By Cliff Ennico
“I have been laid off for over a year now and have decided it’s time to start a business of my own.
I recently came across a business broker that specializes in buying and selling Web-based businesses. Basically, they represent companies and individuals who have built traffic on a Website. You buy the domain name and the Web content and continue growing the business. The seller receives an upfront payment plus royalties from the Website’s sales for a period of one year.
I don’t have a lot of Internet marketing experience but feel I can learn as I go once I buy the Website. What do you think of this idea?”
Frankly, I’m not wild about it, at least for someone like you. Here are some things to think about before you dip into your retirement funds.
Watch Out for “Link Farms.” There are lots of people, especially overseas, who create websites with great domain names and then populate them with links to third-party content. Lots and lots of links. They do this in order to grow the website’s rankings on Google and other search engines.
Back in the 1990s, we referred to such websites as “link farms.”
As when buying any business, you should examine the website’s content carefully and ask the seller lots of questions about where the content came from. If there isn’t a lot of proprietary content on the website (content the seller has developed itself or licenses from third parties under long-term licenses), I would walk away. Sooner or later, the search engines pick up on “link farms” and drop their rankings into the lower depths, leaving you with the task of building them up again.
Make Sure You’re Buying the Entire Package. There are two pieces to a website: the domain name and the hosting contract. You need both pieces in order to acquire an existing Web-based business, yet many brokers in this field transfer only the domain name. While that’s important, a killer domain name won’t help you if the Web host, not having been informed of the transfer, shuts down the site months later because it did not receive its annual renewal fee.
If the domain name registrar and the Web hosting service are one and the same (for example, Godaddy.com provides both services to Web entrepreneurs), it’s fairly simple to transfer both relationships. If, however, as is common, the domain name registrar and the Web host are two different companies, you will have to work with each company to make sure their “puzzle piece” is transferred into your name.
What I usually recommend to my clients is that they set up accounts at both the seller’s domain name registrar and Web hosting service. It’s always easier to get their co-operation if they see they are not losing the account. You can always change them later once the dust settles.
Make Sure All Content is Assignable. If the seller licenses content from other people, you and your lawyer should review the licenses carefully to make sure they don’t terminate upon a transfer of the website, or require the owner’s consent to the transfer. Many content licenses do (I personally insist on such a provision when I license my content to a website).
If a key traffic driver to the website is a particular piece of content, make 100 percent sure that content doesn’t disappear when you take over.
Make Sure You Can Grow the Business. It worries me – a lot – that you don’t have Internet marketing experience, particularly in the area search engine optimization (SEO). The seller will agree to hang around for a couple of months to help you transition the business (after all, if they don’t and you drive the business down the sewer, they won’t get their royalty payments).
But once that limited period has passed, you can be sure the seller won’t return your e-mails (unless you miss a payment).
Before buying this business, I would consider partnering with someone who knows how to maintain the website’s performance and search engine ranking. Yes, you will have to share the profits with her, but she will also pick up some of the costs, enabling you (perhaps) to buy additional sites.
Make Sure the Seller Can’t Compete With You. A Web-based business operates everywhere, regardless of geography. A noncompete agreement that says the seller will not compete with you “within the State of X” or even “within the United States of America” won’t be good enough. You need one that says the seller will not operate a directly competing Web-based business anywhere in the world for at least three years.
You will need a lawyer’s help here. Because you are locking the seller out of the website business completely, you should be sure to define the business carefully enough that (1) the seller can continue to operate (and sell) other related websites, and (2) a court won’t strike down the noncompete as overly broad.
Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.