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Theo on... making money online

Updated Friday 23rd April 2010

Theo Paphitis warns you need to do a lot more than wait for a buyer if you want to make money online.

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Theo Paphitis
In any business, the initial years are critical, and of course you are spending a lot more than you're getting in in most cases, especially on internet.  So you’ve got to look at the business over a medium to long-term.  To look at it day one to be self-financing is ridiculous, it’s never going to do it.  People have spent fortunes launching internet businesses.

Now, let me actually make a point here, just because you’ve spent a fortune launching a business doesn’t of course mean that you're going to be successful.  Launching a website and sitting there expecting that somebody’s going to buy off you is not very practical if you haven’t got a business model that shows it can make money.  People only spend a fortune buying internet sites if they believe that there’s a model there that can be monetorised or has already proven to be monetorised.  If it hasn’t been proven, you know what, every one that’s gone that way has failed.  So you have to show you’ve got a model that can be monetorised.  If you can't show it can be monetorised then really you haven’t got a business.  You haven’t got a business to generate revenue and you haven’t got a business that you can sell.

It’s a common, common, common mistake people make when they think about the internet, and that mistake goes something like this.  I’ll start an internet business, it’s a good idea, I don’t have to see it through, I’ll sell it to somebody for a fortune and I can sit back, smoke a cigar and watch the cash roll in.  Wrong!  People only buy internet businesses where they feel the model allows them to monetorise the product in some way, whether it’s selling product or selling advertising.  And for someone to buy an internet business that’s not making money today, it’s because they are so confident that they will be able to monetorise the customer base, the users, and it will have to be a business that gets millions and millions and millions of hits every single day.  By hits I mean people actually going on the site.

If you have a business that’s not making money and doesn’t get a lot of people coming on it, then guess what, it’s not very valuable.  The only way you can attract millions and millions of people to your site is to let them know it’s there, and when you do let them know it’s there, they’ve got to be interested in it.  Now of course Peter hasn’t got the cash to spend on a big marketing campaign, adword campaign on the internet, or general marketing, and you’ve got to ask yourself, how many people actually want to go on a website that sells artisan products?  Is it a little bit specialist?  Are you limiting the number of people that might be interested in visiting you?

I think Peter’s suffering possibly from both: one, that he has a specialist site that maybe a lot of people won't be visiting; and two, he hasn’t got the money to market the site, so he’s got, he’s really got a double whammy here.  I think he’s made it clear he doesn’t actually want to sink any more of his own money into the business.  He has to find an investor, he has to find an investor that believes in his dream, that believes that there’s a whole world out there that wants to buy artisan product on the web and believes that the competition is not going to strangle them, and believes that the capacity is out there, that the existing businesses that are doing exactly that aren’t catering for the whole market.  Only then will people invest in the business.  He’s not convinced me that that’s the case.  I'm not sure he’s convinced himself.

4’33”

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