Web Entrepreneur -

Harvesting the Value of Your Site

§If you are a web entrepreneur, and you've invested the brutally long hours and intense work, not to mention committing all your funds, to produce a web site that now has traffic, products and income, you eventually want to reap the rewards of all that work and effort. Harvesting the value of your investment is not an easy task, particularly for a website and it definitely requires a plan.

Brutal Climate for Dot Com Sales

The first thing you should recognize is, when you set out to realize value for your web site, you are entering a very punishing market. Since the April dot com bubble burst, a Darwinian selection process has taken place and the Web is seeing "the survival of the fittest", with the landscape littered with decapitated bodies of those who failed to make the cut. In place of "fittest" read "profitable" or " soon to be profitable." Bloated ambitions and budgets, in this market, are a certain death wish.

Are You Profitable?

If you own a web site which is not yet profitable or can not make a convincing case for profitability in the next 12 months, you are facing a very uncertain future. Venture capitalists are trimming their holdings, shoring up a handful of their most promising Net companies, but allowing the vast majority of unprofitable start-ups to run out of funds and fire power, without a cash infusion, promised or not. Venture capitalists or companies who are buying are being "very aggressive" in their acquisition strategy. In other words, they are paying peanuts, often not even 5% of a pre- April valuation for Web companies who are desperate to bail out before they run out of cash.

This, after all, can be considered more generous than letting a company bottom out and plucking it out of bankruptcy court for even less.

Clearly, this turn of events is disheartening, if you are the owner, founder, major share holder or option holder of a web company. However, you must not let it defeat you. The Web is about change. The stock market is about change. This, too, will change. But in the meantime, you must develop a sound strategy, which fits the current mood of the market, and start executing on it.

The very first thing you must do, if you are not profitable now, is move toward profitability, as fast as you possibly can. Change your business model, if necessary. You will almost certainly have to modify it.

Steve O'Leary, a managing director at Broadview, and one of the most active mergers-and-acquisitions advisers in the information technology industry says "The companies that are in the best position to sell themselves successfully are those that hold "a No. 1 or near No. 1 position in a niche that matters," They also are generally companies that have "fee-based services and possess a real value proposition and market opportunity."

Re-invent yourself and what you sell. It's very possible you can sell a service you've perfected to other Web businesses. Take a hard look at what you offer which has the most value to businesses on the web who need what you offer and have a demonstrated ability to pay for services. ( Big businesses with deep pockets.)

Take a long look yourself, listen to your gut and go for what you do best - your core competency. Ditch the rest. Simplify, hone down. Hold on to the best and brightest of your team, because you'll need a team to be able to harvest value. Slash costs. And come up with a profitable plan. If it doesn't even look profitable on paper, there's not much chance it will be profitable in reality.

Reasons for the Harvest

Entrepreneurs, not just on the Net, but in any business, are generally "asset rich and cash poor". For one thing, entrepreneurs like to start businesses and growth costs money and drains cash. By the time a business has matured, the entrepreneur has gotten bored and is long gone. If you are an entrepreneur, you need to focus on a harvest, for yourself, which can make your company independent of you, and visa versa, and is no more than 12 to 24 months away.

Paths to A Harvest

There are several paths to "unlocking liquidity, reducing risks, and creating other options for your company." There are also other considerations, such as seeing that your company continues or that your key employees retain their jobs. Only you can decide what your priorities are.

The basic methods for harvesting your business include: "liquidating the assets of the company ( perhaps leasing them back); tapping its borrowing capacity; selling the company as a going concern or establishing a public market for its stock through an initial public offering.

Downside of IPOs

Although many companies envision going the IPO route, few companies actually do. And those that do often come to have regrets about its expense, arduous nature, and the time and business focus it drains from running the business, which must, after all, be moving toward greater profitability for the IPO, ultimately, to be successful.

Other downsides of the IPO:

• The entrepreneur is no longer the decision maker. Power shifts to the investment banker and then to the market itself.
• The IPO is the beginning not the end. " The firm must be at the beginning of a sustainable growth phase in its business life cycle and the entrepreneur should not plan on retiring anytime soon." The demands of public disclosure, investor relations and various regulatory agencies are not a happy experience for many entrepreneurs,, whose basic thrust, the reason they became entrepreneurs to begin with, is for independence and "calling their own shots".
• There will not be closure with the company for a long time. Because of the perceptions of the market --- when a founder sells the company stock often takes a nose dive ’ it could be many years before you can realize the value of your company through an IPO.

Sale As An Ongoing Business

As a dot com, the most realistic route may be selling your company as a going concern. Within this framework, there are several alternatives, including selling to a buyer based on expectations of future cash flows alone, or selling to managers or employees in your company who wish to continue their careers with the company and increase its value.

Strategic Acquisition

Without doubt, however, your highest valuation and most attractive price, from selling as a going concern, would come from a strategic investor, a company in the same or a related business who envisions synergies, such as the acquisition of your customer list, key demographic, or specialized expertise, which would increase the value or profitability of its firm.

It is never too early to start making a list of potential buyers. These can be competitors but also customers or suppliers, integrating forward or backward. If you analyze buyers needs, you can guide your company so it becomes even more attractive for a buyer's portfolio. You can build out those segments which would give it the most synergy with potential buyers product lines.

What You Will Gain

Selling your company will allow it to realize it's full potential, to live out its business life cycle, independent of your personal needs. It will also allow you the financial security, flexibility and ease to pursue your own interests, independent of the constant requirements of a growing company.

In short, a good sale, and, particularly, one which frees you completely will allow you to start another business, if you are in that phase of your life; spend only part of your time on business, if you choose; play with your grandchildren, start a second career as a cellist, or simply go fly fishing whenever you please.