This a real good post and good information. I’ve always thought of buying online business already going with customers. Guess my only would be how to scale quickly?From 0 to $240,000 per year profit in 18 months
I've been a follower of this forum for about a year now, had read the Millionaire Fastlane book, and finally have decided to tell my story. About a year and a half ago, I found myself unemployed and with near zero savings, two house payments, and a second baby on the way. Things were so dire that I was contemplating bankruptcy. I had just lost my slow-lane job with one of the original big three TV network companies. Worked there for about 3 years making the mistake of transitioning away from my career in computer consulting thinking that having a job would bring a certain level of security. It didn't. Man, those were dark days.
I decided to go back to consulting. But this time instead of taking on just one client full-time, I took on a second, and then a third, and then a fourth. A couple of them, I was billing 40 hours a week, working at the client site for 1, while telecommuting for the other. Clients 3 and 4 were part-time, billing 10-20 hours a week for each but at higher rates, also remote. FYI if you haven't heard, businesses more and more are allowing the telecommuting way. So, if you hate going into your job, look for opportunities to work from home. They're out there.
Well I did this for the past year+, and life has been shit busy, but I saved up a ton, about $200,000 in a year. That felt good. I felt secure with a lot of savings, I had multiple income streams, and the second baby now walks and can feed herself. My wife suggested we invest the $200K in money market funds or CDs. Sounds good, right? Earn 2.3% APY resulting in a whopping $383/mo.! I love my wife, but not for us.
Investing in low-yield financial instruments, and working for someone whether consulting or full time. These are strong characteristics of the slow lane. I've always had an entrepreneur’s mindset. I wanted financial freedom from the daily 9-5 grind, or for me this past year, the 5am-1am grind, including weekends. Even though I had the high-paying clients, if you think about it, it's never good to have all your nuts in very few baskets. And you definitely don't want your schedule dictated to you as consulting can often times do. Besides, money was still tied to my time, and this current work schedule was unsustainable. So having a business seemed like the way to go.
How did I start a business that gives me the financial freedom and time freedom that I so desired? Funny thing. I didn't. I didn't start a new business. Oh, I created a new corporate entity initially for my consulting. But I'm just not creative enough, nor risk averse with family and kids to take a chance there. And besides, burning a year of my life working my a$$ off to roll the dice on a new venture. Nah. So did this mean that I just wasn't going to pursue financial freedom, and maybe instead continue the 100 hours a week work load? No.
About 6 months ago, I started looking at buying software/internet businesses. Why reinvent the wheel? The number of businesses sold on the internet is growing rapidly. Sure there's a ton of scams, get-rich-quick opportunities offered by fake sellers. There are a lot of businesses that the seller just wants out because of failing operations. There are businesses that are a dying breed tied to the old world, pre-internet. For example, consider commercial printing companies which as a side note I was an owner of one about 10 years ago. I'll get back to this in a moment. There are businesses that run in a saturated space like many ecommerce, dropship/Amazon businesses that may have once been profitable, but have lost their edge due to the marketplace. Oh, and blogs, need I say more. Lots of bad opportunities!
So let me quickly detour farther into the past. 10 years ago, I was the owner of a print shop. We had lots of B2B customers looking for printed material on paper. They were all local customers, who often times paid late since we invoiced at NET 30. We had employees running the machines to print and cut and collate and staple. We had leased printers and other equipment. We had leased store-front space. We had a lot of COGS (Cost of Goods Sold), namely the paper itself. Ultimately we failed, and went out of business. Simply put, sales decreased over time, the business didn't scale, the cash flow was shit due to late payers, the overhead was horrendous, and having full-time employees was expensive and such a burden.
Years later, I tried blogging. Tech centric since I'm a programmer. That was a waste of time. AdSense brought in a few hundred bucks a month. But since I don't like writing (even this posting is painful to me), it turned out not to be worth it. I tried ecommerce, AliExpress/Shopify drop shipping of apparel. Did OK for a few months, but then the sales dried up, and I had difficulty coming up with new products to sell. Hated that as well. Definitely not sustainable. So ultimately I failed.
Which bring us back to now. I say I failed, which I'm sure many of you reading this have done so as well. But I say that to make a point. Failure is not truly failure when considering what it really is. As humans, we all fail, probably every day in one form or another. Most of our failures are inconsequential. We break something. We say the wrong thing at the wrong time. We buy some product that doesn't live up to our expectations. But guess what? We adjust our behaviors to mitigate risk so that next time, we do better. Business should be treated the same. Choices that you make in business can be driven by experiences, good and bad. I have a ton of that, especially the bad.
So based on my past failures, I came up with criteria for what my next business acquisition would require. Here they are:
1) No full-time employees. Didn't want the headache.
2) Profitable. Of course.
3) Years of proven profitability.
4) Digital/software products or services. No inventory. No drop shipping.
6) No physical location. Allowing work from home without need for leasing office/store.
7) Flexible business. Caters to expanding product and service line beyond current offerings to customers.
8) Low weekly hours necessary for owner operation.
9) Instant credit card sales, vs NET30 or other delayed payment processing.
10) Minimal marketing.
11) Full control. No partnerships. Limit dependencies with external entities.
So, I'm sitting on my $200,000 nest egg from all that hard work. I'm researching businesses for sale. And I find one that is a software company that sells proprietary accounting software. Promising! I'm a programmer with tons of experience in accounting. The business has been operational for 30 years, with recurring clients going back 10+ years, and has been run by this one couple who are well into their retirement years but hadn't pulled the trigger. And guess what? This software business satisfies all 11 of my requirements above. Well, I send their broker an offer of about $200K with half of it owner-financed for 5 years. They accept. Done deal. The profit annualized is $70,000 with an initial investment of $100,000. ROI = 70%. Nice! Since taking over, I'm happy with the performance, and I only spend maybe a couple hours a week on it. I outsource the programming.
Why stop there? I know MJ preaches monogamy. But I feel you can scale your company multiple ways. 1) expanding your sales in your current product/service line, and 2) buying existing businesses to generate more revenue. The only limiting factor of the second is that you will hit a limiting threshold in time when managing and marketing your multiple business holdings. Hopefully by then, you have gotten to a point where you can hire managers to offload that work. In any case, I next took over... a blog. I laugh when I write that because as mentioned before, I hated blogging. But I'll give you a little secret. You can hire writers, which I have a whole staff of them.
The blog is more than just a blog with hundreds of thousands of viewers per month. It has an online Facebook page with a quarter million followers, and a Facebook group with tens of thousands of passionate people whose lives revolve around my niche. And I am one of them, also passionate towards the content that we generate. So, I placed an offer, and got it, trademark included. $80K. We make money working with an advertising agency that deals with handling ad fill. Profit after paying our writing staff has been about $3500/mo. So annualized is $42,000 profit/year. ROI = 52.5%.
Next acquisition. I bought a web site backup service. We have hundreds of customers that we perform nightly backups of their sites as well as make sure their sites are operational 24x7. I outsource that work to offshore for cheap, but excellent labor. I love the guys who keep this business going strong day to day. I barely do anything but accounting for this. Maybe spend half an hour a day. I got it for $35,000. And annualized we make $30K in profit. ROI = 85%.
And most recently I've assumed a web marketing business. This too has a team of contractors that do the heavy lifting. Premium one-word, business-specific, domain name that garners 30K organic traffic a month. Very little ad spend. We generate about $8000/mo. in profit, again annualized to $96K profit for an ROI = 240%. I haven't figured out why the previous owner sold this other than he didn't want to do it anymore, and wanted to concentrate on his other business. He's got rep. I did my research.
So here's the grand total annualized profit:
Accounting Software Business: $70,000
Blog and Online Community: $42,000
Web Site Backup Business: $30,000
Web Marketing Business: $96,000
Total Annualized Profit: $238,000
Mind you, since these ventures take up maybe a total of a couple hours a day for me to run, I am free to focus on marketing for growth, while keeping a couple of my consulting clients. I quit the one client where I had to go into the office, and the other remote client, I just quit because I didn't have time for them. So I work from home now. The consulting dollars gets me to $400K a year, but I will most likely stop consulting next year to completely focus on my businesses. And my family and I are planning on moving to Central America this winter, because we love it there, and hell, I can work from anywhere that has internet.
One last note on being a serial entrepreneur. I look for synergies between my businesses and any future acquisitions. Each of the four ventures that I now have complement one or more of the other businesses, so I can leverage/cross-sell amongst the lot of them. This specific business model is starting to gain traction. But one challenge for me is branding when cross-selling. I haven't figured out how to consolidate the brands most efficiently. Each has their own distinct brand that current customers trust. And future customers may gravitate to the current branding. So not sure yet, but it's a good problem to have.