SEOs debate ranking metrics over and over, but if there’s one thing for sure, it’s that Google no longer works the same way it used to.

The fundamental shift in the past couple of years has been more emphasis on what could be characterized as engagement factors.

I became convinced that Panda is really the public face of a much deeper switch towards user engagement. While the Panda score is sitewide the engagement "penalty" or weighting effect on also occurs at the individual page. The pages or content areas that were hurt less by Panda seem to be the ones that were not also being hurt by the engagement issue.

Inbound links to a page still count, as inbound links are engagement factors. How about a keyword in the title tag? On-page text? They are certainly basic requirements, but of low importance when it comes to determining ranking. This is because the web is not short of content, so there will always likely to be on-topic content to serve against a query. Rather, Google refines in order to deliver the most relevant content.

Google does so by checking a range of metrics to see what people really think about the content Google is serving, and the oldest form of this check is an inbound link, which is a form of vote by users. Engagement metrics are just a logical extension of the same idea.

Brands appear to have an advantage, not because they fit into an arbitrary category marked “brand,” but because of signals that define them as being more relevant i.e. a brand keyword search likely results in a high number of click-thrus, and few click-backs. This factor, when combined with other metrics, such as their name in the backlink, helps define relevance.

Social signals are also playing a part, and likely measured in the same way as brands. If enough people talk about something, associate terms with it, and point to it, and users don’t click-back in sufficient number, then it’s plausible that activity results in higher relevance scores.

We don’t know for sure, of course. We can only speculate based on limited blackbox testing which will always be incomplete. However, even if some SEOs don’t accept the ranking boost that comes from engagement metrics, there’s still a sound business reason to pay attention to the main difference between brand and non-brand sites.

Loyalty

Investing In The Return

Typically, internet marketers place a lot of emphasis, and spend, on getting a new visitor to a site. They may also place emphasis on converting the buyer, using conversion optimization and other persuasion techniques.

But how much effort are they investing to ensure the visitor comes back?

Some may say ensuring the visitor comes back isn't SEO, but in a post-Panda environment, SEO is about a lot more than the first click. As you build up brand searches, bookmarking, and word-of-mouth metrics, you’ll likely create the type of signals Google favours.

Focusing on the returning visitor also makes sense from a business point of view. Selling to existing customers - whether you’re selling a physical thing or a point of view - is cheaper than selling to a new customer.

Acquiring new customers is expensive (five to ten times the cost of retaining an existing one), and the average spend of a repeat customer is a whopping 67 percent more than a new one

So, customer loyalty pays off on a number of levels.

Techniques To Foster Loyalty

Return purchasers, repeat purchasers and repeat visitors can often be missed in analytics, or their importance not well understood. According to the Q2 2012 Adobe analysis, “8% of site visitors, they generated a disproportionately high 41% of site sales. What’s more, return and repeat purchasers had higher average order values and conversion rates than shoppers with no previous purchase history

One obvious technique, if you’re selling products, is to use loyalty programs. Offer points, discounts and other monetary rewards. One drawback of this approach is is that giving rewards and pricing discounts is essentially purchasing loyalty. Customers will only be “loyal” so long as they think they’re getting a bargain, so this approach works best if you’re in a position to be price competitive. Contrast this with the deeper loyalty that can be achieved through an emotional loyalty to a brand, by the likes of Apple, Google and Coke.

Fostering deeper loyalty, then, is about finding out what really matters to people, hopefully something other than price.

Take a look at Zappos. What makes customers loyal to Zappos? Customers may get better prices elsewhere, but Zappos is mostly about service. Zappos is about ease of use. Zappos is about lowering the risk of purchase by offering free returns. Zappos have identified and provided what their market really wants - high service levels and reasonable pricing - so people keep coming back.

Does anyone think the engagement metrics of Zappos would be overlooked by Google? If Zappos were not seen as relevant by Google, then there would be something badly wrong - with Google. Zappos have high brand awareness in the shoe sector, built on solving a genuine problem for visitors. They offer high service levels, which keeps people coming back, and keeps customers talking about them.

Sure, they’re a well-funded, outlier internet success, but the metrics will still apply to all verticals. The brands who engage customers the most, and continue to do so, are, by definition, most relevant.

Another thing to consider, especially if you’re a small operator competing against big players, is closely related to service. Try going over-the-top in you attentiveness to customers. Paul Graham, of Y Combinator, talks about how start-ups should go well beyond what big companies do, and the payback is increased loyalty:

But perhaps the biggest thing preventing founders from realizing how attentive they could be to their users is that they've never experienced such attention themselves. Their standards for customer service have been set by the companies they've been customers of, which are mostly big ones. Tim Cook doesn't send you a hand-written note after you buy a laptop. He can't. But you can. That's one advantage of being small: you can provide a level of service no big company can

That strategy syncs with Seth Godin’s Purple Cow notion of “being remarkable” i.e do something different - good different - so people remark upon it. These days, and in the context of SEO, that translates into social media mentions and links, and brand searches, all of which will help keep the Google Gods smiling, too.

The feedback loop of high engagement will also help you refine your relevance:

Over-engaging with early users is not just a permissible technique for getting growth rolling. For most successful startups it's a necessary part of the feedback loop that makes the product good. Making a better mousetrap is not an atomic operation. Even if you start the way most successful startups have, by building something you yourself need, the first thing you build is never quite right.....

Gamification

Gamification has got a lot of press in the last few years as a means of fostering higher levels of engagement and return visits.

The concept is called gamification - that is, implementing design concepts from games, loyalty programs, and behavioral economics, to drive user engagement”. M2 research expects that US companies alone will be spending $3b per year on gamification technologies and services before the end of the decade

People have natural desires to be competitive, to achieve, to gain status, closure and feel altruistic. Incorporating game features helps fulfil these desires.

And games aren’t just for kids. According to The Gamification Revolution, by Zichermann and Linder - a great read on gamification strategy, BTW - the average “gamer” in the US is a 43 year old female. Gaming is one of the few channels where levels of attention are increasing. Contrast this with content-based advertising, which is often rendered invisible by repetition.

This is not to say everything must be turned into a game. Rather, pay attention to the desires that games fulfil, and try to incorporate those aspects into your site, where appropriate. Central to the idea of gamification is orienting around the deep desires of a visitor for some form of reward and status.

The user may want to buy product X, but if they can feel a sense of achievement in doing so, they’ll be engaging at a deeper level, which could then lead to brand loyalty.

eBay, a pure web e-commerce play dealing in stuff, have a “chief engagement officer”, someone who’s job it is to tweak eBay so it becomes more-gamelike. This, in turn, drives customer engagement and loyalty. If your selling history becomes a marker of achievement and status, then how likely are you to start anew at the competition?

This is one of the reasons eBay has remained so entrenched.

Gamification has also been used as a tool for customer engagement, and for encouraging desirable website usage behaviour. Additionally, gamification is readily applicable to increasing engagement on sites built on social network services. For example, in August 2010, one site, DevHub, announced that they have increased the number of users who completed their online tasks from 10% to 80% after adding gamification elements. On the programming question-and-answer site Stack Overflow users receive points and/or badges for performing a variety of actions, including spreading links to questions and answers via Facebook and Twitter. A large number of different badges are available, and when a user's reputation points exceed various thresholds, he or she gains additional privileges, including at the higher end, the privilege of helping to moderate the site

Gamification, in terms of the web, is relatively new. It didn’t even appear in Google Trends until 2010. But it’s not just some buzzword, it has practical application, and it can help improve ranking by boosting engagement metrics through loyalty and referrals. Loyalty marketing guru Fredrick Reichheld has claimed a strong link between customer loyalty marketing and customer referral.

Obviously, this approach is highly user-centric. Google orient around this principle, too. “Focus on the user and all else will follow.”

Google has always had the mantra of 'focus on the user and all else will follow,' so the company puts a significant amount of effort into researching its users. In fact, Au estimates that 30 to 40 per cent of her 200-strong worldwide user experience team is compromised of user researchers

Google fosters return visits and loyalty by giving the user what they want, and they use a lot of testing to ensure that happens. Websites that focus on keywords, but don’t give the user what they want, either due to a lack of focus, lack of depth, or by using deliberate bait-and-switch, are going against Google’s defining principles and will likely ultimately lose the SEO game.

The focus on the needs and desires of the user, both before their first click, to their return visits, should be stronger than ever.

Attention

According to Microsoft research, the average new visitor gives your site 10 seconds or less. Personally, I think ten seconds sounds somewhat generous! If a visitor makes it past 30 seconds, you’re lucky to get two minutes of their attention, in total. What does this do to your engagement metrics if Google is counting click backs, and clicks to other pages in the same domain?

And these metrics are even worse for mobile.

There’s been a lot of diversification in terms of platforms, and many users are stuck in gamified silo environments, like Facebook, so it’s getting harder and harder to attract people out of their comfort zone and to your brand.

So it’s no longer just about building brand, we also need to think about more ways to foster ongoing engagement and attention. We’ve seen that people are spending a lot of attention on games. In so doing, they have been conditioned to expect heightened rewards, stimulation and feedback as a reward for that attention.

Do you reward visitors for their attention?

If not, think about ways you can build reward and status for visitors into your site.

Sites like 99 Designs use a game to solicit engagement from suppliers as a point of differentiation for buyers. Challenges, such as “win the design” competition, delivers dozens of solutions at no extra cost to the user. The winners also receive a form of status, which is also a form of “payment” for their efforts. We could argue that this type of gamification is weighed heavily against the supplier, but there’s no doubting the heightened level of engagement and attraction for the buyer. Not only do they get multiple web design ideas for the price of one, they get to be the judge in a design version of the X-Factor.

Summary

Hopefully, this article has provided some food for thought. If we were going to measure success of loyalty and engagement campaigns, we might look at recency i.e. how long ago did the users last visit, frequency i.e. how often do they visit in a period of time, and duration i.e. when do they come, and how long do they stay. We could then map these metrics back against rankings, and look for patterns.

But even if we’re overestimating the effect of engagement on rankings, it still makes good sense from a business point of view. It costs a lot to get the first visit, but a whole lot less to keep happy visitors coming back, particularly on brand searches.

Think about ways to reward visitors for doing so.

There’s an in-depth discussion going on in the members area about how to sell an SEO business. There will surely be readers of the blog interested in the topic, too, so I thought I’d look at the more general issues of selling a business - SEO, or otherwise. Specifically, how to structure a business so it can be sold.

Service-Based Businesses

Service based businesses are attractive because they’re easy to establish.

Who can sell a service? The answer is simple--anyone and everyone. Everyone is qualified because each of us has skills, knowledge or experience that other people are willing to pay for in the form of a service; or they're willing to pay you to teach them your specific skill or knowledge. Selling services knows no boundaries--anyone with a need or desire to earn extra money, work from home, or start and operate a full-time business can sell a service, regardless of age, business experience, education or current financial resources

The downside of a service based business is that they’re easy to establish, so any service area that’s worth any money soon gets flooded with competition. The ease with which competitors can enter service-based markets is one of the reasons why service-based business can be more difficult to sell for a reasonable price.

Selling A Consultancy

Some businesses are more difficult to sell than others. Agency business, such as SEO consulting, can be especially problematic if they’re oriented around highly customized services.

In Built To Sell: Creating Business That Can Thrive Without You, John Warrillow outlines the reasons why, and what can be done about it. The book is an allegory about the troubles the founder of a design agency experiences when, after eight years, he is fed up with the demands of the business and decides to sell, only to find it’s essentially worthless. His business creates logos, does SEO, web design, and brochures, so many of his trials and tribulations will sound familiar to readers of SEOBook.com

Smart businesspeople believe that you should build a company to be sold even if you have no intention of cashing out or stepping back anytime soon

There are 23 million businesses in the US, yet only a few hundred thousand sell each year. Is this simply because the owners want to hold onto them? Yes, in some cases. But mainly it’s because a lot of them can’t be sold due to structural issues. They might be worth something to the seller, but they’re not worth much to to anyone else.

If You Were To Buy A Business, Would You Buy Yours?

If you put yourself in the shoes of a buyer, what would you be looking for in an SEO-related business? What are the traps?

We might start by looking at turnover. Let’s say turnover looks good. We may look at the customer list. Let’s say the customer list looks good, too. There are forward contracts. Typically, owners of businesses place a lot of value on goodwill - their established reputation of a business regarded as a quantifiable asset.

Frequently, goodwill is overvalued and here’s why:

It is fleeting.

A company may have happy customers, happy staff, and people may say good things about them, but that might all change next week. Let’s say Update Zebra, or whatever black n white exotic animal is heading our way next, is rolled out next month and trashes all the good SEO work built up over years. Is everyone still happy? Clients still happy? Staff still happy? Were there performance guarantees in place that will no longer be met? The most difficult thing about the SEO business is that critical delivery aspects are beyond the SEOs control.

Goodwill is so subjective and ephemeral that many investors deduct it completely when valuing a company. This is not to say a good name and reputation has no tangible value, but the ephemeral nature perhaps illustrates why buyers may place less value on goodwill than sellers. If you think most of your business value lies in goodwill, then you may have trouble selling for the price you desire.

....the only aspect of goodwill that can unequivocally offer comfort to an investor is the going-concern value of a company. This represents things such as the value of assets in place, institutional knowledge, reputational value not already captured by trade names, and superior location. All these attributes can lead to sources of competitive advantage and sustainable results; and/or they can give an entity the ability to develop hot products, as well as to achieve above-average earnings.

If a buyer discounts most or all of the goodwill, then what is left? There is staff. But staff can leave. There are forward contracts. How long do these contracts last? What are they worth? Will they roll over? Can they be cancelled or exited? A lot of the value of an agency businesses will lay in those forward contracts. What if the customers really like the founder on a personal level, and that is why they do business with him or her? A service business that is dependent on a small group of clients, who demand personal attention of the founder, and where the business competes with a lot of other players offering similar services is, in the words of John Warrillow “virtually worthless”.

But there are changes that can be made to make it valuable.

Thinking Of Service Provision In Terms Of Product

Warrillow argues that a business can be made more valuable if they create a standard service offering. Package services into a consistent, repeatable process that staff can follow without depending on you. The service should be something that clients need on a regular basis, so revenue is recurring.

His key point is to think like a product company, rather than a service company.

Good service companies have some unique approaches and talented people. But as long as they customize their approach to solving client problems, there is no scale to the business and it’s operations are contingent on people. When people are the main assets of the business - and they can come and go every night - the business is not worth very much

That’s not to say a service business can’t be sold for good money. However, Warrillow points out that they’re typically purchased on less than ideal terms, often involving earn-outs. An earn-out is when the owner gets some money up front, but to get the full price, they need to hit earnings targets, and that may involve staying on for years. In that time, anything can happen, and the people buying the company may make those targets difficult or impossible to achieve. This doesn’t necessarily happen through malice - although sometimes it does - but can arise out of conflicting incentives.

There are other stories of entrepreneurs going through the change from service to products, although the process may not be quite as straightforward as the character in the book experiences:

So I’m sure there’s a lot of entrepreneurs out there that want to make the switch from consultancy to selling products. Belgian entrepreneur Inge Geerdens did exactly that: she pivoted successfully from providing services to selling a product.......A product is entirely different. You have costs that you can’t cut. In a service company, you can downsize everyone if you want, and run it at basically zero cost. It’s impossible to do that with a product. There’s hosting, development, upgrades, bug fixes, support: those are costs that you can’t flatten in any way. Your developers need new PC’s a lot sooner than consultants!

Nonetheless, the book offers seventeen tips on how to adjust a service based business to make it more saleable, and there are a lot more great ideas in it. Hopefully, outlining these tips will encourage you to buy the book - I’m not on commission, honest, but it’s a great read for anyone starting or running a business with the intention to sell it one day.

Let’s look at these tips in the context of SEO-related businesses.

1. Specialize

It’s difficult for small firms to be generalists.

Large firms can offer many services simply by having many specialists on the payroll. If a small business tries to do likewise, small business end up with staff wearing many hats. Someone who is a generalist is unlikely to be as proficient as a specialist, and this makes it more difficult to establish a point of difference and outperform the competition.

In terms of SEO, it’s already a pretty specialized area. The businesses that might be more difficult to sell in this market sector are the businesses offering multiple service lines including SEO, web design, brochures, etc, unless they have some local advantage that can’t easily be replicated.

However, positioning as a generalist can have it’s advantages, especially if the ecosystem changes:

Despite the corporate world’s insistence on specialization, the workers most likely to come out on top are generalists—but not just because of their innate ability to adapt to new workplaces, job descriptions or cultural shifts. Instead, according to writer Carter Phipps, author of 2012’sEvolutionaries generalists will thrive in a culture where it’s becoming increasingly valuable to know “a little bit about a lot.” Meaning that where you fall on the spectrum of specialist to generalist could be one of the most important aspects of your personality—

This is perhaps more true of individual workers than entities.

2. Make Sure No One Client Makes Up More Than 15% Of Your Revenue

If a business is too reliant on one client, then risk is increased. If the business loses the client, then a big chunk of the business value walks out the door.

Even though we usually land an annual contract, once that runs out, the client can cut us loose without any of the messiness involved in firing employees — that is, no severance pay, no paying unemployment benefits, no risk of being sued for discrimination or harassment or any of the other three million reasons why an ex-employee sues an ex-employer

3. Owning A Process Makes It Easier To Pitch And Puts You In Control

It is more difficult and time consuming to sell highly configured solutions than it is to sell packaged services. Highly configured services are also harder to scale, as this usually involves adding highly skilled and therefore expensive staff.

In SEO, it can be difficult to implement packaged, repeatable processes. Another way of looking at it might be to focus on adaptive processes, as used in Agile:

Reliable processes focus on outputs, not inputs. Using a reliable process, team members figure out ways to consistently achieve a given goal even though the inputs vary dramatically. Because of the input variations, the team may not use the same processes or practices from one project, or even one iteration, to the next. Reliability is results driven. Repeatability is input driven.

4. Don’t Become Synonymous With Your Company

Yahoo lived on without its founders. As will Google and Microsoft. The founders created “machines” that will “go” whether the founders are there or not.

Often, small consulting businesses are built around the founder, and this can make selling the company more difficult than need be. If customers want the founder handling or overseeing their account, then a buyer is going to wonder how much of the customer list will be left after the founder exits. It can even happen to big companies, like Apple, although their worry is perhaps more about the ability of successors to lead innovation.

If you never returned to your business, could it keep running?

Test yourself simply by asking yourself these questions and if you can respond yes to all of them you are well prepared:

• Do you have a strategy in place should you, or a key staff member, be unable to return to work for a long period, or never?
• Is this strategy documented and has it been communicated effectively to the business?
• Do you have a process in place that ensures qualified and appropriately trained people are able to take over competently when the current generation of managers and key people retire or move on?
• Has this strategy been documented and communicated to the key people involved?
• Do you have a 'vision' for your business? Does it link easily to the 'values' of the business and the behaviours of the people within the business?
• Has your 'vision' been well articulated and communicated with the people in the business?
• Are you able to demonstrate your business plans for a clearly-defined viable future?
• Have these plans been clearly articulated, documented and communicated to the key people within your organisation?

5. Avoid The Cash Suck

Essentially, try to get payment up-front. This is a lot easier to do for products than services. Alternatively, use progress billing. Either way, you need to be cash-flow positive.

Poor cashflow is the silent killer of many businesses, and poor, lumpy cashflow looks especially bad when a business is being packaged up for sale. It's difficult to make accurate forward revenue predictions when looking at sporadic cashflow.

6. Don’t Be Afraid To Say No To Projects

It can be difficult to turn down work, but if the work doesn’t fit into your existing processes, then you need to find extra resources to do it. Above all else, it’s a distraction from your core function, which will also likely be your competitive advantage.

This point is also highlighted well in The Pumpkin Plan:

Never, ever let distractions - often labelled as new opportunities - take hold. Weed them out fast

7. Take Time To Figure Out How Many Pipeline Prospects Will Likely Lead To Sales

What’s your conversion rate? This helps a buyer determine the market potential. They want to know if they can expect the same rate of sales when they take it over.

8. Two Sales Reps Are Always Better Than One

The reasoning for this is that sales people are naturally competitive, so will compete against each other, which benefits the business.

Most of us would agree that salespeople are competitive by nature. This is obvious and necessary. After all, these are the people we put on the front lines to win the day and bring back revenue-producing opportunities for the company. They are assessed on their sales performance via metrics and measurements, and they’re incentivized with compensation and perks. Many organizations even have annual sales drives or competitions to quantify the level of performance and measure who is the best.

9. Hire People Who Are Good At Selling Products, Not Services

If you’ve gone to the trouble of systematizing your services to turn it into a product, then you don’t want salespeople agreeing to meet a customers demands by bending the product to those demands. Either the product meets their demands, or it doesn’t. I have known some service-oriented salespeople sell solutions that the company doesn’t even offer, reasoning the sale is the important thing, and the “back office” will work it out somehow!

Part of the rationale is that product based salespeople will filter out clients who want something else, and focus on those who are best served by the product, and likely to want more of it in future.

10. Ignore Your Profit And Loss Statement In The Year You Make A Switch To The Standardized Offering

It will likely show losses due to restructuring around a repeatable process or product. In any case, the future buyer is not buying the previous service business, they’re buying the new product business, and it is on these figures alone, going forward, the business will be judged.

11. You Need At Least Two Years Financial Statements Reflecting Your Standardized Model

See above.

12. Build A Management Team And Offer A Long Term Incentive Plan That Rewards Their Loyalty

Just like a buyer doesn’t want to see a business dependent on the founder, a buyer doesn’t want a management team abandoning ship after they’ve bought a company, either, unless the buyer is happy putting their own management in place.

13. Find An Adviser For Whom You Will Be Neither Their Largest Nor Smallest Client. Ensure They Know The Industry

Warrillow advises using a boutique mergers and acquisitions firm, unless you business is worth well under $5 million, in which case a broker is likely to handle the sale.

Between 1995 and 2006 about a quarter of merging firms hired boutique banks as their advisors on mergers and acquisitions (M&A). Boutique advisors, often specialized by industry, are generally smaller and more independent than full-service banks. This paper investigates firms' choice between boutique and full-service advisors and the impact of advisor choice on deal outcomes. We find that both acquirers and targets are more likely to choose boutique advisors in complex deals, suggesting that boutique advisors are chosen for their skill and expertise.

14. Avoid An Advisor Who Offers To Broker A Discussion With A Single Client. You Need To Ensure (Buyer) Competition

Sometimes, advisors are scouts for favoured clients. This can create a conflict of interest as the advisor may be trying to limit the bidding competition as a favor to the buyer, or because they’re earning higher margins from that one client for introducing deals.

15. Think Big. Write A Three-Year Business Plan That Paints A Picture Of What Is Possible For Your Business

Think in terms of what the business could be, not necessarily what it is within your capabilities. For example, if the business is regional, what are the possibilities if it was scaled to every state? Or the world?

The buyer may have resources to leverage that you do not, such as established agencies in different markets. What happens if they sell your product to all their existing customers? Suddenly the scope of the business is increased, and the possible value is highlighted. Imagine what it would be like if you had the networks that were possible, as opposed to those you have at present.

16. If You Want A Sellable, Product Oriented Business, You Need To Use The Language Of One

“Clients” become “customers”, “firm” becomes “business”. It’s not just a change of positioning, it’s also a change of mindset and rhetoric, which in turn helps frame the company in the right light for the buyer.

17. Don’t Issue Stock Options To Retain Key Employees After Acquisition. Instead, Use A Simple Bonus.

Stock options can be complicated, although pretty common in the tech world. Warrillow’s argument against stock options is that they can complicate the sales process, as it’s reasonable all stockholders should get some say in the terms of the sale. This probably isn’t such an issue for larger businesses, as buyers would expect it.

Instead, Warrillow recommends a stay bonus, which is a cash reward for key staff if you sell the company. There should also be bonuses beyond the transition in order to inceentivise them to stay.

Conclusion

There are a lot of good tips and ideas in Warrillow’s book, and I’ve really only scratched the surface with this summary. These tips require context to get the most out of them, but hopefully they've provided a good starting point.

Have you bought or sold an SEO business? It would be great to hear your experience of doing so. Do you agree with some of these tips, or disagree? Please feel free to add to the comments!

As Google makes life more difficult for SEOs, pure-play SEO business models, such as affiliate and Adsense, can start to lose their shine. Google can remove you from Adsense without warning, and the affiliate model has always had hooks.

One of the problems with affiliate and Adsense has always been that it is difficult to lock in and build value using these models. If the customer is “owned” by someone else, then a lot of the value of the affiliate/Adsense middle-man lies in the SERP placement. When it comes time to sell, apart from possible type-in domain value, how much intrinsic value does such a site have? Rankings are by no means assured.

So, if these areas are no longer earning you what they once did, it makes sense to explore other options, including vertical integration. Valuable online marketing skills can be readily bolted onto an existing business, preferably to a business operating in an area that hasn’t taken full advantage of search marketing in the past.

Even if you plan on building a business as opposed to buying, looking at businesses for sale in the market you intend to build can supply you with great information. You can gauge potential income, level of competition, and undertaking a thorough business analysis can help you discover the hidden traps before you experience them yourself. If there are a lot of businesses for sale in the market you’re looking to enter, and their figures aren’t that flash, then that’s obviously a warning sign.

Such analysis can also help you formulate your own exit strategy. What would make the business you’re building look attractive to a buyer further down the track? It can be useful to envision the criteria for a business you’d like to buy, and then analyse backwards to give you ideas on how to get there.

In this article, we’ll take the 3,000 ft view and look at the main considerations and the type of advice you’ll need. We’ll also take a look at the specifics of buying an existing SEO business.

Build Or Buy?

There are a number of pros and cons for either option and a lot depends on your current circumstances.

You might be an existing owner-operator who wants to scale up, or perhaps add another revenue stream. Can you get there faster and more profitably by taking over a competitor, rather than scaling up your own business?

If you’re an employee thinking of striking out on your own and becoming your own boss, can you afford the time it takes to build revenue from scratch, or would you prefer instant cashflow?

The Advantages Of Building From Scratch

Starting your own business is low cost. Many online businesses cost next to nothing to start. Register the business. Open a bank account. Fill out a few forms and get a business card. You’re in business.

You don’t need to pay for existing assets or a customer base, and you won’t get stuck with any of the negatives an existing business may have built up, like poor contracts, bad debts and a tainted reputation. You can design the business specifically for the market opportunity you’ve spotted. You won’t have legacy issues. It’s yours. It will reflect you and no one else, at least to start with. The decisions are yours. You don’t have to honor existing contracts, deal with clients or suppliers you had no part in being contractually obliged to in the first place.

In short, you don’t have legacy issues.

What’s not to like?

There is more risk. You don’t yet know if your business will work, so it’s going to require time and money to find out. There are no guarantees. It can be difficult to get funding, as banks like to see a trading history before they’ll lend. It can be very difficult to get the right employees, especially early on, as highly skilled employees don’t tend to favor uncertain startups, unless they’re getting equity share. You have to start a structure from scratch. Is the structure appropriate? How will you know? You need to make a myriad of decisions, from advertising, to accommodation, to wages, to pricing, and with little to go on, apart from well-meaning advice and a series of hunches and experiments. Getting the numbers right is typically arrived at via a lot of trial and error, usually error. You have no cashflow. You have no customers. No systems. No location.

Not that the downsides should stop anyone from starting their own business. If it was easy, everyone would do it, but ask anyone who has started a business, and they’ll likely tell you that sure, it’s hard, but also fun, and they wouldn’t go back to being an employee.

There is another option.

Buy It

On the plus side, you have cash flow from day one. The killer of any business is cash flow. You can have customers signed up. People may be saying great things about you. You may have a great idea, and other people see that it is, indeed, a great idea.

But if the cash flow doesn’t turn up on time, the lights go out.

If you buy an existing business with sound cashflow, you not only keep the lights on, you’re more likely to raise finance. In many cases, the seller can finance you. If that’s the case, then for a small deposit you get the cashflow you need, based on the total business value, from day one.

You’ve got a structure in place. If the business is profitable and running well, then you don’t need to experiment to find out what works. You know your costs, how much you need to spend, and how much to allocate to which areas. You can then optimize it. You have customers, likely assistance from the vendor, and the knowledge from existing suppliers and employees. There is a reduced risk of failure. Of course, you pay a price for such benefits.

To buy a business, you need money. Whatsmore, you’re betting that money on someone elses idea, not your own, and it can be difficult to spot the traps. You can, of course, reshape and respin the business in your own image. You can get stuck with a structure that wasn’t built to your specifications. You might not like some of the legacy issues, including suppliers, existing contracts or employees.

If you decide buying a business is the right thing for you, then you’ll need good advice.

Advice

According to a survey conducted by businessforsale.com, businesses can take an average of nine months to sell:

• 28% of brokers said within 6 months
• 31% of brokers said within 9 months
• 21% of brokers said within 12 months
• 10.5% of brokers said that more than 12 months was required to sell a business

Buying a business is more complicated than buying an asset, such as a website. You could buy only the assets of a business - more on that shortly - but often the businesses are sold as a going concern, which means you may take on all the potential liabilities of that business, too.

Hence the need for sound advice in three main areas. Assemble a team to cover legal, accounting and business advisory.

Legal

Buying is a business, like buying a house, is a legal transaction, consisting of a number of legal issues. They key issues are you want to know exactly what you’re buying and won’t be left with any unexpected liabilities. You also want to make sure the seller won’t compete with you by re-entering the market after you buy.

One of the first things I do with clients is make sure they understand what they are buying,....They need to be able to tell me if they are buying assets, such as customer list and equipment, or the business, with the warts and ugliness that come with it.

There are a number of potential traps:

Among the things to worry about when you buy an existing business: undisclosed debts, overstated earnings, poor employee relations, overvalued inventory and pending lawsuits, to name a few. Hidden liabilities can exist in all sorts of areas - from land contaminated with toxic chemicals, to accounts receivable that look solid but prove to be uncollectible, to inventory that's defective or dated

There’s an important distinction between buying the assets of a business and buying a business. Buyers typically want to buy the assets, such as a customer list, supply contracts, or plant. Sellers typically want to sell the entire business entity.

If you buy only a corporation's assets, you don't assume its liabilities, including taxes.
If you buy a corporation's shares of stock, however, you end up with both its assets and liabilities - including known and unknown taxes. An example of an unknown tax debt would be one that resulted from an IRS audit that has not yet begun. The seller of the corporate shares is released from all corporate debts unless he personally guarantees them or agrees to be liable for them after the transfer

Which is an important distinction. However, most smaller business sales are likely to be asset sales, as they are often sole proprietorships or partnerships.

There are also financial implications in terms of tax writeoffs.

Accountant

There are two main areas accountants look at when evaluating a business. The financial history, and the tax ramifications.

Advisors often recommend looking at more than just the last years books:

In order to know whether or not the asking price for the business is fair, it is very important that you look through the books of the company over a number of financial periods. Don't make the mistake of asking for just last year's accounts. You should have at least three and preferably five years of records for the business. If it is half way through the financial year, ask for an interim set of accounts for this year. You need to be assured that trading conditions have not deteriorated from the last financial year. If you are looking to put your hard-earned money (and other's equally hard-earned money) into a business, you want to make sure that the business is not going backwards. You need to look for evidence of year on year growth at acceptable margins. Remember, any company can show regular growth but it must be profitable. Fire sales can increase revenue with little or no impact on margin or worse, the revenue can be unprofitable

The other main area is tax.

Again, this is where the difference between assets and equity is important. There are tax advantages in buying assets, as you can depreciate based on the purchase price:

Property acquired by purchase. The depreciable basis is equal to the asset's purchase price, minus any discounts, and plus any sales taxes, delivery charges, and installation fees. For real estate, you can also include costs of legal and accounting fees, revenue stamps, recording fees, title abstracts/insurance, surveys, and real estate taxes assumed for the seller

We’ve barely scratched the surface, and your financial advice will be considerably more detailed, taking into account multipliers, profit and revenue, and more. Business valuation is a specialist area, and if you want to read more on this topic, I found The Small Business Valuation Book a good resource.

Business Advisor

After lawyers and accountants, the third member of your evaluation team should be a qualified business adviser who is familiar with businesses in your area of interest.

A thorough competitive analysis should be a first step. Where does this business sit in relation to existing competition? How easy is it for new competitors to enter the market? How much risk is involved?

Whenever you buy an existing business and look at its records, you're looking at the past. There's no guarantee things won't change going forward. If you're negotiating to buy a business and you think the seller is giving you a great deal, be very suspicious--there's probably something heading down the road at 90 miles an hour that will blow this business apart when it hits

That’s the same if you plan to build a business from scratch, the difference being you probably won’t have to risk as much up front.

It can also pay to go through a broker acting on your behalf, as opposed to the seller. ">Brokers can:

Prescreen businesses for you. Good brokers turn down many of the businesses they are asked to sell, whether because the seller won't provide full financial disclosures or because the business is overpriced. Going through a broker helps you avoid these bad risks.
Help you pinpoint your interest. A good broker starts by finding out about your skills and interests, then helps you select the right business for you. With the help of a broker, you may discover that an industry you had never considered is the ideal one for you.
NegotiateThe negotiating process is really when brokers earn their keep. They help both parties stay focused on the ultimate goal and smooth over any problems that may arise.
Assist with paperwork. Brokers know the latest laws and regulations affecting everything from licenses and permits to financing and escrow. They also know the most efficient ways to cut through red tape, which can slash months off the purchase process. Working with a broker reduces the risk that you'll neglect some crucial form, fee or step in the process.

Buy An Existing SEO Business

If you want to build an SEO business, here’s a good idea of what’s involved in building one up to scale:

When you are building your agency, you need to focus on getting clients that pay you 6 figures a year. It’s hard to build a profitable agency and provide great results when someone only pays you a few grand a month.

There’s a lot of competition in this market because there are no real barriers to entry. Anyone can call themselves an SEO and anyone can advertise such services. The result is that it can be pretty difficult to differentiate yourself.

The advantages of buying an SEO business are the same for buying any other type of business i.e. you get instant cashflow, a client list, and reputation. The standard analysis, as outlined in this article, applies. Evaluate financials, legal issues and position in the market, the same as any other business.

If you’re considering buying an SEO business you need to pay particular attention to reputation. It’s a market where, I think it’s fair to say, there is a significant level of hype. Customers are often oversold on benefits that don’t eventuate i.e. a focus on rankings that don’t result in leads or customers.

Reputable SEO businesses are unlikely to have a high level of customer churn. Look for customer lists where the customers has been with the agency for a good length of time, and are ordering more services. Look for locked in forward contracts. It’s pretty easy for other SEOs to poach other customers by offering them lower prices. Again, this is why reputation and evidence of high service levels are important.

One valuable aspect, as Neil alludes to in his article, is relationships:

In the short run you will lose money from business development, but in the long run you’ll be able to make it up. The quickest way for you to increase your revenue is to be the outsourced arm of bigger agencies. As an SEO company, look for ad agencies to partner with, as there are way bigger ad agencies than seo agencies. Feel free and cold call them, offer to help them for free with their own website, and if you do well they’ll drive a lot of clients to you

Look at how the agency gets work. If it comes from established, larger advertising agencies, then these relationships are valuable. They typically result in a steady flow of new work without the need for new advertising spend. Look at the promises that have been made to clients. For example, ongoing payment may rely on performance metrics, such as ongoing rankings.

Further Resources:

Hopefully this has article has given you some food for thought. If you're capital rich and time poor, then buying an established business can be an attractive proposition. Here are some of the sources used in this article, and further reading:

• The Small Business Valuation Book
• The Complete Guide To Buying A Business
• Expensive Mistakes When Buying & Selling A Business

Google announced they rolled out their local carousel results on desktops in categories like hotels, dining & nightlife for US English search queries. The ranking factors driving local rank are aligned with the same ones that were driving the old 7 pack result set.

The layout seems to be triggered when there are 5 or more listings. One upside to the new layout is that clicks within the carousel might not fall off quite as quickly as they do with vertical listings, so if you don't rank #1 you might still get plenty of traffic.

The default amount of useful information offered by the new layout is less than the old layout provided, while requiring user interaction with the result set to get the information they want. You get a picture, but the only way the phone number is in the result set is if you click into that result set or conduct a branded query from the start.

If you search for a general query (say "Indian restaurants") and want the phone number of a specific restaurant, you will likely need to click on that restaurant's picture in order to shift the search to that restaurant's branded search result set to pull their phone number & other information into the page. In that way Google is able to better track user engagement & enhance personalization on local search. When people repeatedly click into the same paths from logged in Google user accounts then Google can put weight on the end user behavior.

This multi-click process not only gives Google usage data to refine rankings with, but it also will push advertisers into buying branded AdWords ads.

Where this new result set is a bit of a train wreck for navigational searches is when a brand is fairly generic & aligned with a location as part of the business name. For instance, in Oakland there is a place named San Francisco Pizza. Even if you do that branded search, you still get the carousel & there might also be three AdWords ads above the organic search results.

If that company isn't buying branded AdWords ads, they best hope that their customers have large monitors, don't use Google, or are better than the average searcher at distinguishing between AdWords & organic results.

Some of Google's other verticals may appear above the organic result set too. When searching for downtown Oakland hotels they offer listings of hotels in San Francisco & Berkeley inside the hotel onebox.

Perhaps Google can patch together some new local ad units that work with the carousel to offer local businesses a flat-rate monthly ad product. A lot of advertisers would be interested in testing a subscription product that enabled them to highlight selected user reviews and include other options like ratings & coupons & advertiser control of the image. As the search result set becomes the destination some of Google's ad products can become much more like Yelp's.

In the short term the new layout is likely a boon for Yelp & some other local directory plays. Whatever segment of the search audience that dislike's the new carousel will likely be shunted into many of these other local directories.

In the longrun some of these local directories will be the equivalent of MapQuest. As Google gains confidence they will make their listings richer & have more confidence in entirely displacing the result set. The following search isn't a local one, but is a good example of where we may be headed. Even though the search is set to "web" results (rather than "video" results) the first 9 listings are from YouTube.

Update: In addition to the alarming rise of further result displacement, the 2-step clickthrough process means that local businesses will lose even more keyword referral data, as many of the generic queries are replaced by their branded keywords in analytics data.

Last week, I reviewed “Who Owns The Future?” by Jaron Lanier. It’s a book about the impact of technology on the middle class.

I think the reality Janier describes in that book is self-evident - that the middle class is being gouged out by large data aggregators - but it’s hard, having read it and accepted his thesis, not to feel the future of the web might be a little bleak. Laniers solution of distributing value back into the chain via reverse linking is elegant, but is probably unlikely to happen, and even if it does, unlikely to happen in a time frame that is of benefit to people in business now.

So, let’s take a look at what can be done.

There are two options open to someone who has recognized the problem. Either figure out how to jump ahead of it, or stay still and get flattened by it.

Getting Ahead Of The SEO Pack

If your business model relies on the whims of a large data aggregator - and I hope you realize it really, really shouldn't if at all humanly possible - then, you need to get a few steps ahead of it, or out of its path.

There's a lot of good advice in Matt Cutt's latest video:

It could be argued that video has a subtext of the taste of things to come, but even at face value, Cutts advice is sound. You should make something compelling, provide utility, and provide a good user experience. Make design a fundamental piece of your approach. In so doing, you’ll keep people coming back to your site. Too much focus on isolated SEO tactics, such as link building, may lead to a loss of focus on the bigger picture.

In the emerging environment, the big picture partly means “avoid getting crushed by a siren server”, although that's my characterization, and unlikely to be Cutts'! Remember, creating quality, relevant content didn’t prevent people from being stomped by Panda and Penguin. All the link building you’re doing today won’t help you when a search engine makes a significant change to the way they count and value links.

And that day is coming.

Are You Flying A Helicopter?

Johnon articulately poses part of the problem:

Fast forward and we’re all spending our days flying these things (computers). But are we doing any heavy lifting? Are we getting the job done, saving the day, enabling the team? Or are we just “flying around” like one of those toy indoor helicopters, putzing around the room dodging lamps and co-workers’ monitors until we run out of battery power and drop to the floor? And we call it work.”...More than ever, we have ways to keep “busy” with SEO. The old stand-byes “keyword research” and “competitive analysis” and “SERP analysis” can keep us busy day after day. With TRILLIONS of links in place on the world wide web, we could link analyze for weeks if left alone to our cockpits. And I suppose every one of you SEOs out there could rationalize and justify the effort and expense (and many of you agency types do just that.. for a living). The helicopter is now cheap, fast, and mobile. The fuel is cheap as well, but it turns out there are two kinds of fuel for SEO helicopters. The kind the machine needs to fly (basic software and electricity), and the kind we need to actually do any work with it (seo data sets, seo tools, and accurate and effective information). The latter fuel is not cheap at all. And it’s been getting more and more expensive. Knowing how to fly one of these things is not worth much any more. Knowing how to get the work done is

A lot of SEO work falls into this category.

There is a lot of busy-ness. A lot of people do things that appear to make a difference. Some people spend entire days appearing to make a difference. Then they appear to make a difference again tomorrow.

But the question should always be asked “are they achieving anything in business terms?”

It doesn't matter if we call it SEO, inbound marketing, social media marketing, or whatever the new name for it is next week, it is the business results that count. Is this activity growing a business and positioning it well for the future?

If it’s an activity that isn't getting results, then it’s a waste of time. In fact, it’s worse than a waste of time. It presents an opportunity cost. Those people could have been doing something productive. They could have helped solve real problems. They could have been building something that endures. All the linking building, content creation, keyword research and tweets with the sole intention of manipulating a search engine to produce higher rankings isn't going to mean much when the search engine shifts their algorithms significantly.

And that day is coming.

Pivot

To avoid getting crushed by a search engine, you could take one of two paths.

You could spread the risk. Reverse-engineer the shifting algorithms, with multiple sites, and hope to stay ahead of them that way. Become the gang of moles - actually, a "labour" of moles, in proppa Enlush - they can’t whack. Or, at least, a labour of moles they can't whack all at the same time! This is a war of attrition approach and it is best suited to aggressive, pure-play search marketing where the domains are disposable.

However, if you are building a web presence that must endure, and aggressive tactics don’t suit your model, then SEO, or inbound, or whatever it is called next week, should only ever be one tactic within a much wider business strategy. To rely on SEO means being vulnerable to the whims of a search engine, a provider over which you have no control. When a marketing tactic gets diminished, or no longer works, it pays to have a model that allows you to shrug it off as an inconvenience, not a major disaster.

The key is to foster durable and valuable relationships, as opposed to providing information that can be commodified.

There are a number of ways to achieve this, but one good way is to offer something unique, as opposed to being one provider among many very similar providers. Beyond very basic SEO, the value proposition of SEO is to rank higher than similar competitors, and thereby gain more visibility. This value proposition is highly dependent on a supplier over which we have no control. Another way of looking at it is to reduce the competition to none by focusing on specialization.

Specialize, Not Generalize

Specialization involves working in a singular, narrowly defined niche. It is sustainable because it involves maintaining a superior, unique position relative to competitors.

Specialization is a great strategy for the web, because the web has made markets global. Doing something highly niche can be done at scale by extending the market globally, a strategy that can be difficult to achieve at a local market level. Previously, generalists could prosper by virtue of geographic limits. Department stores, for example. These days, those departments stores need to belong to massive chains, and enjoy significant economies of scale, in order to prosper.

Specialization is also defensive. The more specialized you are, they less likely the large data aggregators will be interested in screwing you. Niche markets are too small for them to be bother with. If your niche is defined too widely, like travel, or education, or photography, for example, you may face threats from large aggregators, but this can be countered, in part, by design, which we’ll look at over the coming week.

If you don’t have a high degree of specialization, and your business relies solely on beating similar business by doing more/better SEO, then you’re vulnerable to the upstream traffic provider - the search engine. By solving a niche problem in a unique way, you change the supply/demand equation. The number of competing suppliers becomes “one” or “a few”. If you build up sufficient demand for your unique service, then the search engines must show you, else they look deficient.

Of course, it’s difficult to find a unique niche. If it’s profitable, then you can be sure you’ll soon have competition. However, consider than many big companies started out as niche offerings. Dell, for example. They were unique because they sold cheap PCs, built from components, and were made to order. Dell started in a campus dormitory room.

What’s the alternative? Entering a crowded market of me-too offerings? A lot of SEO falls into this category and it can be a flawed approach in terms of strategy if the underlying business isn't positioned correctly. When the search engines have shifted their algorithms in the past, many of these businesses have gone up in smoke as a direct result because the only thing differentiating them was their SERP position.

By taking a step back, focusing on relationships and specific, unique value propositions, business can avoid this problem.

Advantages Of Specialization

Specialization makes it easier to know and deeply understand a customers needs. The data you collect by doing so would be data a large data aggregator would have difficulty obtaining, as it is nuanced and specific. It’s less likely to be part of an easily identified big-data pattern, so the information is less likely to be commodified. This also helps foster a durable relationship.

Once you start finely segmenting markets, especially new and rising markets, you’ll gain unique insights and acquire unique data. You gain a high degree of focus. Check out “Business Lessons From Pumpkin Hackers”. You may be capable of doing a lot of different things, and many opportunities will come up that fall slightly outside your specialization, but there are considerable benefits in ignoring them and focusing on growing the one, significant opportunity.

Respin

Are you having trouble competing against other consultants? Consider respinning so you serve a specific niche. To specialize, an SEO might build a site all about dentistry and then offer leads and advertising to dentists, dental suppliers, dental schools, and so on. Such a site would build up a lot of unique and actionable data about the traffic in this niche. They might then use this platform as a springboard to offering SEO services to pre-qualified dentists in different regions, given dentistry is a location dependent activity, and therefore it is easy for the SEO to get around potential conflicts of interest. By specializing in this way, the SEO will likely understand their customer better than the generalist. By understanding the customer better, and gaining a track record with a specific type of customer, it gives the SEO an advantage when competing with other SEO firms for dentists SEO work. If you were a dentist wanting SEO services, who's pitch stands out? The generalist SEO agency, or the SEO who specializes in web marketing for dentists?

Similarly, you could be a generalist web developer, or you could be the guy who specializes in payment gateways for mobile. Instead of being a web designer, how about being someone who specializes in themes for Oxwall? And so on. Think about ways you can re-spin a general thing you do into a specific thing for which there is demand, but little supply.

One way of getting a feel for areas to specialize in is to use Adwords as a research tool. For example, “oxwall themes” has almost no Adwords competition and around 1,300 searches per month. Let’s say 10% of that figure are willing to pay for themes. That’s 130 potential customers. Let’s say a specialist designer converts 10% of those, that’s 13 projects per month. Let’s say those numbers are only half right. That’s still 6-7 projects per month.

Having decided to specialize in a clearly defined, narrow market segment, and having good product or service knowledge and clear focus, you are much more likely to be able to spot the emerging pain points of your customers. Having this information will help you stand out from the crowd. Your pitches, your website copy, and your problem identification and solutions will make it harder for more generalist competitors to sound like they don’t know what they are talking about. This is the unique selling proposition (USP), of course. It’s based on the notion of quality. Reputation then spreads. It’s difficult for a siren server to insert itself between word of mouth gained from good reputation.

Differentiation is the aim of all businesses, no matter what the size. So, if one of your problems is being too reliant on search results, take a step back and determine if your offer is specialized enough. If you’re offering the same as your competitors, then you’re highly vulnerable to algorithm shifts. It’s hard to “own” generalist keyword terms, and a weak strategic position if your entire business success is reliant upon doing so.

Specialization lowers the cost of doing business. An obvious example can be seen in PPC/SEO. If you target a general term, it can be expensive to maintain position. In some cases, it’s simply impossible unless you’re already a major player. If you specialize, your marketing focus can be narrower, which means your marketing cost is lower. You also gain supply-side advantages, as you don’t need to source a wide range of goods, or hire as many people with different skillsets, as the generalist must do.

Once you’re delivering clear and unique value, you can justify higher prices. It’s difficult for buyers to make direct comparisons, because, if you have a high degree of specialization, there should be few available to them. If you are delivering that much more value, you deserve to be paid for it. The less direct competition you have, the less price sensitive your offering. If you offer the same price as other offerings, and your only advantage is SERP positioning, then that’s a vulnerable business positioning strategy.

If you properly execute a specialization strategy, you tend to become more lean and agile. You may be able to compete with larger competitors as you can react quicker than they can. Chances are, your processes are more streamlined as they are geared towards doing one specific thing. The small, specialized business is unlikely to have the chain of command and management structure that can slow decision making down in organizations that have a broader focus.

Specialized businesses tend to be more productive than their generalist counterparts as their detailed knowledge of a narrow range of processes and markets mean they can produce more with less. The more bases you cover, the more organisational aspects come into play, and the slower the process becomes.

In Summary

There are benefits in being a generalist, of course, however, if you’re a small operator and find yourself highly vulnerable to the whims of search engines, then it can pay to take a step back, tighten your focus, and try to dominate more specialist niches. The more general you go, the more competition you tend to encounter. The more competition you encounter in the SERPs, the harder you have to fight, and the more vulnerable you are to big data aggregators. The highly specialized are far more likely to fly under the radar, and are less vulnerable to big-brand bias in major verticals. The key to not being overly dependent on search engines is to develop enduring relationships, and specialization based on a strong, unique value proposition is one way of doing so.

Next article, we’ll look at differentiation by UX design and user experience.