There are a lot of investors out there that really take pride in the process of building a portfolio of web properties. In my experience, there have always been three key fundamentals to look out for while building a portfolio. These are the three primary aspects to a web property I look at first, even before revenue.
Years ago, in an interview about investing with Bill Gates and Warren Buffet, the interviewer asked, “if you could invest in just one asset, what would it be?”
The responses were long winded, but both of their answers circled back to time. Both Gates and Buffet have enough resources to invest in or purchase anything available on earth, except one asset, time. Both of them acknowledged that time was something you cannot buy more of and it should be coveted.
Ever since that interview, when I’m personally looking at any business ventures I look at the time investment before anything else. Not the gross revenue, not the traffic, not their inventory or net profit. I just look at the time that it would take to operate.
Obviously, savvy investors would immediately say net profit can provide you the ability to hire others and save your time, which is why that is the next component that I attack.
Let’s take a look at a quick real world example of this in action.
In 2018, I acquired a subscription based business making five-figures per year with 50% profit margins and healthy organic growth. However, this business quickly started taking more and more time from my daily operations. Once I quantified a 40% increase in the time the project was taking me to operate I almost immediately moved the profit margin down to 25% and hired someone to manage the majority of the operations. Managing your margins is always going to be a moving target, but if you develop a solid portfolio of web properties you can protect your downside. Worst case scenario with this subscription business from 2018 that needed a slight margin adjustment to protect my time investment is that it broke even that year or needed capital from one of my other profitable businesses to support it short-term.
Outside of this example, many investors and entrepreneurs have read books like The 4 Hour Work Week by Tim Ferris where you are heavily optimizing for time investments. I agree with a lot of the ideas that he shares, but once you have a business that has revenue, it’s important to know your options have just grown dramatically on how you can spend your time.
After going over the amount of time each individual asset will take for you to manage while protecting your downside with your overall portfolio’s cash flow, you will need to heavily focus on traffic sources.
Many businesses today are over exposed to changes with Facebook, Google, Apple, Alibaba, or Amazon. I’ve worked with eCommerce companies in the past that had extreme exposure to Facebook ads to the point where when the cost for ads changed the entire bottom line shifted. This baked in exposure to one traffic source is a trap and should be quickly adjusted when you acquire a new business from Flippa.
When I live in San Francisco, I would regularly attend networking events and one of my favorites was the yearly LAUNCH festival because they gave 1,000 founders free tickets. That model always created an incredible atmosphere filled with scrappy and excited entrepreneurs from all over the world.
One year it was in the Westfield Mall in San Francisco and Chamath Palihapitiya, the CEO of Social Capital, gave an extremely controversial talk on stage. He said that for every $1 a venture capitalist off Sandhill Road invested, $0.50 (half) was going directly to Facebook, Amazon, Apple, or Google. Also, stating a majority of this has been caused by bad incentives forcing Venture Capitalists to force growth from the entrepreneurs in order to grow their own business. When pushed to grow the business as fast as possible to turn a profit, the entrepreneur gets put into a position where these platforms are the best option to scale fast. This is what he considered a fake product market fit.
With that said, In my experience, having between 5-7 steady and evenly distributed traffic sources for any online business will protect your downside, just in the same way as you’ll want multiple revenue sources as well. The biggest traffic source that many work on for the longest is, of course, organic traffic from search engines like Google, DuckDuckGo, and Bing. This can be accomplished faster through hiring SEO agencies like THE HOTH or others that focus on content marketing and keyword optimization.
I was really excited to see that Flippa formed a partnership with SEMrush earlier this year. Every investor I’ve met that buys and sells web properties uses SEMrush as a primary tool to check organic traffic sources. This partnership shows that Flippa knows who is using the marketplace and what is imperative to their success.
One of the most important aspects to managing multiple web properties, beyond time investment and traffic sources, is customer service. Making sure that the users who are paying you for your product or service are happy is paramount to success long-term. Contacting users via email right when you acquire an established business to see what they like and dislike about the product or service is a quick way to accumulate feedback. The best method I’ve using personally was a free Google Form survey that asks users basic usability questions.
- What is the best part about the product or service?
- What are you using the product or service for?
- What is the worst part about the product or service?
- What feature would you like to see added in the next 12 months?
- Would you refer a friend to use this product or service?
After you have your survey setup on Google Forms it’s important to setup an incentive to complete the form. A discount of the product or service is a great incentive for active users to provide honest feedback.
In addition to gaining potential features for the product, you can start building your referral program with power users. In my experience, asking users if they would refer a friend to the product or service always yields multiple power users willing to share referral links. This will give you a short list of power users excited to bring more paying customers onboard.
Treat these power customers like rockstars and hire someone to nurture the relationship if needed because they will become the backbone of growth potentially for your entire portfolio.
While it is easy to run straight towards financials when considering what online business you would consider purchasing as an addition to your broader portfolio, I strongly recommend looking at time, traffic, and customer service, before diving into the profit and loss statement. If you stay focussed on these elements, you’ll grow with ease and generate profit naturally.