I’ve worked on Wall Street since 1980 and have seen a lot of investment themes come and go. For many, it’s just a matter of timing in the economic cycle—like deciding when to favor growth or value strategies.
However, for the trumpeting of every new “disruptive” technology I’d wager only 1 in 5 are worth paying attention too and even then they are often limited opportunities.
The transition to selling/buying physical goods via e commerce is a revolution today, and a massive opportunity. We all know this from our own spending habits.
More problematic is assembling the relevant decision making information, deal flow, analysis, and idiosyncratic operating procedures.
As I have built five investment platforms on four continents in my day job, this is my area of expertise—identifying attractive and lucrative investment opportunities for the wealthy families and institutions we advise.
Today I will put a stake in the ground that investing in established websites is the most attractive current investment opportunity. Below I give five reasons why they are attractive. Also realize that none of these reasons exist for any other asset class that I know of.
#1. Serious investors haven’t entered this space yet
First, there are no serious pools of capital investing in this space, so prices are dirt cheap. There simply is no institutional vehicle that allows a serious investor (think $100MM minimum to commit) to invest in established websites. The default choice is Amazon and we all know how well Mr. Bezos is doing with a premium market valuation allowing him a free hand at revolutionizing industry after industry by picking on people with an “offline first” mentality.
Website brokers tell me that large portfolios are getting much more interest. It’s also true that sites with higher earnings command higher multiples, a great roll up opportunity if I’ve ever seen one. With sales price multiples as low as 25 to 40 times monthly profit for smaller sites, the general public is ditching bond funds and learning how build durable income streams online.
Want to know what happens when multiples rise as levels of income increase? Smart investors gobble up smaller sites and sell them at a higher multiple than the individual sites were purchased. More people I know have gotten rich doing “roll ups” than in any single industry. This form of financial engineering precedes the lumbering institutions who end up buying from these entrepreneurs.
Finally, the demographic of Gen X and Baby Boomer professionals are now switched on to this opportunity. Three different sources have recently told me they get over a third of their inquiries from these groups. Not only do folks over 40 want a different job profile, but they also want and need an income they can retire on. With life expectancy for many telescoping out to 85+, people have income needs that won’t be met through the traditional scrimp and save advice traditional planners are selling.
#2. E-commerce what people want and expect
I’m a huge fan of physical goods commerce. Like you, I see numbers almost weekly estimating that more physical goods are being sold online than ever before. And here’s the exciting part: the estimated % of sales for the future is increasing in every new survey.
In Wall Street terms: when expectations are continually increasing this is close to a sure thing as you’ll find. It’s nirvana.
This recent survey shows that about 8.5% of all US sales are now online as of March 2017, up from 5.1%in March 2012. By 2020, it predicts that e-commerce will be 14.6% of global retail sales and total more than 4 trillion dollars! Expect the US to be leading this trend.
In fact, I own a site that sells gear for babies with an average order value of around $100 selling to women mostly 25-34 years old. Over 79% of traffic and over 65% of sales come from mobile devices—phones! What’s more shocking to me is that less than 10% use PayPal or Amazon Pay. They actually enter their credit card numbers on their phones!
#3. It’s getting easier to operate every day
In Thomas Friedman’s epic book, Thank You for Being Late, he describes the confluence of events that accelerated change technologically, politically, and in climate. As the introduction of the iPhone in 2007 connected the global population to the web and each other, the cloud also created a whole new paradigm in the ability to collaborate from anywhere in the world.
Today our small business employs an entirely outsourced staff of about a dozen. Our customer service personnel are in the Philippines; developers in Pakistan and Bangladesh; customer service support in India; pay per click (PPC) marketing management in Mexico: video production in the US; and social media marketing in Ireland and Mexico. As I write this my wife—the real operator of this 5-figure net monthly business— has not been home in 6 weeks and is currently visiting her sister in Istanbul.
Asana, Slack, Dropbox, and Skype are just a few of the tools we employ every day and they all get easier to use. Online forums are full of advice on tools for very specific needs. The truth is that if my wife can run 6 figures in monthly revenues from her desk in our bedroom, there is no need to wait for new technological advancements.
Compare this to bricks and mortar requirements of business licenses, rental agreements, utilities, HR, and healthcare requirements and you sort of feel sorry for people who are stuck operating in this model.
#4. Aged sites command a premium
This piece really has two parts.
First, buying an established site means you have avoided the 90%+ failure rate of startups. As I’m no inventor, I prefer seeing what has worked and use my skillset to improve on what already exists. My strengths are in strategy and scaling businesses as I have worked in the corporate world managing as many as 3000 people.
While some of these skills are valuable, many are only so in a large corporate environment and that’s not relevant to a small website. I caution those I advise to think about what really will translate into an advantage outside of their day job. Ability to sell, people skills, and dedication to hard work are the three most important traits you need to succeed online.
The second aspect of website longevity is that the older a site is, the higher the premium it will command in the market place. Obviously, the economics need to reflect steady gains in income and all relevant profitability metrics, but longevity is at a premium in a new industry. All things equal, the older the site the higher valuation you’ll see on the same monthly net income.
But Google also loves older sites, so just sticking around can help your SEO and this has real value. This is for good reason as if content has been consumed over a long period of time and proven helpful at meeting searcher’s needs, Google should reward it. And they do.
#5. Sloth, lethargy, and sunk cost fallacy
Corporate America is still built on the foundations of our fathers’ dreams. Study hard, get a good job, and put in 40 years before retiring to Florida. By the time most people reach 40 they are too invested in their career and middle class (debt) lifestyle to think outside the box. Sunk costs kill dreams.
Even if a bolt of lightning struck them, their friends would likely scoff at “giving up all you’ve worked for” to pursue a New Economy opportunity. This opportunity is so new that the only support you’ll get is in online forums of like-minded individuals. Find these folks and cherish them. Surround yourself with people who see the opportunity and will pursue it relentlessly.
Finally, my own struggle was punctuated by the very poorly organized information available. The time commitment I made to self-education was only empowered by the fact I had moved away from my family 8 times for a new job and I could focus huge chunks of my day to figure this out.
Forums like ours aim to change this but it will be glacial, not revolutionary, unless I read human nature wrong. Pioneers are also a special breed and fun to be around, in addition to being wealth creators.
In sum, buying established websites allows you to get in before the big money takes up the valuations. You can piggyback on the single biggest demographic trend in our lifetime. Tools available allow you to do things large corporations only dream about as they are burdened with crummy legacy technology. As you work on your business every day, Google increases your industry stature free of charge. Forums and communities are developing to speed the learning curve and time to profitability–the ultimate answer to those naysayers who would have you live your father or grandfather’s dream.
Just remember that whatever your dream, you’re just one deal away…