What Kind of Website Investor are you?
For the next few weeks, you can get free advice from me about which website investing system might suit you best. If you’re interested in receiving this, all you need to do is go through the quick 5 step questionnaire above and I’ll personally reach out to you. I’ll also be more than happy to answer any questions you have about website investing.
In the traditional investing world, it’s well known that there are many different approaches that you can take to achieve success.
There have been successful investors who preach the merits of diversification and the passive use of index funds. On the other hand, there are venture capitalists in Silicon Valley who aim for big wins (and don’t mind a few losses), and who actively participate in the businesses that they invest in.
The point is that all of these systems can work – it just depends on how good you are at executing them.
The same principle applies to investing in websites. There are a number of different systems that you can use to achieve success. Which system works best for you will depend on the following:
- Risk Tolerance
- Investment Horizon
- Online Business Skillset
- Preference for Value or Quality
- Preference for Passive vs Active
- Level of Diversification
- Preference for Buy & Hold vs Buy & Flip
I’ve tried to outline to the best of my ability the different systems that I think can be applied to successful website investing.
Remember that at the end of the day, it comes down to good due diligence and proper post-purchase maintenance/improvement. You need to successfully execute on both these counts to achieve success.
Website Investing Systems
Bargain hunters are investors who’re looking for low valuations – typically sites priced at 20x or lower. Typically, their goal is not to make large overhauls to a site. They’re looking for good value sites that they can buy, make small changes here and there for quick wins, and then move on to finding new, good value deals.
The end goal is to own a portfolio of small to medium sized, reasonably passive, cashflow generating sites. The bulk of their work is done in the due diligence and valuation stages – verifying traffic and cashflows so that they can get good ROIs right off the bat based on low multiples. They don’t mind buying sites that have mediocre content or ugly layouts, as long as they can get the sites for good multiples. Typically, they will own more than 2 or 3 sites at one time.
They don’t go in planning to buy and hold or buy and flip – they’re opportunistic sellers. If the feel they can get a good multiple, they’re happy to sell – if the prices aren’t right, they’re happy to hold.
Bargain hunters tend to be relatively patient with their purchases – they don’t feel the need to overbid, and they’re not in any rush to buy sites. They’re happy to wait a while for the right kind of value.
Investment Horizon: Since they’re usually not actively looking to sell, there’s no obvious investment time horizon.
The Pareto Portfolio
This kind of buyer is driven by the 80/20 ideal. They want to buy a site, apply the 80/20 rule in terms of achieving improvements in traffic and earnings, and then sell the site. They’re typically looking for sites that have obvious deficiencies when it comes to either traffic or monetization (or both). Usually, people who use this system will be great at On Page SEO, Long tail KW research, and Conversion Optimization for existing ads/affiliate offers.
These types of buyers usually aren’t interested in total overhauls – they’re not looking to create products or introduce entirely new monetization models. Their goal is to boost earnings of a site so that when they sell, they can fetch a significantly higher price based on the average earnings of the last 3 months.
Investment Horizon: 6-9 months.
These buyers are the website investing equivalents of the people who knock down houses to build condos. They’re looking to seriously overhaul the website and to ramp up earnings in a big way. Obviously, in the short term, they will implement what they feel are quick wins – but typically, they purchase sites with a long term strategy in mind. Typically this strategy will involve moving up the monetization value chain (advertising → affiliate offers→ products/services). They’re less interested in fine tuning ad clicks or affiliate purchases and more interested in creating and selling a product or service that will allow for significantly higher profit per conversion (and hence higher visitor values).
These buyers are typically looking to focus on one or two sites at a time because moving up the value chain typically takes a good deal of effort. The chief focus is on visitor value, and as such these buyers will typically look for sites that A) have strong traffic B) rely on advertising or low commission affiliate offers and C) are in niches where product/service creation makes sense. They usually do plan to sell, but have a slightly longer time frame than Pareto Flippers because the changes they want to make will take more time.
Investment Horizon: 1.5-3 years.
Business Model Specialists
These are buyers who are well acquainted with the more complex business models that some websites have. For example, someone with knowledge of how to operate a SAAS business is at a unique advantage because many buyers aren’t comfortable with running one. The same principle applies to ecommerce websites.
They have the skillset to be able to maintain and improve on higher difficulty, more time consuming business models. They’re comfortable with all aspects of running specific types of businesses.
In the case of SAAS, they’ll usually have some understanding of programming, will be comfortable outsourcing work to developers, and will be able to troubleshoot technical problems and handle customer enquiries/complaints.
In the case of Ecommerce, they’ll be comfortable with communicating with manufacturers, will be able to deal with order fulfillment and returns, and will probably be familiar with SEO for ecommerce.
In both cases, the buyer will probably have some experience with using paid traffic to drive business – this is usually a significant component of both of these business models.
Investment Time Horizon: Long Term/Opportunistic
High Quality Focus
These buyers focus on buying high quality properties where there are relatively few improvements to be made. They focus on quality because they’re primarily looking to buy and hold and want long lasting assets that will stand the test of time.
They’re looking for good quality in every aspect of a website – strong, clean backlink profiles, well developed social platforms (where appropriate), engaged readers etc. They’re hoping to buy web assets with great longevity – sites that will still be chugging along 5 years from now.
Essentially, these buyers are looking for reasonably safe continuous cashflow from their websites. They don’t mind paying a premium because even at higher multiples, the prices of websites as investments compares very favorably to more traditional asset classes. They will typically try to outsource as much of the maintenance/upkeep of a website as possible, and aren’t looking to make any drastic changes post-purchase.
Investment Time Horizon: Long Term/Opportunistic
Strategic buyers are buyers who own existing businesses and want to buy sites for cross-marketing opportunities or ‘synergy’. They are typically reasonably large buyers, and don’t mind paying higher multiples or getting low ROIs on a site because they don’t buy sites for income – they buy sites so that they can use them as marketing platforms for existing businesses (e.g Finance companies buying finance blogs).
Another example of this would be someone who already owns a portfolio of websites, and wants to buy a website with a strong domain (even if it doesn’t make money) in order to use it as a way to generate strong links consistently for his entire portfolio.
So, Which System Will Work for You?
I want to stress again that each of these website investing systems/frameworks can work if applied correctly. The devil, as always, is in the details. That being said, these frameworks are useful because it’s good to have a plan in mind before you actually make a purchase. Keeping these systems in mind when you’re looking at a website can help you see potential opportunities that you may not have seen otherwise.