Flippa's New CEO: Why AI Is Actually the BEST Reason to Buy an Online Business Right Now with Tony Xu

Speaker A: You have to think about the enterprise value that you bring as the, as the owner of that business, you're clearly going to bring a huge hockey stick to growth. If you're really AI literate, you're bringing two of you or three of you versus what was happening 12 months ago. And so you're going to build enterprise value a lot faster with two or three exit to found this capability at least in the short term than you were beforehand. So if anything, if you find an under monetized business today and you think you can improve it, the time to value just went from 12 months to six.

Speaker B: Hey, I'm um, Jared Kraus, host of the Buying Online Businesses podcast and today I'm speaking with Tony Hsu. He is the CEO of Flippa, the new CEO, which is the world's number one marketplace of buying and selling online businesses. Now Tony has a background spanning economics, accounting and a CPA qualification. And he spent years as uh, Flippa's head of product and engineering, architecting the platform, the tools that have powered, you know, hundreds and thousands of digital business transactions. So he's led development, he's been in Flippa for five years. He's also built the game changing innovation Lauren AI which helps with deal sourcing and the buyer directory and Flippa's AI driven valuation tools as well that we mentioned in the podcast. In this pod, we do talk a lot about AI. Is AI good for acquisitions right now? Is it bad for acquisitions right now? And why I talk about why I'm bullish on it. We also talk about why Tony's bullish on it and why so much fear mongering can be thought about in a different way or maybe even ignored completely, especially when it comes to acquisitions and AI. And we also talk about due diligence. What are the type of businesses that Tony would be looking at now to purchase and why and what he would be avoiding in due diligence. We also talk about building a portfolio of businesses. If you wanted to acquire multiple and you've already bought one, or just thinking about the strategy to build that whole Holdco or portfolio, how would you go about that? Now, obviously buying a business, doing db, you're here listening to this pod because you want to acquire business. So do yourself a massive favor and dramatically decrease your risk of buying a lemon by getting my DD framework. It's what I use, it's what my clients use. And it's not only made people millions of dollars, but it's saved people millions of dollars. So check it out, it's free. And there's a link in the description. Also lastly, you've been asking for many, many years and I've been building our full stack DD service. Due diligence service is finally live for deals of 100 grand and up. Every package includes a personal M and a strategy with me which honestly no other due diligence service is actually doing. But do get due diligence done by the experts and if you'd like to check that out buyingonlinebusiness.com due diligence and you can see our different packages there. For now, let's dive into the pod. Tony, welcome to the pod.

Speaker A: Thanks Jared, great to be on.

Speaker B: Yeah, long time coming. Congratulations. You are now the CEO of Flippa.

Speaker A: Yeah, I know it's been a long run with Blake and you know he's done some fantastic things over the, I think it's eight years so it's really long service for him. Uh, and fantastic and you know, really, really honored to lead the business and I guess inherit such a, such a thriving buyer base and seller base uh, over the past eight years. So uh, full credit to Blake I guess and some pretty big shoes.

Speaker B: Yeah mate, lots of credit to him but so lots of credit to you as well. Like you've been on the team for how long now? You're head of product for how long?

Speaker A: I've been head of product and engineering for five years. So ever since so many of the features that your buyers and your sellers are seeing on the platform today and the evolution we've had over the last few years, the team um, and myself have kind of led that development. So you know, great to see too. We're in a good space with product and engineering and it's a great, great thriving platform.

Speaker B: Yeah, absolutely, absolutely. It really is. There's so much to chat. I don't know where to start. I guess Flippa being such a massive platform and you've made a lot of changes, what are some of the biggest shifts that you've seen in the last few years, especially the last 12 months in how buyers and sellers are behaving on Flippa now?

Speaker A: Yeah, the first one is it's a really global platform uh, at the moment. So we've got uh, sales team in the us, the eu, apac, we're seeing great assets come along in any part of the world, um, and being bought globally. So some 60 odd percent of European businesses are being bought by Americans. Um, we had a lot of, we had a very large sale, multi 3 million US plus of an Australian business that was again bought by an American who had exited an ESOP and made himself a little bit of money and actually found a great business to buy in Australia. Um, so that's a great story for cross border trade. And finally with our European localized sites, our French and Spanish sites, what we're seeing is more Europeans come along and buy global assets again. So I think that's probably the biggest change. We've become a very global organization, uh, and with all the challenges that entails. But the great part about that is these assets are truly global. The buyer can be found anywhere, the seller can be residing anywhere. And it's uh, a, you know, it's a great little story for cross border M. M and A, I guess.

Speaker B: Yeah, absolutely, absolutely. I mean there's always been international buyers and sellers. But it sounds like what do you think has promoted more international.

Speaker A: Now we've put a lot of features in to make that easier and we've put some sales teams uh, on the ground inside of Europe and the US and APAC to help broker those deals. But I think there's multi language. There's multi language on the site. So there's an AI translation inside of our deal room. So someone can come in from France, they can type in French, you see the translation in English, that makes life a little easier. The site itself, the entire inventory and all the businesses that are listed are uh, automatically translated to French and Spanish. So again you've got the SEO presence in those different languages bringing in buyers globally. And the other part is, you know, we've got multi language, we've got multi currency available, we've got our own payments network, um, able to disperse out to 158 different currencies. So all of those changes have just enabled, have made it a little easier for someone in any part of the world to search in their language, discover businesses um, in their language. And if you're looking for an Amazon, an e commerce, a YouTube, a SaaS, really if you find a great asset, you know you can, there's really not, not much difference in it other than some regulatory changes that might be specific to each jurisdiction. But a product that can close that can do well in Australia, can do just as well in the U.S. yeah, for sure.

Speaker B: What price range are you seeing bulk of the businesses being bought and sold in? Are we talking 10 to or under 10, 10 to 100k, 100k to 500k or more like what's the bulk, bulk part of sales or acquisitions in? Yeah, uh, through Flippa.

Speaker A: I think the story of Flippa has been a Little bit of the story of this segment of the market. Right. You know, first we found a lot of liquidity in domains and sub 10k sales. This was you know, a decade ago and then it went from 10 to 10 to 25, 10 to 50. So a little bit more than a side hobby and not a full fledged business type acquisition. More of an asset with a customer base and some revenue and profit and then you, then we've built a lot more liquidity there and that becomes much easier for everyone to exit. But it's not really a stretch price point for Flippa. It's got lots of buyers in their thriving network and then we see it moving up to 10, 100,000. This was a few years ago where the bulk of them, the bulk of ours are now sitting 250k plus us. So uh, 250, 500amillion US dollars. That's about the price point that we're again unlock mass levels of buyers along with mass levels of sellers.

Speaker B: Yeah, I mean, I mean I've been in the industry for 12 years now and I've seen a lot of changes to Flippa. A lot like you said over a decade ago with just domains and I bought my first business for $15,000 on

Speaker A: Flippa actually Now inflation adjusted mate, that'd be about 75 grand today, wouldn't it?

Speaker B: Yeah, yeah, I'll be in the bracket for sure. Yeah. But you've got Flipper changes. But you've also got so many market changes like obviously content sites have declined by 37%.

Speaker A: Right.

Speaker B: While SaaS business SaaS acquisitions have grown by 19% and E commerce 28% you know, over the last sort of year or so. What for someone looking to replace their income through acquisitions, what sort of business models are you most excited about? For somebody coming in as an entrepreneur, uh, acquisition entrepreneur to purchase in overthrew Flippa. Like what's, what are some of the more exciting assets and business models that people should be looking at, do you think? I think from a buyer's perspective, from

Speaker A: buyer's perspective, E commerce is definitely your tried and true, I would say gold standard for returns as a, as a, as a buyer. And there's a couple of things in there to unpack it. Traditionally the people that are interested in that specific niche of an E commerce business do have an interest in the product itself. So you know, maybe you're into supplements, maybe you're into baby wear, maybe you're into fashion. E commerce is so varietal that it scratches the itch of someone that's actually got an interest in that particular vertical and a lot of times if you've got an interest in it, that's a pretty important step because I used to be in E Commerce. I spent 15 years in e Commerce between Post and Wesfarmers. I can assure you that I never touched the fashion or beauty verticals because I knew nothing about them. And it was always for me electronics, it was gaming, it was books. Those were the three that I was strong at. And I never moved outside of that particular range for me as an E tailor because I just wasn't interested in the product that uh, was in the beauty side and in the fashion side. Right. So that's the great thing about E commerce. You got so many verticals.

Speaker B: Yeah. I am a strong believer of interest in the product not being the only thing. I've bought businesses that I'm not super interested in, e.g. e commerce brands in furniture and even like fashion as well. But I was more excited about the numbers, the business model and could see ways to optimize it and grow it. And that's where I found passion in the business is working in operations to scale it and grow it. The reason I say this is because there's a lot of people that when they have this belief system, okay, I'm interested in surfing, which is for me personally Tony is my, my thing. It's what gets me out of bed. But for me to go find a surfing E commerce business, it's very limited and I could be sitting around for two to three years. But I hear what you're saying is be to other things that you could be interested in as well and what's which uh, is a massive bonus. And at the same time you might find something that you're not super passionate about but you do are passionate about the business growth that you can add to it. I find that important, important part for people to not pigeonhole themselves into thinking I need this perfect unicorn asset which

Speaker A: you're the other one. Jared, your passion is for the operations and the logistics and that financial side. Right. And yes we have lots of those that it's not just categories. Categories is probably the easy one. But yes you do have people who are very very open to the category because they like the logistics. They like the logistics and the optimization of ads and the sell through and numbers.

Speaker B: When with sticking on the fleet, the theme of your marketplace Flippa. You've got over 450,000 registered people on Flippa and you've got like 4 to 6,000 active listings. I don't Know, it's an insane amount. These are rough numbers obviously, and feel free to correct, but how does the average Joe go about winning a deal in an environment like that?

Speaker A: Yeah, we've got a lot of things at Flippa to kind of find the perfect deal for you. Now, it might look like a pretty amazingly large amount of businesses for sale, but I always think about it in terms of property. You know, your average property in say, Melbourne, there's 11,000 properties for sale. And really when you come down, go down to suburb and the number of bedrooms and the price point you have, you've got a selection, but it's not 11,000.

Speaker B: Right, got you.

Speaker A: And so Flippa, the search is probably one of the most important features there. Your keyword, your price range, you know, the type of business that you're interested in, that'll again narrow that down, um, significantly. Um, you have watch list features on top of that where you can add it to a watch list. You can see similar businesses have opened up. And then just based on your pure browsing habits, Flippa has an AI recommendation system. And so just like on Netflix, based on what you look at, you'll be served similar businesses as they list. Uh, and that's really useful because what we see is preferences change from when people sign up with us. So they might tell us, you know, yeah, I want an E commerce business, uh, for, you know, in the us, but suddenly what you might find is they're looking at YouTube channels, uh, or they're looking at SaaS businesses. And so you want, you want the recommendations to change in line with what people are looking at. And the AI recommendation system does that. So search your classic. Search your classic watch lists along with AI recommendation. And that makes that really, really big number of listings feel a lot more homely and personalised for the average person. In the same way that, you know, a property market feels really big for a single state. But when you come down to it, it's a couple of suburbs, you know, and a short list of five to 10, 10 houses that might be of interest.

Speaker B: I like that. It's a great way to think about it. Be very specific with your search, especially, you know, when you've got that many deals out there. But be open to other. You got to play this like, happy medium game, be open to alternatives and have just a few that you're seriously looking at. And what I would suggest people to do is once you have those few that are in that, say, suburb street as this, to use this analogy, is do due diligence on each of those and stack them up against each other to see which one feels or is on paper better, uh, for you, depending on what risk tolerance you have, size and what's important for you. So say somebody starts out and they buy one business and then you've got somebody that's thinking about building a portfolio of businesses not just by acquiring one. Have you got data and I'm sure you follow people's journeys at uh, flippa on what is like what they've done with the smartest sequencing of like, you know, sizing strategy and acquisition strategy to acquire more businesses. How are your users building more of a portfolio than just looking at, you know, one acquisition?

Speaker A: Yeah, we've got some prolific acquirers. Yeah, I think there's a believe years ago we found a Serbian DJ, uh, who acquired about a million dollars in 140 different businesses. Over the years we've seen a few of those. Their acquisition strategy was roll up of multiple small 50 to 100k businesses rol up one by one. Each of those businesses had a customer list and for them it was effectively we have some centralized operations and we want to roll up subscale businesses into that centralized operation layer. And we're going to go do that where we have well priced assets inside of a target range of 50, 100, 150,000. So that's your typical aggregator strategy of you know, we know we have a circle of competence, whether that be in E commerce. We actually see it a bit in YouTube because the content creation capability is quite central and so you can have a team that just creates content for 10 different channels and with AI that, that just accelerates the capability of that team to create more and better content and you know, stop some of put some of the more traditional things. That used to be really hard to do. So animations used to be really, really hard to do, right? Yeah, you had to draw stick figures and things like that. And you're seeing more and more animated infographics coming on YouTube. And that's primarily because the AI is getting really good at drawing, you know, basic animations. So rolling up with a strategy is definitely uh, one that we see prolific acquirers doing.

Speaker B: Yeah, I am a big fan of YouTube, not just because it's a great channel, but when the content site era, uh, sort of had a massive shakeup due to search, Google search, disrupting blogs and the content website space, I was sharing with people how valuable it is to not only acquire YouTube channels but newsletters because you have, you are creating content. It's a media business. And now AI is lending to that where you can mass produce so much great content. I don't, I'm not the biggest fan of mass production with AI and I think that's going to definitely get disrupted in YouTube in years to come where people are probably going to still prefer to watch humans than just every video be AI animated. However, there's a time and a place and there is certain different YouTube channels that are valuable for that where we would prefer to watch just animations. And I agree the roll up of those with one centralized hub of creators doing that for 15 channels is you get the economy of scale. Have you got any other buyers that have done it to or are uh, doing it differently to just rolling them up?

Speaker A: Yeah, we do, we do have some buyers. The second part I think from the roll up is what I'll call a specialist buyer. So that's someone who has some specialist capabilities in a certain area, whether that be operations, logistics, marketing. And uh, what they're looking for is a business which with their capabilities added to the business is going to go in the hyper growth of that business. Right. There are two major ways you can grow, grow the valuation of a business. The first one is operational, you improve your profit, the cost structure, the unit economics of that business. And the second part is actually you've got the capability to really grow the top line, um, with your own brand or with your own specialist capability. So what we'll see is typically someone that likes that may have come from a B2B background, has some industry contacts, sees a business that their old industry contacts would absolutely love to put in a B2B channel. All right, they'll go and buy that, walk over to some of their old contacts, perhaps they've got some that have store distribution, they'll suddenly have a new product, they'll suddenly put it on some shelves and you get a distribution network that way. So specialist buyers identifying what kind of skills you have, looking for a business where it's a great business but it may have been under monetized in that sense and then buying it, applying that skill. The most common one is that we see is clearly digital marketing. So you get an active acquirer who's a great digital marketer and uh, you know that can do absolute wonders for a SaaS business or a E commerce business. If you're great with, if you're great with Google Ads and if you're great with optimizing your meta, there's a lot to do on those businesses.

Speaker B: I've got a client that scaled or Started an E commerce brand FBA business selling you know, almost eight figures worth of one product and they came to me wanting to buy a business. It was completely separate. We went and bought them business, uh, in the same space as fba, uh, and did a great acquisition and then now we're acquiring more because they have that skill set in how to scale FBA brands. Yeah, it's just using that skill and it's not just their skill set. They have the knowledge. Right. But they also have the team as well. And the way I think about it for somebody as a first time acquirer is buying something that you don't know what. Like if you're brand new to acquiring a business, you don't know what you're good at in the online business space but you might buy a particular business and it does quite well and you know how it has, you've grown own it, then you can acquire a similar business and either you know, get that economy of scale through distribution like you said, having some products on the shelf here and then selling and cross promoting to or roll ups or whatever it is. There's, there's so many different ways to run out a port, proper portfolio build and it can be the thing I think about is not having the end in mind too specific because that goalpost will change with your skills and what you've learned along the way. Right?

Speaker A: Yeah, I'll just share a Flippa. We've done exactly the same thing. So our uh, YouTube Catego which grew some 60 odd percent last year and grew some 200% the year before, it's led by a guy called Nelson and Nelson ran a YouTube business that was competing against Flippa, it was called Trustru. And he came over uh, to Flippa uh about two years ago to run the YouTube category for us. And that's exactly what we did with him. He benefited from flippa scale, the SEO. The fact that we're ranked number one for buy and sell a YouTube channel, uh, and we instantly kind of supercharged that category for us and we've done a very similar thing with kdp. Again a specialist that understands how to buy and sell kdps, how to transfer them and is quite ingrained into the network of KDP writers. So two of our fastest growing categories, uh, which are well over double digit to triple digit year on year, they're all led by kind of what I'll call specialists that got aggregated into Flippa bringing kind of specialist knowledge on that category. And so it's probably a little interesting point for everyone that's in your community. Flippa does the same thing as our buyers do. Right. When it comes to our acquisitions.

Speaker B: For sure. For sure. I would love to pivot now to AI where like there's gonna be a bit more of a topic to stay on for a little bit. But it's no longer just like a ah, nice to have. People aren't ah, just you know, buying business with just systems and defensibility. They want a future proof their business and they want something that's like I would say the buzzword is AI proof. I look at it quite differently but I'd love to hear your perspective. How should first time buyers be thinking about buying a business the it, you know, and, and valuing it and being AI ready?

Speaker A: Yeah. Look from the old CTO of Flippa, some AI for you know I've got a little bit of a different view for most on AI as well.

Speaker B: You're deep in the, you came from the product team and the cto, you know, in the tech. So I would love to hear this view. Yeah.

Speaker A: Over the medium term AI is not a strategy. It'll just get competed away into operations. So everyone's going to put AI in and the fact is you're just going to have to, you're just going to have to compete. If you don't put it, you just obviously you're behind and it's going to be the same kind of operational tool that got used when FBA came along, three PLs came along. You didn't have to run your own warehouse. You were ruthlessly efficient for maybe six months and then everyone else cottoned on and they became ruthlessly efficient and 12 months later everyone just ran the same cost structure.

Speaker B: So it's not going to be, going to be something that's like because a lot of people are scared of it. But it's just going to be like it's there. We use, it's a normal thing and it's not like it's any other, it's not going to be any other option. It's just like the, it's going to be the go to systemization tool. Like just go, oh okay, this new CRM came out or this new email software provider came out and say it's Klaviyo or say it's just like Shopify. Like you know, you just, if you're going to start a E commerce brand and it's direct to consumer without FBA's you just use Shopify. It's like that's what you're going to do in all your businesses, you just use AI. Yeah, right.

Speaker A: You just, you, you're going to be using it. So I'll go through each of the business models, right? If you do an E comm, clearly your product listings, your descriptions are going to be AI written now or at least your product photos for the first time in a long time. Those pesky photographers, you don't need a photo of every single thing. You just need a good, you know, in a perfect white background. I remember my catch days where you know, you had to get the white background perfect and otherwise it wouldn't, the images wouldn't pop. I'd focus on the, the basics of business haven't changed, right? Uh, great distribution, great product, an engaged customer list. They're what, they're what you should look for when you acquire a business. And when you go about thinking about building value onto that business, that's where the AI comes in because you're going to find businesses where you know the founder's still taking photos and you can sit there and you go, well, you scratch your head a bit and you go that's perfect. You've got a whole studio set up and you're paying three bucks a photo. Well, uh, I'll tell you, I have a friend called Claude that can do it for a couple of cents. So I more use AI to figure out what are the inefficiencies that I can now make really, really efficient. What are the things that I couldn't grow that I can now grow on. So for example, one of the things in YouTub YouTube is creating new content is really, really hard, right? Whole studios used to be done to create infographics. You probably don't need such a large investment today to do that for E commerce. Expanding your SKU catalog used to be really hard, right? You new descriptions, updating the SKU catalog, you get your product master everything like that. Um, all of that gets made a little easier with AI coming in. So. But the basics of business is still the same. Do you have great distribution? Do you have great. And for SaaS businesses was building new features. Now that's lot easier today than it was, than it was years ago. So you know, so all of those growth levers are now easier to access provided you again focus on the great basics, right? Do I have a great product? Do I have a great distribution? Do I have a customer list that's happy? Um, and can I look at the operations and can I make them really efficient and scalable?

Speaker B: I love that people are worried and there's A lot of fear around it with AI and like if I buy a business am I going to lose this business because of AI and all that sort of stuff. It, I see it the opposite. I see it as like what an opportunity now to buy something that is underutilized or the operations aren't um, performing as well because it hasn't been enhanced with AI that you've got a great time right now to go away and acquire a business and make it better and have it makes some be far more profitable and scale your distribution, increase your the value of your product and your relationship with your brand through AI. It's and it doesn't like I'm not, I'm not saying that just make everything AI because it can take out the humanness of things. I think you can become a better human using AI and you can be become a better operator using AI. Not it be the answer. You know what I mean?

Speaker A: Yeah. The one thing that we're seeing across the board though is a K shapeness in human productivity. So for the buyer of the business they are likely going to be the most productive person in that business for at least a short, medium term until the business gets to such scale that you've got a leadership team and staff and things like that. Right. Being able to. We're in a world now with AI where the most productive human is probably 2 to 3 times more productive than they were 12 months ago for sure. I'm definitely as a you know, head of product I was probably 2,3x I had to write these horrible product requirements docs that they you know, I uh, get three pages and I start contradicting myself. And engineers would turn around and say you know, this doesn't make sense and that you know, Claude does that really well now and it writes consistently. So you have to think about the enterprise value that you bring as the, as the owner of that business. You're clearly going to bring a huge hockey stick to growth if you're really AI and literally you're bringing two of you or three of you versus what was happening 12 months ago. And so you're going to build enterprise value a lot faster with 2 or 3x of the founder's capability, at least in the short term, uh, than you were, than you were beforehand. So if anything if you find an under monetized business today and you think you can improve it, the time to value just went from 12 months to six. Right. Because you can scale yourself well you've got this phenomenal tools that to kind of help you out that's how I think of AI. It really supercharges the most productive team members uh, on your team and it provides a layer of guidance for newbies that are coming into the business and speeds up the training curve for them.

Speaker B: Excited for uh, how AI is evolving the space and for people that it's a great time to acquire something there is still the risk and the fear that people like what if AI just people spin up my business using AI and the business I acquire just becomes non existent. And the answer, I would love to hear your answer to that uh, Tony, but I believe it comes back to what you have mentioned. The basics of business being distribution. A good audience and a relationship with that audience which adds the trust which allows you to distribute at a, at a better rate. And AI doesn't it's going to struggle to build an engaging like it can spin up some marketing strategy to build out an engaged audience and it can try scrape data to get emails but business is, is all about like the value of the business is how much market share you have and how big your audience is and how good you are at distributing an amazing product. And how is AI just going to replace that in a click of a finger? I mean it can replace product in terms of SaaS but that means everybody can do it as well. So I don't see that as a massive risk. That's how I view it. How do you view it Tony?

Speaker A: You think about the choke points in value for your business and then you've got to ask would I, would I do. I think AI is going to get to a point where it's going to replace that and you know too many people say just a product as the kind of choke point of the value and in E commerce in many respects it's not because unless you have a custom made product that's it's highly engineered, most everyone gets it from somewhere in overseas that's manufactured, custom manufacturer or the like. Right. So you know let's go through the list of things that if I give my Google Ads budget I just give it to Claude. Do I trust Claude to spend it well and make me more money than I currently am making? I don't know a single founder that's um, done that by the way at the moment. All right, so here Claude, I mean

Speaker B: they've just introduced Meta can directly link in to Claude now. And, and I mean when I'm doing due diligence on deals and I'm using Claude, it's wrong a decent percentage of the time and it's if I didn't have the experience to see that like somebody that's a newbie doing DD on a deal, it's very, very scary. So to just go, yep, Claude, run my ads for me.

Speaker A: Claude, here's 50,000 bucks a month. Run my ads for me. Right.

Speaker B: Are you going to do it?

Speaker A: No, no, no one's doing that at the moment. Right. Um, the other part is going down to say again, would you. And Claude's the most powerful frontier model. This is trillion bucks worth of value in here. Right. Again, we. It makes skew buying decisions from Claude, like what new SKUs I'm going to make put into my, put into my putting to my e commerce business. Am I going to or new features I'm going to build in my SaaS business, new videos I'm going to make on um, my new podcast members who I'm going to take to my podcast. I don't think we're at the point where Claude just makes all the decisions yet and you don't review them. There's some seriously nonsensical things it still does. So again, you know, you got a human review and a judgment there. That is to say that the, the big value drivers of most businesses actually remain remarkably untouched. So, you know, Claude's not managing your P and L, it's not managing your working capital right. It's not asking for a line of credit from the bank. It's again not performance managing your employees. It's not doing a lot of things in the background that build enterprise value. What it does do, it makes everything fast. And what people mistake a lot of times in the industry that we're in is speed with operational or what I would call you can get there first. It doesn't mean you have the customer base, the operations or the capability to actually sustain it. So I can build HubSpot tomorrow, I can build the exact same UI. Um, and I've actually done that um, on Claude code by the way. But it doesn't quite mean that you're going to get the distribution, the, you know, all of that kind of thing in there.

Speaker B: You don't have the audience, you don't have the years of branding and the marketing campaigns and the.

Speaker A: Yeah, you basically don't have any of the things that you're looking for in due diligence. So when you open up a book of due diligence, you're looking at the customers, marketing campaigns, the assets of the business, how much cash is on the balance sheet, all of those kinds of things so far uh, untouched, I would say with the vast amount of AI, the velocity of them has gone up, but it's not autonomous.

Speaker B: Yeah, it's just scary to think that people are listening to podcasts where everything's going to get replaced by AI, but they don't understand what parts are missing. Missing, like, yeah, in theory, in theory, you know, you can have Claude run, like, manage your money and your P and L, but when the rubber hits the road, are you gonna, you're gonna do it, you're gonna trust it? Nobody is. So AI is not replacing that. And it could take a long time before it's like super accurate. And even then you're still gonna want to have human correctiveness as well.

Speaker A: I would say for E commerce in particular, AI is a far, far lower disruptor than the Internet was. So the Internet for retail, for E commerce in general. And I can't imagine, I mean, that gave us Amazon, it gave us all the marketplaces on the planet, mobile shopping. I mean, if you characterize a scale of free shipping, if you characterize the scale of disruption that E commerce did, I can't imagine AI, uh, doing the same thing in the physical trade of goods. It may do a very large change in. It may be what the Internet was to software development. I think that that's probably going to be the case. Long term, it's going to be quite disruptive to software development. But for retail, I don't think so. For content and videos, I think it's a tailwind, but, you know, it's a

Speaker B: good way to look at it. I like that word.

Speaker A: It's tailwind to content. It's neutral. For ecom and you know, for SaaS, it depends on how you play it. Right. Clearly your velocity goes up and the rest of the market's velocity all went up. And so maybe it's neutral because you can execute just as fast as anyone else can now. Uh, but if you, you're not particularly good at executing, then yeah, it's, it's probably going to be a little bit more competitively, uh, difficult going forward just because the cost of executing is going down.

Speaker B: The way I think about it, it depends on the software and the product. But if you already have an audience that is paying a recurring revenue for a product and then they want that product to, and you want to grow that, uh, and AI comes in, you can use the AI to make product products so much better than competitors, competitors at a fast rate, and retain your audience and your revenue because you're able to, you've got that distribution you've already got paying members versus somebody is like, like you said, you just create HubSpot, you know, but you don't have any paying customers because you don't have any long form, long term of marketing relationship and trust.

Speaker A: So uh, yeah, yeah, products can be taken over. I actually advise a couple of SaaS businesses. I tell them it's pretty simple, right? Uh, the revenue revenue base next year is your current ARR, plus your net revenue retention, your upsell, minus your churn. Um, what drives your net revenue retention? Great new features that people love. What drives down your churn? Great new features that people love. Right? Can you build great new features that people love that make them use your software more? Yeah, I can do that quicker with AI. And all you gotta do is just focus on that. And guess what? Those businesses are in much better spots today. They're releasing at much quicker velocities than they were 12 months ago. And frankly, you know, AI has made it more difficult to acquire their customers away from them. Right. So uh, I think you got to look at each part of your revenue equation. Just figure out whether you know, it's just the world howling that AI is going to take over everything or really just you scratch your head and you go, well I can reduce my churn, I can increase my net revenue retention, I've got this big backlog of features I can suddenly put in. Um, and lo and behold, you know, if you work through that, your next six to 12 months looks a little brighter than the last six to 12 months for sure.

Speaker B: Sure, absolutely love that explanation. Now sort of finish off Tony. If you were uh, brand new to this space and you were first time acquirer and say you had like 100k to 300k and you jumped on Flippa, uh, and you wanted to deploy that into your first acquisition, what would you be looking for? And then what one to two things would cause you to immediately walk away from a deal.

Speaker A: I'd be looking for the same thing, you know, good product, good distribution, particularly, particularly if you've got a site that has some glorious global customers, has fulfillment in a few locations. That's, that's quite a lovely way of seeing a business. So some, you may be on a Shopify store that's Australian based, but you've got an FBA store in the US that's doing some trade for you there. The logistics are sorted. It's a kind of great little cross market strategy. So I'd like, I'd like to see some of that, some good customers, some Good distribution. I'd like to see, you know, there's some unique creators, uh, available. So do you have a bit of a brand? Is it a bit quirky? Uh, does it feel a little different? Does your mailing list work really well when you email them? Really quirky things. You know, there's a business that have a bit of a personality because at that range too, you want a bit of personality. You don't want to look generic. Corporate. You can't get corporate at $300,000 down printer price value. Right. You want to be a little quirky. You want to have some fun video. Does it have a bit of a brand? Do you kind of like it like that brand? So those are the big two, uh, and the third one, you know, is it operationally sound? Have you got some standard operating procedures in place and things like that? So those are the three things that I look for, uh, when, when I'm buying it and then obviously then for me the financials and then the product niche. But I'm a big distribution fan, so I like buying distribution and I like buying brand as my two main acquisition kind of things that I look for. Those are, those are probably the two big things that I'd look for in any, any due diligence process.

Speaker B: What, what would be two big things that would cause you to just go, no, that's, that's not something I'm, um, I want to like through dd that would cause you to walk away.

Speaker A: I, I'd be very, I'd be careful around government regulations. There's more and more of them coming in. So, you know, things that aren't, um, that require a license to sell, some kind of regulatory approval. You've got you, you, you. If you're going to go through that, just make sure that you, you've got the right lawyers in the right jurisdictions and not say a lawyer that's local trying to advise you on, uh, U.S. law or the U.S. lawyer trying to advise you on Australian law. That typically doesn't end really well because lawyers aren't skilled in that particular area. And that's probably, number one, legal or regulatory barriers. Be really, really careful around that. And for me, uh, number two is, you know, be really clear around. This is one thing that I've seen around who the key people are, ah, after you purchase. So you want, you want someone there that's got some experience about the business, whether that's a VA or small team or something like that. Or if you don't have that, then you've got a pretty extensive coaching and tutorial session with the old founder, uh, to take that business over. So during. If I was going to buy a business those two flags would definitely warrant me to investigate a bit more. Make sure that you know, the regulatory compliance is something that is taken care of. And for example things like sunscreens are uh, are now you might not think it but they are regulated. Right. Uh, supplements too. Uh, and finally, you know, is there a little team there I can draw the expertise on and if not do I have an extended handover period with the founder so I can learn how to run this business? Because typically it's you know, three to six months. The first three to six months you're getting across all the detail and how it operates.

Speaker B: Yeah, absolutely critical to have good support and good training especially if it's something, you know, you're running an operation if you've never done it before for it's not like somebody would just hire you, give you a job and say work it out. Second, secondly your first, first answer being regular regulations is like that's what we need to be looking for in due diligence is the invisible, the unseen, the unthinkable and being prepared. If this was to change, what would that look like and how do I mitigate that risk and factor that into my valuation as well? It's very, very important. Tony, it's been so good to have you on. Thank you so much for your time. Congratulations on CEO now of Flippa. I'm really looking forward to seeing how Flippa progresses in the years to come with you steering the ship.

Speaker A: Thank you. And I'll give a little plug out to some of the new features coming out on the platform. We've got a new AI powered P& L builder and what that's going to do is it's going to, you're going to be able to upload your bank statements or connect directly to your bank. It's going to create a cash P and L acquisition ready cash P and L using AI to classify your revenues. Each of the category of expenses is going to come through so you're going to get, be able to build you know, really, really great easy acquisition ready P Ls for buyers. We know that that's commonly an issue for our uh, for our sellers, uh, as well as a data room with uh, AI powered indexing so you can again ask uh, and query all the things inside the data room for, to help with your due diligence. So those two things are just really going to be really supercharged at 250, $500 million range for our sellers. Better financials, better data rooms make that acquisition journey a lot easier for our buyers in terms of getting the complete financial picture. I love that.

Speaker B: Far more clarity on the data is what we're looking for when we're doing DD. So love that. Uh, guys, check out flippa.com. obviously there's links in the show notes. And for Tony, I can. Would you like me to add your LinkedIn if they want to reach out and speak to you?

Speaker A: Yeah, yeah, no worries. DM Ah me any time.

Speaker B: Cool, cool. Thanks again, Tony. Appreciate you coming on.

Speaker A: Thank you.