This is part of our occasional series of posts covering the aspects of starting and running a blog. See Blogging 101 for the full list.
We’re hitting serious turbulence in the economy, and over a number of posts we’ve talked about the advantages and disadvantages the market brings. Yesterday things took a turn for the worst when Sequoia Capital, the Valley’s number one VC firm, said that it’s now officially time to panic.
So lets take the worst case scenario: your blog or smaller startup isn’t working. It’s not profitable, or it isn’t bringing in enough money to make it work. Or alternatively, you own a number of sites, and you need some cash: selling isn’t always a dead end, and sometimes you need to focus on some sites over others.
Where to sell
I’m old school, so I’m going to recommend Sitepoint for anything over $1000, Digital Point for sites under that mark, with the proviso that you can sell both on each. There are other sites that do sales now, and some of them may work for you, but do your homework first. Don’t use eBay if you can help it; it may have been used by some high profile sites, but the problem on eBay is standing out from the sea of rubbish that pollutes listings there. If you’re confident in building lots of publicity, then eBay might work, but for everyone else, stay away.
Having said all of that, your ideal sale is one that is never public. Public sales always cause a crisis in users: be it for a service or site. The degrees can vary, but ultimately your site is always best sold without your existing user base knowing about the sale.
The other thing to consider in your mix is the value of your domain name. It might not be a glamorous exit, but if you have a great domain name, you may get better returns by selling the name on one of the dedicated domain sites, and better still at open auction. You’ll always find some money, even small, from content and IP, but dedicated domain auctions may offer better returns.
What to sell for
In late 2006/ early 2007 I spent 6 months doing nothing much more than buying and selling sites, and I lived and breathed the low end of the market. I haven’t had as much hands on experience since then, but I’m still a regular visitor to most key sites, and I still track sales when and where I can. This advice is given on what I see today, and my experience in the market, for both blogs and small scale startups/ web services.
If you’re looking for large scale economics (or bigger startups), read this post from Fred Wilson. It’s great advice, and the theory holds true. But at the end of the scale, buyers and sellers look at sites a little differently.
The first key is multiples. Buyers at the lower end don’t think in EBIDT, they think in monthly revenue. As a general rule, you should be able to find a buyer in the range of 9-13x monthly revenue. Two provisos: buyers will look at operating costs, and if there’s a high operating cost (blogs fall into this some times), you should cut it back to a multiple on profit. Second: buyers won’t pay that in high risk verticals, and while there are several, the one that most comes to mind is proxy sites, that can easily be banned and lose traffic. When I was dealing in proxies, a good proxy might get 3-4x monthly revenue, but quite often less.
You can though get more. Multiples of 50 or even 100x aren’t unheard of. The key is the idea, and how you sell it. What I would suggest though is that 9-13x is your base rate. We don’t know how bad the low end startup and blog market will be affected by the downturn. It could see less buyers in the market, but likewise it could see more as those traditionally buying higher up look for bargains at the lower end of the market.
There are any number of factors in determining a high multiple sale. It could be anything from Technorati rank, through to Google indexing. Different buyers will see different things. The key when selling at high multiples is to identify clearly what your strengths are: saying you have a world of potential alone doesn’t cut it, you need to prove why.
Although you’ll usually find buyers based on existing revenue multiples, IP is a different matter. You may be an existing smaller scale startup who has built something interesting, or alone you may have built something no one else is offering. There are buyers of IP, and startups do manage to find new homes, even towards the $1 million mark in fire sales (Revver comes to mind). One example: bamzuku.com just sold on Sitepoint for $25,000, without any revenue history. The exit premise wasn’t great, but it offered something interesting in terms of IP: a full clone of a very popular video service in Japan.
The key is the pitch. You may have worked for years on your startup, but what is the real replacement cost today, are there competitors, and what is the real potential. Lets face it: particularly for a service post launch, if you couldn’t make it work, how are you going to convince someone else that they could? Buyers are looking for bargains on replacement costs, and often they are looking for services that might complement what they are currently doing.
There’s always an exit, and there is always buyers. The problem is accepting that your site or startup isn’t working, and that sometimes (not always) you’re going to take a loss on the sale. Do you homework, research the market, explore private sales first if you have to sell, and then go public. Sometimes it’s better to get something back for your investment then nothing at all.