire, a key person to hire for multiple, multiple months more than you would have liked to wait but I am going to ask you now was it worth the wait to finally find the right person.

Dave Rodenbaugh:

It appears to be absolutely worth it and yea we were looking for, now doing the math in my head, closer to nine months then seven months. I mean both of these are very long numbers to be waiting for one person one position, that’s whole lot of interviews. I tell you we were so close but Derek Sebers on his blog he has a really great post that I always go back to and refer when it comes to working with people. If it’s not a hell yes, then it’s a no. I don’t care if it’s the people that you work with, features you want to build, business you want to buy if it’s not a hell yes, it’s a no. You need it to be hell yes that’s what makes it sustainable in the long run and I kept talking to my tech lead and he had read the same article and he knew about this as well and we kept asking each other that question every time; is he a hell yes?

And we honestly had to keep answering ahhhhh, you can’t say hell yes it’s a no. It was frustrating to both of us because you know we were like Oh God we have to interview more people and that sucks but it was worth it. It was truly worth it because we found somebody who we got to a hell yes. I had the whole back like hard from totally fanboying on this guy because he was that good. I was so excited to get him hired and get him in.

Jaryd Krause:

This is a great quote to use for due diligence on a business and thanks so much for sharing. I have heard it before where people say it that if it’s not a hell yes it’s a hell no, that’s just so beautiful that if it doesn’t check all the boxes then you just trying to make the shoe fit and when we trying to make the shoe fit we can buy this business and it can make our life harder like it can do the opposite what our actual goal was. I have done this with people I have hired before I have brought them in the business and trained them up, training took longer.

They didn’t really get into the role and when they did get into the role, they butchered the work and you are like this hasn’t made my business easier, it’s made my life harder. It’s the same when you buy a whole business in itself and you want to, some people will go it just takes a little bit more hours than I would actually like to run the business and there are some of these things and they go away and get it and then they are juggling their job as they are trying to replace their income and dealing with this business they are just trying to make it work because I just want to get in the space and they want to atleast start to make some sort of income.

Dave Rodenbaugh:

That’s just a rookie mistake and I have made that rookie mistake many times in the past ten years. People I have hired thinking that they will be good enough or they will grow into it and some of the businesses it’s the same kind thinking that it will work or I think I can make this, no! You can talk yourself into a lot of stuff but it isn’t true. You really have to be brutally honest with yourself. Is this really a hell yes? Because if it’s not then it’s a no.

Jaryd Krause:

I love it. One thing I want to ask you before we wrap this up Dave is SAAS sites and SAAS businesses. When you started what was your motivation for wanting to like your last business was recapture.io, we talked about that towards the end of our call in podcast 175 so go and check that out. There will be links on recapture.io in the show notes for helping people to scale the ecommerce businesses with abandonment cart software and emails and stuff. It’s really good so just check it out and you will be impressed. So congrats on that Dave but what pushed you towards the SAAS business over the some of the other business models. It’s not easy as I have never put a beginner in a SAAS business.

Dave Rodenbaugh:

No, absolutely not. In fact when I first started this I was fortunate enough to have that guy I was telling you about who was my mentor in the space. He was headed towards SAAS but he realized that even after 3 years he was just barely ready for SAAS and I looked at my skillset and I was again being brutally honest with myself I didn’t have the marketing chops, I didn’t have the sales chops, I didn’t fully understand that how to be really in touch with the customer and get good product market fit. So I said to myself whatever I was going to build I had to use that to learn those skills to level up to a SAAS business but ultimately I wanted the SAAS business for the holy grail of recurring revenue.

Because a lot of other businesses I have tried the ad sense businesses, I have tried affiliate, I have tried content sites, I have tried one off sales, and all those business models have some pluses and minuses to them but the real rough reality to most of those businesses is that they either have substantial platform risk; adsense with google or any other like if you are doing facebook ads you are relying on that sort of stuff, those platforms can at the drop of a hat can change algorithms, pull the rug from under you, ban your business and you are done and that happened on one of my businesses literally.

So you had to be super careful about that but on the flip side if you are doing one off sales now you got to go get new customers again and I am like holy crap your selling never stops , you just don’t have this engine that’s driving you forward faster with a SAAS you can get a fly wheel going as opposed to just a regular wheel where a fly wheel captures energy and it increases in your momentum and moves the business along faster as you get bigger. So you can accumulate that energy, accumulate that momentum and do better in the business and that was really only possible with the SAAS through expansion revenue, going up market and all of those other things where you have that money come in every month. You can build from a base line and tack it up and go up from there. But if you are doing one off sales next month you are back to zero and you are trying to get back to where you were last month. It gets to be a real struggle.

Jaryd Krause:

It really does. I actually did one time sales for this BOB business at one stage when I first started. I just did one time sales teaching the course one to one then I got too busy , got too many clients, got sick and then changed it to membership model. The best thing I have done not just for me but for everybody else because people are getting great results and I can actually help more people at more scale rather than I had bottleneck there.

Doing one time sales is really tough and then when you look at different sites that have platform risk you are putting in a decent amount of money into risk there but at the same time for those who are new I am not recommending them to go into the SAAS, you work your way up to it and so do your mentor and I think this is something very important to do so because you don’t want to put too much on the table and not have the experience to know what to do with it. So where would you suggest people start Dave? Like what sort of small online business would you suggest them to start with?

Dave Rodenbaugh:

There is definitely a wide variety of ways to start like the method you are talking about not just jumping straight into the SAAS, I heard it called the stair step method so you pick a lower risk business, learn something about that then move up to a slightly higher risk business and then eventually up to SAAS which is definitely the higher risk of all of those and that’s definitely the hardest to run and hardest to manage, the hardest to market and the hardest to sell of all. So you can start really low, you can go as low as a straight up services business so you could market yourself in email marketing, you can say I am going to sell my services in email marketing consultant that would be step one.

Then you can turn that experience once you gain some experience there and then add some content and start selling that content and you can say hey join my membership here and I will give you all the secrets of internet marketing. And from that you have got some experience and audience and now you can turn around and figure out what are the pains of that audience so maybe I can build on them in micro SAAS on one pain that they have. From that you can learn from that audience and figure out oh that micro SAAS is good but they want is this to get to over this here and expand that vision and that platform to solve that for them. But this is all done organically and it is all done in one area of expertise so you stair step in a lot of different ways, that was just one example and I don’t want to have to constrain you and say that you have to do this because you can go straight up selling content and you can do e books and you can do affiliate stuff and sell somebody else’s stuff to learn about that space and get into ecommerce like there is a million different ways to go about this but you have got to start where you are. If you don’t know about ecommerce saying I am going to run 7 figure ecommerce stores, it is a fantasy.

It’s an absolute fantasy you have to learn the ins and outs of doing that. What happens when you want to do drop shipping model versus holding inventory? What’s a good conversion rate? What about my paid advertising? What are good conversion rates on those ads and how much can I spend on the ads to profitably get my product out the door? Like those are all the questions you have to learn, you will not learn those on day one and so you have got to find a way to figure that stuff out.

Jaryd Krause:

Yeah you won’t learn it on day one and you won’t learn it at business one either which is a big thing to understand. There was a guy that I got on, Cody, it was a couple of episodes ago now probably about 160ish episode and he bought a 6 figure ecommerce business and he didn’t know what he was doing through due diligence, didn’t get help through due diligence and ended up buying lemon. He is a smart guy as well, highly educated, he knows what he is doing but still this isn’t just a game to through it all in because you can really get taken advantage of so start small. So Dave thank you so much for coming on. I really do appreciate it. I am going to send people to recapture.io is there anywhere else people can go to check more about what are you upto?

Dave Rodenbaugh:

Yeah sure. If you are interested in some really lame social media posts then you can come follow me on twitter; Dave Rodenbaugh. I post some occasionally interesting stuff there, mostly just some dumb memes.

Jaryd Krause:

So there will be a link to his twitter handle in the show notes as well. Thank you to everybody who is listening and if you are looking to get into online business in general not about a site, this is such a valuable episode to listen to again. And if you know somebody else looking to buy an online business, do them a massive favor and share these podcast episodes with them. There are so many golden maggots that Dave and I have been able to share throughout our conversation. Also if you are looking to buy a site don’t risk it and get my due diligence framework, it’s free. Its what I and my clients use to buy sites, links will be in description. Go away and get it and save yourself a whole lot of hassle. Thanks again Dave.

Dave Rodenbaugh:

Thank you Jaryd.