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Model for Selling a Website Design Business
DXL




msg:3404928
 6:13 am on Jul 26, 2007 (gmt 0)

I've been wondering how people determine the sale price of a web design business, because I don't think it can always apply to the standard model of how we sell websites or other businesses in general.

If I had a site that sold widgets, someone might determine how much revenue is generated in a year, and make an offer of 1-2 times that figure (also weighing in traffic, backlinks, etc). As a designer, however, I charge below the U.S. industry standard for the quality of the work provided. That being the case, someone can buy my company and possibly quote 50-100% more than I already do, and still get business.

I get anywhere from 4-8 emails or phone calls from prospective clients weekly via organic search engine results, no sales staff required, so there's a fairly consistent stream of possible clients. What type of model would be used to determine the value of my business, particularly when I quote less than competitors and rates could be immediately increased after someone acquires the business?

 

Fortune Hunter




msg:3406213
 1:16 pm on Jul 27, 2007 (gmt 0)

DXL:

I have struggled with this question myself, not because I am ready to sell my business, but because I wanted to know what, if any, eventual exit strategy I might have available to me.

The problem I see with selling a business like this is that you are the business. Without you, the portfolio you created, and your talents, what exactly do you "sell" to someone else. It is like a one person law firm that tries to sell itself, but the success of that "firm" is really because of one person's talents and not because of some ongoing asset that someone would be willing to pay for. Now I have heard some people might be willing to pay for your client list, but again, how many of those clients would stay with the new owner if you and your talents aren't providing the service any longer. They may be your because of your talents and expertise and not willing to work with someone else that doesn't have the same ones.

Now assuming you changed your model a little and had an office building (that you owned), developers, ongoing contracts, collected expertise, maintenance contracts, web sites you owned, well respected brand name like, i.e. Bain and Company, and other assets per se then you might have something someone would want to buy.

FH

[edited by: Fortune_Hunter at 1:21 pm (utc) on July 27, 2007]

boomtown123




msg:3406296
 2:30 pm on Jul 27, 2007 (gmt 0)

The very best way to sell a company like this is to transition it to someone in-house. That's where the money is. Either bring someone in and train them to be your replacement or use someone already on your staff.

Bring in a partner and let them slowly buy you out. It works for lawyers, accountants, dentists, doctors, and almost all other service oriented companies.

Fortune Hunter




msg:3406830
 11:40 pm on Jul 27, 2007 (gmt 0)

boomtown123:

Great idea! Do you think this would work for the one person firm as well? I wonder if the one person firm is a little bit different animal. On the one hand many of my clients hire me because I am, well, me. I am not sure they would hire "the firm" if I wasn't there. Now I understand what you are saying about bringing in the person to buy you out and be trained by you, but no matter what that person is still not you and still doesn't have your exact composition of talents and skills.

The other question I would have is that this approach probably takes some time to implement. Time to find train the person and time for them to integrate themselves in the business and eventually time to buy you out. During that time presumably the business is still growing. I am wondering if that person you are hoping would buy you out would start to think they really helped build the business so they are really part owner already. It is not a situation (in most cases) where they were able to come in and simply buy up a ready made business and get rid of you. During the time you are training this person and having them working with clients they are really gaining a stake in the business per se, or at least that is how I might view it. Let me know if your thoughts differ and why.

FH

DXL




msg:3407434
 1:05 am on Jul 29, 2007 (gmt 0)

The very best way to sell a company like this is to transition it to someone in-house. Bring in a partner and let them slowly buy you out.

Sounds like a pretty good suggestion. The catch is that you could still essentially train someone to do what you do, and never have to sell your business. You'd never have to go to work, yet you would continue to generate a good bit of money.

At one time, I worked for a design firm which was bought out by an ISP, but the previous owner stayed on board as supervisor. I don't plan on selling any time soon, but I was also looking at an exit strategy for down the road.

I'm positive that 10 years from now, every phone and hosting company is going to offer custom and optimized sites for a low flat monthly fee. They're already doing it with templated sites that have crude but functional optimization, but I'm positive a time will come when project managers can outsource work overseas and they can still turn a profit. I'd like to get out of this business well before then.

Fortune Hunter




msg:3408166
 12:23 am on Jul 30, 2007 (gmt 0)

I'm positive that 10 years from now, every phone and hosting company is going to offer custom and optimized sites for a low flat monthly fee.

I can see how you arrive at this conclusion, especially since you also have domain registrars also offering templates and you can go to any number of online sites and buy templates, but I am not entirely convinced of your conclusion about this business going away or being totally outsourced because of all these templates and "web site in an hour" services offered by the market.

First, web sites are marketing vehicles plain and simple and marketing with any type of effectiveness takes some brains and some experience. While I believe certain aspects could be outsourced if you had the right people to outsource to I am not sure I agree that is the main trend.

I have tried working with designers overseas before and nothing against their skills, but this presents a huge set of challenges both from a communication stand point and a quality control stand point. I can't imagine how difficult that process would be for someone that doesn't understand web site development to do on their own.

In addition to being a marketing vehicle web sites are also part of a creative process that if done correctly should reflect the brand and marketing of a company. That can be very difficult for a template to copy. If outsourcing all creative work were really that easy all advertising agencies would cease to exist and all the work would go to India or some other country. I believe that hasn't happened for many reasons, reasons that aren't going away in the next 10 years.

Bringing this full circle to the beginning of the thread is why I am half agree with the poster above about being able to bring in someone else and train that person to be you and eventually buy you out. On the surface it sounds like it would work, but I am a little skeptical that someone could be replaced through training when their offering is so creative in nature.

I guess time will tell if either of us is correct.

[edited by: Fortune_Hunter at 12:23 am (utc) on July 30, 2007]

Lorel




msg:3413934
 3:31 am on Aug 5, 2007 (gmt 0)

I have found it hard enough to find someone that I trust to refer jobs to, let alone as a possible replacement for myself (far into the future) and unless I do my business would degenerate into nothingness unless the person is as skilled as myself.

I'm positive that 10 years from now, every phone and hosting company is going to offer custom and optimized sites for a low flat monthly fee. They're already doing it with templated sites that have crude but functional optimization,....

I wouldn't worry about template driven sites. That's where I get most of my redesign business because most of them are litterally crippled due to bad template design--major keywords in images, javascript or image map links, and other serious technical problems preventing good indexing let alone duplicate titles and descriptions.

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