Cashflow Leverage

Reader writes:

""Frank. I read Sages post and dont know where to start, Should I try to buy names at Sedo, how about .tv names? How do I know I'm doing the right thing? It seems like I'll never be able to go fast enough to catch you because you're not standing still :-)""

"First you get the money, then you get the power, then you get the women. -- Tony Montana"

I hate to follow the wonderful Mark Twain quote in "The Sage's" post with a crass one from a movie character, but I think it's relevant here.

I have had several folks ask me how they should go about making it in the domain business. "How will I get the seed money?"  "Even if I max my VISA to buy one great name for $35,000, how will I sell it quick enough and repeat before the remaining opportunities escape?"  "How can I get very big?" "How do I know if I'm doing the right thing?"

I might be a successful domain owner, but I do not have as great a cash-flow as many of my peers. I bought my portfolio because I was looking for names with resonance and meaning. The PPC revenue was an incidental blessing. If I put conservative retail 'price tags' on my domains I could realize a great deal of 'break-up value', but selling individual names takes a very long time, and I'm not much of an individual name seller.. Perhaps somebody will invent a mechanism for selling lots of names quickly "and" for full value..  now that would be something!

Some of my colleagues on the other hand: Geosign, Oversee, Reinvent, Moniker, Sedo  have built great cash-flow machines by offering domain name related services to people like you and I. The smart ones are using that 'cash-flow' to buy back generic domain names for value, competing against us at auction. The settlement prices of those auctions are often cheap compared to the non-domaining, "retail" name, advertising and branding world.

So if domain names are analogous to the beautiful, valuable creatures of substance (the "women") in Mr. Montana's quote, then the answer is to build a domain related business that generates cash-flow first. Businesses that focus on "arbitrage", traffic "redistribution/sub-syndication" or "name sales" may not have the break-up value or "substance" of individual domain names,  but they give you great cash-flow which you can use to buy your way in.

Consider it leverage to help you achieve the ultimate goal of being the Internet's landlord.  You should think about what you can do to generate cash-flow if you're just starting out. Don't try to reinvent the wheel, borrow the spare tire from those already rolling and do what they're doing.

Comments

[Sahar Sarid]

Everything I've done successfully in life is related to risk and momentum. You start somewhere with lots of energy and you do not quit. You add as many pieces as possible to your work not knowing which one will work, where the turning point may appear.
With time, if you are building something of substance you will make major mistakes. If you do not it means you are not pushing your own boundaries.

Key point to remember – there are no guarantees.

When I first started my mom and I, as my sister was away, “borrowed” my sister's credit card without permission, with no way of paying the money back to the credit card company, and no idea if what we wanted to do would work. Needless to say, it worked well.

In Napoleon Hill's "Think And Grow Rich" the author described the process like this:

"A long while ago, a great warrior faced a situation which made it necessary for him to make a decision which insured his success on the battlefield. He was about to send his armies against a powerful foe, whose men outnumbered his own. He loaded his soldiers into boats, sailed to the enemy's country, unloaded soldiers and equipment, then gave the order to burn the ships that had carried them. Addressing his men before the first battle, he said, "You see the boats going up in smoke. That means that we cannot leave these shores alive unless we win! We now have no choice—we win, or we perish! They won."

There are many ways to climb this mountain. As Franky suggested, you should focus on what works first. What works first will give you the cash to buy what you truly desire, which may not be what works best, but may be your passion, or a more speculative idea.

Wishing you the very best.

Cheers

Sahar

***FS*** Thanks Sahar!

[Jeff]

Frank your visa only has a $35,000/mo credit limit? Weak!

That centurion card is for you ;-)

***FS*** Ha ha.. I live within my means.

[ColinPape.com]

A wise and wealthy man who helped me get started on the web bought me a copy of Think and Grow Rich - the part that stuck out in particular was exactly the quote that Sahar posted - if you want to win, you must burn all bridges of retreat.

By making it easier to move forward than to quit or slow down, you virtually ensure your success.

As a side note, I've summarized Think and Grow Rich here: http://www.startster.com/think/

Great post Frank! Thanks for all of the excellent content today (and always)...

Colin

[Alex Capoccia]

Hi Frank,

Great advice as usual! This was going to be my business model about 8 months ago.

I had a blueprint to do something very similar to what sendori.com is doing now, but it was/is going to focus on heavily targeted transparency. The startup is NameHire Inc. (I think I need a better domain with the word 'Traffic' in it for branding purposes).
After investing about 20K, my development team told me they didnt have the expertise in house to finish the project. That was a major blow to my motivation, and wallet. I was building in ruby on rails, my first mistake. Not having a backup development plan was my second mistake. After much research, I found the perfect battle tested team to finish the project in PHP. Unfortunately their price tag of 80-100K is out out of my range, and I dont would like to be responsible for someone else $. Thats why I havent pitched for funding. The development came to a halt about 3-4 months ago.
I cant stand the thought of giving up after coming so far, so each day I'm trying to figure out different ways of hitting singles and doubles, to work my way up to the home run. You're blog is really the only thing that keeps me motivated to move forward in this industry day after day.

After trial and error I figured out couple important things. First thing a new domainer needs to figure out is the value of their time. Its most likely going to be a waste of time trying to find good domains at reg price and flipping them. Dont get me wrong, I enjoy searching through domain porn as much as the next guy, but its not very conducive if you're in search of decent profit. Too many people are searching for the same stuff. Margins are small. You most likely dont have the technological advantages of your competition (e.g. domain tasters). I havent tried auctions yet so I cant really comment on them, but if everyone else is doing it, it doesnt really interest me.

I also believe its better to own 2-5 really good domains, than 1000 mediocre ones. Since I dont have a big budget, and any money I do spend on domains is money Ive saved up over my short career in real estate, I have to choose names much more carefully. Now, before I buy a name, I ask myself "could I build a profitable website on it, and monetize the traffic 100% better than the current owner? How extensive will the development be? Could I enjoy being a part of this industry? If I run out of money tomorrow, will I still be happy owning this domain?". Then I do an metrics test with compete.com/alexa.com, ovt/adwords results, and industry analysis.
After buying my last two domains this way, I feel like I saved A LOT of time from doing the same hustle that everyone else just starting out is on. I'm excited with my last two buys, and I'm looking to sell off all my mediocre domains now so I can purchase another generic. I feel like I finally found a good strategy. It cost me some time and money, but I feel it was all well spent. I'm still learning everyday, and would consider myself a newbie, but I sure do love it! My goal is to have NameHire launched by the time I turn 24 this year.

Hopefully someone else can save time and money from my mistakes. Keep on keepin on.

ps- Anyone interested in raising money for domains might find the link on my name useful. Its a spreadsheet I created to compliment my business plan. These numbers are all based on factual information that I pulled from reliable resources. I took their industry facts, and reversed them from an assumed $10M portfolio acquisition purchased at 10X annual rev, with a direct near direct sale of advertising through the namehire platform. I believe direct sale of traffic through places like sendori is the future of domains. Feel free to email me if you would like the citations, or excel formulas I used for the spreadsheet.

Kind Regards,

alex

abcnyc@gmail.com