Website Investing: You Need A Strategy

Want to know why professional investors win? Because they always have a plan. Significant thought and effort goes into creating a competitive edge. They leave nothing to chance.

Do you have a plan to win?

If you think investing in websites is simply tossing bids at Flippa, you will be very disappointed. There are too many competitors, many of whom are either:

• Entrenched in a niche where they have promoted their brand for years
• Operating with insanely low cost structures below your cost of living
• Massively over-funded and can bet you off the table in a showdown

The good news? Nobody can be everything, everywhere, all the time.

Your job is to find gaps and exploit them.

You cannot survive in this business without a clear plan and some operating discipline. Identify what you bring to the table and how you can leverage those advantages.

We’ve got a 4 point process to help you.

Point #1 – What is your “General” Strategy?

This digital investing business is many things. Simple is not one of them. Shiny objects abound, seducing you into wasting time, energy, and capital. I suspect more investments fail due to owner distraction and exhaustion than are lost to any true competitor actions.

You cannot be everywhere at once. Unless you are a large organization, you do not have the energy and capital. To succeed, you must pick a few things and execute well. In other words – you need to define strategy.

It is said that the art of strategy is defining what you don’t want to do. That works here.

To prevail against strong competitors, we must pick our battles and stay focused despite distractions. This frequently means pursuing goals beyond money. A good strategy offers a litmus test for new opportunities: focus on those that create competitive advantage vs. short term wins. The rest should be ignored.

The strategy model below was drawn from the book “The Discipline of Market Leaders” and has been adapted for use by digital publishers and website investors. It starts by defining how we wish to compete relative to everyone else publishing content in our space. This high level vision sets the tone for the rest of our efforts.

The model itself lays out three basic ways to win:

• Customer Intimacy
• Product Leadership
• Operational Excellence

Each of these three options can be applied to digital publishing and website investing.

Defining Strategies For Digital Publishers

We’re going to quickly walk through the three strategies and demonstrate how to apply them in a digital publishing business.

A “customer intimate” digital publisher creates customized content for very specific audiences. They’re not afraid to target very small groups of readers. Their goal is to become a top authority in that niche and use that to create value for advertisers. Their sites often have small (but very loyal) audiences with a high lifetime values per reader.

A “product leadership” publisher will invest heavily in creating truly innovative content. This could be via content sourcing, site design, software enhancements, or technology platforms. Their goal is to find a breakthrough that amazes the audience and creates brand authority. The New York Times did this with data science reporting for political races (Nate Silver’s 538). These sites invest a high amount per piece of content, which needs to address a broad audience to turn a profit. Unlike the other strategies, there is a lot of uncertainly in innovation: this approach is a high risk / high return strategy. You need to build a few Water Worlds to get an Avatar…

The third path, operational excellence, is a “mass market” approach to digital publishing. These publishers pump out large volumes of basic content with acceptable quality. While the individual articles are second rate, there are a ton of them and they flood the topic.These sites often see huge benefits from investing in platform and advertising optimization. The gains of these projects can be leveraged across your entire content library.

To be objective, there is a degenerate form of the operational excellence path: web spam. Content investment and quality drops to the lowest possible level (robots, content mills). Your only real reader is Google. That being said, this only works for neglected search queries and isn’t sustainable. Given this, we’re going to disregard this strategy.

There are trade offs involved in each of the three sustainable strategies.

In essence – HOW do you expect to win within your target niche? What sets you apart?

If you read a little deeper, you’ll notice that your “winning formula” has huge implications for where you invest and who you bring onto your team. More on that later.

Point #2 – Don’t Start with a Plan to Buy Websites

If you completed the last exercise, you should have a vision in your mind of the level of content quality that you’re looking to buy. The goal of this next step is to take that down another level, identifying the specific slices of audience activity that you’re going after.

There are three fundamental building blocks to digital publishing:

• You need an audience
• You need something to show them
• You need a way to get paid

Do you see the word “website” in there? Or AdSense? Or Articles?

Nope, I don’t either.

The best digital publishing businesses start with three fundamental set of questions:

• Who are you trying to speak with?
• What would engage their attention?
• How does engagement turn into cash?

Yeah – most of us will go home, pull out our credit cards, and create articles to rank websites on Google and show people AdSense to earn a return. But it doesn’t have to be this way. Thinking about it at this level will open your eyes to alternatives:

• Why rank a website to get an audience? What if I rent one (advertising)?
• What kind of articles? Or should we use another form of content?
• How can I monetize the traffic outside of AdSense?

The biggest wins in this business happen when you find a way to color outside the lines while still fulfilling the three key needs above (traffic, content, revenue). Someone found that you could generate cheap traffic from social media and native advertising (content recommendations at the bottom of a page) – fortunes were made. Many publishers have found ways to cut out advertising and sell their own offers and products, at a far higher revenue per page. And the truly bold are engaging audiences off their site, using platforms such as Twitter, Facebook, and LinkedIn. Same business, different platform.

Point #3 – Talent Strategy

Whoa there cowboy (or cowgirl)? You’re not done yet!

It isn’t enough to go cut deals and write checks. You need a plan to operate the website. Retaining your current level of traffic and earnings and hopefully growing it over time.

And this will require you to execute across multiple disciplines. You can either do this yourself or get some help (virtual assistants, process / automation, and outsourcing). Regardless, you will need to figure out how to handle the following:

• Content Knowledge
• Communications
• Traffic Generation
• Coding / Tech Support
• Advertising Operations

I’ll throw in four other skills that may provide useful:

• Sales / Influencing (asking people nicely)
• Vendor Management (asking not so nicely)
• Project Management (cat herding 101)
• Analytics (work smarter, not harder)

In total, five to nine potential areas of expertise that you will need to have access to.

The good news? You don’t need all of it. Invest in areas which are critical to the reader or otherwise create unique competitive advantage. Aim to earn a C+ grade everywhere else. Outsourcing, “done for you”, and jury-rigged solutions can be an asset. Focus your talents.

If you don’t know an area, think about how you can cover the gap:

• Content Knowledge => Hire a researcher or writers who know the topic
• Communications => Pay more for higher level writers
• Traffic Generation => consider hiring an SEO agency
• Coding / Tech Support => pay more for a full service hosting company
• Advertising Operations => keep it simple or outsource to someone like Ezoic

This is also a great time to compare your skills against your decisions from steps 1 & 2. Perhaps some course corrections are required. I’m stereotyping here, but consider:

• Customer Intimacy => need to master content expertise and communications
• Innovation => likely need coding expertise and project management
• Operational Excellence => are you good at analytics and vendor management?

There’s a big Internet out there: pick niches which are a great fit with your capabilities.

Point # 4 – Build vs. Buy

By this point, you should have a very clear vision of the business you’re trying to build. How you’re going to win? Check. Where you intend to compete? Check. And a general idea of how you’re going to assemble the various talents required to make this happen.

Wonderful. Now put down the phone and don’t call that broker. Tear up the check.

Now Ask Yourself: What it would cost to build this website on our own?

The question every seller and broker genuinely hopes we never ask.

Your answer doesn’t need to be perfect. The typical article in this niche earns $ X. It costs $ Y to create and publish articles of acceptable quality in this niche. It takes Z months to rank fresh content for searches you want to target. Assuming there are weak keywords.

This is powerful stuff. It will help you keep your head when the bidding heats up.

When you buy a website, you’re buying a future revenue stream. $$ X thousand dollar per year of advertising revenue. Delivered instantly at closing. But If the seller said no, how long would it take for you to get this same amount of revenue through other means?

At a minimum, being able to complete this exercise is an objective self-test on how well you know the space. A “cooling off” period, if you will. It also grounds your expectations during the negotiation process. If you know you can get there in X months for Y dollars, you instantly have a grounded perspective on the seller’s offer to sell you a site for $Z. You’re trading cash for time. Are you really willing to pay more to grow revenue faster?

One other key point: if you win the deal, the “build” option is likely your best growth plan…

Website Investing – Pulling It All Together

A good acquisition always starts long before the company is ever shopped to a buyer. These four exercises will help you develop a list of yes/no questions you can use to screen prospective acquisition targets to assess if there’s a fit or not. You will discover that there is no shortage of websites people want to sell you – but only a few of them are worth buying.

You will do your best thinking when you are not in the heat of “deal negotiations”.

Stated otherwise, the best way to buy a Great Dane is to decide to buy a Great Dane. Not show up at the pet store on a Saturday afternoon and look at what anyone will show you.

Use this opportunity wisely.

What to read next?

• Our Acquisition Integration Playbook
• Website Revenue Study – original version and follow-up (3 year survival rates)
• Two points of view on B2B pricing:
  • Using customer profitability for good and not evil
  • How to earn high margins without ripping customers off