The Easiest Way to Go Into Successful Business – Buy A Web Property

gold bars

I am seeing the birth of an entire new industry … and an entire new investment vehicle.

Those of you who know me know that I know investment vehicles. (If you don’t know me, look at my G+ profile.)

Anyway, what would you say if I told you that I know of a solid stock that pays a 50% dividend? You would say I am either crazy or don’t know what I am talking about.

However, you can’t deny it would be a great investment if it existed.

Not so fast! Consider this …

If you buy an online store that does a reliable $15,000 a year in net income, it would require you to work a maximum of 2 hours a day, and it costs $30,000 to buy. And

  • it’s a good store that hasn’t done much SEO so there is opportunity to drive more traffic,
  • has a good size mailing list so you can promote specials,
  • happy returning customers and
  • hasn’t done any advertising and doesn’t sell ads on the site so it has undeveloped revenue sources …. well, that’s pretty much the same thing as a stock that pays a 50% dividend.

If you hired an SEO service, started an affiliate program, sold ad space and pushed it on Facebook, you would probably see an improvement in revenues and profits while spending very little money.

This is not an unusual opportunity.

And most websites sell with a small amount down and a buy-out from revenues over a certain number of years. 

That’s right.

There is a growing market in web properties and, while the market is still very young, great bargains can be had.

It won’t last forever.

Some sites are made to sell. There are lots of people out there who are creating game sites, driving traffic to them through SEO and social media at very little cost, and make fairly good money off selling ad space. Now, these aren’t much more than formula money makers but you might just be going to one of those sites to play Bejeweled for free amid ads that pay the site owner well. And the site might be for sale.

Lots of people find themselves in need of selling their websites. If you started a site that became popular, and you need money to buy a house or a car, or you have an idea for a different business or you are just sick and tired of your current blog or e-commerce site, you might just be interested in selling your site. It happens.

It happens all the time.

I can suggest a reputable place to start your self-education: Latona’s 

The reason I say “reputable” is you want to deal with people who are professional enough to turn away the websites that use Black Hat techniques to make it look like they have a lot of traffic, and I happen to know Latona’s does identify and refuse to broker those sites because Latona’s is a client of mine.  (Did you notice that was a disclaimer?)

There are some great opportunities to be found now  —  before investing in web properties is discovered by the masses.

And don’t kid yourself! There are a lot of savvy investors out there investing in multiple sites and hiring people to run them. They are making a lot of money doing this. In fact, there are private equity funds doing this right now.

I will continue to post about this subject because I believe the marketplace for websites will grow and prosper.

How to Write a Vision and Scope Document

You should be doing this whether you are just starting to plan your new business, working on your plans for the new year, or preparing a presentation for funding.

Sitting down to write a vision document and a scope document helps you see holes and inconsistencies in your business activities and can give you a great new idea …

http://smallbusiness.chron.com/write-vision-scope-document-73586.html

Vision and scope documents define what your customer or company has in mind as well as describe the work process necessary to reach that vision. For example, entrepreneurs benefit from writing a vision and scope document to define their business ideas and list how to develop them into reality. Project managers use such a document to identify the expected result of the project and to set forth the methods and activities necessary to achieve that result.

Hedge Funds Liquidating but Retail is Buying

A solemn crowd gathers outside the Stock Excha...

A solemn crowd gathers outside the Stock Exchange after the crash. 1929. (Photo credit: Wikipedia)

This is something that I have been talking about recently. It is a sign that:

[1] portfolio managers are taking their profits early so they can post good results at the end of the year

[2] the professionals are moderating their stock market positions because they see trouble ahead while the retail buyers are jumping in out of greedy desire to make a lot of money in what they think will be a continued rally — a ‘slam dunk‘ attitude — a legendary bad sign …

BofA Merrill Lynch equity strategists report data on what their clients are doing in the U.S. stock market on a weekly basis.

Last week, BAML’s hedge fund clients unloaded the most stock since 2008, while institutions and retail clients were net buyers.

 
Something strange is happening in the economy and the stock market. I remember the words of my first Wall Street boss, William K. Beckers — one of the big Wall Street names back in the 1920s and beyond. He was the floor broker on the NYSE for Spencer Trask & Co. and watched Morgan, Giannini and other leaders of banking and industry come on to the floor, buying to support their stock prices. In his office he had framed a fading piece of ticker tape that read the volume and “October 29, 1929 Good Night” 
 
He always said about the 1929 market crash: we all knew something was happening, we just didn’t know what it was going to be.
 
In the 40+ years that I have been watching the economy, the equities markets and the fixed-income markets, I have never seen anything that compares to what is happening now. I confess I don’t know what is going to happen, but things have reached a point where it is clear there is something on the horizon. We will find out what it is, and it doesn’t appear likely to make life any easier for anyone.
 
Again, as you plan for next year, consider some contingency planning.

What ‘No Fed Tapering’ Means to You and Your Business

Yesterday, the Federal Reserve blew it.

Ben Bernanke nervously [and he did look nervous] announced that the Fed would continue quantitative easing (QE) because the Board of Governors didn’t think the economy was strong enough to curtail monetary stimulus.  Oh, but inflation is not a problem. [Yeah, right. Have you been to the supermarket recently? Has your rent increased? Your cable bill? Your fuel costs? And are you making more money to pay for all this? No?]

As you already know from our statement, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and to make no change in either its asset purchase program or its forward guidance regarding the federal funds rate target. [see http://www.federalreserve.gov/files/FOMCpresconf20130918.pdf for the text of Chairman Bernanke’s statement]

The carnivores on Wall Street couldn’t believe their luck because the bond market rallied and the stock market rallied and every one of them made a lot of money. However, the Fed’s actions also caused them to worry.  Here is the problem:

The markets had already adjusted

I have already talked about how rumors of Fed tapering off its stimulus buying of Treasury bonds [also known as monetizing the debt – dumping $85 billion per month into the economy] caused the bond market to take a dive, which drove interest rates higher. The markets had already discounted Fed taper. Now we know tapering won’t happen until unemployment reaches 6 1/2 percent … expected in 2015 or 2016. That means the stimulus will continue for the foreseeable future.

Where is all that money going?

The money has gone into the coffers of financial institutions, which is where it always goes when the Fed adds money to the nation’s money supply. This is done under the assumption that when the financial institutions have money, they will use that money to lend out to consumers and small business. When money is lent to consumers, they buy houses, cars and other expensive items. This creates jobs in the manufacture and distribution of these products and that helps the economy recover from recession. When money is lent to small business, it is used to expand the businesses by creating new products, buying raw materials, manufacturing and hiring new employees.

Very little of that has been happening since Fed stimulus began after the Credit Crisis of 2008. Part of the reason why it hasn’t happened is interest rates were already very low thanks to Chairman Greenspan’s extensive lowering of rates to spur the housing market [which resulted in the housing bubble and mortgage woes].  The reason is that, at current interest rates, banks aren’t getting paid to take on risk so they are making loans to only the safest borrowers — major corporations and wealthy individuals.

Banks are businesses, too

No matter how much you hate your bank, it is a business and it must make profits to survive. In fact, back in the 1980s when I was the asset/liability manager of a major financial institution, banks needed 200 basis points above their borrowing costs to break even and I bet that they now need an even larger spread. In other words, if they borrow money at 1%, they have to lend it out at 3% or higher to break even — that’s not making a profit, by the way. With interest rates so low, banks resist lending money long term in hopes interest rates will rise so they can increase earnings. You may have noticed that you are getting higher fees on nearly everything you do at banks plus all kinds of offers of things to buy. Banks have been forced out of the banking business and into the sales and marketing business, in effect.

So where is $85 billion a month going?

The big corporations are using their borrowing power to invest overseas in factories and employees where such investments are inexpensive. After all, big corporations are businesses, too, and they need to make profits. This is important to understand in terms of how little extra money the American consumer has to spend these days. Corporations must be able to supply goods and services at low prices, and to do that, they must go overseas for their manufacturing.

The stock market is rallying because corporations are making profits and institutional investors can buy lots of stock on very low margin rates and even borrow extra money at low rates, and they dump all this money into the stock market to get a bigger return than they could get at the bank or in bonds.

So the $85 billion a month is primarily going everywhere else than it was intended to go, which was into loans to consumers and small business.

So why did the Fed make a mistake?

Well, they decided to continue the QE and that means the problem described above is going to continue, as well. Even Wall Street realizes that low rates are bad for the economy, so the bond market and stock investors carefully prepared for the expected rise in interest rates. The markets discounted the rise in rates. However, now the Fed will continue the stimulus and not raise interest rates. That doesn’t mean that the bond market won’t raise rates because of the risk to the economy. There is a term for this: Bond Vigilantes.  They show up when the Fed is doing stupid things that are actually harmful to the economy. The bond market traders and investors start requiring higher interest rates on the money they invest because they see risk in the economy and the possibility of serious inflation in the future. [‘Inflation‘ refers to inflation in the money supply which creates way too many dollars chasing a fixed amount of goods and services. When that happens, prices rise because they can. Someone will always pay the higher price.]

As I write this, I am monitoring the movement of the bond market on the Treasury 10-year and 30-year bonds. Since yesterday, they have rallied only about 15 basis points, which is not huge in terms of rallies. Yes, anyone holding bonds yesterday made money today, but the market didn’t return to the levels of prior to the tapering talk. I think the Bond Vigilantes are just waiting to jump in.

I am going to continue this diatribe later. For now, feel free to ask questions by emailing me at vduff@ConfidentialBusinessCoaching.com or fill out the contact form below.

Three Signs You Should Read …

This morning an important economic indicator, Consumer Sentiment, showed a big drop. The talking heads blamed it on higher interest rates and consumer fears that those higher rates would choke off improvements in the housing market. What improvements? Most of the movement in the housing market has been due to hedge funds and other big investors buying bank REO (real estate owned) and troubled properties. New home sales, an area of the housing market that represents individuals buying homes, has been performing poorly.

Retail Sales, the economic indicator that measures about 70% of domestic US economic activity, also reported a disappointing number that was not in keeping with the image of economic recovery that has been promoted. That is particularly worrisome since August and September are ‘Back to School’ months that rival Holiday Season consumer spending.

And in case you haven’t noticed the price increases during your last trip to the supermarket, the Producer Price Index (a measure of wholesale prices) was up mostly from food and energy prices.

The Stock Market is still surging because the big institutional investors, who are mostly in the driver’s seat on Wall Street these days while average individual investors have been notably absent, expect the Federal Reserve to continue dumping money into the economy — money that is clearly not making its way to Main Street USA.

I have clients desperate to get funding for their good solid businesses, but the banks are not lending.  And why should banks lend? Banks make more money when they can charge higher interest rates. These days, they are making their money off overdraft charges and account fees — waiting for the Fed to allow interest rates to rise.

If you have been following this blog, you know I have been warning about the signs we are moving into another recession. If you think doing business has been tough, be prepared for more difficulties on the way. Conserve your cash and start talking with your partners and employees about how to survive an economic downturn.

I am putting together an online session to talk about how to survive another economic downturn, so stay tuned …

If you want to set up a private session, email me at vduff@confidentialbusinesscoaching.com …

Is your idea really disruptive?

It may come as a shock to you, but your fabulous business idea is not disruptive unless you are producing a product or service that can sell at a lower cost, competing with products offered by big corporate industry leaders. The reason it’s disruptive is that big companies can’t afford to go after low-priced markets. They have so much overhead, that must be figured into the prices of their products, they have to focus on marketing expensive products to high-end consumers. This is the only way they can generate enough gross margin to pay for their administrative overhead.

In a blog article for Harvard Business Review, Maxwell Wessel argues:

If a start-up launches a better product, at a higher margin, to an incumbent’s best customers — that’s not disruption. That’s just…innovation….High-end disruption is an impossible proposition, because when innovation yields a premium product, firms can rationally respond. They can charge more, cover their costs, and adapt. And disruption itself represents exactly the opposite scenario….Not all successful products will fall into the category of disruptive innovation. Was the iPhone a case of “high-end disruption”? No. It was simply a better expensive smartphone than the BlackBerry; and RIM’s failure to adapt doesn’t mean they were “disrupted.” It just means they lost.

Most startups can be disruptive by offering good basic products that most consumers or businesses  can afford to buy. A  startup has a mighty advantage over large existing companies because it has less overhead.  This is why bootstrapping is a wonderful way to get your business launched. A  low-overhead startup can produce and sell a competing product at a lower price, and still make money.

Disruption refers to the ability of a startup to gain a foothold in the consumer marketplace, on the basis of lower price for similar products produced by major firms. This allows the startup to disrupt the status quo and use revenues produced by this strategy to grow the new enterprise into a major producer, itself.

 

 

Tips on pitching investors …

If you are trying to get your company funded, it is helpful to try to get inside the heads of your potential investors. Each person you approach, whether a friend, a family member, your dentist, or an angel investor, has plenty of opportunities to invest money.

Consider your competition for their investment dollars. Even though bonds are not paying much they represent relatively safe investments. The stock market is reaching new historical highs. Startups and existing companies are aggressively pursuing investor dollars because banks are not lending easily to small business. In addition, banks, insurance companies and other financial services firms have created a plethora of new investment products promising attractive returns. Not only that, many people are spending their extra money helping to support relatives and friends hard-hit by the Great Recession.

The investor’s dilemma. With interest rates at record lows bonds do not yield much return. The stock market is feeling toppy and our political system is producing more confusion about the future, leading many investors to focus on keeping their money safe rather than investing for total returns. Also, during boom times, investors look for investments that will either provide big returns or good tax write offs. During lean times incurring losses to provide tax write offs is something most investors try to avoid.

The entrepreneur’s dilemma. You need money to start and grow your business. To get that money you must convince a potential investor that investing in your company is a safe  investment that can return significant income and /or profits.  Many investors are seeking income in the form of interest, dividends, or royalties for their investment money. Equity in your company may not be enough to attract money. No matter how much of a sure thing you think your company represents, the brutal facts are that a majority of startups fail in the first year and many of those surviving fail in the second or third years. Face it, an investment in your company is risky.

What to do. There are two things you can do to improve the chances of getting investment in your company:

First, eliminate as much risk as possible. This involves scrutinizing every single one of your assumptions for delusional thinking. Figure out ways to bring immediate revenues into the company by selling basic products and services, and try to get letters of intent from potential customers. This dramatically reduces the risk of investing in your company. If you can bootstrap the launch of your company based on revenues from basic, less- disruptive services or products, you will create a proof of concept that may attract investors.

Second, don’t think of investment money as free. Approach your presentations to potential investors from a win-win mindset. If you have already created revenues in your company consider offering modest shareholder dividends or issuing debt that can be converted to equity.

Above all, ask your potential investors what they would need from you and your company to make them more likely to invest.