Unless you have been living under a rock (or a pile of glitter) for the last few weeks, you would have almost definitely heard of the site Ship Your Enemies Glitter and its sale on Flippa. The Flippa team did a great job with PR and attracted a huge number of bids with a final sales price of $85,000. Since then, Mathew Carpenter has been hailed as a genius and numerous high profile news publications have spoken about it.
As someone who has been making a living in the world of buying and selling websites since 2010, I can’t help but feeling the buyer has got a bad deal. During the auction, I was interested enough in the website to ask some questions on the Flippa listing. Unfortunately, as I woke up the next morning, I found my questions had been deleted. With all the excitement around the auction itself and numerous supportive messages posted publicly by non-bidders, it was all too easy for the media and other onlookers to forget that this is not a game and real money was at stake. Throughout the auction, the seller seemed happy to dodge legitimate questions and focused on posting inane updates about the number of people on the waiting list.
Here are four reasons I believe the buyer has made a bad investment, much of which could have been avoided with a proper due diligence process in advance. Due diligence may not be something that makes the headlines, but it’s a vital part of the process when buying a business:
Who Even Likes Glitter?
The world is a fickle place. In a month’s time, everyone would have forgotten about ShipYourEnemiesGlitter. Everyone except the buyer who will be trying to figure out how to get traffic to the business now all the fuss has died down. While it would be unfair to Mat to say that anyone can generate a ton of PR for a new website, it is fair to say that it is not sustainable. On the 14th of January it received over 1m visits. The same on day 2. Today marks two weeks since it got popular. By now, traffic will be significantly below that level. In another two weeks, it will be even lower.
It’s a website that will not continue in popularity. Who remembers Bebo? Yeah, me neither. Want to share this article on Myspace? You get the point.
There’s Trouble Ahead
The concept of sending your enemies glitter was clearly meant as a joke. Whilst J. Assita Camara may have seen the funny side in her article about the possible consequences of glitter bombing your boss (or other “enemy”) owning a business like this could be a legal liability nightmare as it effectively facilitates “criminal damage”. While I am not a lawyer (nor should this article be construed as legal advice) I hope the buyer consulted an attorney before buying this business. Sending out thousands of letters filled with glitter it’s almost guaranteed to annoy the wrong person at some stage.
Have To Sell TONS of it!
The first (cliché) rule of investing is buy low, sell high. Auctions can lead to buyers getting emotionally involved in a process and at times leads to over paying.
Let’s use a simple calculation of what the buyer needs to sell to get his initial investment back:
The website initially attracted over 2,000 orders (over $20,000) in revenue. This money went to Mathew who mentioned he’s still shipping them now. All potential buyers had to go off was a “calculation” from the seller that each order would cost $2-4. That leaves an average gross profit per order of $7.
Based on a sales price of $85,000 and an assumption that the asset purchase agreement, Escrow and other fees came to $5,000, the buyer would need to sell 12,800 envelopes of $10 glitter to break even on the purchase price. That’s not even taking into account the staff the buyer has taken on. We don’t know exactly when the site stopped taking orders, but if it took 1.2m users to make the first 2,000 orders then the buyer is going to need over 6m more visitors to breakeven if people keep buying at a similar rate. That’s a lot of press!
Anyone Can Sell $1 Worth of Glitter for $10
One problem with publicity of this magnitude is everyone know of the website’s success and the “business” model it uses. Anyone can replicate the business model, there are almost no barriers to entry. Within days of the site going live, there were hundreds of copycats appearing all over the web attracted by relatively attractive margins and the possibility of press attention. When the website first launched it had a novelty value. However, brand loyalty can’t be built in a day so as soon as someone else starts selling the same thing for $5 a pop (I found these guys selling for $5.95), what’s next? Sell for $4? At that level it would be over 90,000 orders before the buyer makes his money back!
My Challenge To The Buyer:
I do love to see entrepreneurial success stories such as Mathew’s, but I can’t help but feel the buyer has got a bad deal and will never make his huge investment bank.
What if I am wrong? If the buyer makes his money back and sends me proof, I will publicly pour a bucket of glitter over myself on video! I’ll call it the #glitterbucketchallenge and hopefully start the next trend we all would have forgotten about by March…
As referenced earlier in the article, here are a small selection of the authors and their articles commenting on the sale:
Ronald Barba – http://tech.co/shipyourenemiesglitter-com-sold-85000-2015-01
Elizabeth Anderson – http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11352613/Ship-Your-Enemies-Glitter-founder-sells-company-and-begs-people-to-stop-buying-this-horrible-product.html