Online businesses are undervalued. I know this because I’ve built one in the past and played around with a lot of concepts. I understand how a lot of web traffic works, and what it takes to grow something online. Making money online is one of the easiest things you can do in today’s era, but also one of the hardest. Once you understand the theory, you can do it easily. If you don’t you suffer. This means that while you can sell an online business, people often aren’t willing to pay you what they’re worth. This doesn’t mean starting an online business is dead though, or that entrepreneurship isn’t the best way to give yourself some freedom in this world. It still is. Online businesses being undervalued is actually a good thing for a normal global citizens. Here’s how you can capitalize.
Most online businesses sell for 2.5–3 years’ earnings
This is the industry standard. 2.5 to 3 years’ earning is normal when it comes to online businesses. Just look at Flippa.com. It’s going to be hard to get more in today’s era. Credit isn’t cheap. People aren’t looking to buy businesses.
Online businesses are small
Even a $100,000/year business is small potatoes for a private equity or investment firm. But with regards to views, such a business usually requires a bare minimum of 100,000 visitors per year. This is a decent amount of traffic. Nothing crazy, but really solid. Most businesses will need 4–10x that number to do $100,000. This means on the positive front, private equity is relatively unlikely to muscle in on a properly run online business, as things stand. On the other hand, you’re dealing with a lot of problem on the front end. And nobody cares about small business owners, so if the platforms go crazy you suffer.
Online businesses are volatile
Nowadays, a lot of the world is online. People are fractured into their little content silos, and while many are able to get traction, things often change. A platform bans them. A traffic source dies. People don’t want to invest in businesses that are volatile and hard to understand. Especially not when they’re really rich. Less competition for you.
Online businesses are hard to sell
They’re too expensive for normal people, and too cheap for private equity. They also require a decent amount of knowledge when it comes to what you’re doing. People don’t want to take on the job of scaling random companies. It’s way too much work. The people who are buying online businesses probably will need to do the work themelves.
So…what’s the upside?
The upside of an online business lies in your ability to hold it. If you can hold your online business for a while, you’re richer than you think. You’ll extract a lot more value from it than what is normally projected. So how long is that “while”? Well, if you explore Flippa.com, you’ll see the average online business is selling for 2.5–3x earnings. This is a solid amount of money, but what if you can maintain consistent payouts for 5 years? You’ll have extracted a lot more value this way.
Build a sustainable business
You want to do something that has the potential to make money for a long time, so it needs to be built to last. You need multiple traffic sources, multiple content formats, and multiple sources of income. This is doable if you build small. You can afford to build small if it’s a side hustle. You also want to do something that’s fairly generic. Something that will be around for a decent bit, in some form. If you’re trying to get rich it’s different, but your side hustle doesn’t need to be too innovative. Just something that will be around for a while.
Front load your work
Right now, the median American in their early 30s has a net worth of about $44,000, assuming they all live in households with two breadwinners. This means that you can match them in terms of wealth by running an online business that makes a little under $9,000 per year for 5 years. This takes a bit of dedication, but not 10 years of labor. It can be done in a year once you understand the process. If you’re in your 20s and working a regular job, front load your work until you earn $400/month. Watch how much easier life gets in comparison to your peers. What happens if you work a regular job, save your money, and are making an extra $9,000/ year online? You’ll be far more flexible and comfortable than your peers, and in a real way at that.
Most people don’t have the self-control to run an online business
And this is a good bet that you can make. As long as you’re aware of and using new tech, you’ll be able to leverage your skills to make money online. It’s really about self-control. Most people can’t bring themselves to work while seeing no results. You have to do that for a few months in order to make it online. So there really isn’t much competition at all.
The earlier, the better
The beauty of online businesses is that most of them are still valued in the 2.5–3x range, which means that most people can expect to live for twice as long as their business is “expected” to run, at least. This is all good, but it illustrates the value of getting in early and when you’re young. The sooner you get in, the wealthier you become.
Value the long-term bet over the quick money
The long-term bet is how you buy freedom. If you don’t make long term bets, you have to save the online money that you make. If you make long term bets, the money from your online business can go towards consumption as you work a regular job. You might not have savings, but it’ll make for a better lifestyle. Or you can really level up your lifestyle and put money in the bank. As I said though, the older you are the more work you need to do to make an impact on your lifestyle and social status. That’s just the way it is. Still, play a long-term game.
Work on the business less
This is really it, once you understand that holding the business for longer increases your net worth more, you work less than you otherwise would have. This is because you know when to set your upper bound. If your goal is to hit a $50,000 business value in 5 years and plan on holding forever, you’ll be chasing revenue targets that are at half the level of someone who wants to sell. This will allow you a bit more peace of mind as you know when to stop working on your company early. Work less on one business and diversify. You probably aren’t someone like Warren Buffet.
Online businesses being undervalued is a good thing for those who are in it for the long haul. It’s simple, and I wanted to explain this fact. If you’re young and don’t have anything to do, try to build a simple online business. It’s a market that’s unlikely to become totally saturated anytime soon and offers you a great opportunity to buy your freedom. You just need to know how to make the online money work for you. Hope this helped.
Thanks for paying attention.
