Buying a Cold DM Business? Watch This First

0:00Welcome to Acquisitions Anonymous. Today's deal was very exciting. It involved Instagram, direct messages, and universal agreement by everybody about how we felt about this deal. So me, Heather and Mills had a great time. I think you will too. Here's the episode. We'll start Acquisitions Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100 % beers anymore. I'm thumbs downing on just the plus inventory. Hi, Heather here. When I'm not breaking down deals with these guys, I'm helping people get the right SBA loans for their business acquisitions. Because when you're buying a business, the best financing isn't one size fits all.

0:37There's the best rate, fastest to close, the specific loan structure that you need, or a little of all of those things. That's why my company, Viso Business Capital, works with over 30 different lenders to find you the best funding in less time and with less friction so you can focus on the deal. Sign up for a free live Q &A session on SBA loans at visocap.net, then click Zoom Sign Up in the top right corner. That's V-I-S-O-C-A-P.net and click Zoom Sign Up. Heather, you're wearing a turtleneck today. Is it like below 70 degrees in Southern California? Not even cold. It's not even cold. It's like a little chilly in my house.

1:13And so, you know, I never turn the heat on. So I just put it. Yeah, I look like I'm in the winter, but it's not cold. No, it's nice. You're just channeling your winter vibes. That's right. It's like 31 in Columbia today. So thank you. Oh, that's cold. Yeah. Why are you in a t-shirt? Because I can't fit a jacket over my claw. So what's going on with your claw? This is from your rooftop injury? No, I was at a moisture rest. Okay, hold on. Wait a second. I think we talked about this on a previous episode, didn't we, Heather? We've been through it before, Michael, for our listeners. But he doesn't know.

1:48Michael's new to this. I lent somebody my box knife to cut down a sign. They were cutting zip ties off of a pole, and I was holding the pole for them. They cut like four or five zip ties off, and then they got to one, and it slipped, and it cut my middle finger, cut two tendons, two arteries and a nerve. So you now give people the middle finger all the time while you're healing? If I did not have surgery, I would have a permanent middle finger. It would have been, yeah, it would have been a bad situation. I was like, I'm too young to have my middle finger stuck up for the rest of my life. Later, later.

2:21Yeah. Yeah. Fascinating. Maybe later in life. Okay. So this was work or not work? You were in an oyster bake? So yeah, Michael, I was like this for a week. did i send you guys that picture i can't remember you sent me some stuff with blood all over it and then i didn't look at it i was like i won't be in the recording today guys oh man well this is the content i'm here for yes um so i did bring a deal do you guys want to hear hear pitched on it because i think it's going to be right up heather's wheelhouse she's gonna love this deal so i came via email this morning from acquire.com and it is an instagram mass dm software for agencies of businesses to automate Instagram outreach at scale.

3:03The asking price is$235 ,000. They're selling for 5.9 times profit or 4.6 times revenue, and it's growing at 25 % per year. Trailing 12 months revenue has been$51 ,000, and they run at an 80 % profit margin. So it made$40 ,000 last year. So they're asking just under six times for this thing. And last month, they did$3 ,500, thousand in revenue and profit of twenty seven hundred dollars so i guess this is just like a this is just like some software you use to like spam people is that what this is mills instagram mass dm software for agencies so i guess they are they're reselling to agencies because the agency is like hey don't worry we'll handle you know your social outreach but they don't want to actually pay somebody to send a thousand dms an hour oh here they have a description Okay.

3:59This software enables agencies and businesses to automate their Instagram direct messaging efforts at scale, sending unlimited personalized messages without needing to hire additional staff. It cuts down outreach costs and saves time on maintaining a human touch through personalization. Businesses can instantly generate hundreds of leads from a single post and automate profile targeting and find ideal prospects. With support from multiple logins, the tool distributes messaging activity to avoid detection, making it highly effective for reaching thousands of users seamlessly. key highlights some of the stuff i talked about scalable personalized messages generates hundreds of leads from one post automates profile targeting for ideal leads and allows multiple logins and then i'll read this why we're asked why they're asking prices justified our price reflects near 100 profit margins at almost zero ongoing costs is one of the strongest instagram instagram outreach tools in its niche and all revenue to date was generated with zero paid marketing only two YouTube affiliates.

4:57So growth upside is huge for a buyer with sales and marketing muscle. We're exiting to focus on other ventures and the product also drives inbound done-for-you deals starting at$1 ,000 plus adding a high-ticket upsell stream. What is done-for-you deals?

5:14So there's like, done-for-you is like white glove service. They do everything. So you go to them and say, I want a campaign and they'll build a campaign for you and then they run it and then they do it for you. Okay, all right. So agency lingo. I'm not currently a subscriber to Acquire, but they do have historical data here. Customers, they have 100 to 250, and they're losing about a churn rate of about 10 % plus upwards. I don't know what that means in terms of churn rate, but that's what it says. And it's been around since 2023, team size is 2 to 20, and it uses Puppeteer, Electron, and a competitor is called Cold DMs.

5:55um which is that's what they do weird connotation i know that's what it is it is a cold dm but you feel like you would want to call it like warm dms or lukewarm or something best cold dms yeah yeah yeah so i've never sent hundreds or thousands of dms but uh the avoid detection thing stands out and I guess do does Instagram if you if you don't avoid detection does Instagram say hey you can't do this without paying us is that the kind of gimmick not not gimmick but right is that the loophole that they're operating in well you're not supposed to spam people on all of these platforms so but it looks like like it looks like what happens is like a business or a person does a post somebody else engages with it whether they like it or reply to it or share it with somebody else, this tool sees who does that and then messages them, hey, I saw you interacted with our post XYZ.

6:55Are you interested in talking to us about buying our product? I mean, it seems like that would be the best way to do these kind of cold DMs, but I get them. I'm sure you guys get them too where I didn't interact with any post. They're just coming to me. Who knows how they selected me in their list? But I was laughing with you guys earlier. I get a lot of them where it says, Heather, bro. and i'll get multiple of the exact same message sometimes you can tell when someone's really spamming yeah like you're coming from different accounts with the exact same message it's funny too when it's like pitching something that is supposed to be um highly influenced by ai and is really smart and not redundant and like differentiated from everybody else and then you get that same DM from multiple people.

7:47And it's like, it's not working. I don't know how to tell you otherwise. Well, the other trend you'll see is, you know, there's these like online money-making business gurus, right? And whatever their latest kind of, oh, this works, do it this way approaches, suddenly the 50 people that buy that course or even the 500 people are all using the, oh, could I give you a hundred leads for free? Would that be good for you approach? And then I get that like 85 times. Like, it's like, okay guys, this is, if you're all using the guru's approach, it's not going to work. Yeah. There goes the whole mob. It went off in that direction all at the same time.

8:29It's interesting because, you know, I guess this is predominantly for, you know, they mentioned having agencies and businesses directly that they work with. So they would kind of wholesale through an agency or an agency would use their tool for their customers or if you had your own, you know, e-commerce. But I'm guessing these are probably mostly either online services or like some kind of CPG brand, right? I don't, they don't allude to anything specific, but that's what the majority I think of, you know, the DMs are for some knowledge product or, you know, an innovative new, you know, pair of sunglasses or a wallet or, you know, some kind of little CPG brand.

9:12But this has got to be a really small player in this space because what did they say? $3 ,500 a month is the monthly revenue. Revenue, yeah. I mean, how many customers can that even be? They're bragging about not doing marketing, but it feels like they need to be doing a marketing platform, you know, two marketing agencies, maybe you should. do some marketing. I mean, the obvious question is, if this is a really effective tool for people, why aren't they using it themselves to grow this business? You see what I'm saying? Like, like go post some stuff, which, you know, how many, how many times have each of you been approached by Twitter ghostwriters who are like, I can get you to a million users.

9:54And I'm like, well, why haven't you got yourself to a million users? Yeah. You only have 200. Yeah. What's interesting to me about this is, so we get, we get pitched a lot. Roofing is a high average order value and kind of relatively low customer acquisition costs. It's getting more competitive, especially like in the residential side, but we get pitched a lot where we don't even do residential. And I get people probably 10 to 15 people reach out a week saying, could I send you, you know, X number, fill in the blank qualified leads a week. And, you know, you only pay for what you sell. I think if the business was like, if, if we were focused on residential and if we were hurting for leads, it would be really tempting to go.

10:44Yeah. And like, let me see the quality of these leads. This, this seems like it's like more pushy. It's more like we're going to go try and create something out of nothing and like generate some demand by just covering so many people with so many dms i would think the conversion rate has got to be like 0.0001 right it's got to be so low which is why their revenue is so low and probably their their fees are so minuscule there's just not that much value changing hands well and then you've got The other problem here, and they allude to it, is you are existing solely in the gray area where Instagram is not shutting you down.

11:29If you see it on LinkedIn, for example, all the LinkedIn automation tools for outreach and stuff like that, they are constantly getting caught, banned, all that kind of stuff. And the same thing happens on all these platforms. None of them want you spamming their users. so x linkedin instagram they're all fighting to it's a cat and mouse game over and over again and that's a risk here like what what happens if you get on the wrong side of that and um then you're in trouble and and how much would it cost you to build this i mean they told you the platforms that it's built on it feels like you could build something like this for less than 235 000 today that's the problem i have yeah well or hire a va to do this like why do you Right.

12:15People power. Why do you need a tool? It works. Yep. Well, I pulled up their competitor here, this Cold DMS, which I guess is Cold DMs. And it kind of has what you imagine as a marketing video, a guy with the broccoli haircut. You know what I'm talking about? He's saying bro to me right now. He's saying bro, bro. Which this haircut is so fascinating. Like, I guess it skipped my kids because they have no body to their hair. It's all straight. Their hair is just straight and messy. But this kind of the broccoli haircut is just a fascinating one for 20-something teen men. But anyway, so it looks like that's the video.

12:54I won't click on it. But one of the things that they do have here is there's actually filtering, sequencing, different levels of A-B testing and metrics, which I think is totally there, right? Like that's stuff you would want to do if you're running these kind of campaigns. So I'll take back maybe my VA comment, having seen that. It looks like this cold DMs product is much more successful than these guys. At least they claim to have thousands of customers. Oh, I see. This is the competitor. This is the competitor. Yeah. Yeah, it probably has more features to it. It's just bigger. It's so funny.

13:30It even says right there, Michael, forget paying a VA to DM people for you. This is a review. I don't know if these are real or manufactured, Richard, but they look somewhat. Oh, look, that Dan Magazu is on there. What was that guy? He was famous on Twitter. You know who I'm talking about? I can't remember what his handle was, but apparently he uses them. We could fact check that. For cold DMs? Yeah. So here's what their pricing is. These guys charge$99 a month. or$1 ,000 a month for the enterprise plan. This looks like a much better business than the one we're looking at. Yeah. The one we're looking at is a copycat, is a tiny little copycat of this, which means you can go build another tiny copycat.

14:25Yeah. Well, and they say they have 100-ish customers, right? And they're doing$4 ,000 a month. So that means, let's say, they're charging$30 to$50 a month for a less functional, less sophisticated version of cold DMs, which charges more. And I like cold DMs a lot better as a business. Yeah. Big thanks to High Level for sponsoring this video and helping us pay for our editors. High Level is the all-in-one CRM that handles your emails, texts, funnels, and more all in one place. Think of it like the Swiss Army knife for small businesses, and you can try it for free for 30 days at gohighlevel.com slash Michael Girdley.

15:05This got Dan. I knew he looked familiar. He is on Twitter. He's got like 4 ,400 followers, but he has a business called Wave, Ride the Wave, Wave Facebook Groups, number one organic Facebook agency for small businesses. They use Facebook groups to help you dominate the local community and drive leads. So he is selling agency type services through Facebook groups, but he's using this to kind of facilitate the cold outreach. So it looks like the business we're looking at with lower ACV is one that is basically a competitor for cold DMs and other products like that, but targeting people who aren't willing to pay$99 a month.

15:54That's basically how I would describe it. Yeah. Yeah. Yeah. Because even if you just said, you know, they say between 101, right? And the listing we're looking at is somewhere between like 100 and 250 customers, right? Yeah. But if they're doing like, let's just say on a good month,$4 ,000 a month and 150 customers, that's$25. So it is substantially smaller in terms of the, you know, whatever the monthly fee is. and two to 20 team size, there could be just two employees or maybe an owner and helper or something like that. Right. So is this business sellable, do you guys think? No. I don't know.

16:42Heather, what do you think, bro? I say no. Bro, I say no. minutes yeah it's too small it's this is not sellable and even the churn rate comment was a little weird 10 plus upward like our churn rate is going up which uh there was an interesting comment on twitter today which i found fascinating which was i i put out a call like i i tweeted like Like, okay, you need to start a business that's going to do$150K and free cash flow next year. What business do you start? And a guy dunked on me. He's like, why would you start a business? Why don't you just go buy a really small business for like$10 ,000 and then grow it?

17:31I'm like, well, okay. There's a lot of... That sounds easy. Let's do that. Yeah. That does sound great. Except it comes kind of back to one of the ideas that Brett Bouchard talks about, which is small businesses are often small for a reason. and they're often tiny for a reason. So you're buying yourself a real hard challenge to grow them in that way. And that's what this business feels like. It's like, this feels like a general tool where the market has been decided, cold DMs and some of these other guys have won and these guys are losing and they want to sell you their problem. I just think that's so crowded too that it's really hard to differentiate unless you have some major competitive advantage, which just seems hard to figure out what that would be.

18:18I don't think brand in this case, Cold DM seems like they have maybe a better, we don't know the name of this one, but I don't know. It just seems hard to differentiate. And there's almost, it seems like would be almost no switching cost for your customers. So, you know, if you are doing SaaS, do something that is incredibly high switching cost, major kind of friction around changing. This just seems like it could be plug and play, you know? Unless there's some CRM function or something that doesn't translate over, but I don't get the sense there's any of that. All right. How would you, let's say hypothetically, you went to the seller and said, hey, I can give you probably one time's profit up front, but the rest is going to have to be earn out.

19:06How would you turn this into a better business? If you own this business, how would you make it better in the long term? I feel like you need to find some specialization with some agencies. Like maybe you can find some agencies that serve a particular industry or do something special and you kind of start to develop this product to be just very good at those industries or what those agencies do. It kind of needs to find its own little niche, I think, and not just be a one size fits all. Didn't we look at it was either an agency or a software company that like only worked with dental practices?

19:42Yeah, we did an episode on that. Like, I think you would have to niche down to Heather's point. You'd have to do something like that, where you just say, we're going to be, we're just going to go to this type of client and get super specific. Or maybe it fixes the gender problem and now it says Heather. Heather. Instead of bro.

20:04the other besides niching down which i'm totally with you guys like they should just get good at one market and go on that one especially in a crowded kind of red ocean like this the other thing would be use this as a platform to learn how to do these campaigns and just create a business on the done for you end that charges real money right and this is this whole business is a case in point of how it is incredibly difficult to make a good business out of a$30 to$50 a month SaaS business that is a niche product. And it's just so, so hard to make it work. And, but so that's one way I would go with this because, you know, in the amount of money these guys are making per month, if you got one client who would pay you$5 ,000 to run and do a done for you campaign, like that's a better business than this, right?

20:53You can staff that with just like human labor. Deliver this much more value and you won't be the low person on the totem pole. Yeah. The thing that scares me about this is there is a scenario that is not that hard to imagine where this business goes to zero. Like, does the loophole close between you and Instagram? And then you've shelled out$235 ,000. That's what they're asking. and the$3 ,000 a month in profit that you were expecting is gone forever and the loophole will not reopen. Yeah, that's the other thing. It's not like you're getting into a market here that's going to be around forever.

21:36It could disappear tomorrow. I actually recorded a video yesterday on Wish.com. Did you guys remember that business that got kind of destroyed by team media and all this kind of stuff? It was a fascinating story because they built the whole business on meta ads. And when Apple came out and basically killed meta advertising and increased the cost of meta advertising by like 50 % for everybody for a period of time, like it killed their whole business. Like they were spending two thirds of their revenue on marketing, which is fascinating. But kind of like this, like you have one business that's totally dependent upon the operating at the pleasure of another platform.

22:15And like, Heather would be like, if you only worked with one bank, It would just be like the most tenuous thing ever. And that's what you have here with this business. All right. So you guys want to go in together and buy this one? Or what are you thinking? I will give you$1 ,000 if we don't. How is the, you guys are partnering on buying a business that we looked at, but we've not published an episode on it. How's that going? Are we pursuing it? And by the me, I mean the royal we, because I'm not participating. Oh, you're in, Michael. You just don't know it yet. Where do I send my, where do I send my Bitcoin?

22:49is it happening or what's the deal uh we haven't gotten an update from bill in a week but we recorded two weeks ago we talked to bill about it last week and i was like hey what's going on like what's the latest you talk to the guy and he was like yeah like i owe him some follow-up and like we talked about kind of some next steps and we've just all been busy all right well keep me posted i'm curious oh your name is on the legal docs michael you will you will be notified as long I have unlimited personal liability. I mean, joint and severable. Let me just hold up my wife though. Hold on. Okay. So back to this deal.

23:28Um, Heather. Thumbs down. No, thanks. I agree with you, bro. I couldn't buy a business like this, even if it was a good one. Like, I just don't know this. I don't know this segment at all. I mean, the one upside is that this Instagram and all this stuff is going to continue to get bigger. That's the one thing I do like about it. At least you're in a growing market. You're not selling buggy whips here. But yeah, it's really hard to sell this, buy this business. So, all right, on that note, maybe next week we'll find something more interesting that we think is so good we don't tell the audience about it.

24:04So, like the other deal. All right. Well, thanks everybody for being here this week. And if you enjoyed this, please tell your friend about either this episode or any other episode because that's how the podcast grows and we'd be very appreciative if you did. And we'll see you next week.