I’m Always Surprised When People Have High Expectations in a Low Barrier to Entry Business

Dec 10 2011

I was in a discussion with Abdu of Domainsville.com the other day about barriers to entry.  Unless it’s a brilliant idea or you are”first in”, when the barriers are low then the possibility of great gain is minimized.  When you do something that can be done quite easily by many people you have to “out creative” everyone else if you plan to emerge from the pack financially.  We discussed aggregators specifically.  I perhaps was a little blunt when I said anyone can do put one together.  To do it right you have to add things that both the readers AND the content creators need and/or are looking for. Even then, the first in, Domaining.com has such a huge lead that most likely unless mismanaged will always be more popular.  Just putting up a site and adding more feeds isn’t going to set you apart.  Domaining is doing everything people need so you’d have to do something pretty special to stand out.  But this article isn’t to compare aggregator sites and their quality, it’s to say that why would anyone expect great things from something that an average person can do with a little money and a little time?

I always use the mowing business as a model.  The barriers to entry in a mowing business is a trailer and a mower.  You can be a professional mower for under $1000 (junk trailer and mower).  This alone drives down mowing prices due to the fact that almost anyone can come in and compete against you.  It becomes hard to make a living mowing when you have these guys bidding against you (I don’t mow for this reason) In order to stand out from the rest and get a higher rate than others you need to show other traits that customers want to see.  You cut better, pay attention to detail like trimming, clean after, reliably there, only cut when needs cutting, nice physical appearance when you’re on their property ie uniforms.  All those things cost money.  Better employees, equipment, management all add costs that the consumer may or may not be willing to pay extra for.

The best and worst part of domain investing is that it can have a low barrier to entry.  As seen on the boards and in the comments, anyone can buy a domain and try to sell it. With that low entry SHOULD come a low expectation of monetary gains.  It doesn’t mean people aren’t going to get lucky and make a great return on a low priced domain, it merely means that you have a much better chance of achieving high returns if you put in more resources.  By resources I generally mean money, time, book of buyers and sales outlets.

Another domain investor and I discuss daily the possible returns on certain domains.  There always seems to be one constraint on everything and that’s money.  Even in instances when we see a very good risk to reward situation the barrier to enter that domain is cash.  It’s not that we don’t have money, it’s that we don’t have enough to move into several of those next category domains.  Putting everything you have into one domain is a tough business model.  There is a reason why the larger domainers are making much better money than the 99%.  It’s not because they got in early, it’s because they own the quality domains and several of them.  Quality domains have a higher barrier to entry.   Once you’ve sold a few domains or sites for big money your barriers are easier to get over.  Having several quality domains gives you the possibility of having one sale support the holding of the balance of the portfolio.

The other barrier is time.  It takes time to build relationships, build up finances, build sites.  You can save time by buying help but it’s always going to be an either or.  The stories of big gains without a great amount of time or money are more the exception than the rule. The infrastructure part of a business doesn’t have to come into play in our industry. Our office can be our homes, our staff can be outsources or hired part time.  We don’t need brick and mortar like most businesses do which again makes it that much cheaper to play.   It doesn’t take full time to make it in this industry.  People go full time because they can afford to.  Even then all but a few have other businesses either built on domains or unrelated altogether.  What you need is a source of income that allows you to have the stability to be patient on offers.  Something a low entry person can’t afford to do.  They need turnover due to lack of cash.

So that brings me back to the headline.  Why do so many people think they are going to get rich with such little effort or money?  Simple. Because a few people have and do every year.  It’s the same reason people play the lottery.  You see people making money and there is always that chance it could be you. There are several stories a month about guys selling domains for $50,000 and $100,000 with little input costs.  Those returns should not be expected.  Appreciated and always a possibility, but not expected.  If you start a new site and put 10 hours into it then to expect more than ten hours worth of return is being naive. Investing in high quality domains is not like the lottery.  Your investment is high and therefore you expect a solid return in relation to your investment.  You have a much better chance of getting a good buy on a domain if the barrier is higher.  Not as many people can bid against you.  An auction with 3 people is a better auction to attend than an auction with 150 people.

So keep dreaming but keep working.  Invest wisely and look to put yourself into a range where the masses can’t play.  Don’t expect great things when great effort or capital isn’t used.  If you don’t have the money then start small and build and use time instead.  If you don’t have either of those then you better be a creative, skilled individual and remember, if everyone is thinking alike then somebody isn’t thinking

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Outsmarting the Dumb, Outworking the Smart

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14 comments

  1. DomainsAfrica

    Some great reality check on the “golden” dreams and expectations of domaining. Stories of people like Kevin Ham, Frank Schilling will always inspire a new generation of dreamers, but you are right, the attraction is the “lottery effect” in the industry. When you see people flipping with ease, then you believe you can also do it. But I think when the barrier is too low, then doing something out of the box stills gives results; like being overly creative or very prolific. You have to strike a balance….

  2. Nora M

    excellent post.

    Most people will always have one of three excuses for failure of their domain monetization endeavors: 1) Time 2) Money 3) Technology… Websites (technology) are now easy to create on a budget, so the only obstacle most people have is TIME… You can have talent, ideas, great teachers, but no matter what, people need to put in the time.

  3. Poor Uncle

    I was hoping this is the kind of business where success are abundant, barriers are low, and creativity are not required. Simply being at the right place, at the right time, doing whatever other successful people are doing in the industry is all that is required to make enough to put food on the table….YEAH, it is kind of like being in the good old U.S.A. – where the poorest among us have roof over their head, decent food on the table, heat during winter, AC during summer, a color TV (I am still using the tube), free healthcare, and their own automobile in most cases.

    God bless the U.S.A.

  4. John

    Plenty of opportunities in low barrier to entry businesses. The Daily Deal space is one example of one that has made a lot of money for a lot of people both for founders and employees.

  5. steve

    What I find out is people just jump in. Not even close to the amount of skills they will need. But when I ask them to rate themselves they say 9/10 or 10/10… I am always like wtf. But now I see. They rate themselves on one facet. They don’t rate themselves on stuff they don’t even know about.
    My advice is still do everything you can and understand it. Then outsource the non core easy stuff.
    If you don’t do everything yourself you will fall into the trap I fell into. You may partner a friend to ‘help’ them out or think they will pull their own weight. They won’t do sh*t for you, trust me. They have a family? or just lazy?
    I told the guy, won’t even say friend now, to think of a plan to call people and just talk and get feedback and he went off on how he doesn’t have any time. So I said you either program or call people and he went off again… So I was like what are you doing here with me anyways then and he laid it on the line so abruptly. It was all his idea and he all he could do was lead me with the limited time he had.
    Holy sh*t did I step into it. I was really pissed at this. It was 100% my idea , money and time. He had maybe 5 minutes invested into it and 3 hours that I explained it to him. So he figured he was the 10/10 so it was obvious he would have to be CEO and do all the thinking.
    I just stop here. You learn people suck #@$#@$%.
    So what does he do now? Well he started a company with his ex boss and they are government contractors. Wow that is original. He might have well gone into the lawn mowing business as there are what only 1 million government contractors….
    Go slow and be patient and study programming and everything you need for a web business. People do themselves in and fail 100% by themselves they just don’t know it.

  6. Carson

    I thought this post was about barriers to entry but it looks like someone thinks it’s about them instead.

  7. Nadia

    Well written post, Shane. I’m struggling with several aspects of this in brainstorming to develop a category killer name while not simply becoming a clone of existing sites. It will be impossible to stand out otherwise (because I have the name that defines the entire industry, but they have thousands of subscribers, skilled programmers, years of search engine recognition, and the advertising dollars to make it happen).

    The problem in domaining is that, in an attempt to stand out, a lot of people masquerade as experts, when they have little more than a substandard portfolio (I’m not speaking of Domainsville or anyone in particular). Of course, there’s a fine line because sometimes less experienced people DO have valuable insights, and you have to start somewhere.

    Capital is key. That’s my single biggest limitation (that, and time). You can get lucky once in a while finding a dirt cheap name that you can flip for several thousand, but it’s rare. Domaining isn’t a get rich quick scheme.

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