Investing in Small Websites: 2012 to 2019

It’s been about 4 years since we last wrote about website valuations, continuing the work of a project we started 8 years ago. One of our readers recently commented that valuations have risen. He’s absolutely correct – and here’s why….

The Market for Websites – 2019 vs. 2012

Digital investing has come a long way as an asset class over the past decade. When I first started looking at this business, it was effectively an “operators only” market, especially for small websites. You had to be close to the asset.

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Laziness & Procrastination: It Isn’t A Fault, It’s a Strategy

We live in an 80 / 20 world. In most major areas of economic life, it is a fact that 80 percent of the value is created by 20 percent of the participants. Most startups fail, a few make billions. Most products fail, a few become block busters. This can be applied within a business all the way down to the order and line line. A few customers, a few orders, a few products… a few opportunities create most of the value.

In fact, this trend is only accelerating as digitization advances. We’re seeing an even more intense form of the 80 / 20 allocation in the form of winner take most markets. Google’s organic search results are a great example of this. We’re going to rank every website that is possibly related to your term and show them in order. First gets 60% of the clicks, next gets about 25%, third place around 10%, bottom of the first page gets 1%. Anything after that is consigned to oblivion. That’s not an 80/20, that is closer to a 64 / 4 or a 51 / 1. A brutal second or third derivative of the 80 / 20 concept.

It’s not just Google. The same dynamic applies on Amazon. Or LinkedIn and Monster.com. Facebook. Tinder and dating sites. Any place in the economy where infinite players can compete for a finite resource. Like Highlander, there can be only 1 (top result).

This doesn’t just affect companies. It affects your career and social partnerships.

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How to Value A Website with No Revenue

The starting point for most website valuations is a multiple of current revenue, generally set based on recent transactions of similar properties (aka. comps). The most common way to value a website is to price it as a multiple of monthly recent earnings. Most blogs would be priced at 30 – 40 times monthly advertising earnings, unless there are other issues present. But how do you value a website with no revenue?

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How To Turnaround A Failing Business

If you run your own business and it has all been plain sailing, then you are one of the lucky few. Most businesses have their peaks and troughs, and most must fight their way out of a crisis or two. The types of businesses most at risk of experiencing a crisis are the small startup businesses. When you have only a few customers, for example, one large customer failing to pay can put the business at risk.

They say that setbacks are a great learning experience. But that’s small comfort when you are looking at the potential demise of your business. So, here are ten practical tips for any business owner who is struggling with a business in crisis.

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Goal Setting: The Truth About Change

Every executive I’ve ever met seems to love change programs. They’re excellent fodder for any update you need to send up the line. And in some cases, they might even generate actual results…

That being said, organizations appear to systematically misjudge the time and effort required to deliver these beasts. Various statistics from leading consulting firms point to a high failure rate for corporate strategic initiatives. Perhaps some of these might have been salvageable with different assumptions.

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Getting Run Over By a “Paid For” Truck

I stared at the email and fumed. What do you mean we lost the business?

This wasn’t driven by pride or ego. We really HAD provided them our best price, quoting a pricing level where we should have been assured of victory. This proposal was offered at break-even pricing to protect other business in the account. On a generic spec, commodity grade product. Where we had the lowest cost in the wholesale industry.

And we had just… been owned. Not merely losing the business, but getting buried.

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Strategic Flaws of Statistical Price Targets

These days, everyone in the analytics space has a pricing product to talk about. Toss enough transaction data points at the problem, you’re going to get a few insights that may help you earn higher margins. Even better, moving the pricing process to a modern software tool often improves your control over pricing errors and sales rep concessions.

Can this work? Absolutely. For an organization with weak pricing practices, the first wave of pricing optimization often yields brilliant results.  For a typical manufacturer or wholesale distributor, this can raise your net profit margin by one to three percentage points. Given the low margins in many of these industries, this is a meaningful improvement in the overall profitability (and thus, valuation) of the business.

But you need to have a careful plan for Act II. There are limits to how far you want to ride this horse.

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Investing In Existing Websites: Growth and Failure Rates Three Years After The Auction

Several years ago, we completed a website revenue study focusing on small websites. The goal of this study was to understand how much a typical site should make. We accomplished this by looking at 100 websites listed for public auction at a major site. We recently ran an update on this study to understand how the sites were doing today.

This update measured two things:

  • What % of the sites were still online and indexed by Google?
  • Has the site gotten better or worse since the sale (using competitor analysis tools)?

Of our original 100 sites, 93 were in a position to be effectively tracked using 3rd party competitive research tools such as SEMrush. The remaining sites got a hall pass; these had been executed as confidential sales (no site name), where we vetted the site anonymously and were unable to find them for a follow-up. Since a basic due diligence review was run on every site included in the study, we are comfortable that each of the sites was operating as a legitimate business at the time of the sale – although many were “window dressing” from a SEO and traffic generation perspective to boost their statistics.

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Accelerating Analytics: Decrease The Cost of Asking Useful Questions

After twenty years in the business, I am giving up on the idea of asking brilliant questions. They don’t exist. Ironically, most of the questions which have delivered serious money in the past tended to look like relatively dumb ones…

The first set of significant wins I had in my analytics career was in direct marketing, where I moved the campaign analysis process for a $5MM/year program in-house. From a technical perspective, this was pretty straightforward: write a SAS program to merge our mailing list with our customer file then aggregate response and sales data. Since a common key existed on both files (finders file number), it was a simple matter to join the files and summarize the data into an Excel Pivot table. Intern level stuff.

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Linkedin Endorsements: How Might They Affect Linkedin’s Search Algorithm?

Linkedin rolled out their one-click endorsement feature this past month. As I’ve traded clicks with friends and colleagues, I’ve been trying to figure out what their real goal is. On the surface, this feature feels redundant with their existing “recommendation” feature. Given their aggressive efforts to promote this new feature, the data they are gathering is clearly important to the development of the algorithms behind their services – but how?

Linkedin has been fairly quiet about the inner workings of their search engine. This is likely to prevent people from manipulating the results, since there is significant value in being on the first page of a Linkedin search for a lucrative professional skill. They share some basic pointers about how to “be visible” on their help page. Key points from their page:

  • There is no single rank for Linkedin Search – results are unique to each user/query
  • The profile keywords of both parties (searcher, results) play a significant role
  • Rankings are adjusted based on how prior searchers have reacted to your profile

While the above metrics are fine for identifying which candidates are relevant to a search, they don’t rate candidate quality: who actually knows their stuff? What’s missing here is a broader assessment of “page trust” (graph model analysis concept) that candidates possess the skills that they reference on a profile. For example, Google’s search algorithm incorporates an evaluation of the credibility of a site using link patterns, brand signals, and social activity. With these new features, it looks like Linkedin may be trying to adapt Google’s Pagerank algorithm (or something similar) to ranking candidates for specific skillsets.

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