Why would you sell off a successful business?
Why would someone sell a website that is generating income? This question has come up a lot lately.
At one point I had a website that was producing regular income for me that was fairly steady. Someone offered me a large lump some of money (wealth) in exchange for that income producing asset. I decided at the time to make the trade. I sold the income producing website in exchange for a large chunk of money.
So the question today is: Which would you rather have? Income or wealth?
I guess before we can really answer that we have to break down our definitions a bit. There are going to be some assumptions made here, and of course the devil is always in the details.
One scenario is that you have a website that is producing regular traffic and thus income from that traffic. Maybe you are making, say, $1,000 month in fairly steady income from such a website. In all truth that income will likely fluctuate up and down a bit, and you will never see 12 months in a row where the income is exactly $1,000/month. It will go up and down with changes in your traffic level.
In the very long run, I suspect that most content based websites are also at the mercy of Google algorithm updates. This is especially true if you rely on search engine traffic for your “passive” income. If you do not rely on search engine traffic, then whatever traffic you generate is going to be even less “passive” than search engine traffic.
So there is almost like this trap involved: the more passive you want your Internet income to be, the more it will be at the whims of Google and their finicky search engine updates. You may get extremely lucky and never get dinged at all or take a hit to your traffic, but this would be fairly rare if the majority of your traffic comes from search. In the long run, nearly everyone experiences some fluctuations, even if they do not suffer a penalty.
So let’s define “wealth” and “business income” by their advantages and disadvantages:
Advantages of business income: The main advantage of keeping control of your business is that you can scale it up and make more money and generate a higher monthly income. If you are earning $1,000/month from your website and you want to be earning $2,000/month instead, then you know what you need to do (basically). You need to double the size of your website while maintaining quality and possibly earning yourself a bit more incoming link juice as well. The formula is pretty simple really. Scale it up through hard work and additional effort. The income ceiling on this approach is pretty much limitless. If you want to you can always expand into another website, another niche, etc. There is always a way to scale up your income further, provided you want to put in the work (and thus accept the risks).
Disadvantages of business income: The main disadvantage in my opinion is two fold: One is that you are really working a job, especially if you are attempting to increase income. Two is that you are at the whims of Google and the fluctuations of traffic and also potential penalties down the road. As many content publishers now, all of their success can be instantly swept away for no apparent reason. Just ask the “ask a builder” guy who used to be an AdSense case study. Google trashed his site after highlighting him as being an example of AdSense done right. No one is entirely safe from this sort of thing.
Advantages of wealth: Now the alternative to having business income would be to liquidate the business for a large chunk of money. This is what I am loosely calling “wealth” for the purposes of our discussion.
In this case, the advantage is that you can bank the money or safely invest it in order to get a small return. If you have a large sum of money then that “small return” may actually be large enough to cover your living expenses (provided you practice a bit of frugality!). In such a case you have purchased your financial freedom and your time becomes 100 percent your own. If you achieve this state of being through the sale of a website (like I did) then you can always go on to start another website at some point and chase success through some other avenue.
One advantage of having wealth like this is that your income from it can be more stable than business income. Now if you take your money and put into 100 percent stocks you are going to be in for a wild ride and there are no guarantees of course. One the other hand it is a fairly trivial matter to go invest the money much more safely and conservatively in order to milk out about 4 percent or so on the money. Thus you can live on your passive earnings (or come very close to living on them) without risking any of the principle. If you want to be rich and buy lots of toys and expand your lifestyle then you might be better off pursuing business income and involving more risk. The advantage of wealth and conservative investing like this is that you preserve your wealth, live a frugal lifestyle, and keep your time freedom while also keeping your options open in the future. Freedom and leisure are the true benefits that you gain from wealth. Note that this does not mean you are rich!
Disadvantages of wealth: The main disadvantage of going this route is that you are not free to spend money like you are rich, nor is it easy to scale your income up further. Because you are being safe with your investments that means that you would not risk large amounts of it in order to have a big win on future income streams. If you are not willing to take big risks with your money then there is no chance to scale it up in a massive way. That can only happen if you are willing to invest large amounts of it into things that carry some degree of risk with them. Of course you can minimize such risks if you are willing to invest large amounts of your money AND put in a ton of extra work in order to mitigate the risks. But this is not a passive solution and it is certainly nowhere near the idea of putting your money into an income based portfolio to squeeze out a steady 4 to 5 percent.
Why I sold my website
At one time I believed that I wanted to hit a home run…..I thought that I would take my successful business and parlay that into bigger projects with more earning potential.
I found out that I was wrong.
Instead, what happened is that I saw an escape route. I caught a clear glimpse of it by reading this book and then getting lucky enough to sell my existing business for a large sum of money.
There is a mental cost in the fluctuations of online income. I thought that I was immune to those ups and downs but I learned otherwise. It takes a great deal of faith and discipline to keep going through the downturns without losing your momentum.
This is why someone *might* sell their successful business for a big lump of cash. The reasons are summarized like this:
1) You gain freedom from the business and no longer have to work (possibly, depends on your frugality level and how much money you sell for).
2) You transfer your money into a more stable form of income generation (paper assets, very conservative, shooting for 4 or 5 percent return is all…not gambling with the money).
3) With a modest frugality effort you then free up your time to do whatever you like, including the possibility of building another business nearly risk free (investing your time instead of your capital).
What would you do with a website earning $1,000/month? How much would you sell it for? What if it was earning $2,250/month instead? How much would you sell it for then? What if the website income fluctuated a great deal as well, dropping as much as 50% during some months? It is very difficult to predict how a person would react to a 50% loss of income, especially when they have no control over it…..