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How to Know When You're Ready to Take The Plunge

“How will I know when I’m ready to write the check?”

This is something that I hear ALL THE TIME from our audience – and it’s a completely valid question to ask.

Making the leap into website investing can be scary. You’re putting a lot of time, energy, and money on the line. You’re betting on yourself, and you might not be completely confident in your ability to get the job done.

Those are all valid concerns, but in many cases they are overblown. In my experience, there are three distinct “green flags” that are clear signs that you are ready to take the plunge.

If you can check all three of those boxes, you’re ready to stop dreaming, planning, or second-guessing and start DOING.

You’ll learn about:

One specific fear you’ll have to conquer before you can take the plunge
One area where you need to have a crystal clear understanding in order to even consider moving forward
One plan that absolutely has to be in place before you can officially become a website investor

References & Resources

Transcription of this Episode

Welcome to the Professional Website Investor Podcast, the show where we talk about what it takes to successfully buy, operate, scale and sell a thriving e-commerce business. When it comes to doing business online, we believe that buying an existing website is far superior to building one from scratch. So, if you're a career professional who's looking to become an e-commerce store owner, listening to this show will give you the knowledge, tools and community support you need to be successful. We've got another great episode for you today, so without further ado, let's get into today's discussion, and I'll be back on the other side to tie up any loose ends.

Hey everyone, welcome back to the show. My name is James Sowers and I am joined, as always, by Mr. Ian Bond. Ian, it looks beautiful at night in the background there, so maybe we'll have to make this quick 'cause you might be wrapping up your day. But it's always good to see you. Anything new on your end?

James, what's new? You know, I'm say what I said the last time, it's my favorite time of the year. We have the holidays coming up. But there's a nice sprint to the end of the year where you got an opportunity to set yourself up for a strong beginning next year. I love it. We also have some free time coming up at the end of the year, which is always something to look forward to, family and stuff like that. But right now, there's just an enormous opportunity to get a lot done. Maybe where all other people are slacking off, so I always feel relatively like I'm advantaged when I'm up and working and people are sleeping or it's dark inside their homes. I like that feeling.

Right. It's a good feeling. I kind of miss that from my days in the military where you get more done before 9 AM than most people get done all day. That is a very ... It sucks in the process, but then after it's done, it's like a hard workout. You have this good feeling about the fact that you went through that and you're better for it, and then you get to tackle your next objective. I think it's interesting that you bring up getting work done and the sprint at the end of the year to make some meaningful progress before 2019 comes around because I think that based on the past few episodes we've recorded, there might be some folks listening in that are itching to start a new project and in the form of acquiring a website and starting to grow that in 2019. That might be one of their big goals.

And I think to date, we've talked about the upside of professional website investing and why it's an attractive asset class. We've talked about some mindset stuff and why you should have a personal mission behind why you're even pursuing website investment as a branch of entrepreneurship. But today, we're finally going to get around to how you know when you're ready to take the leap, how you know when you're ready to write that check or send that wire transfer, to actually acquire your first website and start your journey as a professional website investor.

So I know we've got three points to cover today but before we get into the first one, Ian, is there anything that you wanna say generally around this topic?

Yeah, well first of all, we're trying to prepare to help. And so, we're gonna be launching some additional training 'round the end of the year so that people can actually say, "You know? I'm gonna make a proactive step forward to educate myself and take the first step." And so I'm looking forward to launching that.

I know everybody listening is gonna be looking forward to that. It's always good to have a blueprint or a playbook or a roadmap to get to where you wanna be, especially by somebody who has done it before. But I think we might open this up with this first greenlight of how you know when you're ready to take the leap by almost shocking folks a little bit with the realism. And the first point we wanna make is you know you're ready to get started when you are personally comfortable with losing 100% of your investment. And if that's a bit jarring to you at home, that's kind of by design because the fact of the matter is, if you don't put in the work, this is not a passive income stream, right?

This is, you're basically hiring yourself to do a job instead of working for someone else, per se. There is a chance, and it might be a very low chance, but your investment could go to zero and that is different from a lot of other asset classes. It's pretty tough to have a house go to nothing. It's pretty tough to have an investment portfolio that goes literally to zero. You might take a bath, you might have 30, 40, 50% loss, but the chances of you losing all your money are very, very low, almost impossible, whereas if you acquire a website and you don't put in the work, you could find yourself in a pretty stark situation. So I'm curious to hear your thoughts around this, Ian, specifically and why this is a determining factor for when somebody knows if they're ready to make the leap.

Yeah, look, that might be overstating it just a little bit in the sense that if you buy a seasoned website and you don't do a whole lot to screw it up at the get go, don't change a whole lot at the get go, you should be able to project going forward that you're going to have some runway to come up to speed and you'll see results. Certainly over the intermediate and longer term, you have to do proactively positive things. In the ether out there, there's all kinds of stories about people that come in and make massive changes to something that they bought that had a history and suddenly it goes dark on them and they can't figure out why. I think that's pretty rare.

It really depends on the profile of what you're buying. Now the way that I kind of ... What you articulated is exactly how I couched the first investment that I made to myself. I was 58 years old and it's really hard to get your arms around what you think are all of the moving parts to be able to purchase and then successfully operate a drop shipping website or any kind of a website. And so, I essentially looked myself in the mirror and said, "Look, dude, you know as much as you're going to know until you jump into the pool." And this was after I had put down 30, excuse me, 53 deposits on various websites and that's with one website broker alone, all right?

So to say that I had certainly looked at a lot of websites, I had had a lot of back and forth with brokers, I had done a number seller conversations to ask the questions. I participated in forums, I bought courses, and yet I still didn't have the confidence to do it. So I basically just had to say, look, $20,000 is gonna be my university tuition, you know, University of the Internet. This is gonna be my tuition and hope that I don't lose it all and hope that I figure it out. And here we go. And the fact of the matter is on that website, I called up or I sent an email, got my deposit back and three weeks later, I said, "You scaredy cat, you need to take the plunge. You need to go do this." And that's when I shamed myself, literally, into buying the website.

So $20,000 wasn't a big deal. I had allocated, and I've talked about this before, I had allocated a fair amount of money so that I could take 20 and $30,000 dollar swings at things and it wasn't gonna kill me. That website at that time was probably seven or eight years old. So as I said earlier, if I didn't do a whole lot to screw it up, I thought it would continue for a while and then we could figure it out.

Now the takeaway was that a month later, we bought site number two because it was so darn easy. And that's the takeaway. Should I have done it sooner? No, I think you do it when you're ready to do it.

Yeah, I think there are a couple of things I'd like to unpack there. First, maybe to save face for myself, I didn't mean to paint a doomsday scenario in that if ... "This is gonna go to zero if you don't nail it." I guess it's more similar to the house analogy where if you buy a house and you don't maintain it, over time it will deteriorate and nobody will wanna buy it. So I think an existing website is much the same way in that, sure you have a runway, and if you do nothing at all, it's probably gonna taper off and over a period one, five, 10 years, whatever it takes, eventually it could go to zero. So the point here that I was trying to make is you do have to add energy and add value to it in order to sustain and grow it.

So that's something that's important to know going in, which is something that I just wanted to clarify for myself. Secondarily-

Well, yeah, but don't beat yourself up because unless you are facile at due diligence, and you actually understand delivering the value in the website, you could very easily buy somebody's bill of goods. And website brokers, I'm not saying they're scurrilous, but they will sell you a website if you decide that you want to put up the money. And it may not be all that it's cracked up to. Look, I monitor lots of things that I'm interested in. I can give you example after example of listings and various brokers' websites that have imploded after they'd been listed. So, yes, it could go to zero. Don't discount that. It is what it is. There's a reason somebody's selling. They might know more than you do, right?

Yeah.

And in fact, you know, we just had a situation like that a couple months ago, one that a partner and I were looking at, and lo and behold, the main engine of the platform that they were doing business with essentially lost their sales volume. Now they have lovely stuff but they have nobody to sell it to.

Yeah, due diligence is always important on the front end and then you're gonna have to take personal responsibility and accountability on the back end to make sure this thing can stand the long haul. The other interesting point I heard you mention earlier is what I would refer to as analysis paralysis, right? We're hesitant to take action, we're hesitant to push our chips in, write a check, whatever, so we just do more research and that makes us feel good. That makes us feel like we are making progress, but if you get to a point ... I mean, I don't know a single surgeon that has learned and been qualified to be a surgeon purely by reading textbooks or sitting in a classroom.

You have to get in and do, right? And if you find yourself taking in case studies or prospectus or articles or listening to interviews even like this, and you can almost write the interview for them, you know enough, you know enough. The next thing you need to do is get your hands dirty and start executing because the only way that you're going to continue to learn and see results is to get in there and get in the game. Get off the sidelines and get into the game. So I'm curious to hear your reaction to that point.

I think the other natural thing is that in your surgeon analogy is pretty funny because there are umpteen different business models. And so you can be diving very deep into one business model and then suddenly you get distracted and you go start to look at the next shiny thing that comes across your inbox and an entirely different business model and you ended up making no progress. So that's like the surgeon who suddenly starts to read about dentistry or something. It's of no value to the progress that he makes as a surgeon to be looking over at some totally unrelated monetization model.

So you gotta figure out what it is that you're going to go after and then get as deep as you possibly can. But your point's well taken. Until you step up at the plate and take a swing at some balls, you're not gonna make much progress. People ask me about the math behind it, and I think the math ... I don't know who came up with this rule of thumb but I agree with. I think that once you determine exactly what fairway you're gonna play on, what monetization model you're going to look at, you're gonna look at a hundred deals, 10 of those deals are gonna kind of fit and you're going to be interested in them and you're going to want to engage on them. And three of those you might actually enter it negotiations on and see if you can get a really good deal on one of those. So it's 100 to 10 to three, and that's after you've kind of figured out exactly what the monetization model is.

You're gonna spend a lot of time doing research, and that's what's gonna get you comfortable.

Yup, yup. I think the last point that I wanna cover here under this first green light about being comfortable with the level of risk and possibly losing 100% of your investment, is maybe quantifying exactly what that level of investment is. Now you said your first acquisition was about $20,000 if I'm remembering correctly. That was a figure you were comfortable with possibly losing at the time. Would you say that point of entry is still the most common or most preferred level to get involved today in 2018? Or if somebody has a lower budget, would you encourage them to wait? Would you encourage them to buy just a lower-priced site? What's your guidance there?

Look, first of all, I referred to my original philosophy as the venture capital philosophy. So putting some small bets out there on a number of sites and seeing what works and then put more money behind those things that work as a way to get an education and get some confidence and then pursue-

And get some confidence and then pursue things that are much larger. Where you put lots of chips on the table, because you now have spent that mythical thousand days and become an expert of sorts. And that thousand day rule comes from the guys over at Tropical MBA. They had a long discussion on that. So, the regional philosophy was the venture capital method of investing. Some of them you're going to lose all your money on. The bulk of them you're going to do not much. And maybe one or two are going to be home runs. That's been our experience.

We've had one home run. It's done incredibly well. We have another one incubating right now that's going to be a very solid performer. Cross your fingers in six months that we're talking about a sales process for that maybe. Or adding to it. I don't know. And then there's a few in the middle and then there's some ones that were smaller and never got traction. One of the problems with smaller sites is that if you're a busy executive, you're just not gonna learn much from buying sub $10,000 sites, to be honest with you. You need to get into the game with some real money to see if it ... what it's like to have your hands on the levers.

Don't take all of your 401K, cash it out, sell your car and put it all in one idea. Don't do that. I know someone that did and it's ... that's a big risk. I don't espouse that. I think that ... try to figure out how you can get some exposure where you feel very comfortable. It's got enough scale that you're in the game. But, that you have the ability to buy a couple more sites or four or five more sites. I was lucky enough that I had an opportunity to buy a $20,000 site. But, I was willing to go up to $35,000 or $40,000 to make sure that I got a site that has some history. That had some consistency. Where I could really feel like I was operating a site with all of the facets that I would need to understand if I were going to go bigger and make increasingly large bets.

So, I guess maybe the point to take home there is that if you're itching to get started but you don't have the capital to make three to five bets at a certain level. Whether that's 5,000 per site, 10,000 per site ... if you only have enough for one, maybe you're not quite ready. Maybe it's continue at the day job. Explore some other avenues. Save up that nest egg and then be ready to make multiple bets over the long term to diversify and protect yourself a little bit.

Yeah. I would say, there are plenty of people that can ... maybe have more tech savvy than I had at 58. It would be very reasonable for them to be able to buy a fairly decent size site that has a history. And they'd be very comfortable doing it. Be delighted to talk to anyone to help them make that decision is kind of what I do on the website when people email me. So, in bonded professional website investors, if you're going through that quandary right now.

Yeah. That's a very generous offer. I encourage anybody that's interested to take Ian up on that one. Maybe that leads us into our second point here. The second factor that lets you know that you're ready to make the leap. And I think once you've accepted the risk and you're willing to accept that worst case scenario of losing your investment, the next thing that you want to look for is your ability to clearly and distinctly describe in detail why a particular opportunity is attractive to you. And why you think it's prone to success. Why it differentiates itself in the market. So, assuming that's the case and you're able to do that, what are some of the factors that a perspective website investor should be able to have some discourse around? And some analysis around, as point to differentiation to give them the confidence, "Okay, this is a site that I actually want to move forward with."

So, I have experimented with some different philosophies and some have worked out. And some have been horrible busts. And that's how I roll. Okay? So, let me tell you about a couple that went horribly wrong. Okay? I became enamored with a site that went back to the late 1990's. Had a ton of history. Was in the wedding party niche where supplied $30/40/50 items that people would use at wedding parties. And low and behold I can tell you that it was a disaster, because although the percentage margins were rich, the dollar margins were horrible. And it's dollars that you've got to pay Google with. And when you don't have strong brand affiliations, you're gonna struggle to advertise lots of crummy little products.

And so, the length of the tenure of that website helped a lot in terms of organic reach, but slowly the world has changed and now a lot of people are buying things on Etsy and other places. That didn't work out at all. That was a horrible purchase. On the other hand, the second website we bought ... which is probably something today I wouldn't look at ... I'll come back to that in a second. The major thing that intrigued me about this is it's an incredibly large niche and I thought that if it worked ... and that was an if. If it worked, we could scale it and it could get to something that is like what it is today. And I thought that was a remote possibility. Okay? I thought it might just be a decent earner. But, because it's such a large niche, I thought that it had the opportunity to scale. And we got incredibly lucky doing that.

I think that to be ... and I think that's still a valid investment criteria. Looking for things you can scale. So, what can you do in a very large niche to compete. Right now with the minimum wage going up in the United States, using a global outsourced labor pool you've got an incredible cost advantage against a lot of people that are based in the United States. And so, that cost advantage is something that ... that fractional cost advantage could be huge for you. So, I think that's an opportunity.

I really think that the biggest opportunity is to look for niches where you can establish yourself as a trusted authority providing information and advice to people looking in these little niches. And where there's not a lot of competition. And where you focus a lot on ways to optimize through search engine optimization and through relationships with suppliers who are dealing with tons of online retailers. To me, that's almost a formula that works. I'll call it a formula. It's a formula that works in today's world.

Maybe the advice we're really giving here is it's easy to fall into the trap of just looking at the quantitative stuff. Especially if you're going through a broker. They'll have site traffic and revenue and conversion rates and whatever else they might have on there. That's part of it. But, don't lose site of the qualitative aspect. Some of the relationships with existing suppliers. Brand recognition. Size of the market. Potential for growth. Competitors and things like that. You'd want to look at ... you want to balance both of those and it's easy, like you said, to get enamored with a site that is a niche that attracts you but not have great financials. Or something like that.

So, I think maybe the point here is, document the stuff. Put it all on paper. Try to look at it as objectively as you can. In the absence of that, maybe even seek out a coach or a mentor or a community like professional website investors to go say, "Hey, I'm thinking about this opportunity here. Here's my anonymized assessment of the site." Take the URL off or whatever, so somebody doesn't buy it out from under you. Say, "Can anybody fact check me here? Can anybody give me a reality check and make sure that I don't have rose colored glasses on? And it looks like a good opportunity to you as it does to me?"

Would you be in agreement with that approach?

Oh, yeah. Absolutely. The more eyes that you can have on something the better. I have a mental knockout list when I see a thing, when I see list things. And I literally just go through and I say, this doesn't fit for this reason. I'm not even gonna look any further. But, look, is what you're looking at seasonal? Is that something that you want to be involved in? I don't want to be involved in something that's seasonal. What are the Google trends look like? Is this something that's on the upswing? Who are the competitors that you're gonna be competing with in Google product listing ads?

There's a ... what is the number of suppliers look like and how many people are they onboarding as retailers to compete against you? There's a ton of different metrics that you need to look at. And there might be a couple that don't fit perfect and it could work. There's, like I say, there's a mental knockout list and I think that if you believe philosophically what I articulated, that there's this magic formula where you look for niches where you can become a trusted authority. And there are ways to do that. You're gonna look at a lot of different niches and a lot of different sites, but when you find one you are able to develop it you just put the tried and tested different regiments into what you're doing with the website. And over time that will work out well.

That's the way I think about it.

When you used the example earlier of taking a venture capital approach, having a portfolio of sites, making a handful of bets to spread the risk across the portfolio and hoping that you have one unicorn and a few of pretty decent ... hit a couple of doubles and triples. And then you have some singles that flare out. I think if you do some research into venture capital firms, they all have this investment thesis. Right? And I think that as you acquire additional websites, you'll cess out your personal investment thesis and you'll say, "Hey, I don't play in home goods. I don't play that space. I'm not very good at it, so any site that's a home goods industry I'm not interested." Or pet products or whatever it ends up being. And over time, you'll get these criteria and instead of trying to collect good opportunities, you will actively be filtering out bad opportunities so the only things left are things that you know you can be successful with.

So, I think our point here is this is the green light for acquiring your first site, but over time you'll get better and better at this. And you'll be able to make decisions more quickly and more confidently. I think that is the transition into the last point I want to cover today, which is you've accepted the level of risk. You're okay with the possible negative outcome. You have built a business case for yourself for why a specific site is an attractive option. And finally you know you're ready to jump in when you have a solid plan for handling some of the core business functions.

So, maybe we'll start with what are the handful of areas that you need to have a plan for? And then we can talk about the different types of plans you might have.

Alright. So, the core activities or what I call the activity chain for any monetization model is ... every monetization model is gonna be unique. Okay? So, you need to sit down and think about what that activity chain is. In physical goods, there are essentially three core activities that you've got to think about how you're going to excel and how you're going to end up handling these activities. The first is the sourcing and supply. So, you're gonna have supplier arrangements. Secondly, you're gonna have site operations. Everything is sold through a website, so you're gonna need to operate the website. That's everything from having a payment processor and good relationships with them, to uploading products, to making sure that your inventory is in sync.

And the third piece is the customer service piece. Now, when I was looking at where I wanted to participate, the reason that I chose physical goods eCommerce ... specifically drop shipping, was that I thought that activity chain, as I think of it, worked well for my skill set. I can easily deal with suppliers. The website-

-with suppliers. The website operations, I became increasingly confident that using the Shopify platform or the BigCommerce platform, we could handle that. The thing that I was probably most confident on was the customer service piece, because I managed people before. So, thinking larger, we planned to have a customer service staff. So, we thought about that. Now, the other things that are common to all monetization models are things like, the legal structures, the accounting and finance systems which are so important. You obviously have to have correct legal setup, and you have to have a financial reporting setup that allows you to operate.

When you look at different monetization models, one of the things that you're going to come to grips with pretty quickly is what are the capital requirements to participate? One of the wonderful things about drop shipping is that it's not capital intensive, it's not inventory intensive, so it's not capital intensive. The bad news is that the margins are substantially less than in other physical goods model.

So, that's the framework to think about it; what's the activity chain, then how do you handle these other couple of things that you ... It should be fairly easy for you to put in place; your legal structures and LLC. That's how you're going to do your bank account, you only need one LLC. The accounting and finance, we've spent a lot of time developing, I don't want to call them cheat sheets, but spreadsheets that are incredibly descriptive that help us stay on it on a day to day basis. And then, we have integrated into everything we do the zero accounting system. We not only keep track of our daily and monthly order flow on spreadsheets, but we also sync everything and make sure it fits with our bank balances and making sure that we're getting everything right. You have to have those kinds of things in play.

Well, there's some important considerations and potential tradeoffs there because for all of those functions, you may be inclined to take all of that on yourself, which is fine if you have the skills to do that. But not everybody's strengths and weaknesses are so diverse that they can handle operations, customer support, legal, financial, that's a pretty special person, you're an all-star if you can do all that. You're either going to sacrifice quality for those things, or you're going to have to move a lot slower, because you're going to have to learn a little bit about each bucket, and you're going have to dedicate. So, you're limited by the time that you have available.

The alternative would be to hire or outsource some of those functions to a service or an individual. In that case, you have to think about that in the scope of the total acquisition cost of the site. You have acquisition cost, and then operating cost, that's going to drive those numbers up. That's something to think about, and a tradeoff that you're going to have to consider. But if you find yourself in a position where you have a plan for that, and it's a plan that you think is fiscally viable, then I think that is what we're saying is the green light for you to go ahead and make the leap and take your first step into becoming a website investor and acquiring the first-

Yeah. I think first of all, point well taken. You will never see in a broker's listing any allocation for these administrative types of requirements that you have. No one allocates to accounting and legal expenses when they're selling you a website, that's on you. A matter of fact the greatest lie in website brokerage business is when the sellers tell you how many hours a week they spend in the business at all. I spend two hours a week. The biggest lie, and I'm going to call people ... I've often thought I'm going to get on a soapbox and literally use this as a platform to call people out on some of their listings. But I think that that might earn me way too many enemies.

But it's patently false what you see advertised as the amount of time sellers spend on their websites in the brokers listings. Think longer and harder about it. To the extent that they do only spend that, then they're spending a fortune that they're not showing on outsourced help. So, you're right, you're going to have to account for having, a specialist help you, which were a huge proponent of, in which we use as you know in literally everything we do.

Yeah. That sticker price that you might see on the broker site is not the total investment cost, which is something to be aware of. Maybe to balance that out, at the same time, if you do find yourself eventually having two, three, four sites or more, some of these costs can be spread across the entire portfolio and you're not paying the exact same amount. You can keep an attorney on retainer, and they can service your whole portfolio for a flat rate. That cost isn't multiplied necessarily by the number of sites. That's not true for all services. But if you're thinking that this is a large upfront investment, if you're serious about this, and you do make a career out of it and you have multiple sites, then some of these costs can be spread across your entire portfolio.

I'll tell you, one of the things that I see people struggle with and I think that they literally fail, if they aren't committed to outsourci

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