Last week, I chatted with a friend, who I got to know after his company bought an expensive domain name from my company. We got to discussing domain names, and he shared a reason for buying the domain name that I hadn’t considered before: it’s an important business asset.
This might sound pretty obvious, but let me explain it further.
My friend is in a service business. For privacy reasons, I won’t divulge the service area, but think about things like consulting services, medical services, legal services, home services…etc. Essentially any professional service companies that don’t have products or proprietary patents, algorithms…etc. would likely fall into this category.
My friend owns his own company, and he is very good at what he does. If he ever sells his company, there are few “hard” assets.He has employees, but like most employees, they may be transient. His customer data is valuable, but clients may only be loyal to him and not the company. His brand may be valuable in his field, but again, that is likely related to him and not his company as a whole. His company has equipment and office space, but equipment becomes obsolete and I wouldn’t consider the office space an asset (I don’t know if he owns or leases the equipment either).
In reality, he is the company, and he is the most valuable aspect of his business. If he wants to sell his company and retire or do something else, there is probably not a whole lot to sell, despite having a good reputation and being very successful. Some people are totally fine shutting down the business when retirement comes, but I think many people have the desire to build something and sell it.
A keyword domain name changes things a bit. A domain name is something he can sell along with his company. This keyword domain name transcends his brand and can be used by anyone. If he were to get into a sale discussion, the counterparty would probably cite the things I previously mentioned as reasons to not pay much for the company. If my friend were to want to retire, he might not be in a great negotiating position and might need to either take an offer or close up shop. The domain name he bought can be used as added leverage because it will bring other parties to the table. It is a business asset that other companies will want, and it adds to the value of his company.
Before owning the domain name, if my friend wanted to sell his company and retire, he would have had a much more limited audience. With this domain name, there could be more parties interested in buying the company.
I hadn’t really thought about this aspect of domain name ownership before, and I found it interesting.
Sounds like the reason you switched from ElliotsBlog.com to DomainInvesting.com 🙂
Sort of but a bit different.
With this blog’s business, there were a few thousand articles (content) that would have value, and the search engine rankings would also have value. The domain name is more saleable and would allow someone else to seamlessly takeover, but I could have sold ElliotsBlog.com for something because of the content and rankings, even if the actual brand wasn’t worth much.
If I were a consultant operating a totally different company on a made up domain name, the company value would lie with me. If I wanted to retire, there wouldn’t be much to sell. If I owned a fantastic domain name, that would have value.
i find the timing of this very valuable post very interesting as i have just lately also experimented with pointing out this aspect (in a very similar way, be it with or without the sale of the whole business) to potential buyers (end users) with noticeable success.
They feel clearly less hesitant jumping the line and finally purchasing my domains once understanding this part of owning a generic or often specific keyword domain name which could be resold to any other party at a later point (along their business if they feel so).
Am going to refine the wording and approach over the next domain sales though..
Very true. When I sold my IT business in 2009 the sale may not have happened wirhout my domain name included. I had bought the domain on Sedo for I forgot how much but maybe a few hudered dollars a few years earlier. I had 800+ clients and service contracts etc… when I sold it but the domain name was considered almost as valuable in the sale breakdown.
It would fall into this category.
“Intangible asset is an asset that lacks physical substance and usually is very hard to evaluate. It includes patents, copyrights, franchises, goodwill, trademarks, trade names, brand value.”
Rick Schwartz often talked about historic parallels in business and here is one.
Long before the internet a friend of mine sold his take out pizza business for quite a tidy sum. The pizza shop was a little hole in the wall with old equipment and no seating area.
When I asked him about the sale he said to me that all the equipment he owned could be replaced for less than 10% of the sale price but the one thing that was worth money was the one thing that he didn’t own and just paid monthly for, and that was his phone number. Thousands of dollars of pizza orders came in on the number every week. The phone number had “traffic”
That is a great point, although I would think a pizza place can also have a great reputation based on its sauce and dough, and that goodwill is valuable, too.
If this subject has been addressed previously, I’m sorry to waste your reader’s time,but I feel it’s relevant to discuss.The subject is death and domains.When a valuable domain name is not renewed one might think it’s due to the carelessness or forgetfulness of its owner.There’s another reason,the premature death of its owner.Regardless of whether it’s on automatic renewal or not,the credit card on file will sooner or later be declined and say goodbye to that domain(s)name.Even if you include this asset in your will to be left to a family member or friend,the renewal process has to be made clear.In a business sale as mentioned above the owner will transfer the domain name(s) to the new biz owner.Solution?
Not sure about the United States, but it may also be possible to include a significant value for your domain/s in your Balance Sheet and use a depreciation model to writedown against trading profits i.e to reduce your tax liability. Worth exploring.
Very interesting read! Many businesses have sold for more due to domains and vice versa. Look at the Advertising.com sale for example.