6 Reasons Why Entrepreneurs Sell Profitable Businesses

When potential buyers inquire about one of the online businesses we represent they will often ask a question related to why it is being offered for sale when it is turning a regular profit. Some examples of the common questions we often receive include:

“What’s the catch…there HAS to be a catch, so what is it?”

“Why in the world would they be selling it when it is continuously producing a profit month after month?

“Who sells a profitable website?”

Sure, there is always going to be speculation and questions, as well as dubious sales, hence one of the reasons we perform such in-depth due diligence prior to ever accepting to represent a sale. Our internal due diligence program is in place to eliminate websites that aren't 100% transparent with all aspects of their website, including income, expenses, and net profit numbers.

With that being said, there are still going to be potential buyers that don’t understand or comprehend why someone would sell an online asset that is profitable. Some wonder why the individual wouldn't just leave the website on auto-pilot and collect the money every month. Unfortunately, it isn't quite that easy.

To be frank, when a website is reaching the peak of its profitablity is THE BEST time to sell it!

Let’s use some common sense logic for a moment and discuss six reasons why profitable websites are put up for sale. The majority of website sales are typically related to one of the following circumstances.

1. Growth Hits a Plateau

There are many reasons why the growth of a website can taper off and remain stagnant. First, many websites are started by an individual or a very small team and at some point the growth will be limited by their ability to keep up. This isn’t to say that they are doing a bad job, but there are only so many hats one individual can wear and only so many hours in the day.

Think about some of the largest websites out there that you visit on a daily basis. They have ENTIRE departments dedicated to every segment of the business. There are marketing divisions, content divisions, SEO divisions, sales teams, full-time designers, etc. In the beginning it is easier to handle multiple tasks, but as the website grows and becomes more successful it turns into a juggling act attempting to handle all of the tasks.

Often times the website owner is so proud of his or her business that they don't want to compromise the quality and risk outsourcing to try to achieve growth, so they take it as far as they can on their own and then entertain exit options when the growth hits a plateau.

Know what? There is NOTHING wrong with this!

Businesses need to constantly grow in order to remain successful, and intelligent business owners are fully aware of this. So, when someone that has a profitable website notices that the growth isn't going to go any further under their leadership they have two choices. They can either hand the asset over (sell) to someone that is fully equipped to continue to grow the business, or they can keep doing what they are doing and risk the business collapsing due to not growing.

There is a very limited window of time to successfully exit a business. Delaying or deciding to “ride it out” can lead to a complete disaster, leaving the business owner with nothing but a failed website.

Imagine you had a website that was producing $10,000 in monthly revenue but you have hit a wall. You have limited resources and the business will never grow more. Looking in your rear view mirror, you can see several competitors gaining ground because your growth has hit a plateau. They have caught up to you and could possibly overtake your market share FAST. There are two options at this point:

A) Sell. What if you were offered $240,000 for the business from an equity group or a larger company that had the resources to continue the growth, and in doing so they are able to pull away form those competitors that were creeping up because of your stalled growth.

B) Ride it out. If you pick this option there is a good chance that the competition will catch up and pass you, and in doing so they take a large percentage of that monthly revenue away from your business. Now your business is worth considerable less money than it was before, and the monthly revenue will most likely continue to drop each passing month.

When you evaluate the potential risk you will see that selling a profitable website when the growth is limited due to resources, it makes perfect sense as to why the owner would seek to sell it.

Successful business owners sense that window of opportunity and quickly sell before it has a chance to close.

2. Serial Entrepreneurs Always Start New Ventures

What do you think the number one reason is that makes a serial entrepreneur successful?

Timing!

There is a reason that some entrepreneurs always seem to come out with winners, and it all comes down to timing. When they get an idea or concept in their head they act on it right away. Any slight delay could mean that someone else will beat them to the punch.

Several entrepreneurs have AMAZING ideas but aren’t able to get their project off the ground for one main reason, and that is THEY LACK THE FUNDING! Start-up capital is the biggest hurdle to overcome when trying to get a new idea off the ground.

- Traditional lending has so many requirements, such as business plans, P&L projections, financials of all involved, and suitable assets to back the funding

- Raising capital can be a lengthy process and it can also require the entrepreneur to give up a sizeable percentage of equity for the funding

A serial entrepreneur is always looking ahead to the next project. It is in their blood and they often have very little interest in continuing to grow a business once it has been brought to profit and the beginning growth stages.

Selling a profitable business or website so they can roll the money into their next venture is much more appealing than taking out a bank loan and going into debt or giving up a substantial percentage of their idea for start-up capital.

Starting debt free and retaining 100% ownership is the ideal situation.

Why?

Because it allows them to quickly sell when the new project becomes profitable or when the right exit opportunity comes along. Without loans or board members in the way it gives the owner complete freedom to do what he or she sees fit.

Also, often times business loans and funding will be distributed in tranches, which can slow down the launch. Let’s assume the entrepreneur wanted to start another website. He or she would need designers, programmers, marketing, etc. Having the luxury to cover all expenses immediately helps to get the project off the ground and to market faster, which is often the difference between success and being a little late to the party. Selling profitable websites gives these serial entrepreneurs instant access to all of the resources necessary to start their next venture.

Create something, sell it, make it better, sell it some more and then create something that obsoletes what you used to make. – Guy Kawasaki

3. Started as a Hobby

There are many successful blogs and websites that have been purchased by large media groups after they were started as a hobby. They were profitable and growing, but sometimes it is hard to pass up on a sale if the numbers make sense financially.

TechCrunch was started in 2005 by corporate attorney turned blogger Michael Arrington, and quickly grew into a very popular website. It was eventually sold to AOL for what was believed to be about $25 million. At the time of the sale the website was trending to do approximately $3.5 million in profit yearly.

Deadline Hollywood was started by Nikki Finke, who wrote a successful column in the LA weekly, until she decided to turn it into a blog in 2006. It became very popular and in 2009 the Mail Media Corporation purchased the site from her for $14 million. It was then changed to deadline.com once the sale was complete.

These are both great examples of blogs that were started by one individual as more or less a hobby and then spun into a business that began experiencing a significant amount of growth.

Sure, both business owners could have continued to run the websites on their own and continued to do very well financially, but the “buy out” figures were so lucrative that it made financial sense to sell. Also, both websites sold as they were experiencing huge growth, allowing the sellers to net a very attractive payday.

While TechCrunch and Deadline are now both major revenue producers, it was the media outlets behind the purchases that were able to apply endless resources and talent to both web properties and grow them into the successes that they are today.

4. Need Money for Various Reasons

Sometimes life gives you lemons and emergencies pop up that require money to rectify. Even the most successful business owners and entrepreneurs can potentially have to face adversity, and what is one thing that helps solve problems?

MONEY!

There are so many potential situations that could require someone to liquidate all businesses and web properties, making a profitable and very solid website available for sale.

The owner could have a medical emergency, another business venture could be going belly-up and they need the money to invest into saving it, or they could be one of the serial entrepreneurs we just talked about above. These are all common occurrences and a large percentage of businesses are sold because the owner simply needs money. This happens with every industry, not just websites.

Divorces, legal troubles, and even foreclosure troubles have all caused business owners to sell profitable businesses in the past and it is something that will always occur.

These reasons are not always publicly disclosed by the sellers. This is where the due diligence and expertise from a professional website brokerage comes into play, as it can help to uncover the true reason behind a sale and ensure that everything “makes sense” when it comes to the big picture of the sale.

5. Professional Flippers Utilizing a Veteran Approach

A large percentage of online businesses and websites are created with an exit strategy already in place. This is done by entrepreneurs that are professional website flippers and they begin each project knowing that they are going to sell the business.

There are two types of entrepreneurs. Those that like creating and building businesses, and those that like to run them. This particular group we are discussing falls into the first category. They live to create and then unload, in order to move onto the next project.

It is a continuous cycle.

Build. Flip. Repeat.

Often times a website is being sold based on income, either from a product sales, affiliate sales, or advertising revenue over a specific period of time. As a rule of thumb, most sales will have a minimum of 12 months worth of financials as well as other supporting documentation such as traffic stats. Some professional flippers will create websites and build them into revenue producing assets and immediately sell them after a year and some will continue to build the asset without a predefined exit date.

There is no right or wrong way to approach this. Each website is a unique business and some will also include exclusive technology, trade secrets, and supplier/vendor resources that are difficult to assign a value to. Again, just another example of why it is so important to work with an experienced brokerage to use their experience to value all assets (usually intangible) of the business.

Building a website to sell requires a lot of work that isn’t shown on the financials prior to a sale. There is a certain level of creativity, logistics, and execution that is required to build a profitable business. This is something that not everyone possesses, and those that do are able to constantly create, build, and sell successful websites.

The successful flippers constantly invest in areas of their websites that contribute to the cash flow of the business, traffic to the site, and distancing it from the competition. When all of this is done correctly is can result in a nice profitable sale, and the funds to roll into the next project.

6. No More Interest

Burnout and boredom can exist in any business, especially after pouring all effort into something for so long! Every successful business started off as a vision and dream, and after long hours and endless devotion it comes to life and begins to turn a nice profit. Sometimes even profit and exploding revenue isn't enough to hold the owners interest.

They go from putting in 80 hour work weeks to build the business to all of the sudden…

At this point it is in their BEST interest to sell the website. If their interest level is low, that can result in less work being done on the website. Less content creation, link building, maintenance, etc. is not good and it can spell the beginning of the end. Not giving it 100% can result in decreased sales, ad revenue, and traffic.

Just because a website is making a profit doesn’t mean it can be ignored. Doing so will start a slow death process, eventually crumbling the once promising (and valuable) asset. So, smart business owners will immediately know it is time to sell when they lose the passion and drive they once had for the website.

This allows them to move onto something new, while at the same time getting top dollar for their business. Selling it before it is neglected also ensures the health of the website is not impacted, which is important for the new owner and operator.

Conclusion

As you can see, there are several valid and perfectly logical reasons why someone would be selling a website that is currently profitable. Positive cash flow, high traffic numbers, and attractive advertising revenue shouldn’t immediately cause red flags to wave.

At FE International we take pride in the fact that we conduct extensive due diligence prior to agreeing to represent any sale. We do all of the tedious legwork and research to ensure that all representations and claims are in fact 100% as stated. Our commitment to excellence is one of the several reasons that we have several repeat buyers that come to us any time they are in the market to acquire a new web-based asset.

Have you every sold a profitable website or know somebody that has? Share your experience and insight in the comments below and let us know what you think some other reasons to sell profitable websites are. We would love to hear from you!

Author's Note: Whilst we specialise in the sale of online businesses, the same factors will apply to owners of businesses in other sectors, too.

Resources linked:

http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/digital-media/8031656/TechCrunch-founder-Michael-Arrington-scoops-fortune-from-sale-to-AOL.html

http://articles.latimes.com/2009/jun/24/business/fi-ct-deadline24