So you have built up a portfolio of domain names and you have even started to develop some of them. You are generating some income and are excited about your blossoming business. But do you realize the decisions you are making today will affect the growth and ultimate outcome of your business endeavor? Tying a lot of money up in assets and reinvesting profits in even more assets is a legitimate way to grow a business but some day you will need to tap into those assets and turn the potential value of the business into cold hard cash. This is an exit strategy and every business should have one.
Domaining
A pure domaining business buys domain names for income and/or strategic sales. The profit is then often reinvested in new domain name purchases in an effort to grow the business. Dumping your whole portfolio on the market one day is not going to net you the cash that you can get with selected sales over time. So what exit strategy is right for this kind of business?
Selling the business as an ongoing concern
Probably the most satisfying exit if you can find a buyer who will agree to your perceived valuation of your portfolio. This is probably best accomplished with a high quality portfolio marketed to the bigger players in the industry. Potential value at auction and multiples of yearly domain income can aid in proper valuation of all of these assets.
Parcel it up
Of course you can parcel up your portfolio and try selling the pieces to smaller buyers. Some buyers tend to specialize in particular domain types e.g. geo-domains. The problem with this strategy is that buyers tend to want to cherry pick rather than take whole groups of domains.
Feed to auction
Dumping a whole portfolio to auction is probably not a good idea. Feeding domains one by one to auction is possible but it is a slow exit strategy and one which is dependent on the market conditions. This is best accomplished with plenty of planning and spread over a good period of time.
Feed to end users
Like the previous plan, it requires time and effort and a lot of planning. I was reading Rick Schwartz’s blog post today regarding selling to end users and completely agree that most sales are to other domainers and not to end users. This churn of domains within the community in my opinion is not the sign of a mature industry and the difficulty of reaching end users means that end users will likely only be a small part of your exit strategy.
The Modified Nike Maneuver: Just Take It.
As described by Entrepreneur.com, you can stop reinvesting in the business and start keeping the money for yourself. This could be accomplished by selling off domains over time and keeping the cash. As the portfolio shrinks, you save on renewal fees and hosting fees on developed web sites so costs to do business go down. Careful tax planning and careful monitoring of market conditions are needed to make this strategy work.
Your exit strategy
So what is your exit strategy? Will it affect how you go about your business? Will developing your web sites make them more difficult to sell? If you have proprietary software that only you know how to run, then how easy will it be to offload that asset?
As I said in the beginning, the choices you make now affect how you will reap the benefits of your hard work. Planning ahead is worthwhile.
{ 6 comments… read them below or add one }
Good write up.. Having an exit strategy is important — there is a lot of domainers calling it quits in 2009.
Your article is going to be bookmarked quiet a bit I suspect
Mike
Mike,
In a way I hope not. At least not because they need to get out right now. Certainly a lot will need to evolve their business model and domain development is one way to go. I do expect domain drop volume to increase though. Lets see if that happens.
My exit strategy is dying of old age. All joking aside, nice thought-provoking article. I’m still undecided, but it is too early to be thinking about quitting.
Dying of old age is a good life exit strategy!
However you might want to read this: Domaining and making wills
Thinking carefully about your business model and revenue streams is important right now and that’s the topic of tomorrow’s blog post
I hadn’t read that post yet, great stuff. The only precautions I had taken were making sure my wife knows the passwords to my registrar accounts in case something unexpected happens to me.
You are probably one of the few people I know who has even thought about it. Thats one of the best first steps.