Are you tired of trading time for money in the corporate world? If you’ve noticed over the last year, even cushy jobs in the tech world aren’t so secure anymore. People are being laid off, and ‘secure’ jobs aren’t as stable as they used to be.
Meet John Chen. He became a serial entrepreneur by buying and selling e-commerce sites on Flippa. Like many of our students, he started out buying a very small site for $7,500, earning around $1,000 per month. And he sold it for $550,000 just two years later!
In this interview, we look at some of the secrets to John’s success and how if you are a beginner at buying websites, you can apply some of John’s successful strategies to speed up your own journey of becoming an online entrepreneur.
There are some really actionable and highly effective strategies here that John used. No matter where you are, you will get ideas that you won’t have thought of before, no matter what kind of sites you are buying, including content sites.
As you will read in this interview, John has achieved a seriously impressive track record and developed it into a winning system. And whilst he has developed this with e-commerce sites, I wanted to get him on the show because the strategies he uses also apply to content sites.
Let’s find out how he is able to scale small websites into big profitable websites so quickly…
Find out how John Chen started out buying websites for under $10,000 and scaled it into a multi-million dollar business…
Matt Raad: Hello again, everyone, and welcome to the Digital Investor Show. I’m your host, Matt Raad, and today we’ve got a special guest from New York, John Chen.
Today’s interview with John is going to be fascinating. Like most of our community, John started out quite small on Flippa, buying small niche websites for under $10,000. But then he’s been able to scale that up into a multimillion-dollar business.
What we are going to do today is have a look at some of his strategies because John was also able to do that very quickly. And John has an incredible system that he applies to these sites.
So, what we are going to do today is ask John what sort of sites he’s looking at buying. And what are some of the specific things that have allowed him to scale from small niche sites into multimillion-dollar websites quickly?
Thank you so much for coming along today, John.
John Chen: Hi, Matt. I’m glad to be here.
Matt: I can’t wait to get into it and find out some of your secrets! And some of the strategies you use to invest in buying online businesses.
John Chen discovered the power of small online businesses when working with a Hedge Fund.
Matt: You’re actually like a lot of our clients in that you’re an ex-corporate. Obviously, I’m guessing you wanted to get out of your job. Can you share what you were doing when you first started doing this?
John: I was working at a hedge fund in New York for a fund called Kinderhook Partners. It was a small fund, just two super smart, well-respected people in the industry. And we invested in these small, publicly traded companies and some private businesses.
That’s where I really learned to analyze what was a good business and what wasn’t a great business. It was my job to look at businesses all day long. And we invested in this vehicle called a Search Fund, where you back an MBA student to buy a small business and run it for a few years, sell it, and eventually do it for the benefit of investors.
So, we did this. We funded some MBA students and bought dental practices, a varicose vein centre, and some small software companies. And the biggest thing that jumped out at me was when I was looking at publicly traded companies like Wayfair or Temple & Webster.
He realised the benefits of buying smaller businesses at higher profit margins…
John: Temple & Webster was one of the companies we had invested in, and they were trading at way higher multiples of EBITDA.
We funded a dental practice, and I didn’t really look much at everything else. But I saw that we’re buying this for three times EBITDA (or three times profit). So, I asked my boss, “Is this real? How are we doing this?” He responded, “Yes, it’s just like a smaller business.” Then it clicked, and I said, “I want to be in this industry.”
Because when you invest in big publicly traded companies, you’re basically trying to predict the future, right? For example, you’re saying that Tesla cars will be in this many countries, and this is how many they will sell, and there’s some built-in expectation.
But if you buy something at three times profit, it’s pretty good if it stays at the same profit level for three years. That’s assuming you don’t even grow it or anything.
… Using these same principals, he purchased a small website on Flippa for $7,500 and turned it into $500,000!
John: I knew I wanted to be in this field. But I didn’t have any money, investors, a track record, or anything like that. I went on Flippa and bought this small jewellery business for $7,500, and I treated it as a real-life MBA, with the risk of losing the whole $8,000. I was okay with losing it, but I tried it, and here I am now.
Matt: Here you are, and you’re very humble. How much did you sell that website for? I know it was a fantastic result.
John: Yes. So, when I bought the business, it was doing $1,000 a month in revenue. It was just a husband-and-wife couple selling to their friends.
Half the revenue went away when I bought it, so it went down to $500 a month in revenue.
But over the next two years, I scaled that business to $120,000 a month in revenue and sold it two years later for a little over $500,000.
Matt: Alright! That is a seriously impressive result and must have gotten your attention.
Why John decided to quit his corporate job to run his online business full-time
Matt: Over that two years, you bought a small site for $7,500 and sold it for $550,000. Were you still working during that point? Or when did you transition out of your full-time day job?
John: I left when I bought the business. I burned my bridges and would not recommend that to people reading this.
As every entrepreneur probably knows, they try everything. I was ready to sell rings or necklaces on the subway. I had the mentality of, “I don’t care what it takes. I’m going to make it work.” I even applied for food stamps. I didn’t get them though because I made too much money on unemployment. But I had no shame; I was willing to do whatever it took.
Matt: Awesome. You essentially burnt your bridges and said, “I’m going to give this a big crack and go for it.” And I guess at that age, too, at that stage in your life, you’ve got nothing to lose from doing this. But that’s still an awesome result.
So, I’m guessing it would’ve been pretty scary in those first couple of months.
John: It was. I actually lost money for six months just trying to figure out the business. Expenses really started to add up, and $1,000 a month in revenue (well, actually, $500 a month) isn’t enough to cover my living costs.
So, in that first business phase, you’re buying lottery tickets! You’re trying this channel, you’re trying this thing, and most of it’s not going to work. But you have to be crazy enough to believe the next thing is just going to work.
So, I was crazy enough to believe and eventually found a product market fit, but we can talk about that in a little bit.
He was a total beginner online but used his analyst skills to do his due diligence on his first website purchase
Matt: Out of interest, you were a business analyst in your original career. Did you find those skills helpful to you when going online? An online business is quite different from the standard sorts of businesses. But were there certain principles that worked for you?
John: I think my background as a hedge fund analyst helped in that I subconsciously knew what a good business would be. I remember having this one conversation with my boss, “Is a higher gross margin always better? Are there sometimes you want a lower margin?” And he said, “No, a higher margin is always better.”
So, when I was looking at the jewellery company, all I knew was that jewellery has a fairly high margin, it’s light to ship, and that’s all I knew. But I jumped in and thought I’d just figure out the rest.
I think buying a business that small doesn’t give you much, but it does give you the focus of, “I’m doing jewellery.”
When there isn’t much revenue, I think a lot of times, entrepreneurs get discouraged very quickly and want to move on to something different. They have tons of different ideas, and they’ll jump on one saying, “I want to do this.” But three months go by, and there’s no revenue, and then they’re like, “Do I really want to do this?”
Buying a business helped solve that because you have a little bit of something. Now you’re just like, “Okay, how do I build it?”
Matt: That’s interesting and really well done.
Even though you say you had some skills, in reality, the actual day-to-day practical skills of what you bought, you had no training whatsoever. You were a total beginner and had to learn the running of this site on the go.
John Chen shares why he chooses e-commerce websites over Amazon
Matt: I also want to talk about the type of website you bought because you’re saying it’s a jewellery e-commerce site. But let’s clarify what it is and what it isn’t. Most of our audience reading this would understand e-commerce or think of Amazon. So, what sort of site did you buy?
John: I bought a Shopify site. It was a direct-to-consumer site. They didn’t sell on Amazon.
I know Amazon is the biggest channel, and people have built businesses and brands off the back of it. But I haven’t had that much success with it personally, and I specifically wanted to be in a category that was not on Amazon.
And the reason I didn’t want to be on Amazon was that higher margins are always better. But I also want to be in certain categories that are more emotional.
If you think about how people purchase for something practical (furniture, clothing, staples etc.), especially here in America, you just go on Amazon and search for something like “two-pack purple stapler”.
And you look at the first page of results for items that have a good mix of reviews, and a lower price. You make that price-of-value judgment and probably buy it from Amazon because you’ll get it in a couple of days.
He prefers to focus on products in emotional niches…
John: I didn’t want to be in a business that sold these demand-capture-type products. I wanted to be in a more emotional industry. So, I started with jewellery, and now we own a couple of apparel brands. Those are the things that Amazon hasn’t really figured out yet.
Thinking of how people shop for apparel, they don’t say, “Oh, I need a dress.” Instead, they see a dress on social media (or on an influencer or their friend) and say, “Oh, that’s a really cool dress! Where’d you get that from? Oh, I’ve never heard of this brand. Let me look them up.”
Whereas for products on Amazon, if you can search it, you’re probably just going to buy it there.
Matt: It’s a commodity. That is super smart.
For our readers – read very carefully what John just said there. One of his big key strategies is buying differentiated products based on emotion.
John has created his multi-million dollar online business by understanding his ideal Customer Avatar
Matt: One of your big winning strategies is buying websites, which is super smart. But it brings up another couple of fascinating questions.
You don’t look like you’ve formally trained in fashion or creativity. You’re a business analyst, which is the opposite of what you’ve made millions of dollars from.
How have you been able to do that? Was it easier than you thought when you went online? Did you find you needed to have a fashion or a creative background?
John: I think it’s a strength that I’m not my target audience. That way, you really listen to your customers more.
The way I think about every business is there’s one sort of customer avatar, and they’re trying to do a certain job.
They’re using this business and buying your product to do a specific thing. And I can tell you very clearly for all my businesses, I know exactly what customer we’re serving and what kind of job they want to be done with the product they’re buying.
So, it’s because I listen to them. We try to figure it out and test different products, and certain products don’t work. And especially when you’re in e-commerce and physical products, this framework is super helpful to create a honed-in vision of who the customer is.
Most e-commerce businesses fail because they don’t know exactly who their customer is
John: As I said earlier, the Amazon customer is basically everything to everybody. And what does everybody like? They like fast shipping and low prices, which is basically it. That’s Amazon’s value proposition.
But other brands succeed because they don’t necessarily have that. Still, they have this hyper-specific customer trying to do a very specific job that Amazon is not that great at providing. So, that’s how I like to look at it.
Matt: John, you also mentioned to me the other day you found that Shopify allows you to go super niche. You could target a specific niche based on this idea. You want to promote emotional products, and the Shopify platform enables you to do that.
John: Yes. If you look at the brands that have success on Amazon, it’s the lower-priced products anywhere between $20 to $40 that have a mass appeal.
But the problem is when Amazon brands try to go off the Amazon platform, they’re saying, “Okay, we have all this success on Amazon, we want to start our own brand now.” But they don’t really know who exactly their customer is. They don’t know how old they are or what the job is they want done.
That’s the key differentiator from the brands that do succeed off Amazon. They know who their specific audience is and what they really want.
Matt: That’s what you do so well. Here at eBusiness Institute, we call it Customer Avatar. Even when we’re doing content websites, it’s exactly the same thing. We teach this idea of buying niche websites, exactly what you’re doing with physical products, but we do it with content sites.
We constantly tell our students, “Think who’s the customer avatar coming here and what do they want?”
John Chen shares how he turned his $7,500 website into a $500,000 online business
Matt: So, you buy this Shopify site in the jewellery niche. You are brand new to this game, never done it before. What were some of the key things that you did?
What did you do in the first four weeks? Did you let the site settle in? What were some of the quick things you did to fix that site to eventually get it to turn over millions of dollars?
John: There are two phases of the business, and the first phase was the hardest part. I started a brand-new business, but I didn’t have to make the logo basically.
I had the brand, but I found product market fit within the brand. So, the style of jewellery that the original owners were selling didn’t really work that well with paid advertising. It didn’t really have a big product market fit.
So, I tested many different jewellery styles as part of the first phase. I was trying to find product market fit and this job to be done. And I didn’t do it well. I brute-forced my way into it by testing lots of different products.
At one point, I was testing cat jewellery and dog jewellery at the same time. I asked, “Well, cat owners, dog owners – what do you want? Do you want this? Do you want a cat ring or a dog ring? Which one do you want?”
And I was trying all types of different things like gemstones and metals like silver. I was trying expensive stuff and really cheap stuff.
By finding the ideal product for his store and customers, he increased his revenue from $1,000 to $50,000 per month
John: Eventually, in 2017-2018, we came across a phenomenon. You’ve probably noticed that today there are tons of these types of jewellery companies, but there were only a couple back then. And so, we came upon this dainty, delicate, everyday fine jewellery phenomenon.
Jewellery around that time had been either super expensive or super cheap costume-type stuff, and there wasn’t this kind of mid-range market for jewellery that looked expensive but wasn’t costume. It was at that mid-range level.
So, I tested this one style, and it did really, really well. And basically, we went from $1,000 a month to $40,000 to $50,000 a month in revenue overnight once we found that product market fit.
Matt: Wow. And were you growing this with SEO and paid traffic? How does that work with Shopify?
John: For that specific one, it was mostly paid ads.
We would test lots of different styles, different creatives, different landing pages, different products etc. to find the product that would affect our performance the most. So, we would test tons of products, and one day we just got lucky and found this one style of jewellery that really hit this kind of nerve in the market.
And yes, it was mostly paid advertising, but it was testing it across many different channels.
Matt: So, lots of testing until you found that product-to-market fit, and that ties in with the customer avatar.
See how John turned his next online business from $120,000 to $1.8 million in revenue in under 2 years
Matt: You sold that site for $550,000, and I’m presuming that gave you a bit of a bank to do it again. Rinse and repeat. This is still your same strategy now.
What was the next site that you got success with?
John: Yes, so the next site was a plus-size women’s apparel.
Matt: Are you happy to share how much you spent on that?
John: Yes, so I bought that business for $60,000. It came with $30,000 of inventory. It was doing around $10,000 a month in revenue. Last year we did $1.8 million.
Matt: Well done! How long did it take you to get it to $1.8 mil?
John: Probably a year and a half.
Matt: That’s impressive. When you bought it, how much was it doing in revenue per year?
John: I would say anywhere between $120,000 to $150,000 a year in revenue.
Matt: You’ve more than 10X-ed it by applying this.
1./ He clearly identifies the customer avatar
Matt: You identified the plus-size market. What were the things you noticed there, and was it the same process? How did you dial in on the customer?
John: It was actually easier because when I bought the jewellery business, I had to find a different customer. The job to be done was, “I want jewellery, specifically rings that look expensive (like they’re made out of solid gold), but they’re more affordable.” Our average order value is around $100. For a couple of rings, that’s not cheap, but it’s not super expensive either.
With the plus-size business, it was more established in that it already had a customer who had a job that wanted to be done. It was a plus-size woman who only bought the outfits for events to dress up for parties and for going out. It wasn’t any specific type of plus-size wear like basics or jeans or anything like that. It’s, “I specifically want to be a showstopper. I want to get lots of compliments and be more out there.”
We have a lot of sequins, a lot of two-tone and colour-block outfits. And it was through that process of identifying what kind of outfits does the customer really want? That way when we’re going through the merchandising process of, “What kind of new style should we introduce to this same customer?”, it was a lot easier to scale and grow that, along with paid advertising.
Matt: So again, you said you found it even more niche for this one because you could go plus size for parties. And that’s allowed you to scale very quickly.
2./ Once he understands the customer, then he focuses on marketing
Matt: What would be your process in the first four weeks or so that you took that one over? Were you identifying the best-selling products? Is that what you’d zero in on?
John: I would say if I were to do it again; within the first four weeks, I’d take a look at the top 20% of styles (or SKUs) that do 80% of sales. I would identify who the specific customer that’s buying it is. And what’s the job they’re trying to do when they buy this outfit?
I would really hone in on that. Then introduce paid advertising, do email marketing and SMS. And I think that is enough for the first four weeks. That’s a lot to take on.
Matt: And this is for a shopper site, so it’s selling physical products.
John shares what he looks for when buying websites on Flippa
Matt: John, you’ve got this growth strategy in place for renovating websites. Let’s go back to the buying side of websites. Are you still actively out there buying websites? You’re a serial entrepreneur now, you do this full-time now.
Even if we go back to your first website purchase, how many deals did you look at on Flippa before buying your first website?
John: I would say I looked at maybe 50 to 100. And I very quickly knew if something was not for me and then decided on the jewellery business.
Matt: I’m envisioning you’re on Flippa, and you’re looking for something that has a very defined niche. Would that be accurate? You’re not looking for broad general sites. Do you want some defined niche that you know you can work with?
I’m looking for someone who either already has a customer base or who has defined their customer and the kind of job they’re trying to do with this product.
I know it’s a roundabout way of saying it, but I see a ton of sites that are run by an affiliate marketer or someone who’s really good at marketing (or a drop shipper etc.) who is using a hot product that does really well. But it always comes down to who is buying this product. Has it already had its time?
That’s why I tend to stay away from Amazon businesses as well because a lot of times, the reason why something sells on Amazon is that it’s cheap.
Matt: Yes, it’s just too broad.
Why John focuses on buying smaller websites
Matt: And in terms of the sites you’re buying now, you’ve obviously got a much bigger budget now, and you’re not a beginner anymore. You don’t have to buy websites under $10,000. But what’s your sweet spot? Where do you find yourself still looking for deals?
John: We recently did a deal around the $60,000 range. So, I probably tend to look for businesses in the $50,000 to $200,000 range. In this range, it has a better chance of a more defined product market fit, and then hopefully can grow that and scale that up as well.
Matt: Yes, so you’ve got a big upside there.
So relatively, compared to bricks and mortar businesses, $50,000 up to $200,000 are still very low investments to get into. And with your skills now, you can scale it a lot higher.
How you can contact John Chen from Amplify Capital
Matt: Your skills are so impressive John, and you’ve really got this dialled in. What’s the next step for you?
John: Well, I get a ton of requests and messages on LinkedIn or Flippa. And so, if anybody wants to learn about my process of how I do it, they can go to amplifycapital.us. I do a weekly newsletter where I share the stories and tactics and all of that. That’s totally free.
I’m also starting a fund on Flippa called Flippa Invest, where we’re raising a million dollars to buy maybe three to five smaller e-commerce businesses. We then grow and scale them and then hopefully exit them for the benefit of investors. That’s only for accredited investors.
Matt: Wow, well done. Here you are, a young guy who quit his job and burned all your bridges back in 2017. And only five years later, you are starting your own investment fund, buying and selling websites. That’s seriously impressive. Do you ever pinch yourself?
John: Yeah, it’s crazy how fast things have happened and how fast I was able to grow the business.
If you told me five years ago that I’d be in this position, I don’t think I’d believe you. But I think when you take the leap of faith and put all your efforts into something, a lot of things can happen, especially after the first couple of years when you start to figure it out.
Matt: It’s a seriously impressive result to go from an absolute beginner buying websites to running an investment firm where you’re raising a million dollars to buy websites and scale them up. And I’m sure you’ll be doing a lot bigger things.
Where did John Chen get his ambition to become an online entrepreneur?
Matt: But often, at this point, I wonder, what’s your background? Do you come from a family of entrepreneurs? Where do you think you get this full-on entrepreneurial bend? What did your mum and dad use to do?
John: My parents are not entrepreneurs at all. When I told my parents I didn’t want to work for another job, they were still sending me LinkedIn job posts for months. I think it wasn’t until I sold the first business they were like, “Okay, you don’t have to get a job, I guess.”
I was born in China and moved to the US. And I moved around a ton. My dad was doing his PhD, and he worked as a chemist for a large pharmaceutical company in the US called Roche. And as a kid, I distinctly remember coming home one day, and my dad got a patent for this cancer inhibitor. I was just a kid, so I was thinking, “Oh my God, my dad just cured cancer!”
Matt: That’s funny.
John: My first thought was not like, “Oh, how much good are we doing for the world now this disease is gone?” Instead, I was like, “Dad, are we rich!?” And my dad said, “No, we’re not rich. This is just part of the gig. They pay for my salary. So, I have to sell anything I discover to the company for a dollar.”
At the time, my dad was making $70,000 – $80,000 a year. I thought, “I don’t want to do that. I don’t want to dedicate my entire life to making $70,000 or $80,000 a year if I discover the cure for cancer.” I deserve to be rich and wealthy.
I thought back to that moment a lot when I was taking the plunge because the scariest part was, “Okay, what do I do? What if I don’t have enough money?” It’s really easy to get yourself into a scarcity mindset.
And the way I thought about it was I could always go back to making $70,000 or $80,000 a year. I have those skills, and I can always default to that. Trying this for a few years is okay because I don’t have kids, a wife, a mortgage, or anything else. So, let’s just try to do this.
It didn’t make things easier, but it created the mindset of, “It’s okay to take this risk.” So, that’s how I thought about it.
Why would someone quit their corporate job to run an online business?
Matt: That’s super cool. I think that’s really good advice, John. Thanks for sharing that personal side of your mindset there because I think that’s the case for many of our readers.
Like you, they’re from corporate backgrounds and weighing up, “Do we quit our corporate job?” And I know we’ve got a lot of younger people reading this too, who are probably in your age group, and they’re going to hear that and go, “You know what? There’s nothing to lose by taking a year out and having a crack at this.” Because John, I’m presuming you’ve got no regrets about it?
John: Oh, I think it was the best decision of my life. I have a lot of friends who work in these tech companies, experiencing all these layoffs and stuff like that. And it’s cushy until it’s not.
And I think in the next 5-10 years, you’ll see a lot more entrepreneurs popping up just because they’re realizing, “Hey, these cushy jobs at Facebook aren’t going to last.” They have great food and all of that, but it’s not really worth it.
Matt: And for you, too, as a young guy, you’ve built all of these assets for yourself now. You’ve got multiple websites worth potentially millions of dollars versus swapping time for money. Yes, it was a pretty cool job, but you were still swapping time for money. And like you found with your dad, potentially not getting any asset out of it later on, just earning a yearly wage.
Whereas now you’re not only earning good money out of these, but you’ve got these assets that you can sell and flip and keep building up that asset base. It’s like owning your own real estate that you’re in control of and get to fix up and make even more money out of.
John experiences the freedom to work when he wants to with his online business
Matt: What do you enjoy most about what you do now?
John: It’s got to be the freedom. It’s unparalleled. I can leave for a week or two. Or, if I decide on Monday to go to the grocery store, stay at home, or do whatever, I can do that.
I actually joke because sometimes I’m so focused on the business I want to go in and grind and do all this. And a lot of times when I’m on vacation are the days we do the most sales.
Matt: That’s pretty cool, isn’t it?
Well, John, I do want to say a big thank you for sharing so much today with our community.
If you’re interested in reaching out to John or if you’re a sophisticated investor and you want to check out what John’s up to, then reach out to him.
John: Thanks, Matt.
Learn how to buy and sell websites on Flippa like John Chen
Matt: And if you’re a total beginner and you haven’t done our Masterclass yet, but you want to learn how to buy and sell websites (starting out small like John did), make sure you sign up for our free Masterclass on how to buy and renovate websites for remote income. And we’ll see you again on the next podcast.