I grew up without the internet so maybe that’s why I’m ignorant about such things, but it seems as though buying a website that is a successful business should be as easy as buying any other business. From what I can tell in my couple of days of looking into it, however (on flippa and other brokers), it seems to be very difficult to find a website for sale that doesn’t look like a facade.
How do people buy websites that are established and successful in terms of generating revenue, and what kind of price range are we talking here? Is there a source that documents these sales, like zillow for house sales, for example?
Plenty of established businesses go for sale on flippa. For example, this listing is for an ad network that’s making $143K per month and is trying to be sold for $5.5M. However, Flippa is only for businesses that are actively trying to be sold and, due to the law of lemons, you really have to ask why the owner is trying to sell at this time and if there’s a catch you’re not getting.
The other model is to approach websites unsolicited and see if they’d be interested in selling. Large companies have Merger & Acquisition departments who do this full time and small, successful startups field these inquiries all the time.
The question is a lot like how feasible it is to buy a house. If you need any house, then you’ll have a wide selection. The more particular your criteria, the fewer will fit what you need. What you want might not be listed for sale, but there’s nothing to stop you from contact the owners and offering them a deal. If you’re willing to pay a large enough premium, there’s virtually nothing that you can’t buy. (In fact, much like real estate, my guess is that only certain government properties are not for sale at any price.)
I don’t know why you’re conflating a “website” with a “business”. Businesses have websites. Websites aren’t businesses.
To me, asking how people buy “websites that are established” is like asking how to buy a “brick-and-mortar business that people walk in and out of” without caring whether they do poodle grooming or plumbing.
I’ll be the first to admit I’m not strong on business knowledge, but I would suggest that maybe you’re asking the wrong question.
Some websites are businesses. By that I mean, some businesses have as their only source of revenue from ads on the site or fees that they charge for using the site. For example, ebay, facebook, twitter, many other social networking sites, tons of blogs, online magazines. Ebay, for example, is an auction site, all of the revenue is through the website. I’m sure there are offices with actual people in them, maintaining the site and personnel, etc.; but these places started out as an idea about a website.
I’m not talking about brick and mortar places that have websites. I’m talking about a business that is in large part or in whole a website that generates revenue.
ThisUsernameIsForbidden: A website is a collection of files which can be sent over the Internet. They’re copyrighted, so you can only use them if you buy a copyright license from the entity that owns their copyright. Is the license to use those files really what you want to buy? Probably not. What you probably want to own is the expertise which makes the website successful. That is what is difficult to buy, because it involves getting a certain number of the company’s employees to work for you. Those employees know how to make eBay work like eBay, as opposed to working like the sad, worthless eBay-knockoff any site you try to run is likely to be. (No offense, but most people can’t do this kind of stuff. I know I can’t, for example, and I know that ‘Internet start-up’ and ‘infant mortality’ are near-synonyms.)
Think about it like this: If you want to buy Toyota, do you want a few Toyota factories, or do you want those factories and Toyota’s best employees to run them for you?
Ok, I know that technically a website consists of a domain registration and some html files and a css file and some active server pages, or whatever they are using these days, and some java applets, and someone that hosts the site, etc, etc. I got all that. I also know that there are people that maintain the website and there may be an attorney that is contracted out for certain things and there are business savvy people that make the big decisions, etc, etc. But at some point that website was a grain of sand in a desert of start-up websites, and there probably wasn’t a whole team of people that were employees. It was some guy in his dorm room who needed to figure something out and he asked one of his classmates and they worked together on it and they figured it out. Maybe they found some other people that were interested and they got together once a week to add something. At some point the website becomes successful and starts to generate revenue. There must be a ton of small websites like this, run by one to a few people in their spare time, who don’t want to devote their lives to a website. They must be open to offers of other people buying that website. But, here’s the point of my post, it seems like those websites are hard to find. Either they are bought-up out of public view or I just don’t know where to look to find them.
Unless you really want to run a website, in which case you can start your own, you want to be an angel investor:
A guy in a dorm has an idea and a Ruby on Rails website. An angel makes a gamble and invests in the idea. The angel gets to own part of the business, which at this point is equivalent to owning half interest in a daydream. It may well never get beyond that, in which case the angel’s wings get clipped a bit. Oh well, that’s baseball.
On further thought, how about this: How easy is it to buy a successful small business? Because that’s what you’re talking about here, really. You’re talking about outright buying a successful small business which happens to be centered around an online storefront instead of a strip-mall storefront.
Can you think of a reason why it might be hard to do something like that? Because I can: Founders usually want equity. They did the work to make their business as successful as it is and now they want a return, and a one-time payout isn’t going to cut it with most of them. And, if it were an easy source of revenue, why would they give that up for a one-time payout? If anything, that makes less sense.
So there are ways to buy a pre-made online storefront, in the form of a ready-to-go website. You mentioned that in the OP. There are ways to invest in an online business, in a way which gives you partial ownership. But there’s probably usually no way to outright buy an online business, because of the equity problem I mentioned above.
How do you figure that? Domain names can be had for a trivial amount of money, hosting is potentially free as long as the AWS EC2 free tier satisfies your needs (and it seems like it would for a not-very-popular website), and people will work for sub-minimum-wage if they think there’s a light at the end of the tunnel, but $12,000 a year isn’t necessarily sub-minimum-wage (minimum wage gross at $7.25/hr 32hr/wk (Walmart full-time) 52wk/yr is $12,064.00/yr, and that is gross, no holidays, no vacations, no unpaid leave).
ThisUsernameIsForbidden: You might be able to work out a deal, in the rare instance you can find a website you consider successful being run by a person who wants to cash out now for no future equity. I think you can appreciate how unusual a situation that would be.
But to be “successful” the website has to be doing something, conducting some business, and there are not many businesses (outside of personal services like dog-walking) whose only cost input is labour. A business with annual revenues of $12,000 is very, very unlikely to be profitable and, if it is, the profits are likely to be derisory, and not on a scale which would make it wise for ThisUserNameIsForbidden to bid $120,000 for it, unless he has some reason to think he is uniquely positioned to leverage the business into something much, much bigger.
Granted that it wouldn’t be successful by most definitions. My contention was that it wouldn’t necessarily be losing money, that’s all, especially if the website were a storefront for something like a graphic design business where the fixed assets (trendy Mac, copy of Photoshop (not pirated, honest), black turtleneck) were all sunk costs and labor was the only cost input.
But, yeah, something like that would only be ‘successful’ in a ‘well, it might be better than Walmart’ kind of way.
There is, it’s called an acquisition and companies have people doing this full time called Mergers and Acquisition (M&A) people.
Over 90% of exits for startups are an acquisition. This is by far the most standard route and many people build a business precisely to be acquired. The other alternatives are that you can IPO and take the company public or you can remain private.
Well, obviously in the case of the “storefront” website, the website is worthless without the store behind it, so ThisUserNameIsForbidden is not going to be buying that particular website at any price, never mind $120,000.
Perhaps we can imagine a website that generates $1,000/month in revenue from carrying advertising, and that can be maintained, and the content generated, and the advertising placed, for perhaps a day a week. And perhaps the guy running it is retired, and time is heavy on his hands, and so he doesn’t price the day per week that he devotes to keeping the website up and running and revenue-generating, so as far as he’s concerned it’s $1,000/month, more or less, for passing his time in an agreeable way.
And perhaps his health is now failing, so passing his time that way is not quite so agreeable now. Or perhaps he’s bored, and has decided to buy a Winnebago and take to the road, and converting his $1,000/month into a capital sum of is attractive.
All he needs to do is find another person who has the know-how to run the site, generate the content and place the advertising, and who doesn’t price his labour. And maybe that other person is ThisUserNameIsForbidden.
But it’s a fairly specific combination of circumstances. Most prospective buyers of even small business do price the labour input. If you had to pay someone to maintain the site, generate the content and place the advertising, that’s not a minimum wage job. Even if you intend to provide the labour yourself you need to price that, subtract it from your $1,000 revenue, identify the profitablity of the business, and then think what it might be worth on the open market.
For “normal” businesses, standard valuations usually start as a baseline at 0.5x - 3x annual revenues, depending on vertical. From there, additional factors can increase or decrease this figure. For example, high margins, key intellectual property, liquid assets (illiquid assets like machinery tend to be valued at close to 0), demonstrated growth, key employees, etc would all increase this multiple. Even so, a 10x multiple would be rather rich.
There are certain classes of businesses, though, where the “normal” rules don’t apply. Very young businesses are evaluated more on growth potential than current revenues. Businesses in “hot” demographics like social media or biotech have higher multiples. Obviously, businesses that are pre-revenue can’t be evaluated on revenue. Businesses where there is a strong network effect and a plausible path towards domination get valued highly. Businesses with strategic importance to a larger business can go for eyepopping valuations.
However, unless there’s mitigating factors, a business that’s generating $12K of revenue a year is a dog of a businesses and is worth close to 0. Maybe $2K if you’re feeling generous. The reason being, it would require substantial work on the part of the acquirer to figure out if there’s any way to turn this into a worthwhile venture. That time represents a significant risk on the part of the acquirer which brings the value down to close to 0.