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Produced & Edited by - Morgan Brown
‍Interviewers - Carrie Kwan and Lucy Kippist
‍Guest - Blake Hutchison

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Episode 45 Transcript

00:03:57:05 - 00:04:46:07

Carrie Kwan

Have you ever thought about what will happen when it's time to sell your business? This could happen for a range of reasons. Perhaps it's no longer viable commercially, or maybe you’d just like to pursue another interest. It's a common scenario with 60% of solo run businesses closing in the first three years.

Now you've heard the saying as one door closes, another one opens. Knowing when and how to say goodbye to your business is as much part of the journey as starting and running your idea in the first place. It's essential to be mindful, to take the lessons as every step will set you up for future success. Today on Mumbition, Lucy and I are speaking with Blake Hutchinson, the CEO of Flippa, a global marketplace for buying and selling online businesses based in Melbourne, Australia.

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Blake, welcome to Mumbition the podcast.

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00:04:46:18 - 00:04:50:16

Blake

Thank you so much for having me. Great to be here, appreciate it Carrie and Lucy, it's going to be a great chat.

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00:04:51:04 - 00:05:02:16

Carrie Kwan

Now I'm passionate about connecting people and I know you are too. And to uphold that, the very first thing that we need to hear is your elevator pitch. Can you please tell us who you are and what do you do?

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00:05:02:23 - 00:05:39:20

Blake Hutchison

My name is Blake Hutchison, thank you for having me on the show. I'm the CEO of Flippa, marketplace to buy and sell online businesses. I've been around the digital space now for, I suppose, all of my career. So let's say 20 years. I now have the very lucky opportunity each day to witness business owners from all over the world exiting on our platform.

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As well as the good news is a bunch of new entrepreneurs buying to start and buying to grow. So it's a great opportunity, I take my job very seriously and we've got a wonderful team all over the world.

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00:05:40:22 - 00:06:13:11

Carrie Kwan

It is truly a privilege, isn't it, to see not one person successfully exiting their business. Hopefully all that grit and sweat and tears that they've poured into that endeavor, and then to see someone else taking on the baton. So it's such a really vital platform that I wish existed, probably 15 years ago when I had my first digital based business.

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00:06:14:02 - 00:06:56:04

Blake Hutchison

Yeah, we love it. It's a really, really interesting platform. But you know what we often talk about here is when someone chooses to exit, their journey actually started far before that. You talked about the statistics before in the introduction, but the average business that sells on Flippa is four and a half years old.

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So that individual has seen a lot, they've learned a lot and our job is now just to ensure that at the end of their business ownership journey, there's a good moment to come from it all, that's what we call the exit. Now, our entire job is to democratise that for small business owners all over the world.

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00:06:58:05 - 00:07:18:03

Lucy Kippist

Blake, you're obviously someone who lives and breathes the process of selling a business, but as you say, that process begins many years before they actually get to that point. I'm just wondering what you've learned in your experience that could inform someone who's starting out and what your best tips might be if they're getting ready to sell their business?

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00:07:18:20 - 00:09:05:15

Blake Hutchison

Yeah, it's a good question. The first thought that came to mind as you were asking the question was, don't wait too long, or until it's too late. But that's probably a little bit flippant and perhaps has come as a result of seeing some business owners try to sell when their business is declining or perhaps when they're no longer interested in running it at all and so it's suffered as a result.

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I think more generally speaking, you should plan for an exit from day one. So what that means is putting in place the financial and operational standard operating procedures to ensure that when you do finally come to sell, the business looks and feels like it's ready to buy. What we mean by that is good quality financials, doesn't necessarily matter that you've had rocket ship-like growth, that's not actually what buyers are looking for. What matters most is that the business has been run in a mature fashion and is fit to take over. So most people think that you have to be a fast growth business to have a good exit. In fact, in small business land, fast growth is actually hard to come by in the first place.

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Most buyers are cognizant of that. What they're actually looking for is a business owner who runs their business in a mature fashion, almost a little bit like how startups are being encouraged to operate since the downturn in the last couple of months. But small business owners have always known how to be capital efficient. So think about that when you start your business, think about that when you’re setting up to sell. That's probably a long winded answer for you.

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00:09:07:00 - 00:09:25:01

Lucy Kippist

That's a great answer and it sounds like it's coming down to incorporating that piece into your business planning strategies. So in those first early days that you're actually thinking, “where do I actually want to head with this?”, “Is this where I want to be forever?” And “what do I need to put in place now to make that right?”

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00:09:25:01 - 00:11:04:04

Blake Hutchison

I think that's a really great point. One of the things you could imagine doing, I mean, it might sound a little selfish or almost narcissistic, but want to do is think about what would make you really proud and super excited in an exit scenario, what price point. The first way to think about that is most startups don't achieve all they set out to achieve.

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There's very few unicorns in the world, we know that. But even similarly, when someone says, I'm going to start a great online organic candle business, they think that it can be quite big and inevitably things don't go quite as well as they intended to. So what you can do is think about scenarios where you would imagine that success being very material and meaningful for you.

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The average e-commerce business, just as an example and different asset types have different multiples, but just to play it out, it's currently four times annual net profit on Flippa is what you could expect to achieve. That means you can have a really material exit, right? Because maybe you're doing $25,000 net profit because not everyone's going to do a $25 million net profit.

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So $25,000 net profit will net you $100,000 cheque. A $100,000 cheque is meaningful for most people I know. One way to think about it is what is the exit scenario that makes you happy? Think about it from a selfish standpoint first.

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00:11:04:04 - 00:11:58:15

Carrie Kwan

First, that framing is really, really important, I've gone through two business exits myself. I think sometimes in this there's this mental challenge that, when you said not everyone's going to be a unicorn, and what's your idea of success? Painting that idea of success is not only really clever in terms of setting the metrics up for you to hit that margin, but you also have to know that maybe you won't.

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You'll have a few scenarios of success. I'm just going to say maybe it's that you're achieving it, you’re above achieving and you're outstanding achieving. I actually think that's really important because you don't want to be paralyzed, that you haven't actually made it into a raging crazy idea of success. So I really like that tip.

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00:11:59:03 - 00:13:18:12

Blake Hutchison

It's a really great way to point it out I think, Carrie. Scenario planning and we do that here at Flippa, so let's just be really transparent and candid. Some people are hypothesizing that as a result of this so-called “pending global recession”, that the buyer intent on Flippa may dry up. In fact, we've seen it go the other way, we’re 38% up month on month.

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But some people have hypothesised that. So instead of just thinking, “well, no, that could never happen”, you build a scenario which thinks through the best and potential worst case scenarios and you think about where your business will be and how you would operate it differently in the event of certain circumstances or scenarios playing out. That's exactly the same for an exit.

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Scenario A,everything goes to plan and I sell my business for $50 million. Scenario B, things don't go to plan and I need to recover my investment, my time and set myself up to go through that job hunting phase or perhaps next entrepreneurial endeavor. So maybe that is I'm okay with a $500,000 exit and you just plot the pathways.

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00:13:18:12 - 00:14:06:10

Carrie Kwan

Really, really good to know that there are different tiers of success. In regards to process as to the scale, how to create brand equity and contracts in place, they're all just some of the elements that are critical to managing the sale process. I'll invite you to sort of dive into that a little bit more for those of our listeners who aren't aware of that.

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Then the second part of my question is around how can we actually de-risk the exit process for a business owner mum? The typical profile is they might have one or two staff or they're operating smaller teams. I would just like to know what are some of the elements that you need to consider?

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00:14:07:19 - 00:14:35:01

Blake Hutchison

To answer the first question around steps, we talked about financial and operational maturity. So ensure you've got things like cloud accounting software to run your business so that it becomes easier to present your numbers when that time comes. Think about supply as in your relationship with those suppliers, so that ensures that the next buyer or the prospective buyers can see that they can take over the business and run it maturely.

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Think about contracts or agreements and whether they are watertight and in fact the operations can continue on in the same manner. There's lots of ways in which you can optimise your business for success as well.

Think about the user interface, if it hasn't been updated for years, it's a little bit like fixing up a house before you go to sell it. You want to optimise the valuation. You want to optimise the probability of success, so perhaps you get a redesign done, those types of things. There's a bunch of tips that I could provide as it relates to the general approach to selling.

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It's actually quite lengthy and complex, and that's why Flippa is trying to remove a lot of that friction. In fact, we do remove a lot of that friction. There's lots of steps and I'll summarise a few right now.

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The first one is you go through a valuation consultation. What that means is that there's a clear understanding between you and what the market says you should be worth. That's a really important alignment, because if you think it's worth a lot more than the market is stating it’s worth, you're likely to be disappointed.

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The second thing is merchandising. How do you make your asset or online business look good in a really crowded market where buyers are comparing your asset versus your next door neighbors asset? I'm just giving you the sort of property analogy there. Then it comes down to programmatically matching up to the right buyers, and that's what Flippa does. Otherwise, you’ve got to kind of doorknock or even work through a broker who might look through their Rolodex, but not necessarily have the programmatic ability to match up to the right buyer, because it is really a marriage, you want the right buyer looking at your asset.

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You then tend to go through preliminary due diligence. Finally, a letter of intent, then a contract of sale, then escrow, then the asset transfer. Then finally you get your money by way of an escrow release. On average, that takes about three and a half months from the time you list to when you sell. So that process is lengthy and it can be a little bit tiring.

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We always ask business owners to continue to run their business in just the same way. Don't think that just because they're selling it, it's a good reason to take your foot off the pedal.

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00:17:11:12 - 00:18:02:20

Carrie Kwan

Such great steps to consider. I love the analogy of getting your house ready for selling because you do have to have all these elements in place which will make it easier for an incoming buyer to see how things run and that things are run smoothly. Great advice there.

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Now, you were recently in the U.S. and have undoubtedly made many business introductions throughout your career, I'm very aware of that as well. We agree that introductions are actually everything when you're running a business, your network comes back in different ways, whether they’re a lead or a prospect or someone that can champion your business or some that can fund your business. If you could ask for an introduction for anything right now, and it might be in business or in life, what would that be and why?

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00:18:03:14 - 00:18:42:15

Blake Hutchison

How about the largest network? Whoever knows the largest network of online business owners all over the world? So that would be so Flippa has an insatiable demand side. So that's all the buyers and investors all over the world. What we struggle with, just to be transparent and candid, is the supply side. So that's all the great business owners, all over the world because most are not aware that they can sell. So if I was to be really selfish Carrie, I would say give me an introduction to whoever or whom may know the largest network of online business owners the world over.

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00:18:42:17 - 00:19:14:09

Carrie Kwan

Well, come on, Mums & Co movement. I know that we've got 345,000 business owning mums in Australia alone. They're amazing, they're remarkable. So hopefully some of those are coming your way shortly. I know that there's lots of things that businesses need to get across in terms of messaging. What are you promoting at Flippa right now that might be of interest to our community?

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00:19:14:09 - 00:20:48:21

Blake Hutchison

There's a couple of things. The first thing is anyone can get a valuation, it's completely free. It's a little bit like getting your house valued and getting a property tracker from realestate.com or Domain, it's completely free. I want you to get a sense of how much your online business is worth. So have a go at that, you can just go to flippa.com and you'll see a get a valuation link at the top. So that's me with my very selfish request again. The next thing you could do, and I encourage everyone to do, is Flippa is almost better than going to business school. There are 6000 listings on the Flippa website that you can browse around and get a sense of how other people run their business and use it as a cheat sheet.

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What are people doing to get a profit margin of 50% on an e-commerce business? What are people doing in SEO? What does a good quality e-commerce business actually look like? What does its growth profile look like? What does its refund rate look like? If you're building a SAS business, you can use our benchmarking tools and see what a good LTV or churn rate is.

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What I would do if I was an online business owner is I'd start to snoop around Flippa listings and use it as insight. I've got both the selfish requests around what we're promoting, but also hopefully something that helps the community.

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00:20:48:21 - 00:21:17:12

Carrie Kwan

I absolutely encourage everyone to have a look on Flippa. It is actually fascinating, you kind of want to know how you're tracking and sometimes you're doing some work in areas where you're innovating, you've got that entrepreneurial spirit. You might not know what exists and how other businesses like yours are actually tracking. Such a great invitation. Thanks very much for that.

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00:21:17:18 - 00:21:38:18

Lucy Kippist

Just to finally round out our interview, you’ve obviously the CEO. Flippa is a global company and I'm really interested to know your answers to one of our most favorite questions here on Mumbition. If we stepped into your shoes for the day, how would you describe the shape of a perfect life for you? What would that look like?

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00:21:39:16 - 00:22:40:07

Blake Hutchison

Wow, it's a great question, it's a heavy question. I'm not sure that if you stepped into my shoes right now, it could be described as anything but heavy, hectic context switching. But outside of that, the shape of a good life for me is a bit of time hearing my two year old daughter run up and down the corridor in the morning yelling out “Daddy!” as I'm working from the front room, it's the most heartwarming, enlightening thing you'll hear each day.

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Then a glass of wine with my wife on the couch at the end of each day is about as good as you can get between those two moments. It's pretty wild. 6 a.m. starts on podcast with people in the US all the way through to late night calls with potential customers and partners in the UK. So it can be long, but it's fun. We've got a great platform, we've got a wonderful team globally and I do really enjoy it.

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00:22:44:15 - 00:23:27:10

Carrie Kwan

Now I just want to say thank you. I think that the work Flippa is doing is really important to shine the light that this is actually part of business. It's a part of you reaching your goals. It's a part of winding down a business with pride and also without the financial stress as well.

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I think with the business planning journey, one thing I'm really passionate about is actually to help people understand that there's nothing shameful about exiting a business. It's actually something that needs to be celebrated and something that needs to be thought of more coherently when you are actually starting the business.

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00:23:27:20 - 00:24:45:23

Blake Hutchison

It's actually a magical moment, you can sell a business. We've had 20 year bloggers selling their business for $90,000 in 24 hours and crying because they're about to retire and they've now got a bit more money in their bank account. We've also had individuals in New Zealand selling to people in Florida for $5.2 million and being just ecstatic that they've been able to connect with a network far outside of their own horizons.

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We've had people buy things for as low as $7,500 and then exit those same things two and a half years later for $550,000. We've had app publishers who have built a network of apps and sold over $35 million. So it's just so broad. That moment, whether it be small or large, is a very substantial moment.

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For the rest of your life, you'll be able to say you sold a business and most people don't have that opportunity, so cherish it, celebrate it. It's a really, really important moment. While so many people talk about how you start and so many people try to help people grow, there's actually very few people in the world who are trying to help people exit, and arguably that's the most important bit.

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00:24:47:08 - 00:25:33:07

Lucy Kippist

Very true, it’s like palliative care for businesses, right? Easing into that next stage. Blake, thank you so much for joining us on Mumbition today and thank you for your time. If you'd like to find more about Flippa or Blake, you can find Flippa on Instagram and Blake via LinkedIn. If you haven't already, please come and join our thousands of business women just like you at mumsandco.com.au.

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Unknown child speaker

Where did the name of your business come from?

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00:25:33:14 - 00:26:27:23

Blake Hutchison

I don't actually know. What I can say is I know the origin story and so like many great businesses, they spin out of other concepts and there's many examples of that. So Flippa spun out of Site Point. Site Point was a developer community and there were people trading source code and designs.

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Two businesses came as a result of Site Point. The first one was 99 Designs, some people will be very familiar with that. The second one was Flippa. Now my guess is that they thought the concept of starting something and selling it on to someone else was flipping, so Flippa was therefore founded. That was actually 13 years ago, so we've been around for a while and now growing really strongly.

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