One of the things that every online entrepreneur needs to think about is profit re-investment. How much of your profit do you re-invest? What types of re-investment do you make? How much cash do you keep on hand, uninvested?
The plain fact is that the most successful businesses are the ones that use their money to make more money. So how do you use your money to make more money? Here are some tips for that I’ve found effective. Just remember that I’m coming from the bootstrapping method for starting a business, and these may only apply to that method. What’s bootstrapping? Well, it’s all about building equity with lots of sweat and hard work, motivated by nothing but the promise of future rewards.
But to move beyond bootstrapping, you need to have a plan to put profits to work, and to expand operations beyond your own limited efforts. Here are five ways to effectively re-invest your profits into your online business.
1. Purchase Assets for Leverage
Let’s say that you’ve started a blog that focuses on “Green Homes” and that you’re making $3/day after 6 months of hard work. A next step might be to go out looking to buy an established website in a related niche. Maybe your initial blog is all about planning to build a brand new “green home” – you might try to find a couple additional sites to compliment and reinforce your current site. For example, “Green Home House Plans” or “Building a Home from Scratch” or “The Economics of an Energy Independent Home” or “Green Retrofitting” or even “Finding Cheap Land in the United States” – Assuming that the new site has been around more than 12 months, it’s definitely worth looking at for acquisition.
Buying established sites to help reinforce your new blog can pay huge dividends and start you on your way towards niche domination.
2. Pay Writers/Bloggers
Around January of this year I learned that my business receives a lot more value from my effort when I limit the time I spend writing. Successful entrepreneurs should spend most of their time strategizing and executing plans behind the scenes. Full time blogging is exhausting and often frustrating. Contract out your writing needs to experts in the field in which you need writing done. The best place to look, in my opinion, is not to full time bloggers, but rather to people who have never blogged before! Sounds weird, but probloggers take shortcuts that diminish the value and passion factor of the content. A search on Craigslist can net you someone who loves the topic so much they’re not really in it for the money.
3. Find a good SEO
The fact is that in today’s search engine world, you need your site to be perceived as an authority on its topic. You can make a lot of progress simply by buying older, more established sites and then linking into your newer sites, but, for better or worse, that is no longer sufficient. You need dozens, if not hundreds, of content level links from other reputable and relevant websites.
But beware: Not just any link will do. Some SEO can have negative affects. Especially if your SEO just tosses up run of the site links. Your SEO should know what it takes to turn an average site into an authoritative site. So the most important thing you can do is have your SEO discuss his or her philosophy, and determine whether it is thoughtful and strategical.
4. Diversify Your Investments
When you start making 4-5 figures per month, it’s time to diversify your revenue sources. Even if you don’t have what it takes to start an online store, consider looking for website owners or bloggers who are looking for investments. I put a post up over at Performancing announcing my interest and receive at least one inquiry every month, several of which panned out.
What many people don’t understand is that when you invest, you are letting your money do most of the work, instead of you. So put your money to work in as many profitable places as you can for ultimate diversification. Lately, I’ve been investing most of my money to help bring offline businesses online. But I’m not the one bringing them online. I’m letting others do that for me. My investment is simply an attempt to expedite business growth and to move it beyond the bootstrapping phase.
5. Become part of an investment group
Now more than ever, success on the web directly reflects a site’s perceived authority. Most young entrepreneurs don’t have the financing available to gain the leverage and exposure they need to dominate a niche. That’s where the idea of an investment group comes in. Pool your money together with other likeminded entrepreneurs, setup a corporate structure that allows for share-based ownership, and then execute the first four steps that I’ve listed above, only this time as a group of shareholders with equivalent interests in seeing success.
Creating strong, authority websites can be accomplished more easily and effectively from within the context of an investment group then by a single individual trying to bootstrap her way to success. But becoming part of an investment group is only possible once you’ve bootstrapped yourself into a position of having significant cash on hand to invest.
So those are five ways to reinvest money for your online business. To end, I’d like to ask question of the College Startup readership: how much profit do you re-invest in your company and how much do you pull out as salary?