Need Help With Website Valuation

[finnegan]

I launched a website in a very small niche just last month which offers a monthly subscription to users. After just 30 days and only a few sales, I've already gotten an offer from the top competitor in the niche to buy out my IP. They have basically no other competition in this niche because it's not a huge money-maker, however, they obviously enjoy the fact they are the only one in there and feel any competition would severely threaten their business. From what I can see, they are not really marketers and don't know what they're doing and I feel I could easily match their revenue a few years down the road.

With that said, I will not be profitable for maybe a year or more because of the small monthly subscriber fee. Ad campaigns will be launched soon, and I know that the revenue will immediately increase once I do. But again, it will take over a year to become profitable.

I'm not sure if I want to sell or not as I didn't expect an offer so soon, but I am curious as to what I could get for it. How do you value a new site like this and is it done by using LTV revenue or monthly revenue?

 

[secretagentdad]

You're not talking cash flow valuations in this situation.
Its entirely a strategic acquisition.
You need to have a conversation with yourself and decide how much you wanna charge to bug off and go do something else. Then, tell them that's the price.
If they can't pay it just run the business.

 

[finnegan]

You're not talking cash flow valuations in this situation.
Its entirely a strategic acquisition.
You need to have a conversation with yourself and decide how much you wanna charge to bug off and go do something else. Then, tell them that's the price.
If they can't pay it just run the business.

How does one go about figuring out that price? I'm at a total loss here of how to value this.

 

[chubes]

How does one go about figuring out that price? I'm at a total loss here of how to value this.

The price is however much your time is worth to you in this case. Vs. how much $ you think you can make off the project in the long term.

They want you gone. If you want to go away for cheap and pivot to something else, then name a cheap price.

If you want to stick around and compete with them, name a high price. Maybe they'll even match it.

You could also sell them this site and then create another site in the same niche to compete with them again, LOL.

 

[miketpowell]

I'd be more wary that they are interested in getting enough information to try to sabotage you vs buy you out. Would definitely be very careful what kind of information you share, they don't need to know anything about you or the business to make an offer. If they haven't already made an offer be wary of true intentions.

 

[Ryuzaki]

I saw a Shark Tank clip on YouTube and looked at the comments. One of the sharks tried to buy this guy's entire company for a couple million. The owner thought about it and spit out some number like 5 to 10 million. And the sharks all laughed at him.

Everyone in the comments astutely realized that the valuation on profit/revenue at this stage was absurd and the sharks were being sharks. They were essentially asking that guy "how much would it cost to buy your dream out from under you and make you go away and never come back?"

And that's how he answered, with a much higher number. Because you have to start thinking about your existing momentum and future profits and how far the entire thing can go. You aren't selling current profits, but future profits, emotional distress, aspirations, and much more.

And you can only "project" so much into the future and none of it is reliable. So it becomes about what it's worth to you now, in the future, and in your case, what it's worth to the potential buyer to not have you as a legitimate competitor.

There's not going to be any calculations involved that can give you a final number. It's going to involve negotiations from some starting point you put out there. And I'd put out one much higher than you're even remotely comfortable with. If the buyers are serious, they'll then start negotiating. If the walk away, then it's time to destroy them in the market.

You could also sell them this site and then create another site in the same niche to compete with them again, LOL.

You won't be selling any asset for any reasonable amount without signing a non-compete agreement. The last thing you want is to break that agreement and then for it to all work out and for them to find out you broke it.

 

[finnegan]

I'd be more wary that they are interested in getting enough information to try to sabotage you vs buy you out. Would definitely be very careful what kind of information you share, they don't need to know anything about you or the business to make an offer. If they haven't already made an offer be wary of true intentions.

No offer from them yet. They're trying to make me go first as that's usually the wise move in these types of situations.

I'm curious though as to how another party could sabotage me by abstracting info about the biz. While I can see how giving out numbers like revenue could be useful to them, I don't understand how my company's info could be used maliciously against me. Would this involve legal matters of some sort?

 

[bernard]

How does one go about figuring out that price? I'm at a total loss here of how to value this.

Make them make you an offer, since they're offering to buy.

 

[Smith]

You aren't selling current profits, but future profits, emotional distress, aspirations, and much more.

If you're still wondering about valuation @Ryuzaki nailed it with this. Revenue doesn't matter. They're paying you to walk away and never come back. What is that worth to you?

No offer from them yet. They're trying to make me go first as that's usually the wise move in these types of situations.

If someone comes to you and is serious about buying your business/website they will have a number in mind. If they don't, they haven't thought about buying long enough to be serious.

For what it's worth, I've bought and sold both majority and minority stakes in a number of different businesses. The way I would approach this situation if it were me would be like this:

Depending on the status/tone of the conversation, the firmness/messaging would change slightly but basically remind them that they came to you. And, you aren't actively trying to sell your business - you're actively building it. So, you don't have a price in mind because selling the business wasn't part of your game plan. BUT remind them that if a serious buyer presents a serious offer, you're going to listen. And if they want to make that kind of offer, you'd be happy to hear what kind of number they're thinking.

If they keep trying to push you for a number (which most experienced people will do), you can throw out a crazy number in an obviously joking way just to move the point forward... "Sure, 100 million would be great, but I want to try and stay realistic. So, why don't you guys just tell me what you're willing to pay and we can see whether it's worth continuing the conversation or not."

Again, this is not advice and it's just a reflection of what I would do in a situation like this, which may or may not be the correct approach... Good luck.

 

[finnegan]

If you're still wondering about valuation @Ryuzaki nailed it with this. Revenue doesn't matter. They're paying you to walk away and never come back. What is that worth to you?



If someone comes to you and is serious about buying your business/website they will have a number in mind. If they don't, they haven't thought about buying long enough to be serious.

For what it's worth, I've bought and sold both majority and minority stakes in a number of different businesses. The way I would approach this situation if it were me would be like this:

Depending on the status/tone of the conversation, the firmness/messaging would change slightly but basically remind them that they came to you. And, you aren't actively trying to sell your business - you're actively building it. So, you don't have a price in mind because selling the business wasn't part of your game plan. BUT remind them that if a serious buyer presents a serious offer, you're going to listen. And if they want to make that kind of offer, you'd be happy to hear what kind of number they're thinking.

If they keep trying to push you for a number (which most experienced people will do), you can throw out a crazy number in an obviously joking way just to move the point forward... "Sure, 100 million would be great, but I want to try and stay realistic. So, why don't you guys just tell me what you're willing to pay and we can see whether it's worth continuing the conversation or not."

Again, this is not advice and it's just a reflection of what I would do in a situation like this, which may or may not be the correct approach... Good luck.

So I asked them if they had a number in mind and they said they'd give me one if I told them my revenue, expenses, and how many customers I currently have.

I find it funny they would ask for this since I just opened up shop and all my revenue would be coming from paid traffic since I'm not ranking in the SERPS yet. They run on the same ad platforms so they would have a ballpark figure of what the absolute max would be, which isn't much.

Anyhow, I'd like to hear what you would say to them in return.

 

[Smith]

Negotiations should be based on your personal risk tolerance, how badly you want to sell, how badly you need the cash, and whether you're okay with the other party walking away...

So, this is not advice and it's just a reflection of what I would do in a situation like this, which may or may not be the correct approach... Good luck.

This right here:

I just opened up shop and all my revenue would be coming from paid traffic since I'm not ranking in the SERPS yet. They run on the same ad platforms so they would have a ballpark figure of what the absolute max would be, which isn't much.

... is the point.

If they know what they're doing (which you should assume they do), then they already know the max you could be making and that the business isn't worth much on a revenue basis.

And that's why they want to have a rev-based conversation!

In other words, asking you for the numbers might not be about the numbers... instead it could be about giving them a starting point to rationalize a low-ball offer and giving them the material they need to pitch you hard on why it can't be higher.

If you don't want to sell at that price point (which it sounds like you don't), then a rev-based valuation doesn't make sense.

If it were me (and I was open to selling), I'd be focused on breaking their analytical rev-based frame and resetting the convo in a way that benefits me the most...

The "100 million would be great" response I mentioned above aimed to achieve this... basically reset the convo and put the negotiating power back in your hands by effectively throwing out their approach to evaluating your business. You don't have to be aggressive about it... unless the situation calls for it.

Based on what you've shared so far, you're obviously the smaller fish in this convo... So one option could be to think of yourself like Eminem in the last rap battle of 8 Mile... you can steal away all of their negotiating power by just listing all of the obvious shortcomings that they'll hold against you.

This approach would take away all of their momentum and it could force them to give you a number from a "pay you to leave the market" valuation... though they can always refuse and walk away.

With the limited data I have on the situation, I would probably approach it like...

"If you're asking for revenue, you must be expecting a revenue-based valuation. As you know, this site is X months old, has X posts, and (list other shortcomings), and I'm guessing you have a ballpark on my revenue already.

Yes, everything is off to a great start. Yes, I'm investing aggressively into growing traffic, And, yes I plan on claiming a lot more market share. But, a revenue-based model this early on doesn't make sense and it's not something I'm willing to entertain.

That said, if you want to float a number that you're willing to pay in order to have me hand over the site and walk away from the industry, I'm listening. If not, I'm going to be able to make considerably more money by continuing to grow the website and following my current strategy than I will when selling on a rev-based valuation. So, if you have a number in mind, let me know."

And then when they come back and ask for your number (again, if it were me), I would revert to this $100mm comment from above:

If they keep trying to push you for a number (which most experienced people will do), you can throw out a crazy number in an obviously joking way just to move the point forward... "Sure, 100 million would be great, but I want to try and stay realistic. So, why don't you guys just tell me what you're willing to pay and we can see whether it's worth continuing the conversation or not."

Again, none of this is advice. This is just the opinion of some guy on an online forum that you've never met. Do what's best for you. Good luck!

 

[CCarter]

After reading all the above I agree with @miketpowell. I think they are fishing to see your operations. How are they communicating with you? Just email? If people aren't willing to jump on the phone or meet in person they aren't serious. Especially if they haven't looped in a lawyer or two in the conversation at some point.

If they really are the only other competitor, than they want 100% marketshare, revenue-based evaluation is low balling you.

Ask for $4 million and see if they flinch, with the way @Smith navigates it.

I personally think they are full of shit, and this is a waste of your time. All this energy you now are putting into this process instead of building can cause you to lose momentum.

Remember some people will waste your time just to waste your time, which ends up draining your momentum.

 

[finnegan]

Well, it came as a surprise to me, but they actually made me an offer with 20% paid upfront and the remaining being paid in monthly installments for the next 2 years.

If I had to guess, the number they gave me is around 3-5x what I expect my monthly revenue to be 1 year from now. I don't think I will take it though as the amount they offered is what they're probably pulling in monthly if you go by lifetime value. And I think I can grab half of this pie within a few years' time.

Interested to hear your comments though.

 

[secretagentdad]

I think there are plenty of pies you can grab half of in a years time if you go searching for pies.
Liquidity Speed is its own form of success and is very premium atm. You can use your new cash pile to go take something over just as easily.

I'd counter with 50% cash up front same valuation and take the deal if they're down.

 

[Biggy]

Well, it came as a surprise to me, but they actually made me an offer with 20% paid upfront and the remaining being paid in monthly installments for the next 2 years.

If I had to guess, the number they gave me is around 3-5x what I expect my monthly revenue to be 1 year from now. I don't think I will take it though as the amount they offered is what they're probably pulling in monthly if you go by lifetime value. And I think I can grab half of this pie within a few years' time.

Interested to hear your comments though.

I wouldnt accept. Maybe 90% and 10% cash for 1-2 years with some extra fees.

 

[finnegan]

I think there are plenty of pies you can grab half of in a years time if you go searching for pies.
Liquidity Speed is its own form of success and is very premium atm. You can use your new cash pile to go take something over just as easily.

I'd counter with 50% cash up front same valuation and take the deal if they're down.

I hear what you're saying, but here is what is keeping me from doing something like that:

• They don't know what they're doing and have practically zero marketing experience meaning they should be easy to compete with.
  • For instance, they are running the same ads repeatedly using the same copy and image and have been doing this for years. They seem to want to put the whole biz on auto-pilot and enjoy whatever money rolls in with zero competition.
  • Their SEO presence is practically non-existent. It would be easy to pass them in the SERPS for the top keywords as they are not doing any work in that area either. I'm not an SEO person so I don't know how long this will take, but I'm guessing it could be done in a year's time.
• Getting 50% cash upfront would indeed allow me to purchase another property, but I'd be worried about going into another vertical that I'm not familiar with and have no passion for.

 

[Smith]

If you're planning to turn down the offer... it costs you nothing to...

(A) Counteroffer with an upfront cash number that would make it worth it to you
(B) Ask to see the terms of the deal (for example.... do they forget to ask for a non-compete?)
(C) Ask questions and get useful insights into your competition to beat them going forward

Long story short: Don't waste an opportunity where you are directly engaging with the competition in a friendly manner and you have something they want. That gives you leverage to get information, more money, whatever you want. Squeeze every drop.

 

[contract]

- If you believe it's worth $1M+, tell them that's where you'd like to start negotiations at. (They will fold immediately and say it's way out of budget, and what # they had in mind. Most likely in this case)

- If you believe it's worth $100K, tell them you aren't entertaining offers below six figures. ($100K-$900K)

- Ask for a offer it's below $100K. Tell them your plans, sell the value of what you are going to do/can do. Play on the tax problem, say we'll it's not worth selling for $20K, because I end up with $10K after taxes, etc. Say you need to be at $60K so after taxes you are at $50K.

(I have done deals over a million in a single website transaction.)

 

[finnegan]

So...I gave them a number and a payment structure and I got back an email saying they'd like to talk on a video call. I don't believe they can come close to my number so I think the call will be a waste of time for me. I'm sure they'll try to talk me down to their low-ball offer first. After that, there's not much to talk about unless they try to gain info or threaten to take me to court for having a similar site.

Wondering what to do here...

 

[secretagentdad]

Cut your price and sell if they're serious.

Niches with low competition are a few days of digging on the high end.
Get the cash out and invest it in anything. Liquidity is premium and operating right now is risky anyway.

 

[finnegan]

Niches with low competition are a few days of digging on the high end.

What do you mean by that?

Get the cash out and invest it in anything. Liquidity is premium and operating right now is risky anyway.

Why is operating right now, risky?

 

[Smith]

So...I gave them a number and a payment structure and I got back an email saying they'd like to talk on a video call. I don't believe they can come close to my number so I think the call will be a waste of time for me. I'm sure they'll try to talk me down to their low-ball offer first. After that, there's not much to talk about unless they try to gain info or threaten to take me to court for having a similar site.

Wondering what to do here...

1. Stick to your number and tell them if they aren't willing to close at that level there is no point for a call. Get them to confirm they are willing to close at that level and on your payment terms.

2. Ask what outstanding information they need to make a final decision.

3. Ask what they want to discuss on the call and ask them to send you an agenda.

 

[Ryuzaki]

What do you mean by that?
Why is operating right now, risky?

I'm speaking out of turn, but what he means is that if you do your research up front and spend a few days doing it, you can unearth many low competition niches you can venture into. You don't have to be married to the one you're in. Cashing out and moving to another ocean with capital can snowball if you can consistently win. I'm not suggesting (or not "not" suggesting either) that you do that. I'm just interpreting what he meant.

Operating in the SEO space right now has never been more risky, ever. It's the most precarious time across the board for anyone that isn't already a DR90 powerhouse brand, one that's likely a part of a giant conglomerate who's risks are as diversified as you can be in one sector.

As an anecdote, I saw a video of someone interviewing all the guru-esque people and speakers at the SEO conference in Chaing Mai and not a single person wanted to talk about SEO. The topics were all "where are we going next now that the apocalypse is officially here." Answers ranged from eCom to PPC to video production, to SEO with any other search engine than Google (which is frankly retarded), to social media. Even those with a following are now risking their reputations, because it's not a risk any more. There's nowhere to hide. The tide went out and we were all left standing there naked and exposed, and not a single one of them can pretend otherwise. So they're gathering up new followings to follow them to new sectors of the overall umbrella of internet marketing.

 

[secretagentdad]

^^^^^^ well no need for me to reply.

My main point is if some ying yang will pay you a lump sum to go compete somewhere else.
Go compete somewhere else.
Maybe you can get a ying yang to pay you to go away again if you're lucky.

Getting cashed out and being able to redeploy with out having to put the year of work in is just super nice.
Just make sure you don't get dorked around for disclosure with out some form of consideration.

 

[Smith]

So @finnegan... what happened?