Don’t Count Your Chickens Before They’ve Hatched
“Don’t count your chickens before they’re hatched”. It is a saying that you can hear again and again. Many don’t heed the advice that they are given, and as a result spend what they don’t have. What results from this? The answer is debt…
Web startups are usually over valued and always have been. Back from the first dot com days to now many web companies have had prices stuck on them that are unrealistic.
Lets look at EntreCard for example. In a interview with BloggerNoob, Graham stuck a $750,000 – 860,000 price tag on the website. Do I personally feel it is worth that. Absolutely not, maybe close to half of that, but until I see an actual earnings report, I want to know how they came up with that magical figure.
So, lets say another company like EntreCard is started and valued at the same. The owner goes out with out investment and spends 100,000 dollars because he feels his website is worth that. He buys a new car, maybe a down payment on a house. The owner assumes that he will sell his website to cover these costs and that his website valuation will stay the same.
As soon as you do this, you’re making a mistake. I’ve always said never spend money you don’t have. There is a risk, and sometimes this risk is to great. Lets take a look at what can easily happen if that webmaster has spent that money.
So lets call our imaginary webmaster, Bob. Bob has spent 100,000 dollars on all those nice shiny toys. If the bubble bursts on his website and suddenly its not worth so much, he might be in some trouble (Call me a sceptic but I feel the Entrecard bubble will burst in the future. Its got a lot of hype right now, but I don’t feel that it will keep it up at this rate. I’m not saying it will die, but just not be as huge as people are predicting).
Bob has spent $100,000 of money he doesn’t have and now his website is worth considerably less. Even though his website is worth less, he still has to pay his debts. He may have to sell his website or make considerable cutbacks to afford his new toys.
Why did I bring this whole point and story up? Well I was pondering why there is so much money online and the idea popped into my head.
What I want my readers (you) to try and take away from this is that you shouldn’t spend money or make decisions based on a valuation of your website. Until you have closed the sale or have the money in your hand I feel it is safer to take limited risks and never “count your chickens before they’ve hatched”.
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Couldn’t agree with you more. I’ve done a little of that premature chicken counting myself in the past and paid dearly for it!
In perspective, I paid $10.00 for the domain for my blog, and at this time, I think that might be about all it’s worth!
Nah, you’ve done some work there, its definitely worth quite a bit more than only $10. But if you’re looking to sell or get a valuation on it, don’t count the money in your pocket and spend it until it is physically IN YOUR POCKET.
I am not going to sell ahkong.net ever!
Going to pass it down to my generations, if all goes well and I am to get married to my Darling (wife to be, hopefully) and one day she is ready to have kids.
Gonna give some proper education regarding blogs to my kids so that one day, they grow up to be excellent bloggers and can take over my domain.
Oh ya, spending moolah before actually earning the moolah is a big no no, definitely un-wise to do that.
About EntreCard, I admit that initially I thought it would be big, but the problem is that there are not enough active members to make it that big.
A family herloom eh. I like that!
Entrecard is going to be prone to inflation, and then the novelty will wear off. Also the introduction of a credit market will hurt them severely in the long run as it will drive credit prices way down.
hum…. entrecard will have to do changes in the future to keep members interested. Created a lot of hype but in the near future things can get different, and entrecard will definitely be worthing a lot more than they announce right now
If entrecard monetizes properly and continues to grow sure. But we have to wait for a month or two to see their growth trends. Was entrecard just a fad, or will it stick around?
In my opinion, dozens of well-known websites are over evaluated and I’m always wondering if that bubble will blow or not. If you guys remember, the out-of-this-world prices started more or less with the 8 figure amount paid for youtube and ever since then it seems like any website is worth more than an off-shore drilling rig he he.
You are absolutely right Mattaw. Considering I post about web startups I know that most, if not all, get over-evaluated. Hopefully though they have the sense to wait until their start-up makes money or actually gets bought out before they start going on a spending spree. Good post
Exactly. Do any of you see any way entrecard can be worth 750,000 with less than 4000 users and not all of them active (I would guess around 25-50% are active). Also, where is the revenue. So far all they have done is create a system and have a few $5/day ads running on their website. Most that will make them is $150/space/month if their fill rate is 100%. With only two spots $300/month ad revenue does not qualify for such a high valuation.
I agree that frugal living is the order of the day for new startup owners.
Also in line with that, the idea of quitting everything else for the internet dream should be thought of with caution. I am quite happy to have the security of my day job (albeit in quite an entrepreneurial company), and build my online dreams on the side, because it leaves open so many more opportunities than closing off 1 door completely.
Btw, I’m rather starting to like your blog! The content seems of a much higher quality than most; hope you can keep it that way.
Well I aim to please. I write original content everyday. No hard work, no gain. In terms of working a day job, I agree. Many enjoy the security of a day job, and hey, if you make it big on the side, you can always quit that day job later on……