Business Angels :: The Musings of Tony Gavin, Esq.

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Partnering On Web-Based Business Ventures? Why I (almost) Always Say No

My first investment in a web-based venture was back in 1999/2000. A friend and I invested over $600,000 of our own cash into developing an internet dating site. We later tried (unsuccessfully) to list the fledgeling business on the Newcastle Stock Exchange – during the height of the .dot bomb boom and bust. Back then I barely knew what a website was and probably knew even less about how to successfully market anything online. It was quite an expensive learning experience for me.

Up the learning curve I go…

Fast forward to 2016 and I’m a battle-hardened veteran of many hundreds of web development projects. I’ve been hands-on with everything from one-page websites costing less than $50, through to developments that cost hundreds of thousands of dollars and sometimes took up to two years to complete. I now have a great team of people working for me and get (and need) a lot of help!

I’ve also owned and operated my fair share of money-making websites, along the way. I’ve engaged in e-commerce, affiliate marketing, online advertising – and made money from all of them. I’ve made serious money both from dealing in domain names and running online directories. I still engage in both of those activities, although my primary business now is creating and implementing online marketing campaigns for others. I do what I do because I happen to enjoy it. Yes, I like the money too – but it isn’t my primary motivation anymore.

I’ve got this great idea – you can be a partner!

I’d love a dollar for every time I’ve heard those words fall from somebody’s mouth. I regularly have people coming to me with a “great idea” for a new web-based business that will somehow revolutionise the entire world. They have no web development expertise, and little or no money to invest in somebody else building them a website. They have no idea how to market online – and no budget to do it – but they’ll “give” my company 20% of their idea if we’ll build their website and “help” with the marketing for free.

Why I say no!

There are many reasons why I say no to these kinds of proposals. Here are some of the main ones:

Concentration

It doesn’t matter to me anymore if the idea is good or bad. What matters is the business that I’m actually in. I am passionate about what I do and about what my company delivers to its clients. I don’t have the time to be equally passionate about the ideas that people bring to me. Investing my time, energy and money into bringing their passion to life cannot be a part of my personal plan without interfering with the other things that I do. I like to concentrate.

Lack of business experience

Often, people who come to me with an idea, lack any real-world experience in business. That generally becomes apparent to me within minutes of starting to probe. Combine a lack of experience with a lack of hard money invested in a project and that usually equals a person who will walk away when things get tough. Most investors want to put their time and money behind somebody who is battle tested. I’m no different.

Lack of marketing expertise

This one should probably be at the very top of my list. Web-based businesses are not like Field of Dreams, where “If you build it he will come”. I could probably write a fifty-paragraph rant just about this one thing. Best left alone!

Lack of any viable revenue model

Many (maybe a majority) of would be web-entrepreneurs fail to put any real work into developing a revenue model for their web-based business idea. So many times I’ve seen their eyes glaze over when confronted on this issue, as they stammer and stumble to explain how their website will EVER make any money. I know, Google and YouTube and Facebook all started out that way. I get it. I also get that your business is unlikely to be the next one of those.

Poor potential returns

Following hot on the heels of lack of any viable revenue model is its blood-brother, poor potential returns. Many would be entrepreneurs seem clueless about the need for a business to earn a solid return on investment. In my experience, few prospective web-entrepreneurs attempt to compile any realistic numbers projecting sales, expenses or profitability. It’s as if these basic business tools are not required because “it’s the web – the market is HUGE!”. If only that were enough!

Risk aversion

I might miss out on the next Facebook. I’m far more likely to miss out on investing in a loss-making venture. More than 35 years of being in business has taught me that businesses fail more often than not. That holds true even for large companies in start-up situations. Look at the recent Masters Hardware disaster, presided over by retail behemoths Woolworths and Lowes. Even when circumstances are absolutely ideal (as was the case with Masters Hardware) far more businesses fail than manage to succeed.

Some final thoughts

I love entrepreneurs. I’ve been an entrepreneur my entire life and know first-hand the agony and the joy that goes with the territory. I’ve made and lost millions of dollars. I’ve dwelled in an ivory tower and lived in a car. I’ve drunk $1,000 bottles of wine and borrowed money from relatives just to eat. I don’t think there’s anything about the entrepreneur lifestyle that anyone could tell me, that I haven’t lived for myself.

When a would-be web-entrepreneur brings me a new and exciting proposal I don’t want to pour water on it – but I probably don’t want to invest in it either. It’s their dream, not mine. They need to find a way to bring it to life and that’s undoubtedly why they are talking to me and probably, many others. That’s what entrepreneurs do and I love them for it. They make things happen.

Just please, don’t get disappointed when I turn you down. It’s got less to do with you personally than you could begin to imagine.