Website Investment Advice for Novice Website Buyers
In my book, websites are the best investment on Earth. (I love this business so I’m biased.) Your websites assets are out in the world working for you 24/7 and bringing you traffic & money even while you sleep.
Unlike investing in paper assets like stocks or bonds, you control your website assets. You’re not a small insignificant stockholder who has no control in how the business operates. In a publicly-traded company, small shareholders invest and hope that the managers do a good job and the market recognizes their performance. In a website, you own and control your website’s operations. The traffic you serve determines the rewards for your performance.
Websites are virtual real estate. A website represents your parcel of land on the Internet. In traditional real estate, you personally have to deal with tenants. In websites, your website serves virtual traffic. There’s a fixed number of people you can house in a real estate property. There’s no limit to the amount of traffic you can serve on a website.
These are a few of the advantages that the website asset class has over other forms of investment.
However, like all asset classes, you have to understand what you’re investing in, and you have to establish your investment objectives based on the resources available to you. Therefore, like stocks, bonds, or real estate, you must educate yourself first before you invest in websites. A good website broker can help you with this.
There is a wide array of websites to choose from. They run the gamut from generalist websites to specialist websites whether you’re a novice or an expert website buyer/operator.
Obviously, novice website buyers have the biggest fears. These are 2 of their most common fears:
1. The novice believes he will not be able to operate and maintain the website as well as the previous owner. So his cash-flow will drop and he’ll lose his investment.
For novice website buyers, I always recommend smaller beginner investments to get their feet wet. I advise that they begin by acquiring their first website under $20,000 even if they can afford to buy a more expensive website.
The best place to start is with a generalist website. A specialist website may be appropriate if the novice buyer has some specialized knowledge in the niche. For example, a mortgage broker could buy mortgage lead generation websites or mortgage content websites under $20,000. The broker has valuable knowledge that he could bring to the website business and improve it.
Whether a generalist or specialist website, the objective is the same. It is for the buyer to get comfortable with running a simple website on a small investment budget. Later, as he builds experience and knowledge, he can acquire bigger websites.
2. What if a Google algorithm change hits the website and revenues drop to zero?
I have heard of websites that lost significant revenues due to Google algorithm updates. But I have never come across a website that lost all its revenues.
The solution here involves education and website age. The buyer must educate himself in order to buy a quality aged website. The safest bet is to acquire an established quality website that has many years of financials. Even when some aged websites suffer a small decline in traffic during an algorithm update, they always recover quickly. Most of these declines are not caused by problems with the website. They’re often because its competitors rank better than the website after the algorithm update.
On the other hand, if a website loses significant (over 50%) traffic, generally it wasn’t a good website to begin with. Websites do not get penalized by Google for no reason. They usually have consciously or unconsciously employed black hat SEO tactics to trick search engines into sending them traffic. But eventually, search engines catch on to these tricks. It’s inevitable.
A great example are websites that copy or scrape articles from other websites to attract traffic. They may do well for a while. But ultimately, they will get caught and lose their traffic. A check of duplicate content on Copyscape can quickly uncover the lack of quality of these websites. Due diligence is vital before acquiring any website.
All a buyer has to do is acquire established, aged, quality-content websites. As a buyer, have a website broker or website due diligence firm assess the website for you. If a professional website broker is selling the website, he would’ve already verified this for you for free.
Websites are a great investment. Like all investments, they require the investor to educate himself and perform due diligence. If you’re a novice, start small and get your feet wet. But no matter what, only buy established, aged, quality websites.
Author: Kris Tabetando
Kris Tabetando provides mergers & acquisitions (M&A) advisory and brokerage services to Internet companies. He also partners with investors to acquire & manage Internet businesses.
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