Acquiring Leverage: Are You In It For the Long Haul?

October 3rd, 20064 Comments

I think the single biggest mistake that new web entrepreneurs make is the pursuit of immediate income.

This is understandable, because the web lures us with the sweet seduction of free money. Passive income. No work, all play.

But let me give you a tip that will save you a lot of letdown: most people are not going to make a lot of free money from the the very beginning. If you do, you’ve either got an unusually good product or an unusually good marketing firm.

But the fact is that you don’t have to “hit it big from the get-go” to be successful on the web. Instead, always aim for steady growth and pursue goals that are 3-5 years down the road. Don’t be surprised if you don’t make a lot of money in the first 6-12 months. In the beginning, measure your progress by tangible statistics. Ask yourself: Are my unique visitors per day growing at a steady clip? Am I honing my product to meet my customer’s demands? Are the total assets in my business growing both in quantity and quality?

This last question gets at the heart of the this article. Because, if you’re really into pursuing entrepreneurship on the web for the long haul, your primary goal at the beginning should be all about acquring leverage.

What exactly is leverage on the web?

Leverage is effective resource. On the web, effective resources are things like email subscriptions, backlinks, customer base, search engine authority and unique visitors.

For example, an established website with PR 6, great content, and a diverse set of thousands of backlinks is most probably a trusted authority on the web. This site would give you great leverage for negotiating deals with other online entrepreneurs, selling text links, developing a product to sell (an instant customer base!), and even launching a brand new website.

On the other hand, a brand new site needs to develop its authority over time. It may have potential leverage, but the leverage is not realized. You can expedite its growth but using other resources that you have (e.g. other websites or friends’ websites). By expediting the growth of a new site, you can turn it into new leverage more quickly, and in turn use it to acheive your goals.

There’s a snowball effect here. The more leverage you acquire, the faster you can realize your goals.

How do you acquire leverage?

Acquiring leverage on the web involves many things, but the simplest analogy that I can think of is to the acquisition of resources in RTS games like Warcraft or Empire Earth. At the beginning of the game, what do you focus on? Well, if you’re smart, you focus on putting the infrastructure in place for success down the road.

In Real Time Strategy games, you spend the early stages acquiring money to build suitable defenses and an army. You acquire food to build your population and grow your army. You acquire wood and steel to build buildings, labratories and universities in order to do things more powerful down the road.

The same goes for building a web empire. The early stages shouldn’t be focused purely on income. This is missing the forrest for the trees. Rather, you should start out by focusing on ways to put the infrastructure in place that will make you as strong as possible 3-5 years down the road.

So what should you do?

First and foremost, you should always make decisions with an eye towards the future. Too many people on the web are stuck in the immediate moment. Think about what you want to acheive down the road, and how you’re going to do it.

If you’re goal is to build a large network of content oriented websites, then the worst thing you could do is put in all the work up front to develop the site, and then get disappointed when in 6 months you’re not making as much as you’d like. Keep in mind that a lot of the value in a website is *potential* value, value that will be realized increasingly over time. Selling a site off before it’s reached its full potential may be the biggest mistake that new web entrepreneurs make.

Building leverage is a lot like building equity in a home. Some people make money by flipping real estate. But lots of people make money simply by living in their home over time. Flipping real estate takes a lot of work and is a whole lot more risky. It requires timing the market properly (buying in valleys and selling at peaks) and can often result in either actual loss (the market goes down after purchase rather than up) or theoretical loss (if you had just held on for 2 more months you would have made double). Some people have the skills, some people don’t.

But letting your home build equity while you live in it is fairly easy, and it lets you take advantage of the fact that homes appreciate in value. Eventually, when you go to sell your home, you’ll be able to use it as leverage to buy an even better home.

A General Algorithm For Building Leverage

1. Build a new site in your micro-niche
2. Buy an established, profitable website
3. Leverage the established site to expedite the growth of the new site
4. Use 70% of the revenue from the profitable site for leverage building (buy new sites, develop content, etc.)
5. Keep 30% of the revenue for income. Enjoy.

It should be noted that the rules I’ve discussed are not absolute. If you get an incredible offer for one of your sites and are positive that the buyer is paying way too much, sell the site and use the income as leverage to build out your network even further. In other words, if you can “trade up” then do it.

Also, if you notice that your websitse are not growing, but have either plateaued or started a decline, it may be time to start contemplating a sale. Steady growth (both in traffic and content) should be a primary indicator for whether to hold or sell your site.

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Acquiring Leverage: Are You In It For the Long Haul?

Patrik | October 6, 2006

I knew that all those hours playing heroes of might and magic would pay off some day! Thanks for the comparison between running a web business and playing a RTS game:)

[...] The OneBig StartUp package includes everything you need to run a low-maintenance, profitable Web 2.0 niche content website, gain PageRank and build traffic by becoming part of the OneBig Network. In other words, it is a great way to gain leverage and make a modest profit at the same time (exactly what you need when you’re just getting started). [...]

HART (1-800-HART) | October 23, 2006

Hey Ryan. Nice article .. in fact I’ve been enjoying them.

If I were making money .. I’d probably reduce that 70% down to 50%, still enjoy and spend the 30% for me-me-me .. and hide 20% somewhere in a savings account or remit as an instalment on my personal income taxes (or arrears)

[...] A few months ago we announced an easy way for you to get started with an online presence and to acquire online leverage (which is critical at the beginning) via the One Big Startup Package. [...]

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Acquiring Leverage: Are You In It For the Long Haul? was written by Ryan on October 3rd, 2006 at 9:16 am and posted in Blog Networks, Content, Flipping websites, Monetize

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