3 Tricks to Increase Your Online Business's Value
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Entrepreneurs are always on the lookout for profitable online businesses, which results in a lot of buyers and very few sellers. This is great news for anyone who owns an established and profitable website. Buyers are aplenty, and they're hungry for great websites.
But before you start mentally spending what you will get from the sale, it's worth bearing in mind that buyers today are extremely selective. Ten years ago, they were recklessly throwing money at anything with a .com name and a promise of potential. But after losing their shirt, they wised up, and now they won't part with their money unless they see a sure thing.
The ironic thing is that many sellers are their own worst enemy. They think selling their website is a spontaneous thing, and everything can be done in five minutes. But in actual fact, the opposite is true. The most profitable website acquisitions are planned far in advance, to maximize value and increase the chances of a sale.
So how can you maximize the value of your website? What mistakes should you avoid? Many of the most common mistakes are relatively easy to identify. Here are three you should avoid, to increase the value of your website.
1. They don't outsource effectively.
Generally speaking, entrepreneurs have difficulty finding balance. On one hand, many have difficulty outsourcing jobs. The result is an extremely high-workload business.
On the other end of the spectrum are entrepreneurs who outsource every aspect of their business in an attempt to live the four hour work week. Both of these extremes can be damaging to the value of your website.
Buyers love websites that are easy to transfer and do not require high levels of workload. For this reason, the entrepreneur who micromanages every aspect of their online business will find that buyers will run away fast from buying the business.
Buyers do not want to buy a job. If the current owner is too heavily involved in every aspect of the business, this makes a sale virtually impossible.
But don't be so fast to outsource work to lessen the workload. Even though potential buyers love low-workload businesses, they also like profits. And outsourcing jobs costs money which eats into the bottom line. The more outsourcing costs, the more you will destroy the value of your site.
The best way to solve this problem would be to selectively outsource. In other words, you need to calculate what you need your hourly earnings to be and only outsource if you can save money by doing so.
2. They keep needless risk in their businesses.
In February 2011, thousands of site owners discovered they had built their websites on quicksand. Their strong rankings in Google made them believe they would continue to receive a high amount of traffic to succeed. But then Google rolled out their Panda update, and subsequently the floor collapsed beneath those very same people.
The difficulty is entrepreneurs often have trouble seeing the risk in their own businesses. This is because: 1) the longer we live with risk, the less we think it exists, and 2) entrepreneurs tend to be ridiculously optimistic people.
It is not uncommon for someone to grow comfortable with risk even if it is staring them in the face. A classic example are the thousands of residents who live along the San Andreas fault. Or the developers who continue to build in that area despite the fact that a major earthquake is predicted in that region within 30 years.
This is the same with entrepreneurs -- they don't see the fault line in their businesses.
Secondly, entrepreneurs tend to be unfazed by failures and optimistic that success is always around the corner. This optimism is useful since it helps them take the risks that build key businesses and services, but it also can be an disadvantage.
Therefore, entrepreneurs need to learn how to identify and mitigate risk within their websites, by focusing on five key areas:
- Single points of failure. Is there any area of your business that, should it fail, would cause irreparable and severe damage to the rest of the business? For example, using only one vendor, or having only one source of website traffic?
- External dependencies. Is your business dependent on another business's success, or outside events? For example, if you specialize in helping people gain Twitter followers, you are dependent on Twitter's continued success.
- Key man risk. Is your business dependent on you alone or one particular employee? For example, bloggers and podcasters tend to build a business on the strength of their unique voices.
- No barriers to entry. How difficult would it be for a competitor to enter into your niche or space? If anyone can just walk in and start a similar business then that is a significant risk and potential buyers will be worried about copycats crowding the marketplace.
Market risks. You can't control your industry, but your industry can control you. A contracting industry or marketplace can directly impact your business and its future viability. This could be a sign that you should exit earlier than you expected, or that you need to change your business strategy.
3. They get their timing wrong.
If there is one thing that influences the price and salability of your website, it is timing and trending. If you sell too early, you could leave too much money on the table. Sell too late and you could lose an equal amount of potential money.
I recently came across a scenario in which waiting helped a client add significant value to their business. The website in question was growing at an astonishing rate -- an annual growth of over 250 percent. At this rate of growth, I explained, buyers would have trouble betting on the recent most successful months as a “new normal” and would want to focus instead on the past year which included several significantly lower volume months. By waiting until his business established a “new normal” baseline for earnings over several months, buyers would be more inclined to pay accordingly.
Then there are the owners who hold on to their websites for far too long. When a website begins to decline in traffic, revenue, or earnings, its value drops at an even faster rate. Declining trends need to be reversed which usually means more money and a lot of gambling.
So when is the best time to sell? When your website has moderate, but steady growth, and well before it experiences a downturn in earnings or traffic.There are literally dozens of factors that influence website value, but you don't need to maximize each and every factor. Pay attention to the big issues above and you'll be well on your way to maximizing your online business's value.In the end, you'll be glad you did.