Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

Do the Domain Sales Numbers Stack Up?

Do the Domain Sales Numbers Stack Up?

I thought that I’d take a break from the series on “Building a Business” and examine what underpins the domain sales market. There are a huge number of domain investors that have bought into the market purely to sell their assets onwards…..so is this a sensible thing to do?

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In my investigation into the domain sales space I thought I’d first of all outline the two fundamental domain sales business models.

Domains as Stock Items

Stock item domains are those that sell for sub $2,500 and represent around 87% of domain sales by volume. The goal here is to move greater numbers of domains and NOT necessarily increase the sales price. The business focus is therefore to increase the stock-turn from 0.3% to say 0.6% of your domains per year….it’s all about speed and automation of transactions.

Think of these domains as the fast food end of the industry….so many people make the mistake of trying to sell their burgers at high end French restaurant prices. Not surprisingly they don't make any sales.

This business model is the bread and butter for companies like Afternic and Sedo who have done whatever they can to get wholesale domains exposed to potential buyers. You really need to have your domains listed in both these major marketplaces if you are to maximise your ROI for this business model. There are other markets but they are substantially smaller.

High Value Domain Sales

High value domains are typically single word .com or prominent ccTLDs (eg. .de, co.uk). There have been a few new gTLD sales for high value and this will increase as adoption of the new gTLDs become more widely accepted.

It should be noted that only about 1% of domain sales are over $50,000 in size. So the next time you try and push a buyer up over this amount you’re really in the stratosphere as far as typical domain sales are concerned.

 

So who wins in the domain sales market? The registries, registrars and governing bodies all get their fees when domains are renewed or first registered. The marketplaces take a commission on each sale and the buyer secures their long-lost domain. The seller…..well in some cases they win but not always.

Back in 2013 Sedo produced a wonderful infographic that outlined Sedo domain name sales and the fact that they conducted $70.5m for 37,241 domains. This provided an average $1893 per sale and a median of $577.

So why am I reviewing this bit of history? Let’s imagine Sedo did around $100m in 2016 and I think I’m pretty safe guessing they are about 33% of the market. Afternic is the other 33% with everyone else (private sales included) are the remaining third. This means the total domain sales aftermarket industry is around $300m per year. This is not big by global standards.

What’s interesting is that it also means that around 100,000 domains are sold each year in the aftermarket. Given there are approximately 340 million domains registered in the world these sales represent about 0.03% of the total domain market.

If all of the averages play out and you have a portfolio of 1,000 domains, then you should hope to sell 0.31 domains per year at an average price of $1893. This means your average revenue line will be $584 per year. Assuming an expense line of $10,000 for your renewals you are a long way short of the mark.

To have a profitable business you need to believe that your domains are 17.12 times higher quality than the average in the world. I calculated this by taking the direct costs of $10,000 and dividing it by the expected average revenue line of $584 for the year. This of course assumes domains are re-registered each year due to economically rational reasons…..which is not always the case.

The Belief Gap

If you sold $5,000 last year then your domains are only half as good as the average in terms of quality. On the other hand, if you sold $20,000 then your domains are on average twice as high quality than the average. There are a lot of questions in here such as, did you sell one domain at $20,000 and received no offers on any others……but let’s stick with the averages for now.

I should also state up front that I’m ignoring the cost of your time. Sadly, most people ignore this cost and continue to run their businesses more like a hobby.

So why do domain investors hold onto their stock? I’ve concluded that many people approach domains as something on the side which they hope will blossom into a lottery sized windfall one day.

It’s so easy to read about huge domain sales and hope that if you just hold on a little longer than it will happen to you. Hope is a very dangerous thing if  you've just mortgaged your house to take “advantage” of the domain opportunity.

So why am I laying out these numbers? Have I decided to become a cosmic killjoy and rain on everyone’s parade? No….but I hope to bring a dose of reality. Domain sales is a really tough game and if you are new to this industry then don’t expect to make an instant killing.

If you’ve been sitting with a portfolio of domains and wondering why you can’t make ends meet, then just do the maths. I hate to say it but the market has valued your domains and most of them should be dropped. Why renew something for the last ten years if you’ve never received an offer?

What the larger portfolio owners believe is their expertise combined with scale will allow them to become profitable. Along the way, they also get other income streams from their domains (eg. revenue from traffic) that help cover some of the renewal fees. Even still, many of the more skilled industry players have been reducing the size of their portfolio to remain profitable.

Ultimately, the question that every portfolio owner needs to answer is whether they are 17.12 times smarter than the average domain purchaser. By the way…..as I’ve outlined above, this is one of those cases where you can actually measure how good you are.

If you come up short, then think about getting a mentor who has a lot more experience in the industry than you do. It could be the best investment you’ve ever made and either save or make you a lot of money.

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Saturday Musings - What's Your Goal?

Saturday Musings - What's Your Goal?

My wife Roselyn and I have fallen in love with New Zealand and more specifically Queenstown which is situated in the mountains of the South Island. Looking around the incredible vistas is like stepping into The Misty mountains from “The Lord of the Rings” middle earth.....it's stunning.

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While walking around the township we discovered a hiking business that takes people on a five day walk from Queenstown, across the mountains and down into Milford Sound. For those of you unfamiliar with Milford Sound, it’s one of the most picturesque, unspoilt places on the Earth with waterfalls cascading thousands of feet into the ocean, wales, dolphins, and soaring mountain ranges. All good!

We’re pretty excited about going on the hike in just under two years’ time (we’re doing a lot of other already planned travel this year) but there’s one problem. We need to get a LOT fitter. To paraphrase Borimir from Lord of the Rings, “One simply does not walk into Milford Sound through the mountains. There’s ups, downs, river crossings and a host of other obstacles in the way.”

So we have a goal…..lose weight (which is a good thing) and get a lot fitter. Goals can be like New Year’s resolutions that are forgotten after the first week or you can choose to take them seriously.

Roselyn hiking in the fern gladeWe’ve now bought hiking boots and enough gear to make us feel a little adventurous. Our first hike was a few kilometres in the rain through a fern forest in the hills outside of Melbourne. We’re walking, riding or rowing machining every day to increase our stamina. The goal of the Milford track is inspiring us to get fit (which is always a good thing) and to get healthier.

Like our personal hiking goal every business needs to have goals to strive for. Whether it be the launch of a new product, a financial hurdle to strive for or getting a new client onboard. It’s healthy to have a target that you and your business can be measured against. In fact, I would go as far as to say that a business without a vision/goal is already in a state of decay.

So what’s the goal for your business and are you taking it seriously? Many people have lofty goals but few people actually put legs on them by taking the first steps forward. For Roselyn and I, we’re watching what we eat and doing “stuff”.

It could be that your first step is to pick up the telephone and call a perspective buyer for a domain you own. Whatever it is you need to do I can guarantee that your journey into the unknown will be like Frodo crossing the boundaries of your “Shire” and into the wilds of adventure.

Have a great weekend!

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Part 3 – Building a Business – The Pitch

Part 3 – Building a Business – The Pitch

In Part 2 of this series you’ve expressed your passion to me about your new business idea. I’ve seen a prototype built out of bits of cardboard stuck together with glue and although it doesn’t do anything you’ve sold the vision. So what’s next?

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I love passion but passion combined with a plan leads to action. At this stage, I’m after a one page summary document. I want to see whether you have the wherewithal to be able to synthesize your entire business onto a single page.

Before you tell me that’s impossible, Rupert Murdoch, founder of billion-dollar global international company News Limited, receives a one page summary every day that summarises his businesses across the world. If Rupert can do it then I’m sure you can.

So what’s on this page?

  • The product/service in a maximum of two sentences.
  • What problem is it solving and for which target market?
  • How will you reach the target market?
  • Financial opportunity
  • What will it take to secure the opportunity?
  • Who is currently involved?

Assuming I’m still interested then I will next ask you to present a summary deck of slides which dive a little deeper into the opportunity. I will work under the assumption that the dozen or so slides are backed up with a rigorous analysis which can be quickly accessed in an appendix.

Amongst other things, I’m wanting to drill down into any existing financials you may have. If I see a great big liability in the balance sheet you can be sure that I’ll ask what it is so please don’t try and cover it up.

If it’s a loan to shareholders then don’t be surprised when I suggest that it be forgiven…..the reason why you are raising capital upon a certain valuation is because of that input. Either that or massively drop your valuation. The whole point of putting cash into a fledgling business is to help it grow, not to pay back debts!

So what’s going to be on the slides?

  1. What is your vision and value? What are you trying to achieve?
  2. What problem you are solving and why this is important?
  3. Who is your target market? You can describe this as John Smith who is struggling with….. Or do a full market analysis of the potential
  4. The solution you are bringing to the market to solve its problems.
  5. How are you going to make money from your offering? What is your position in the competitive landscape? Are you the high-price, high service offering or the low-cost mass market solution?
  6. Do you already have some existing sales or early adopters? Have you proven your offering and are looking for expansion investment/help or are you yet to launch?
  7. What is your marketing and sales strategy? What are the barriers to growth? How long will the sales cycle take? Do you have some winning solution that will beat customers compared to your competitors?
  8. Are there any competitors (there always are) and state why your solution is better. What is your position in the competitive landscape?
  9. The existing team – brief bio on each member
  10. Financial projections and existing sales (if any). It’s important to highlight any key assumptions here.
  11. What is the deal? You are wanting to raise $X for Y% of equity. Investors really would like to see the difference their investment will make to the business and where the investment will be spent.
  12. You may include here what the exit strategy will be? IPO, trade sale etc.

The entire deck should take a maximum of 20-30 minutes to present and each slide should be succinct and to the point. The rest of the meeting with me will be you fielding questions as I prod around the assumptions and come to grips with your product/service.

Remember, I’m not trying to be mean! I’m trying to work out whether putting time into your venture will be a higher return compared to other opportunities.

Other documents you will want to have on-hand.

  • Executive summary page
  • Any technical documentation on the product
  • Detailed financial modelling…..and I mean detailed.
  • Proper market research that describes your target market in detail and who else is playing in the space. A good rule of them is the SWOT Analysis (Strength, Weakness, Opportunities and Threats). Think of your venture in these terms.

Some people have pitched for me not to invest cash but my expertise and they’ve wanted me to participate as an advisor. If the business is interesting enough then this may be the first step we take together.

With any investment, whether it be time or money there is always a dating period before a marriage. We both need to more fully understand how we can work together and make the venture successful.

I hope you've found this article worthwhile and that it helps you pitch not just to me but to others that may be interested in investing in your new business.

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Saturday Musings - Attracting Flocks of Customers

Saturday Musings - Attracting Flocks of Customers

About a week ago, my wife and I decided to purchase a bird bath to attract the local birds outside my study window. The bath sits beautifully atop a pedestal and is replete with a turquoise glaze to make the water that much more enticing. I know if I was a bird I would be falling over myself to have a bit of a splash.

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I had visions of a Disney cartoon where birds would be so grateful for my benevolence that they would sit on a branch outside the window and sing me songs all day. After setting the bath up I waited and waited and waited for the birds to come flocking in to enjoy what I’d provided for them. …..boy was I wrong.

Scratching my head, I thought to myself, “Maybe I need to entice them just a little bit more.” So off I went to the kitchen and grabbed a slice of bread to spread crumbs all over the lawn to attract the birds to my yard. They loved the bread but none did anything with the bird bath. Hmmmm….not good.

You would think the stupid birds would realise that I’d setup the bath for their enjoyment! What more do I have to do to get them to use it? To this day, I’ve been trying to think up new ideas to attract my avian customers to the bird bath and not one has used it……sigh……

Isn’t all of this exactly like building an online business? We spend hours with designers and programmers to get the “look and feel” just right and when we eventually launch we wonder why no one uses it.

We finally succumb to enticing customers with special offers, free giveaways and short-term discounts (eg. bread). Not surprisingly, the customers love the freebies but ignore the main offering. Eventually we convince ourselves that customers are stupid and just don’t have any idea of the value you are providing them. Can you see the similarities with my bird bath?

The fact is, the market is actually really smart. The reason why many businesses close is because they don’t have enough cash to carry them through the start-up phase of wooing customers repeatedly to their website. Modern customers rarely buy from an unknown business but will more likely buy if they continually see it….it gives them confidence that the business isn’t about to vanish.

So what do I need to do about the birds? Keep on attracting them with bread and let them get used to the bird bath. I’m just looking forward to the day when the first bird enjoys a dip.

Have a great weekend!

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Part 2 - Building a Business - Getting Buy-in

Part 2 - Building a Business - Getting Buy-in

At the end of Part 1 I indicated that this article would be focusing on how to land a business partner/investor for your great idea. I’m going to use myself as a case study but understand that every investor will have different motivations for wanting to spend their time in a new venture.

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Like any good business, it usually begins with something drawn on the back of an envelope. That spark of an idea that seems to ignite the very ether with potential and every time you think about it your heart skips a beat.

What am I looking for? In one word, passion. I’m sitting at the bar at NamesCon and you’ve come to me with your idea (I’m not going to steal it) and during your story telling about how you came up with the idea I’m looking for how much you want it. Are you going to crawl across broken glass, traverse a desert or swing across a chasm to see your idea flourish?

So many potential entrepreneurs pitch their ideas in such a boring manner that causes me to look for someone else to share a drink with. If your unexcited when your baby is about to be born, then what are you going to be like in six months when you’ve been up all night because it’s been crying? Get animated and make the story interesting!

For example, it could be like….I was having a shower the other day and it suddenly hit me. People having been trying to do “X” for so long and if I just did “Y” I could solve all of their problems. It was like a shining light from heaven! I couldn’t get out of the shower fast enough to write it all down. Have you ever had one of those moments where a whole lot of things just seem to click into place?

At this point I’m thinking this is a cool story and an interesting person that’s causing me to reflect on the times I've had my own epiphanies! Very importantly I instantly know how this new business is going to solve a problem for the target market.

At this point in our discussion, you pull out of your pocket a sheet of wrinkled paper and say, “Here’s the idea when I first came up with it while dripping wet from the shower.” I take a look at it an instantly notice that some of the writing is a little blurry from where the ink mixed with the water from your dripping hand.

I now know you’re either crazy or so passionate you don’t want to let your idea out of your sight! Let’s face it, most entrepreneurs are a little nuts as we have this inner burning desire to break new ground and build things where others have said it would be impossible.

If I believe you’re passionate then I’m next going to weigh up whether you’ve done anything since the idea first came to you. In other words, are you capable of getting the big boulder moving up the hill.

I’ve had so many people tell me that they can’t start because they need a whole pile of cash. As soon as I hear this then my mind has exited the conversation. What they’ve just proved is they can’t do anything unless someone else helps them. What am I? Your nanny?

Get a prototype together. I don’t care if it’s been made out of bits of string, lego or a picture on a power point slide. Sell me the dream! Get your phone out and show me what your wrinkled-up piece of paper is all about. I want to see you’ve begun thinking about the problems and how to overcome them.

Get off your backside and begin researching everything you need to make your dream come true. When you think you’ve done everything you can then look again. So many people are dreamers and very few are doers. I’ve even had some people try to convince me that they haven’t taken the idea forward because they were waiting for an investment so they could be paid to develop it further……now I know their nuts!

What you need to appreciate is that I'm time poor because I have no shortage of ideas to develop and projects already on the go. When you’re trying to attract me to your business what you’re saying is your business is so incredible that the returns will far surpass anything else that I’m currently working on

I know this is a really tough to understand, any successful entrepeneur will be in a very similar position to me. Remember the axiom.....if you want something done give it to a busy person. People with lots of time on their hands won't ever get around to what you asked them to do....a busy person knows how to manage their time.

If I end up making the decision to get involved with your venture then I can guarantee that I will put everything I can to get behind it. I have a lot of resources and I want anything I'm involved in to be successful.

In the next article I’m going to go through what you need to do for me after I’m convinced you are passionate and willing to do whatever it will take to get your business going.

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