Buying and Selling Websites – Part 2

June 2nd, 2010 by Rob

To recap, in the last post I asked why when S&P 500 companies are valued at 15.7 times their annual net profits, websites listed on http://www.flippa.com/ are selling for 1 times profit. My personal view on this is as follows:

S&P 500 companies are large established businesses commonly in traditional sectors (oil and gas, mining, industrials, retail, financials) and often have a high degree of earnings visibility (that is to say, based upon customer orders they have revenue guaranteed for the next 6-12 months). In addition, they often have significant market share which provides a greater level of business stability and natural defence against competition.

Websites on the other hand, especially smaller ones face a far larger degree of uncertainty in their business outlooks compared to a typical S&P 500 company. Specifically, what is the business risk for a website selling (say) an assortment of face creams and body lotions? First, the product focus is very narrow – often the case with websites as they are usually built around “micro-niches”. This means that profits are extremely vulnerable to adverse changes in the marketplace such as new and successful product launches from competitors. Second, the products for sale are often merely promoted (not-owned) by the website and this lack of product control not only reduces profit margins but also often means lower barriers to entry for potential competitors. Thirdly, the lifeblood of any internet business is traffic (visitors to the website). Traffic levels are often volatile as a result of actions by competing sites and even changes in how ranking is performed by the search engines. Finally, the length of historic trading data for websites is often as little as a few months which does not inspire much confidence when you are extrapolating profits into the future.

So the bottom line is that many websites appear to be cheap due to the relatively low “quality” of the business franchise. It is easy to think that “if I buy this website for an amount equal to its annual profit then it will pay for itself in one year’s time!” But remember that the business might not be around in 12 months time! Obviously there are some great online businesses for sale on the web but extra care and due diligence is required to seek them out.

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Buying and Selling Websites – Part 1

June 1st, 2010 by Rob

Buy a website, renovate it and sell it. Sound easy? If you consider that the renovation can be outsourced for $5 per hour online then perhaps it does. Being a fan of Ed Dale I was recently watching his YouTube videos on “Dominiche” which was his teaching course this very topic. A Google search “buying and selling websites” will provide you with opportunities to browse sites for sale and examine the associated revenue, profitability and valuations.

Coming from a financial background I was most surprised by the valuations of these sites. Usually, businesses are valued on multiples net profits (basically revenue with all product, operating, financing and tax costs deducted). Net profits are commonly referred to as “earnings” by investment professionals and in this way the Price-To-Earnings ratio (PE) tells you the how expensive or cheap a business is. For example, if a business generates $1m of annual earnings (net profit) and it is sold for $10m then the PE is 10.

Buying And Selling Websites - Flippa

Buying And Selling Websites - Flippa

Now, keeping in mind as I type this the average PE of all the stocks in the S&P 500 index is 15.7 can you tell me why, when I look at the web sites for sale on www.flippa.com they seem to be selling for an average PE of 1? Surely, this is bargain of the century to be able to pick up these online businesses that will pay for themselves in 1 year (as oppose to 15.7 years for the S&P 500 companies)?

Check back tomorrow to see my answer in the next post…!

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Stop and “Begin”

June 1st, 2010 by Rob

Stop trying to find the perfect business idea, just pick one and “begin”.   This is a very inspirational post:

http://www.pixelatedimage.com/blog/2010/05/begin/

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Business Plan – Do you Really Need One?

May 30th, 2010 by Rob

Interesting article on business plans which talks of successful entrepreneurs seemly flying by the seat of their pants. I read it with scepticism and in fact Andrew Burke from Cranfield University finds that startups with a business plan grew one third faster than those without a business plan.

I do accept the argument that some technological sectors move so fast that you simply cannot plan 3 years or even 12 months ahead, but surely some form of formal plan is of benefit to every business.  One of the key benefits to business planning in my view is in the prevention of “mission creep” which I blogged about here.

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Business Outsourcing – One Tip

May 28th, 2010 by Rob

I’ve been watching some videos online by John Reese recently. He is the “outsourcing king” by all accounts. Two of the key advantages of outsourcing are access to specialised services, and of course cost reduction as most tasks are performed in low cost countries. In terms of outsourcing for online businesses, most people are aware of web sites like http://www.elance.com/. A worry for many people is poor quality work coming from the workers signed up to these kinds of sites. John Reese reckons a great way around this is to contract someone fulltime in your business which he reckons can be easily done for $500 per month. The rationale is that, compared to the ad-hoc worker performing one-off tasks for you, the fulltime person will have a vested interest in keeping you happy on an ongoing basis. The life of an outsourcer is unstable and their income is usually lumpy. For this reason many will be more than happy to take contracts which have some level of continuity to them.

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Affiliate Marketing – Can You Make A Lot Of Money?

May 26th, 2010 by Rob

I’ve been looking into online affiliate marketing recently. For the uninitiated, this means earning commission for promoting other people’s products. A common form of the system works like this:

1. You perform market research in various “micro-niches” (e.g., miniature radio controlled helicopters, wedding cakes etc) by analysing what people are searching for online (various “keyword research” tools available for this).

2. You create a website (usually a blog) about this subject and drive traffic to it.

3. You monitize your website by promoting products relevant to your niche from sites which run affiliate programs such as Amazon, Commission Junction or Clickbooth. Commission levels typically range from 5%-50% but with so many training programs out there teaching you how to achieve success in affiliate marketing you have to ask – if it is that profitable then why aren’t the people teaching the courses actually doing it themselves?!

After some considerable time looking into this I have come to the conclusion that since this is a business that you can effectively start from home with very little set up cost there are inevitably a large amount of rookies and novices operating. Therefore, there will also be large number of people making very little money and the overall failure rate will be pretty high. That said, it is certainly a scalable business (especially when much of the work is outsourced) and this is evidenced by the large number of insurance, travel and utility comparison sites which are effectively affiliate marketing businesses.

As for the people teaching the courses, one of the most profitable product types to market on the internet are knowledge-based products. This is because after the one off cost of product creation you can achieve a very high gross margin on each extra unit sold (especially when the products are delivered electronically via the web!). So you can’t blame these guys for doing this. I would also add these very same people ARE doing marketing in very profitable niches – again indicating that you can make great money here. It’s just that they are certainly not going tell you what these are because they clearly have a vested interest in keeping competition low!

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JUST (DON’T) DO IT! Business Research Efficiency Savings…

May 24th, 2010 by Rob

Researching business ideas can be all time consuming. The other day I was searching Google for adventure holiday companies as part of a idea I have been working on. Along the way I found many interesting links to hotels, bars, motor home providers and so on. The opportunity to go off at tangents was immense! But I kept myself on track and simply refused to follow up these related topics to concentrate on the specific task in hand (price research on “all-in” adventure holidays).

This kind of discipline certainly does not come naturally to me but it is something I now try to stick to as much as possible after reading Tim Ferriss’s 4-hour Work Week. Amongst many inspirational ideas, Tim suggests asking yourself some questions on a regular basis. These are my favourites:

1. If you had a heart attack and had to work 2 hours per day, what would you do?

2. If you had a second heart attack and had to work two hours per week, what would you do?

3. If you had a gun to your head and had to stop doing 4/5 of different time-consuming activities, what would you remove?

4. What are the top-three activities that I use to fill time to feel as though I’ve been productive?

5. Learn to ask, “If this is the only thing I accomplish today, will I be satisfied with my day?”

6. Are you inventing things to do to avoid the important?

Checking back to these questions during my business ideas research has dramatically improved my productivity.  However great the temptation to get distracted and wander off on paths unrelated to the main task in hand – JUST DON’T DO IT!

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Business Ideas – Have You Experienced This?

May 22nd, 2010 by Rob

I had a business idea a few years ago to build an e-commerce website selling the goods and services of small businesses that make jewellery, home ware, beauty products, etc. Of course, I did nothing about it thinking – as usual – “probably a bit complicated and maybe it wouldn’t work anyway!” 

The other day I discovered Not On The High Street which is an excellent proposition for customers who like buying unique items and indeed “too-small to be noticed” businesses.  According to this article, co-founder Sophie Cornish has said turnover is expected to grow from £6m to £14m in 2010.  Fantastic! What can I learn from this experience?  I think two main things:-

1) I AM capable of thinking up successful business ideas (this is not the first time this kind of thing has happened!). When I see one of “my” ideas having already been executed I should not feel disheartened but instead feel pleased because it does show that I am on the right track in terms of my thinking.

2) I do not spend enough time developing the initial ideas and instead get put off by the initial challenges it poses. I need to overcome this as this is surely the exact opposite of what an entrepreneur is supposed to be?

You live and learn!

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Emerging Business Trends – Riding The Wave

May 20th, 2010 by Rob

Great business ideas often latch onto emerging consumer trends. I just found this website which publishes free trend “briefing” reports on a monthly basis. Worth a look me thinks…

http://trendwatching.com/

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Making Money Online – Time to Get Internet Savvy?

May 19th, 2010 by Rob

The speech that Guy Levine gave which I blogged about here prompted me to Google “making money online”. As I typed those words it felt that I was about to welcome scammers into my life. Being naturally sceptical I’ve always suspected that money making schemes are essentially de facto Madoff-type ponzi/pyramid schemes. People selling training courses on money making strategies and their students going on to do the same.  Surely, the inevitable result is a lot of disappointed/disillusioned people? Having said this, I’m also sceptical of my scepticism! So I decided to try to keep an open mind as I worked through the search results.

To cut a long story short I found a video of a successful entrepreneur named Ed Dale explaining all about the 30 Day Challenge.  This is a free training course on making money online.  Free you say?  Well how can I be cynical about that?

 

Anyway, this all happened in early April and I have just completed the course in the last few days.

Even though I’m not massively set upon solely pursuing online money making strategies, the 30DC was time well spent because even “offline” businesses like restaurants, home ware stores or taxi companies will be aided by an effective online presence. I’m sure many of these businesses get ripped off by so-called Digital Marketing Agencies charging them a fortune for Search Engine Optimization (SEO), website maintenance and other internet marketing services.  If these businesses had some basic knowledge of internet marketing I suspect they could save themselves a lot of money.

With 100+ training videos it is not easy to sum up the 30DC but essentially the course runs like this: 1) Systematically find a profitable micro-niche market that people search for on Google but does not have a great deal of competition (I chose “Advanced Guitar Lessons”);  2) Get a domain name, hosting and start a simple blog for that micro-niche;  3) Put an advertisement on that blog from an Affiliate Network (you promote other people’s products and get a share – roughly 5%-50% – of the sales revenue if customers purchase by clicking on the ad on your blog), 4) Promote your blog in the search rankings (using several methods they explain) to get more traffic. 

Some great software tools (also free for the training period) and other useful insights are provided.  Well worth having a look if you feel like getting more internet savvy.  Search for “30 Day Challenge” if you fancy having a look at their site.

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