This post is part of a series about running online businesses that we are teaching in Valle.
If you’re considering buying businesses, don’t do anything until you’ve got clear answers to the following questions. These questions will help you craft an investment thesis.
An investment thesis is essentially a statement of how the business will create value in your portfolio.
Acquiring SmallSEOTools would allow Wired Investors to cross-sell other marketing products in the portfolio such as LongTailPro, driving email and referral traffic while increasing the value of both businesses.
Acquiring Marketbeat.com would grow Kiplinger’s email subscriber base and offer a digital subscription to compliment the physical magazine. Kiplinger could also bring existing advertiser relationships to Marketbeat.
1. How much money are you starting with and willing to invest?
This is straight forward but important. You won’t be buying 2mm dollar sites if you only have 20k to invest – it’s not sufficient skin in the game.
2. What are your financial goals? How much, by when?
This is a really important question that not everyone has an immediate answer to. Do you want to be cashflowing 100k/yr? 1mm/yr? Do you not care about cashflow and just want a large lump sum exit? Don’t bullshit yourself, and have a clear answer illustrating your quarterly income for the next 5 years.
3. How to finance?
See the financing online businesses post for tips.
4. Flip or hold?
With the above 2 questions in mind, do you want the cashflow or do you want a windfall? Or do you want minimal cashflow for a couple years and then a larger amount of cashflow? Customize this to your lifestyle’s needs.
5. What’s your unfair advantage in operating digital assets?
CRO? SEO? PPC? Email Marketing? Sales? Webinars? Hiring? What is the asset you’ll apply?
6. One business or multiple? How much to diversify risk?
The more businesses you have the more work, but the more diverse and therefore less risky.
7. Do you care about growth?
On the above point, growth is not important if you have a portfolio and if you have good financing. Entrepreneurial chops are important the less businesses you have, as you need to be confident that if one revenue or traffic channel disappears, you have the ability to recreate that income through other avenues.
8. Are you planning a rollup?
Read this article if you don’t know what a rollup is. And no, I’m not talking about the delicious fruit snack.
- Form an investment thesis before purchasing an asset
- Establish goals and an exit strategy
- Create a financial model
Now it’s your turn.
What’s your unfair advantage? Will you flip or hold?
Please ask a friend (or business partner) to answer one of these questions and share the post with them. Then answer one of the 8 questions yourself in the comments section below.