Bigger and better things await
Photo credit: gigi62
When you scan through the listings of sites for sale, you’ll often see some …. ummm … unique if not downright comical reasons that people give for wanting to sell their site or internet business. In fact, can you remember the last time someone listed their reason for sale as it being the “best strategic move to make”? Neither can I.
This could give the false impression that you need a reason to decide to sell, like something has to go wrong first, but if you’ve owned and operated a site for a long enough then knowing when to sell can actually work massively in your favour.
It all comes down to leverage
Take a look a these two examples:
- A seller owns a blog which he bought for $10,000 and it generates $800 net profit per month from advertising and affiliate sales to a mailing list.After one year, the seller will have $19,600 assuming the value of the site stays the same ($10,000 site value and $9,600 in earnings). After two years, this figure increases to $29,200 ($10,000 site value and $19,200 in earnings).
What if that seller sold up after the first year and bought a similar but larger blog with more traffic and a bigger list?
- If they invested $22,000 from year one into buying another blog at roughly the same valuation multiple, $22,000 would buy a site generating $1,760 net profit per month which means at the end of two years they would have $43,120 in total ($22,000 site value and $21,120 in earnings).
The numbers used are simple to illustrate the point, but it remains valid all the same – the second scenario results in more profit overall than the first. It works on the principle of leverage in two places.
It’s highly unlikely that the second business takes twice as much work as the first. In fact it will probably take a near identical amount of time to manage, create content for and promote the second blog as it would do for the first.
This is something I often see when undertaking due diligence for organisations; there’s a section where you provide an independent estimate of the number of hours of labour that would be required to manage a site / internet business. There’s often little difference between a site valued at $20K versus one valued at $250K, as only some elements (like customer support or order fulfilment), increase proportionately as the business gets bigger. Things like search marketing, buying ads and creating content tends to be similar regardless of the size of the site (to a point), so it makes much more sense to be doing those activities where they will provide the greatest return i.e. the highest value site you can afford.
Statistically, based on the rate of small business failure, you’re more likely to be better off paying your money into a savings account than you are being an entrepreneur. I’m sure we all know this, but the reason why we choose the least likely path (other than it being more fun!) is the belief that we can leverage the money to provide a better rate of return through things like business, investments or property.
Going all in, reinvesting the revenue from a purchase and the value of the purchase itself is risky, but relatively safe if you’ve spent the previous months running a similar business and you know both the industry and what to look for in a similar business to guarantee stability. By putting your money to work in a bigger but similar “vehicle”, you ultimately get the same rate of return but on a much larger scale.
It’s not all happy days … or is it?
The increase in value is usually enough to make the decision to sell a no brainer, and that’s before you’ve considered things like
- The fact you can increase your return significantly if you increase your site value and earnings by increasing traffic or conversions. The same work will have a much better rate of return on a larger site.
- Most of us love new ideas and opportunities rather than day to day management. The rush of excitement from taking on a new project can often counter the 2 year boredom itch you get with doing the same thing day in, day out.
- Your past experience will have much greater use this time round. There are certain things you probably did on your current project to increase conversions or drive sales that you can only do once. Playing with Google’s Experiments feature in Analytics is my idea of a good night out, but there’s only so much button colour or menu tweaking that you can do to see a positive change. With a new project you can take all that knowledge and apply it again.
That said, there are still some good reasons why selling isn’t right – at least for the time being. Ramsay from Blog Tyrant provides a great alternative view on knowing your site’s worth to you versus its worth to a buyer. Sometimes the leads or opportunities that you get from being active in a space, especially if that site has your personality attached to it, is worth much more than you could gain from a sale.
Another common reason is knowing that you’ve still got significant value to extract from the business. The example above work on the idea that you’ve bought a site and either have little desire, or little opportunity to make improvements to increase its value. Ironically, this also the reason that prevents many people from selling when they should – they think they’re able to do more than they realistically can, not realising that the site has hit a ceiling or that they’ve taken it as far as they can go.
Another reason, one I personally understand, is simply having a connection with what you’re doing. Business is ultimately about profit, but the greatest part for many tech/web entrepreneurs is really loving what you do. If you’ve stumbled across a project or business that makes you excited to wake up on Monday and get stuck into a new idea or campaign, then you’ve probably found something worth keeping, especially if generates enough income to meet your immediate goals.
Of course, all of this is my opinion but I’d love to hear yours. Do you think there’s another reason not to sell that I’ve forgotten to include? Are you thinking of selling but can’t quite make your mind up? Let me know in the comments below.