The Dangers of Optimism -or- Don’t Develop
A constant temptation for domainers is to develop one or more of their domains into a business. Domaining is hard, tedious, repetitive, and frequently mind-numbing. Building a business seems a lot more fun. It is creative, you have something to show to your friends and family, and there is the potential for high returns if you are successful. But the temptation to develop can be a very expensive and dangerous trap.
We look at start-ups raising millions of dollars and selling for perhaps billions of dollars. We think, “We are in the Internet industry; We have great domains”. We also think, “if I develop my domain name it will be worth more than leaving it undeveloped.”
While it might seem like a natural progression to buy a domain and then to build it out, launching an online business is entirely different than domaining.
The attraction of a valuable domain name is that it has a unique quality to it. But once you try to build a business on that domain name, you become one more start up business competing against hundreds of other more established and better funded competitors. Having a strong domain name may give you an edge but it is unlikely to be a sufficient edge to allow you to compete successfully against the better established businesses in the same space. A panelist at one of the New York TRAFFIC conferences said it very well. He said that you can have a killer domain name but as soon as you start to develop it, you turn that killer domain name into a mediocre business.
I’ve seen too many successful domain owners take the money that they made from domaining and lose it all trying to build an online business. Sometimes they would acquire the” perfect” domain name and would pay end-user prices to do so. They would sink much of the profit that they made from domaining into this purchase and into funding the development costs for the new business. To raise cash to fund the business they would steadily sell off their domain portfolio. Eventually the new business would fail and they would be left with no business, no domain portfolio, and no cash to show for all their efforts, even though for a while they had been successful and made good profits as domainers.
It has happened to domainers I’ve become friends with. They had a successful domain business, but lost it because of misguided optimism about starting up a new business.
I have fallen for the temptation to develop myself. Over ten years ago, I acquired my hometown domain, Annapolis.com, my home state domain, Maryland.com, and the domain for the top Maryland resort vacation destination, OceanCity.com. I thought an online travel guide would be a perfect online niche, as travelers use the Internet heavily and a website would be more accessible to travelers than a printed destination guide and wouldn’t have the associated printing and distribution costs.
The start-up costs were much higher than I expected. It took a huge amount of time and attention, and distracted me from the domain business. Fortunately the business stabilized and I now rely on my team to run the business without needing to be involved that much myself. Ten years of effort later, we are generating significant revenues from these sites but while we continue to grow the businesses , the competition from big players is more intense than ever and the sites haven’t yet generated the level of profits that would justify the effort put into them.
Even big players with substantial resources have been tripped up when they’ve moved into launching new businesses. GoodNews.com, a daily deal site launched by Kevin Ham’s Reinvent was shuttered. Vancouver.com was also launched by Reinvent, and while still online does not seem to be actively updated. Sahar Sarid’s Recall Media put substantial resources into the Bido.com auction platform and the Assista answer search engine. While Bido.com still survives under new ownership these ventures were not profitable. Rick Latona recently closed down his auction site after a considerable investment. Andy Miller and Mike “Zappy” Zapolin who scored some of the highest profile domain name deals including beer.com, diamond.com and computer.com, started Internet Real Estate Group to build businesses on top domains such as Phone.com and Safety.com but have found profitability elusive.
Many domainers, besides myself, have tried their hand at geo-development. Successful domainers such as Page Howe, Shaun Pilfold, Rob Montgomery, Ken Hansen, Warren Royal, Elliot Silver, Kevin Ham with Vancouver.com, and others have tried geo-development. While many of the sites are still active and generating revenue, they have shifted their focus elsewhere after the results were underwhelming.
The conclusion is not that all businesses started by domainers are doomed to fail. Some of these businesses that were not successful may be paving the way for much bigger future successes. Starting a new business in inherently risky. Sometimes it takes many failures before hitting on a success that more than compensates for the previous losses.
There are successes. Warren Royal’s Bobbleheads.com may be the best example of a domainer successfully launching an online business that sprung from his domaining business. Warren, I believe, has devoted himself fully to the Bobbleheads business, including making several trips to China to visit factories. Elliot’s DogWalker.com site is profitable and growing. Scott Day’s Digimedia has developed FantasyFootball.com and Jerky.com among others.
Many domainers have been successful with small scale development by adding content to sites, attracting visitors, and generating revenue from AdSense. But this post is not about Made for Adsense (MFA) sites. This post is about developing businesses that have direct relationships with customers and advertisers.
The skills required for successfully developing a business are very different than those required to be a domainer. A key skill for the successful domainer is to foresee the future value of a domain name. The many skills required for a successful entrepreneur include sales, marketing, development, partnership building, management, leadership, and strong organizational ability.
It is very rare that the same person who has the skills to be a successful domainer also has the skills to be a successful entrepreneur. Sometimes it takes a team. The Castello Brothers have been so successful with PalmSprings.com and Nashville.com because of the talents each brought to the business, with Michael having a knack for acquiring the domains and David being a fantastic salesperson.
The lessons I’ve learned are:
1. Development is much harder than it looks;
2. Having an excellent domain name is not enough to turn a bad business idea into a success;
3. If you are tempted to build a business on a killer domain (for example Shoes.com), pretend that you are building the business on a crappy domain (such as great-shoestore.net). If you are still excited about the business, and if the business plan still works, then it should work even better launching on a great domain. But if your business plan depends on the domain name to succeed (“We’ll get top ranking with an exact match domain”, “We’ll get advertisers/investors/publicity/customers because of our domain name”) then you may want to rethink the business plan.
4. Success in domaining doesn’t carry over to success in development. Just because you are good at one doesn’t mean you’ll be good at the other.
5. Do an honest self-assessment about your skills, talent, and motivation. Do you have the skills to be a successful entrepreneur?
6. If you are a successful domainer then you can consider yourself to be very fortunate. Is it wise to shift your time, attention, energy, and money away from a business where you are successful to risk your good fortune on an unproven new business?
7. Don’t risk everything on the new business. If you want to invest some of your profits in launching a new business, but your domaining business will survive even if the new business fails, then that is not a big risk. But if you put your domaining business at risk to launch the new business, the odds are that will be a mistake.
8. (from Francois) “Search the best name that will match your great idea, and not the inverse or you will probably fail.” Or, to put it another way, find a great business idea first and then choose your domain. Don’t do the opposite and start a new business simply because you acquired a nice domain and want to build it out.
(3) is a very good tip.
I wonder if there are businesses that depend on the domain for their success. Ones that are a success because of a good domain name, and would fail without it. If so, #3 wouldn’t be true in every case. I think the right domain makes a big difference, but is is the difference between success and failure? Thanks for the comment.
Nat, you ask a great question which is often ignored or swept under the carpet by over-enthusiastic domainers/developers.
My own strory of domain development and building a business using domain names is well enough documented elsewhere to repeat here, but one of the things I have always maintained is that the business came before the domains I used in most cases.
That’s not to say the domains were insignificant in the business growth – asbestossurveys.com was bought in the aftermarket and definitely improved visitor numbers and enquiries, but it was not and never will be the main driver.
I acquired BuildingSurveys.com earlier this year, but have been building a business in that area for several years.
Where the name comes in useful, is in the marketing of the business, whether that be in print, in search engines or in other media – it’s a name that describes our business clearly to other people and one that makes our competitors go “wow”.
Recently I was offered what should have been an irresistible name that was caught by a UK domainer. He did his homework and contacted me about it, but the price expectation was beyond the reach of anything but a major corporation.
Is a name the difference between success and failure? I don’t think so. In fact, I think that domains are less relevant today than many in the domaining industry care to admit.
It’s why I no longer call myself a domainer. I am a marketer first and foremost. Domains are a tool in the armoury in my opinion and experience.
This is an excellent piece, and one that’s long overdue.
There’s another (related) point that you didn’t make – and one that I’ve wanted to blog about for a long time, haven’t found the time to do recently: namely, that the moment you leverage a ‘premium domain’ it’s tarnished.
Let me explain: You read endlessly about the value of ‘aged’ domain names – with the principal argument in their favor being that “…Google gives preference to aged domain names in its algorithm.”
First off, I had sites developed on a total of 14 keyword names in my portfolio; and every one of them (a) were hand-registered very recently, and (b) nearly all of them were instantly ranked in the top-3 results, based on searches for the actual keyword combos (e.g., political sentiment; and note that politicalsentiment.com is an inactive site at this moment, and is still ranked #1).
Second, leveraging a domain name – however fabulous and valuable – instantly causes it to become (nearly) worthless (…or worth less, in some cases). Don’t believe that? Just ask yourself if you’d invest six or seven figures into a ‘new’ venture that will be built atop a name that’s already been used by another firm, which is no defunct. I’ll bet that you wouldn’t.
I learned the lesson of having someone else ‘tarnish’ your brand and prospects long ago when I owned a proprietary travelgoods company. We made the mistake of allowing an industry ‘expert’ go out and show our products to the limited number of buyers that existed – without being there to guide the conversation and pitch.
Needless to say, they really screwed up, showed no passion during the sale, and ultimately caused the closure of every single door in the industry. We didn’t get a second chance to knock on those doors. Same principle holds with domain names, make no mistake.
So, as the author states, be careful about ‘developing’ your names.
Great lessons. #1 is definitely true. Certain things about development may be a little easier thanks to platforms like WordPress (stress “little” because there’s a growing learning curve with each new version and plugin/theme). Others are more difficult, like actually getting people to ever see the site. Gone are the days where you can throw a site up and have instant success, or have any success at all without ongoing SEO, content or social media work.
There’s a lot more dedication involved than initially meets the eye.
Becoming bored with domaining and wanting to do bigger things (like development) hits us all at some point. Just be sure to draw the line on how much time and/or money you’ll invest in these projects. Take a slow measured approach rather than just trying to spend your way to success, and only use money from savings to fund these projects (money in the bank isn’t generating any interest these days anyways). Don’t sacrifice your existing revenue streams or best domains for the sake of development as they are both very difficult to replace. And don’t make long term commitments to things like property leases, service contracts, employees, etc… if things fail to ramp up as expected you certainly don’t want to be stuck with long term commitments for a dead-in-the-water venture.
Thanks Rob. All really good advice.
Rob – another Rob -Rob Monster – has very similar advice about not making a big upfront investment, but to make money as you go and to avoid long-term commitments.
In his interview with Michael Cyger on DomainSherpa, (http://www.domainsherpa.com/rob-monster-epik-interview/) around the 45:00 minute mark, he says,
“One of the biggest insights that I got from all of this was developing a methodology which allows you to make money as you go. So rather than putting $100,000 into piloting a startup with a dedicated management team but no real validation that you have a viable value proposition… have the ability to correlate traffic to revenue….
“And once you have got a base of traffic that you are monetizing you now can make other projections. You can say if I now pay for traffic or if I make a further investment in driving more organic traffic or building the brand you have already a projectable ratio that says if I put this much money in I’ll get this much money back. And now you can scale profitably. And that is an area where I think many domainers have really struggled. Most domainers are not business people. They have not actually built businesses. There are exceptions and many of those exceptions are also bloggers and so they share their thoughts and experiences from the day to day battlefield. That field of significant businesses. Most of what I have discovered is that there is a scalable approach which allows you to take a portfolio of domains or individual domains and on a net cash-on-cash basis you can recoup your investment rather instantly and now you are getting more of a foundation of strength as opposed to a foundation of cumulative deficits. And so people who are already paying renewal fees every year the last thing they want to do is to be what I call ‘feeding the dragon’. And that is the classic trap that many people fall into is they build a startup and what they discover is that not only are they not generating a cash flow, not that they generated a cash flow from parking before. But now they have the issue of how do you fix costs. Maybe they have hosting costs, maybe they have developer costs, and maybe have other contractual commitments in the form of minimums like if you have a merchant gateway they might have a monthly minimum and so there are a lot of cumulative costs that are associated with building one-off custom websites. These costs are not necessarily one-off costs, they are often recurring costs. And so the challenge is from the developers’ perspective is to develop a methodology to be able to add value without creating recurring costs.”
This is good advice and consistent with the other advice to prove your model as you go, and to avoid sinking a lot of resources into an unproven new business.
One of the best articles I’ve read this year.
Great article and completely agreed! So many people fail to realize the time, energy, and money that goes-into building an online business.
Also don’t forget that while you may own a great keyword domain, trying to rank it on page one of Google may still be next to impossible without committing significant development and SEO resources.
Great post Nat! Going bookmark this one and read a few more times.
I am pure buyer and seller of domain names. There is a lot of money to be imo by flipping. You don’t need that home run to be a successful domainer imo. Singles and repeating are important
Now having said that, I been considering in a simple wordpress project and cash flow. We shall see but imo I care about return on investment.
Relying on google is scary for someone who dosent have type in traffic. They can change your business model overnight imo. At least with domains, quality ones you have that name and prospects
Always hard to determine what works for one person. What works for one person will not work for another. Morgan is a developer and brand type person. That works for him. I flip heavily. He won’t know how to do that as much. He’s got the cash flow from his sites.
Everyone has different perspectives to things and different stages as well. I’m happy where I’m at flipping names and just finished my highest sale. Its awesome feeling. But at the same time I realize I need to find another income. Can’t get into franks ppc program with my small direct navigation portfolio. In 3 years time imo, the big guys in franks program will be stronger Then ever while the shrinking domain community continues to go down. A lot of ppc parking companies will go under. Tough times ahead for the smaller domainers imo. We need to work many times as hard.
Now I will say this, I need to reconsider my model in flipping. I need to learn wordpress and add fresh content.
Who knows. Can be a bit overwhelming and frustrating. especially if your hit with a 3 week or 2 month dry spell in sales. That kills me. Can’t complain this year too much.
Thanks Nat and whenever you post, I read your words very carefully and have the utmost respect for you.
Your # 3 made me think of Rick’s Porno.com as a challenge. $1 million a year for the past 15 years. Maybe he is the smartest domain man alive.
Outstanding piece…and, quite simply, spot on!
Great advice, Nat. Should be mandatory reading for all domainers that talk about ‘development’…..ie Understand what you are good at. Be realistic about the skills (and resources) you need. And, go with what your strengths are.
I came to the domain business after owning & running a successful ‘real world’ business for many years. The skills required for Domaining & the skills required for starting & running a business (online, or otherwise), are completely different, as Nat points out. I can endorse that.
A great domain will not guarantee you success in an online business – but, it can definitely add value, especially if you can leverage type-in traffic that it attracts, and leverage the domain description of the domain directly to your business…..Conversely, an average domain will not be a bar to your online success in a business, either.
The key is, you have to have a great business model, good business & marketing skills, and, the work ethic to go with them.
I like #7 – once I learned this I was much better off. Be sure each new online venture holds its own weight & don’t sink two ships with one stone.
8 – Search the best name that will match your great idea, and not the inverse or you will probably fail.
Thanks Francois. Excellent suggestion. Added as #8 above.
Great Article! Couldn’t agree more. I am also in agreement with Francois above statement. It is about the idea first.
Thank for the article again! Bookmarked!
Joel
Fantastic article and Spot on!
Nat,
Thanks for your valuable insight.
As someone exploring both options, I can say that having been completely green to developing and building websites (simple niche sites at that) there’s a huge truth to your post.
However, as a newcomer to buying and selling domains too, knowing where to start the portfolio is almost just as complicated. Obviously, I would love to buy as many ‘keyword’ rich domains and perhaps ‘brand specific’ emd’s, but there too, there is a ton of competition!
Those like yourself, who saw the value in buying one word (dictionary) domains have obviously seen huge returns on those investments.
My point is, as an optimist, will there be such great fortune for those like myself in buying and selling domains?
Obviously, I believe it can be done, less I wouldn’t be buying domains every chance I get. However, with that said, I too am learning development, just in case I get stuck with 100’s of domains that just won’t sell.
Which leads to job #3… learning all about Flippa!
Anyway, great post!
From those of us just getting started, I must now get back to scratching and clawing a piece of this market, as everyone knows; “Words Sell!”
All the Best,
Art
Dogwalker.com is barely even developed nevermind a success. Lets be real. The site is a 4-5 page word press roll out. Hardly development when mentioned in the same breath as sites like vancouver.com. Apart from that what is your measure of success. Dogwalker sells listings for less than a dollar a month!!!! Not positioned to pay the owners rent much less become the next big thing. The bulk of the listings are “stock” meaning the owner added them for free to give the appearance of activiity on the site. I would imagine that there are literally thousands of domain names that would make more money parked on a daily basis than this site makes monthly. If you want to talk development, talk development, this is little more than a hobby site that designed to generate some pocket change. If you hold dogwalker.com up as a beacon of development success there must be plenty plenty more and bigger successes out there.
Really great article. I by myself are very often taken to develop, and there starts the hassle. It’s not only development, it’s really tough work to make a Business run successfully.
And I think an undevelopped Domain is better sellable !
Many domainers went into ‘development’ due to the significant impact of reduced ppc earnings. It’s understandable.
However, selling domains and developing domains into businesses are really different. Development requires more time, skills, financial and human resources for niche research, keyword research, domain seo, marketing, design, etc.
While you can build a 6-7 figure business with development, you may not see expected results for a long time, if you succeed. Much higher risk than buying a domain, parking it and reselling it for a profit. You’ll likely lose focus on buying and selling domains.
This article helps domainers think twice before jumping into development, thank you!
What would you say is the biggest drain?
Development costs
Advertising expenses
The time you spend
Personnel costs
Something else
Any way to minimize those costs before getting in deep?
I hate wasted money. Investing time isn’t that big of a concern if I enjoy what I’m doing. I love trying stuff small scale before going all in. Impossible to do with some ideas though.
LOL… Where to start with the comment from Dog. So many idiotic things said… Ok, here goes…
“The site is a 4-5 page word press roll out. ”
– Aside from the 400+ active listings, there are over 100 blog posts covering everything from starting a dog walking service to naming a new business. These are all unique articles only posted on DogWalker.com. I did start with about 15 base articles and have added about 3-4 articles a week give or take.
“mentioned in the same breath as sites like vancouver.com. ”
– Well, for starters, Vancouver.com is a 6 (maybe 7) figure domain name, and I bought DogWalker.com for significantly less a couple of years ago.
“Dogwalker sells listings for less than a dollar a month!!!!”
– Alright, genius, let’s do some 4th grade short division. DogWalker.com listings cost advertisers $49/year. There are 12 months in a year. What does that equal per month?
“The bulk of the listings are “stock” meaning the owner added them for free to give the appearance of activiity on the site.”
– I gave 10 listings away for free when I started and there have been 640+/- listings in total, so over 600 companies have PAID for their listings in less than two years. I think my renewal rate after the first year is close to 70% but it’s something I haven’t really calculated. I would say that almost all pay via Paypal subscription, which means listings automatically renew after a year. If you want to bet on it, I will put $25,000 into escrow vs. $500 for you and have someone independent look at my Paypal records to prove that there are hundreds of paid listings with active subscriptions. I will give the $500 I win to charity. My bet is that you won’t take this wager because you’re an anonymous coward.
“I would imagine that there are literally thousands of domain names that would make more money parked on a daily basis than this site makes monthly.”
– I am sure there are plenty of sites that make considerably more. I am also sure that if a parked name made more than $15,000 a year, it would cost far more than I’ve put into DogWalker.com. With over 600 PAID listings on DogWalker.com since I launched the site in November of 2009, you can do the math to see approximately how much the site has earned in listing fees.
Bottom line is that DogWalker.com is VERY profitable for me and requires little work on an ongoing basis. It ranks well, gets over 10,000 visits a month, and is monetized beyond paid listings as well. Unfortunately, DogGroomers.com hasn’t done nearly as well with only 15 listings, but it’s a different market with dog walkers and dog groomers.
Oh man, Elliot, you always give away your secrets everytime someone pissed you off. Hope you don’t play poker. Haha
I don’t play poker…LOL
Most of the info is pretty easy to find by looking at the site and doing a few searches and some math.
@ Morgan L
As you are one of the contenders/nominees for the Developer of “The Year Award” at T.R.A.F.F.I.C. Ft. Lauderdale 3 weeks… Can you discuss the developed WebSites that relate to this ?
Great article, Nat – you really nailed it. Developing a domain into a successful business is really hard work and long hours. When we started out, I never envisioned having to unload pallets and learn to drive a forklift. It’s very rewarding, but it’s not what most people expect.
Warren,
It’s great to see your success. You didn’t coast on having the perfect domain name. You hustled, worked very hard, and traveled half-way around the world to make your business a success.
The Obama bobblehead that you kindly gave me is still prominently displayed in our kitchen and I see it every day. (Don’t make any assumptions about Warren’s politics because of his gift of the Obama bobblehead. Like any good businessman, Warren meets the demands of his market. He also has Reagan, Bush, and Sarah Palin bobbleheads – but no Mitt Romney or Rick Perry ones… yet.)
Great post Nat…well thought out and spot on. As you know I’m currently growing my Geo business and the hurdles that we are overcoming were not foreseen.
Once again, great article…see you soon.
Keeping it real as always. Nice post. Successes and failures are important learning experiences for the individual, but everyone else can learn from them too, so I appreciate you sharing your experiences and perspectives.
We need to catch up.
This post fantastic and puts everything into perspective.
For those which have built a actual business online, they realize very quick where there limits are. Just because there are now easy way’s to throw up a sight doesn’t mean you have a business.
It’s learning the market, if there even is a market.
What are your visitors actually doing on your site?
How do you actually connect your visitors with your product or viceversa?
Being able to really understand the numbers of your analyzing software and making the correct changes to get improvement.
Knowing where, to whom, and at what day’s of the week or even time of the day to run SEM campaigns.
When first starting and building a new venture, the first 75 percent is easy. The last 25 percent of the road is the most important but at the same time the most difficult. The closer you get to that 100 percent finish line, the tougher it get’s. This is where most fail. They run out of breath and eventually give up, which in some case is better than wasting more energy into something which might not ever work.
Elliot, has a great business model on DogWalker.com and sometimes there are some very unsophisticated comments, but only from those which have no clue of what really happens behind the scenes. I personally don’t see the actual business listings on DogWalker as the next million dollar cash flow. But the possibilities of cross selling which usually happens behind the scene are endless! Therefore some business models are built in which they are only the tool, which then, drill to where the actual oil is.
Nat….interesting article. When I purchased Scottsdale.com, I already had a 75 employee company generating over 500,000 tee times per year, and doing over $8,000,000 in golf vacation packages per year. I also owned a property management company (320 units); so safe to state that I was already experienced in both the golf and real estate business. So it was an easy transition for me to build out Scottsdale.com and concentrate on both golf and real state for the lion’s share of my revenue. My best year in monetization for both was 3 years ago, when we did over $800,000 in golf packages on Scottsdale.com (21% profit margin) and over $108,000 in real estate revenue on Scottsdale.com. But….I’m not a “domainer” and would not begin to try to compete with the talented and energized group of people (like yourself) that looks for any and all opportunities….I don’t subscribe to a drop list….and basically I am totally involved in only one thing….and that is geo development and monetization. So, from my example….I was experienced in certain businesses….and that alone led to my success. And yes….the business of domaining and the business of development are 2 very different things…..BUT…..as you and I know with our CitiesPlanet project, if we can successfully develop and monetize, even at minimum levels, pure City.com brands, they will be much more valuable to an end user in each and every market…versus the domain name alone. Thanks….Fred.
Fred,
Great seeing you in Chicago and thanks for the comment. You bring up a good point. Some of the most successful geo-developers didn’t start from scratch. It was a lateral move. You already had an existing golf and property management business centered in Scottsdale. Acquiring and building out Scottsdale.com was a natural extension of your existing business. Sara and Mark Mannix of Saratoga.com are another example. They already had an online marketing business and existing relationships with small business owners in the Saratoga area. From that foundation, building out Saratoga.com and nearby LakeGeorge.com was a natural way to grow their business.
Nat