If you want to make money, I mean real money, one day; you will have to create some sort of side income / company. Unless you work in a very big company and have a very responsible position, your chances of living the good life are minimal. However, if you use your strengths and passion, you can build something that will make your financial life much easier.
Warren Buffet understood this a long time ago and it is why he is one of the richest investors of all time. Along with using his strengths and passion, he also set a number of investing rules that apply to any field of business. Today, I’ll explain how Buffet’s rules of investing is working well with regards to my online company when it comes to buying and selling blogs.
#1 Invest in businesses that you understand
I would have a hard time managing an online store as I don’t know much about ecommerce and about managing a store. However, I know how finance works and I know how the blogging world works as well. This is why I am comfortable investing 10, 25 or even 50 thousand to buy a blog; it is simply because I understand the business. Understanding is a big word. In fact, you need to understand a lot of things before you should drop money into an industry. For example, when I buy a blog I understand;
– How the traffic is built (sources, potential, growth)
– How I can maintain and increase it
– How money is made
– How I can increase the revenue
– The link between a specific blog and others
#2 You must buy a company that has excellent management
When I consider buying a website, I look for a blogger that always took care of his reputation and considered his readers. You don’t want to buy a spammy website or internet properties that are on the line of what’s legal. You look for blogs that have been carefully managed and that demonstrate sustainable growth over time. You do not want to buy a “one time high” website that doesn’t shine anymore.
#3 Look at their financial statements, is it a sound business?
This is probably the hardest part to do in my type of business as most bloggers or website owners don’t have financial statements for their internet properties. Some bloggers keep track of their income (especially when they think about selling) but most of them literally ignore their expenses. Obviously, there are not many expenses (unless they have a bunch of writers or they pay for advertising). Therefore, you have to estimate their expenses based on your knowledge.
The revenue details are very important though. You want to make sure the website is:
A) making a profit
B) making sustainable profit
C) making profit that is not driven by spam or other “on the line” approaches
#4 Ignore the market noise
Most people tell me I’m crazy when I tell them I buy blogs in the low to mid 5 figures range. They tell me that I buy nothing but thin air. Then I smile back and shut up… I actually don’t talk much about my business with my entourage anymore. It helps me avoid the “market noise”. When you tell people about your project or business, sometimes they will tell you that it’s a bad idea or that it’s not possible because:
#1 They don’t understand what you are doing
#2 They can’t do it themselves, therefore they think it’s not possible
This is exactly the type of noise that brings down your motivation and make you doubt your good ideas. Then, you have 2 options:
#1 Argue with these people to show them that they are wrong (useless and a big waste of time and energy)
#2 Just don’t say a word about what you are doing and simply answer “I’m doing fine” when being asked.
#5 Avoid unnecessary risks (leverage, etc)
All right, you get me on this one. I don’t necessarily follow Buffet’s investing rule on this one. I’m a real cowboy; I like to take risks. Fortunately for me, my partner is more reasonable than I. However, it didn’t prevent me to remortgage my house back in 2009 to buy website properties ;-).
While not increasing your risk is a good thing, I think that you can grow much faster by leveraging. The key is to know when to stop and never borrow what you can’t pay back via your other sources of income (e.g. do not count on your project to pay back your creditors. You need to be able to pay them back by your own means).
On the other hand, I agree that if you are about to buy your first website, you don’t want to remortgage your house to do it. Leave leveraging to professionals… hahaha!
#6 Buy only at very reasonable prices
That’s the best part about buying web properties; since the market is inefficient for web properties you can ensure you are buying at a very low price. You may seem to pay a high price compared to the current market but when you put it into a business perspective, web properties are bargains!
Some people may think that buying 3-4 years the yearly income is too much. I thought so too at one point but this has become the new industry standard (it used to be 12 to 24 months). But when you think of it as a business perspective, which kind of business can you buy for such a low ratio?
Final Thoughts on Buffet and I
I’m far from comparing myself to Buffet but I can tell you that this man truly inspires me. I guess the secret to grow any kind of business is to do as Buffet did: establish a clear set of investing rules and follow them.
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