Don't Back The Wrong Horse

I really didn’t know how to react to him.

He was so passionate about his online business, and I knew how much time and money they had already invested in the process. However, from where I was sitting he was, and still is, chasing a mirage.

Now this guy is not stupid. He’s a very sharp, talented guy who just possibly could make this online business work. However, even though I really like the guy, if I could find a bookie to run the wager I’d be putting large bills down on it being a commercial failure.

I say COMMERCIAL failure intentionally. I’m not saying he’s a failure, or that he won’t be learning a lot in the process. Perhaps out of it, opportunity will spring forth and he’ll succeed. However, given that he’s doing this to make money (hopefully lots of it he tells me), I think he’s on a pathway of pain.

The interesting thing is that he’s got all the traits that the experts tell him he needs for success.

He’s:

A) Smart.
B) Passionate.
C) A hard worker.
D) Determined.

That’s great. However, in my opinion he doesn’t have the most important key to success.

He doesn’t have a good business model in a market of hungry buyers.

In my mind, without that, you’re up the creek without a paddle and destined for disappointment.

That’s what most experts fail to disclose enough. Particularly social media experts. Without a good business model in a market of hungry buyers, you are finished before you start.

I recently read a book by Gary Vaynerchuk called “Crush It”. A really good read. However, in my mind, there was a significant part of the book missing. The part about plugging social media into a viable business model.

What many people fail to mention about Gary’s amazing ability to leverage social media and subsequent success is that he:

A) Has rare qualities where he’s an expert who is highly engaging through his unique and passionate personality. In all my life, out of the tens of thousands of people I’ve met, I’ve only ever encountered one or two people who have those qualities. In other words, in many ways he’s pretty special. More special in this particular way than most of us. While everyone can leverage social media for success, not everyone is destined to be a social media demi-god.

B) More importantly however, he plugs his social media action into a “good business model in a market of hungry buyers”. He has a multi-million dollar online wine retail business that gives him the perfect vehicle to leverage his powerful circle of influence for profits.

That’s what makes it worthwhile for him and sets him on his way in his quest to buy the New York Jets.

On the flipside, I’ve met a few heralded “social media experts” with tens of thousands of followers who spend all day shooting the breeze on Twitter. However, they make jack. The only cash they roll on is speaking engagements and ebooks on how to get 50,000 twitter followers in 1 month.

Pointless, and let’s face it, not much of a legacy to tell your grand kids. I can imagine the conversation now… “Now listen here little Johnny, did you know I was big on Twitter?… You know Twitter?… What do you mean you’ve never heard of it!”

No, I’m not against social media at all. I’ve read more books on the subject than anything else lately and believe it’s the most important change in the way marketing works since the TV industrial complex. I see it as all part of the decentralization of society. So this isn’t an anti-social media rant.

What I’m pushing, is that you need to ensure that you follow this key idea of making sure that your online business has a “good business model in a market of hungry buyers.”

Let’s take a look at this more closely to check if you’re on the right track.


A Good Business Model

Don’t let your eyes glaze over just yet. When I mention the words “business model” to some people I see the same look most 16 year old boys get on their face when a new parent starts showing them photos of their kids. Bored.

Bear with me. Having a solid business model is fundamental to success, and not that difficult.

Essentially, you want a business model where the market buys regularly, ideally with a product that is easy to fulfill, has a good profit margin, and has customers who want to buy the same product, or related products over and again.

The affiliate model is what many of you are following. Obviously this can be a great model, provided you operate in the right markets, and can build a business around it for long term profits.

Here are a few business model related questions you should be asking yourself as a checksum, especially if you are an affiliate.

A) Will this product/market be around for a long time?
B) Am I building an authority site that has potential exit value.
C) Am I building a brand as part of this authority site?
D) Is there a pipeline of products and services that I can plug-in as part of this business?
E) Can I or am I collecting an email list, and building relationship with them?

If you’re not getting this fundamental stuff right, it’s difficult to do well for the long term. Focus on building a business, not just fast loophole cash. The PPC to CPA arbitrage model springs to mind as one of these loophole cash models that can be shortsighted if not done correctly.

Now on to the most important, gritty part. The market of hungry buyers…


Market of Hungry Buyers

Back in 1999, I had a BMX website that was killing it. It was receiving a million page views a month and was getting written up in BMX magazines.

It was great for a while. Mostly during the first dot com boom when new online startups had so much cash to burn through they had ice sculptures in their office foyers.

These companies purchased banners on a CPM basis and as a result I was at times making more in a few weeks than I would in a year of working at my Dad’s bike shop part-time while in college.

But when all that went away I was in a world of hurt. I had to pay for a dedicated server (they weren’t cheap back then) to run a site that I couldn’t make any money from.

Sure these kids were passionate, but I don’t see too many 14 year olds buying their red bulls on a credit card. In other words, the market wasn’t one of hungry buyers.

I ended up shutting that site down because I couldn’t afford the server costs and wasn’t smart enough at the time to figure out how to make it work financially.

Despite hundreds of thousands of unique visitors a month.

Now let me ask you this. Name the top 5 most lucrative markets online. I’m sure many of you would have included the “Adult” vertical in there. I thought that would have been the case as well.

However, I recently met someone who runs several websites in that industry. I asked him what it was like compared to other industries as I was curious to see how it compared to my own verticals. He said that while there was an enormous amount of traffic (like my BMX site), it was very difficult to convert people into buyers. He said other non-adult markets had way more people happy to pay their way.

So what is assumed to be a good market of hungry buyers may not always be the case.

Let’s look at specifically how you can check to see if you’re on the right track with your own business.

Before you start any online venture, you should also check these to see the market potential as well.


1) Check the PPC costs on your major keywords

Take the top 10-30 keywords in your vertical, and then go to the free Google AdWords Keyword Tool.

Type in your keywords. Select your target country, and leave the synonyms checked.

Use the dropdown box to include the click costs for these keywords.

 

Click submit.


Contrary to what many will say, you don’t want a market where the keywords have a low click cost. You want click costs of at least $1-2 or more on these major keywords. Anything less shows it’s a dog of a market.

It’s tempting to think that you might have stumbled upon a gem, and the low click costs are a good thing. It’s a nice thing to think for sure. Unfortunately, this isn’t 2001 any more. It isn’t the wild west any more. The online marketplace is mature. As hard as it is to hear, it’s VERY unlikely that you’ve stumbled upon a great opportunity. Sure, there is a 0.1% change that it might be the case. However, I wouldn’t gamble on it.

Here’s a good rule of thumb to live by. If no-one is spending money on PPC in the vertical, it’s simply too hard to make any money in that market. It’s NOT a market of hungry buyers.

Here are a few examples:

Knitting - BAD

 

Free MP3 - BAD

 

Cycling Related - GOOD

 

2) Check the commercial intention

Another little known tool is the commercial intention tool on MSN. By typing a few keywords in here, you can get a feel for whether or not the major keywords in the market are buying type keywords.

Here is an example of a buying keyword versus a non-buying keyword.


Cycling Photos - Bad.

 

Cycling Tours - GOOD


3) Look at existing affiliate products on CJ, Clickbank, and Shareasale and check out the average EPC.

The affiliate marketplace these days is pretty mature. Before you dive deep into your venture, you can get a feel for how other companies are doing in your space.

Simply find merchants that operate in your space. Then look at the EPC (so earnings per 100 clicks) of that merchant. Look at the longest period so either 30 or 90 days. Ideally, this should be over $25 in my opinion.

This means that for every 100 visitors you send them, you should make $25 on average. This means that if you buy 100 clicks at 25 cents each, you’ll be breaking even. If you’ve got a big authority site that drives a lot of organic search traffic then you can go lower.

However, I believe you need to hedge your bets, even if you don’t right away. So you should have the option to be able to buy traffic and still make profits. So if you’re ranking goes away, you have options.

If there are no affiliate programs at all, don’t think you’re onto a winner. I hate to say it, but you’re probably not. While it’s noble to come up with new ground breaking products, it’s not the easiest way forward to success.


4) Check the demographics

Another useful way to not make the same mistakes that I made with my BMX site is to check out the demographics of the site visitors. If you use Google Ad Planner, you can get a feel for this. Now, this isn’t always right, but is often as good if not better than some other very expensive services (as in 30k+ a year).

To highlight the differences in the vertical, look at the differences in demographics between two different sites. Check out the most popular BMX Forum.

You’ll notice it’s filled with kids who won’t have a credit card.


Now look at a cycling news site that has a much older audience with much more money.

I know which market I would be going after.


5) Are there books on Amazon about the subject?

One last check I use as market research as much as anything else is to check if there are any existing books on the subject matter already. So you can check out to see Amazon and see firstly if people are buying the books. If they are, how do they rank?

Once again, this is just a helpful guide and shouldn’t be used as gospel. For example, obviously Credit Cards are a lucrative market for an affiliate. Yet, there aren’t any books on credit cards. Nonetheless, there are lots on personal finance. You need to use your judgement on this one. It’s more useful for hobbies etc.


So what do you do if our checks are showing your site isn’t great.

Hopefully the checks above have proven that you’re on to a winner. If so, keep working hard, don’t get distracted and as Gary Vaynerchuk says; “Crush it”.

What if it’s not?

Well don’t feel bad. Everyone has been guilty of letting passion and emotion get in the way of logic. Nonetheless, I would encourage you to put your emotions aside for a moment.

Yes, I realize that you may have put weeks or even years of work into your site. However, it’s important to be pragmatic about this.

You have a couple of options.

1) Quit, try to sell the site on Flippa.com and find a better business model with hungry buyers in it.
2) Keep pushing on.

Either way, it’s going to take courage and I commend you on either decision.

If this raised any other questions, feel free to ask them below.

Oh... and please don’t use this an excuse to jump from project to project. This is about figuring out a sound strategy from the start and chasing it with gusto. Not as an excuse to give up when you don’t see immediate results.

January 30, 2010

Comments (23)

Said this on February 1, 2010 At 10:27 am

Great Article Allan, with much useful information as usual. Thanks

Said this on February 1, 2010 At 10:37 am
Excellent advice. It is so much easier to sell things where there is existing demand from actual buyers, than it is to try to create that demand or turn browsers and freebie hunters into buyers.

You didn't really talk about search volume, but that's another area where people get sidetracked. As you can see in your examples, there are a lot more searches for "knitting patterns" (1,000,000) than there are for "cycling tours" (14,800), but the difference in buying intent is huge. Lower volume searches with commercial intent have more value.

Pat

P.S. I think you meant flippa.com as the place to sell your website.
Paul Sabaj
Said this on February 1, 2010 At 10:38 am
Love the article. Finding the right target market can always be a challenge. Doing the research while it does take some time is worth the effort in the long run. Best of luck and have a great year
Said this on February 1, 2010 At 10:46 am
This would have helped me greatly when I did my first website that failed. I failed to realize that my website was an infopreneur website that I could not monetize effectively because the product had already been purchased by the consumer. They were uninterested in purchasing things to make them better at it. That is why they were on my website for free information. Very sad
Said this on February 1, 2010 At 11:09 am
I tried to look up flipper.com, but it directed me to a news site? Is there another domain besides flipper.com?
Said this on February 1, 2010 At 11:17 am
Hi Jay,

an absolutely brilliant article! :)

Many thanks for the tip on the commercial intention tool, I did not know that before, it looks very usefull indeed!

Immediately gave it to my partner to research keywords for our new email marketing tool :)

Always my best,

John Vorwerk

4OfficeAutomation, Inc.
Said this on February 1, 2010 At 11:28 am
Wow,

This was very eye opening. I am one of those "even years" people you spoke of above.

Running several keywords it turns out that only about two keywords have serious commercial potential on my first site (with over 300 pages). Hey, it was built to learn how to build a site, my first.

But...before I sell it..

My traffic is still growing on an annual basis as is my income. Two of the sites produce about <600 a month with about 60,000 visitors.

I am also now attracting advertisers, paying about $75 per link.

Outside of the unknown 'what will the future be with ad campaigns,' if the traffic building continues, then it would provide a sustaining income for me.

So, what is the value of $.01 (US) per visitor based on what you are suggesting above? I have read that lists should produce about $1 per name on the average. I have not graduated to list building yet.
Said this on February 1, 2010 At 11:33 am
Allan,

You have hit it out of the park again. Thank you for the examples on some of the specific places to do market research and WHAT to look for.

As you stated in your article it is very easy to become enamored with a product idea, put massive work into it, and then find there is no market for that product.

Often, looking at the market FIRST is what people dont do and it feels horrible after having done all that work to know they indeed have "backed the wrong horse" as you put it.

I believe as more marketers like yourself help newbies to understand what comes first.. and teach the less glamorous parts of building a business there will be more profitable entrepreneurs creating products of value that are needed by their respective niches.

Thanks again
Candace
Said this on February 1, 2010 At 12:05 pm
Thank you so much for sharing this valuable information. I have been looking for this kind of information for over a month.
Carmen
Said this on February 1, 2010 At 12:42 pm
I am glad I have found your site. Thanks so much for your free and HONEST advise. It's hard to find honest people out there.
Said this on February 1, 2010 At 01:00 pm
Hey Jay..

Great post. But, I think you were referring to Flippa.com: http://flippa.com/ not Flipper.com. That site (flipper.com) refers you to a site called Newsrunner.com..

Sorry if I "nit" picked here. But, I figured I would just correct the record in case anybody reading your post does want to sell their website..

My apologies..

Robert C - The Wholesale Guy
Said this on February 1, 2010 At 02:52 pm
Good article Jay, it sure wouldn't hurt me to read it a few more times.

It's tricky, isn't it? Even if we are very diligent about our market research, and carefully create a solid business model, it can still go all wrong and end in disappointment.

Some people focus on their passion, and blow the business model.

Others focus on the money, but forget that without at least some sincere passion for their topic, there's a good chance they won't stick with it long enough to reach success. After all, we're often competing for audience with people who have so much passion for the topic, they'd write about it for free.

Finding that perfect balance between heart and head, not as easy as it looks.
Catherine
Said this on February 1, 2010 At 03:26 pm
Great article. Thanks. Looks like I'll be closing down my www.nanasgotknits.com.au website...damn...
Said this on February 1, 2010 At 04:55 pm
Sensational!

I have sooo had to learn this the hard way (back in 2005 this advice would have saved me nearly two years work - AND I was getting professional mentoring at the time).

Great stuff, thanks.
Said this on February 1, 2010 At 05:07 pm
Jay,
Thanks Jay for informative article. Research always help.
Lisa
Said this on February 1, 2010 At 07:52 pm
Thanks for the post. I was about to begin designing a new website THIS week (including trademarking the name) and with the research you suggested, I found out that it's not a good market.

You just saved me a lot of time, disappointment and most of all, money!
Said this on February 1, 2010 At 08:01 pm
There's some great info in this article, at least for me. Some of these sources are brand new to me so I'll have to stick them in my rolodex of must use sites.
Thanks, Mike
Said this on February 1, 2010 At 08:05 pm
Great straight to the point info plus sites to use that I've never heard of or considered before. I learned something new again!
Thanks, Mike
Said this on February 2, 2010 At 01:45 am
Thanks Jay for the great plan of action. I have a blog like the example, and because the topic interested me and it seemed to be a gap in the market - let's just say I have a decision to make with it.

Thanks again.
Said this on February 5, 2010 At 10:36 am
Excellent article, thanks. Don't rely too heavily on results of the Commercial Intention Tool. I disagree with it about 50% of the time.

I tried "Engineering Lab Software" and it thinks it's commercial (right, according to me), but make it "Civil Engineering Lab Software" and now it thinks its non-commercial (wrong, according to me).

Thanks and RICKgards
Thomas
Said this on February 17, 2010 At 05:04 pm
Jay, thank you for the article, I am still in the "search phase" of finding a new opportunity. Your article will help me navigate these dark waters to those hungry buyers
Said this on April 26, 2010 At 08:35 pm
Good article Jay, sage advice as always!
Said this on December 22, 2010 At 09:24 pm
Love the article how much of this is up to date as I am about to venture into google ppc wish me luck.

Thanks Paul

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