Dave Slutzkin is the chief executive of Flippa, an online marketplace for buying and selling websites and web businesses. The company, which was spun out of Melbourne-based group SitePoint two years ago, posted revenue of $1.38 million in 2009-10 and continues to grow strongly.
Today, Slutzkin talks about the latest trends in the web business market and life within the SitePoint family after the recent deal to sell a stake in another spin-off, 99designs, for $35 million.
You’ve just got back from a strategy off-site. In a young business like yours, how important is that process of getting away and talking strategy.
We have been running for two years outside SitePoint and it’s something that we haven’t done a lot of. We have got a small team and as sort of the general manager or the CEO, I have been sucked inevitably into operations or operational things that don’t necessarily allow you a lot of time to really think about where you are going. It is all about what is the really important stuff to deal with today or tomorrow, not so much about what is going to be important in three to six months. So this is the first time that we have actually gone away with everyone. We took Leni Mayo and Mark Harbottle, a few of the really good business minds from the group and just sat around for a couple of days and really got a fair bit of work done. It was actually really important for us. I feel like I have such a clearer picture now of where we’ll be going in the next six to 12 months.
How far do you try and look ahead? Three, six, 12 months is really important I am sure, but do you endeavour to have a look any further out than that?
We do to some extent. There are some things where we might touch on them and think well, if we work towards this, then maybe in 12 months we’ll be in a position where we can start to think about our next step in a particular direction. It might be to do with broad based partnerships with other companies. Maybe at the moment we are still a bit small and a bit insignificant for them to partner with, but if we can take some steps over the next three to six months and then over the six months after that, then we can build up a bit of credibility in the space and maybe make some contacts in the right places.
So out of this we have certainly got six months of work backlog which has come immediately out of this session. And then probably the next six months after that is relatively obvious, then the 12 months after that we have some idea, but it is nice at least to know roughly I suppose where you are going at that point.
I guess with a young business you don’t want to be too prescriptive beyond that 12 months because the growth is happening so quickly that your options might change rather rapidly.
That is absolutely true. And you know this is the internet, we might be talking about completely different things in 12 months. It might all be about social media now, but in 12 months it won’t at all be about social media, maybe it will be about, who knows? I guess if I could answer that question I’d be making trillions of dollars. It is a space that changes so quickly that it is hard to necessarily say exactly what we can do. So what we can do is identify our options and know what we can do to take us in that direction.
Flippa is the second business to come out of SitePoint, which I guess in some ways has become an accidental incubator. Can you just talk us through how Flippa evolved?
That is a really good question and to be honest, I have got a sense of the history without necessarily being there. I came on to spinout Flippa from SitePoint almost exactly two years ago. Before that, SitePoint itself has existed from 1999 give or take. Mark came across from Sausage Software and met Matt Mickiewicz who was in Canada and they formed a business way back then. 99designs spun out a couple of years before Flippa did.
So that is a really broad history of the business and as you say, accidentally incubator is probably not a bad term for it. I can’t speak necessarily for the founders as to exactly how much they planned it, but certainly I think at some point they realised that they had businesses that were becoming businesses in their own right. And then they really concentrated on really making those count and running them as well as they possibly could which, I think is what has kind of been indicated in the last couple of weeks with the investment in 99designs.
So in terms of the spinning out process, I guess your advantage is that you have got an existing customer base, but you’ve still got the challenges of building a new brand and growing beyond the SitePoint community.
Yes, that’s absolutely true. From one perspective it has all almost been too easy from the point of view of having a start-up business, from the day we spun out, which was June 22, 2009, we were cashflow positive. We had revenue, we were well past break even, and we had a lot of customers who knew who we were. If any other entrepreneur had that from day one, they’d be absolutely ecstatic.
It made it quite easy for me from the start but as you say there were plenty of other challenges. You have to establish your identity separate to SitePoint and I think that is something that we are getting close to having done. Although, I must say there are still plenty of people out there who will recommend the SitePoint market place as the place to buy and sell websites, which it really hasn’t been for two years.
The good point in being spun out is that we do all of a sudden have access to a different audience, the site as soon as we spun out looked more credible, it was a separate business, it looked like a real business as opposed to part of a forum or part of SitePoint. So that is what we really worked on leveraging for the first year or so and working on perfecting the product, which is really one of those things that you can do forever.
The idea being the site, buying and selling websites and web businesses, sounds simple. But how has the product changed and evolved?
It’s hard to trade businesses especially at the level we do, we don’t make any pretensions to necessarily being the place that if you were Microsoft, you’d come looking for Skype for instance. Not that we wouldn’t mind MySpace being listed on Flippa. Although I am not sure anyone would actually want MySpace at this point.
If you are going to be buying and selling a web business for $50,000 or $40,000 you are not necessarily going to get lawyers involved too much. So there is a large amount of the transaction process that is going to be built on whatever trust you can build up with the person on the other end of the transaction. If you are a buyer of that business or if in fact you are a seller, you need to trust the person who is buying from you. And you need to trust the marketplace, the independent third party that is sitting between that can provide statistics about the site that is for sale which are somewhat verified, as independently verified as we can.
So there is a great deal that we have had to do to build up trust in our market place and help our users build up trust in each other, that’s the biggest thing that we have had to work on and still have to work on a huge amount. Allowing people to trust someone who they may never meet, who is potentially on the other side of the world who may speak a different first language. There are some big barriers there to doing successful business. So it is something that gives us some challenges from time to time.
What are some of the ways that trust is built up between seller and buyer?
Well, communication is the biggest one. We always advise both sides as the transactions get bigger, that they just have to communicate with each other. If you are a seller of a site, just writing a few words down on paper doesn’t just engender someone to trust you. If you can then have a really good 15 minute conversation with someone one the other end of the phone and you can get some sense of what the other person would be like to do business with, that moves you a quantum leap further on in building trust with someone. A lot of folks use Google Analytics for some instances for their traffic statistics, so one thing that we can do is we can get sellers to email their numbers, direct from their Google Analytics to us and we can verify that. We can actually give buyers a little bit more confidence that these statistics are real.
How has the type of business or website sold on the site changed? Are there trends that you guys see?
There’s a huge range. I mean, we can sell domain names that might not be worth very much, maybe $50, although we don’t really focus on domain names, there are other parties out there that do that bigger and better than us. We might be selling sites to beginners at a sort of $200, $300, $500 price point which actually can be really useful for people. We certainly know of a lot of people who get their start in running a business by running a really small web business. Because there is really no better way to learn that just by diving into a $200, $300 or $500 site and just getting your feet wet.
And then obviously as you said we range up to sites that might be making thousands of dollars a month, tens of thousands of dollars a month, which is completely different thing. And certainly there’s been a trend since we’ve been out of Sitepoint towards more of those bigger businesses being sold on Flippa. That comes from building credibility obviously and people are more willing to sell a big business on Flippa. But at the same time we’ve probably got more buyers than we ever had who are interested in those small start-up sites who really want to get started. We’re pretty good at getting those buyers in for whatever reason and getting them started in their sort of web career. So the trend is probably towards bigger sites.
And then other trends I suppose that we see are in the sort of category of types that are sold, what they focus on. The marketplace seems to respond amazingly quickly to things like the royal wedding for instance. I mean we had a plethora of sites listed in the last couple of weeks before the wedding which were capitalising on that particular topic that was in the media. Charlie Sheen sites in the few months before that were very popular. It responds really quickly in what’s going on in the world around. Even things like tsunami relief websites and these sorts of things around the time of the Japan tsunami.
We see a lot of that, the market really responds fast, there are a lot people out there who are looking to capitalise on these things, which sounds a bit wrong when you’re talking about something like the tsunami in Japan or maybe Charlie Sheen’s breakdown.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
