"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 business brokers who specialize in buying and selling web-based businesses. 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 sales for one year.
I don't have a lot of internet marketing experience, but I 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 go forward with this.
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 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 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 or licenses from third parties), I would walk away. Sooner or later the search engines pick up on link farms and drop the website's 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 three pieces to a website: the domain name, the content and the hosting contract. You need all three 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, having not been informed of the transfer, shuts down the site months later because of not receiving the annual renewal fee.
If the domain-name registrar and the web-hosting service are one and the same (for example, GoDaddy provides both services to web entrepreneurs), it's fairly simple to transfer both relationships. If, however, they are two different companies, you will have to work with each company to make sure the puzzle pieces are transferred into your name.
You should consider setting up accounts at the seller's domain-name registrar and web-hosting service. It's always easier to get their cooperation if they see they are not losing the account. And 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 transfer of the website or require the owner's consent for the transfer, for many do. (I personally insist on such a provision whenever I license my content to a website.)
If a key website-traffic driver is a particular piece of content, be 100 percent sure that the content won'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 search engine optimization, or 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 drain, they won't get their royalty payments). But once that limited period has passed, you can be sure the seller won't return your emails (unless you miss a payment). And too many website owners sell their businesses right before a major technological change, such as an update to Google search algorithms, commonly known as a "Google Dance," which will drive the site search-engine rankings down dramatically unless you respond to them quickly.
Before buying this business, I would consider partnering with someone who knows how to maintain the website performance and search-engine rankings. Yes, you will have to share the profits with that person, but he or 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 that 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, be sure to define the business carefully enough that the seller can continue to operate (and sell) other related websites and a court won't strike down the noncompete as being overly broad.
Cliff Ennico ([email protected]) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.