Mark Daoust is the founder and CEO of Quiet Light Brokerage. He helps entrepreneurs, solopreneurs and bootstrappers prepare their websites, identify potential buyers and negotiate the sale of their online businesses.
Before the Internet, if you wanted to start a business you put on your best suit, your best smile and made an appointment with the bank manager. This immediately put you in serious debt, which isn’t the best place to start a company. But now in the age of e-commerce, a brick and mortar presence is not required, and the cost of starting a business has fallen. Startup costs could be as low as $10,000, an amount that can be reclaimed after a few months’ profit.
I’ve seen these bootstrapping startups nurture a new breed of businessman — the website flipper. These people start a business, watch it grow and then sell it, only to use the money to start again and repeat the process. The profits can be good, as I saw with a former client of mine, who spent 10 hours a week building a business. He then sold it and made just under $300,000. Eighteen months later, he did it again, selling the site for $600,000.
But how do people like him make money? Though little physical infrastructure, low staffing requirements and the fact that these businesses never close. This gives online companies the potential to make money 24 hours a day. Plus the fact that there are more buyers than sellers makes it a seller’s market.
So the question becomes: which types of website are popular with potential buyers? Through my time as CEO of a brokerage centered around buying and selling websites, I’ve seen what works and doesn’t. The following list goes through six types of sites that sell (and three that don’t).
Quality SaaS (Software as a Service) businesses are in high demand, and it’s easy to see why. They require very little staff, and the business model is typically recurring monthly subscriptions. Quite often, SaaS businesses are less labor-intensive than other online businesses, which also adds to their appeal. For example, we recently sold a SaaS service with 300 percent growth, but was run entirely by the owner through just 40 hours a week.
Two big online buzzwords are currently “online” and “education.” A growing number of people are now taking some form of free online class, and this will only expand in the future. Growing opportunities means more potential buyers willing to consider an investment. However, it’s important in this niche to own your own content and prove the value of your service through student retention. Buyers will want to know that people value your information.
As well as SaaS businesses, there are other subscription-based online business models. For example, I talked to a buyer who recently acquired a subscription business that offered new, fresh paleo recipes and tips, as well as a premium members-only section. If you can prove that you have strong renewal rates from your subscribers, then this would make your subscription website even more valuable.
If a buyer is not web-savvy, then an e-commerce business would appeal greatly to them, since everyone knows what e-commerce is. To make it even more appealing, e-commerce business can be automated by having all of your orders fulfilled by a drop-shipping company. Your niche can be as narrow as offering specialty medical equipment or as broad as offering vintage style children’s toys.
If the buyer specializes in the e-commerce world, they may choose to exercise more control over their business by fulfilling the orders themselves. It’s more work, but there is usually less competition and higher profit margins. For example, I recently had lunch with a business owner who acquired a business that sold athletic clothing. In that acquisition, he took on over 4,000 SKUs in inventory. The result of carrying his own inventory was profit margins that exceeded 50 percent.
Although these forms of websites sell fairly well, not every type of website will. The following three are often more like dead weights when it comes to flipping sites.
Blogs have a hard time selling precisely because of what they focus on — the owner. This means that a new owner would find it very difficult, if not impossible, to step into the former owner’s shoes. A new style of writing and a new sense of direction is likely to scare off readers.
You can blame this one on Google, which has the power to sink a whole category of websites with a single search engine recalibration. General web directories used to sell very well, but they no longer do. Even if a directory owner is still making good money from their site, the lack of longer-term prospects is going to drive buyers away.
Websites that specialize in a niche are good, but there is a fine line between specializing and existing only to service a single product. Websites that are there to sell a single product, such as an e-book, tend to have a very short expiration date, and the potential for expansion is limited. This equals very little interest from potential investors.
Should You Sell Your Website?
There will always be products that will sell and others that will not. The golden rule should be that if you’re planning to sell your site later, make sure it’s in a category that you can profit from. Just don’t let your hard work go to waste.
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