This is part two of a series of five with one piece of advice from some of the most successful domain investors, domain developers, domain monetizers, and others involved in the domain industry. I asked them for one piece of advice they would give to a part-time domain investor looking to build his business. I believe there are quite a few people who are part time domain investors, and I also believe just about anyone involved in the industry can apply some of this advice to their own business models.

I really appreciate all of the contributions from the industry leaders who contributed, and I hope the advice contained within is helpful to you now – or will be helpful to the growth of your business in the future. As an FYI, I intentionally did not put these posts in any particular order.

If you haven’t read it yet, I recommend viewing part one, and part three will be posted on Monday.

Rick Schwartz, RicksBlog.com:

Don’t quit your day job.

Don’t buy crap.

Don’t settle for trading low quality domains.

Don’t buy to double your money. Buy to make 10x minimum. If the domain you are buying is not worth 10x what you paid, don’t buy it.

People lie, numbers don’t.

Rick London, National A1 Advertising:

Try and buy the best. Instead of buying 20 domains for 1K each try and purchase one for 20K.

JBlack

Vince Lombardi, arguably the most successful football coach of all time, placed constant emphasis on fundamentals, not complex strategies. There is a reason why he started off with the opening line, “Gentleman, this is a football” in the movie. That line stresses the point of fundamentals, to start from the beginning. He knew intuitively that basics, honed to precision by relentless emphasis, then applied win over all other methods. Today, our world is full of distractions like never before in history. But when one filters the noise and examines successful companies and individuals the common denominator always is the persistent application of fundamental principles.

In that vein, if I had to offer a single piece of advice it would be define in precise terms where you want to be. I see this basic necessity, this fundamental, being ignored almost across the board. Many jump into domains with no end state planned. Its my view that one has to write the objective down, be specific, and describe it in sufficient detail as to provide a navigable roadmap to the destination. When you take the time write your plans down you start to become serious rather than a dabbler. When you become serious you learn and apply proper business applications like incorporation, intellectual property, law etc. Only when the objective is written out do the holes and assumptions make themselves apparent.

Writing compels one to think, to fill those holes and address the assumptions with plans and action. (The planning method also greatly helps select which domains should be bought and which domain names should be sold or advanced well beyond parking or notional development.) The detailed, written goal that includes a final valuation figure provides the tangible anchor point which almost prohibits one to veer off course with endeavors that do not lead to the singular goal. (“Gentleman, this is your goal”.)

Most seem to start in domains with an ill-defined but implied objective of “being successful” or to “make a lot of money”. Ok, but how successful, by what measure, by what date, by what final net value? Without these questions being adequately answered one does not just risk but is guaranteed to end up exactly where they planned, in an undefined, unfulfilled, lost place.

Michael Sumner, MiniSites.com:

I think the best piece of advice for someone starting out is to learn how to appraise a domain before investing a dime. People should read DNJournal sales reports from start to finish every week, and go through NameBio.com data on a daily basis to get a feel for what domains sell for, this should help fine-tune their instincts. Until they have good instincts, they should check exact search volume using the Adwords Keyword Tool, check CPC using the little-known Adwords Traffic Estimator Sandbox, look for businesses who might be interested in the domain, check comparable sales at NameBio, etc.

I have found that if you’re really good at appraising a domain, you rarely get yourself into trouble, and when you do get into trouble the damage is minimal. That was the approach I took for the first four months after I found domaining, I read everything I could get my hands on trying to figure out how to value domains and rarely bought anything. Then I jumped in head-first with a friend of mine flipping relatively high-value domains, and within our first year we had sold almost $350k   in domains and only lost money on one deal, and the loss was very small.

Fred Mercaldo, Scottsdale.com:

Although I own over 300 generic domain names, I am primarily a geodomain .com investor and developer. When looking at a potential purchase, numerous things come to mind: in my opinion, is this domain undervalued? Even if it is not undervalued, what can I do with it? If properly developed, what is the conservative potential for monthly/yearly income? Is there an end user out there that can benefit from this name? My main goal is to monetize the domain on a yearly basis for what I have purchased it for, after development.

For example, I purchased www.nofeecreditcard.com for $3300, and am only making $300 per year; however I have simply used a second party provider and we did not develop it internally….I believe we will develop it in-house in the coming year. I purchased www.FountainHills.com for $14,000 and we are making $60,000 per year on it; these are 2 examples of the “so-so” return versus the “home run” return.

I look at domains as potential “businesses” rather than just names, and here is why….and let’s take a hypothetical example….Domain “A” purchased for $30,000…..spent $10,000 developing it….presently making $30,000 per year. I now have a “package”…meaning “domain name PLUS yearly income” that is arguably worth 3 to 7 times income…plus the inherent value of the domain name itself…meaning I can sell Domain “A” for anywhere between $90,000 to $210,000…a great return on my original investment, however I had to develop it properly, and obtain advertising partners to monetize it.

I firmly believe an end user or investor will pay $200,000 for a domain that is bringing in $30,000 per year presently than pay $80,000 for the same domain name that is both undeveloped and non performing. Why? Because it a proven entity and already has a financial return attached.

As you can see, my strategy is completely based upon buying, developing and monetizing, and not just buying and reselling. My advice for the new domain investor? You need to decide on a specific strategy and become an expert at it. Like real estate, where there are many kinds of specialties…shopping center investors, land speculators, residential development, commercial development, apartment developers…all of these real estate specialists have different skill sets and talents; same in our industry. The person that buys and develops is so different than the investor that buys and flips, and so on. Decide on 1 or 2 strategies and stick to it; don’t try to do a little bit of everything. I would also recommend quality over volume….one good name is better than 100 mediocre names.

Mike Cohen, WannaDevelop.com:

Do not register all those unnecessary gTLD’s and ccTLD’s in addition to your primary domain(s)!! If you are into domain investment, you gotta be careful with what types of domains you acquire during bulk purchases because the fees can quickly add up to large sums before you realize this. If you want to be successful in this business, you need to be real picky and not carry any extras or duplicates, in other words real long shots that aren’t going to make you a whole lot of money no matter what angle you look at it.

Forget buying the .net, .org, .info, .biz and all those other second tier names if you have a .com domain because they are simply worthless for the most part. Domain registrars such as GoDaddy will always try to upsell you all those gTLD’s and ccTLD’s in addition because that is how they make their profits but do not fall for it even if they have offer special discounts. Register only one domain per topic / idea… Because if you register 5 or 10 identical keyword domains, but in various other extensions… You will end up getting stuck with them all. Instead you should diversify x5 or x10 different other topics / ideas. It’s a numbers game… 😉

Patrick Ruddell, ChefPatrick.com:

My number one piece of advice is to buy niche domain names. I’ve been able to take my personal real estate experiences and register hundreds of good domains. On top of the “insider” information I had for registering domain names of quality I also had a source to sell them. Now, if the new investor is not lucky enough to have the already established connections then they should still pick a niche. Having a single niche makes it easier to create those contacts (buyers list) and give potential buyers options. Make yourself the authority in a niche like dental domain names. If you create a ton of contacts in the dental industry (example) then other domain professionals would be wise to broker the name with your help.

Craig Rowe, WhyPark.com:

Focus on quality over quantity. Too many new domainers get caught up on building a large portfolio. For the same cost, focus on buying a few good names from auctions or drop catching services and set clear goals for each of those names (development, ongoing revenue, flipping, etc.) After achieving those original goals, buy more quality names or go after a small number of even better quality names. Owning a smaller portfolio will be easier to acquire, manage and ultimately sell or develop. There is no lack of bargains out there these days, so it’s the perfect time to work on building a quality portfolio.

Howard Neu, World Association of Domain Name Developers:

Best advice I can give – get a category-killer domain and develop it.

I will start out by saying that this is probably going to be the most beneficial series of posts you will ever read on my blog, and I had virtually nothing to do with the content.

Over the past several years, I have had the opportunity to meet with and learn from some of the most successful domain investors, domain developers, domain monetizers, and others involved in the domain industry. Recently, I reached out to many of my friends and colleagues, and I asked them for one piece of advice they would give to a part-time domain investor looking to build his business. I believe there are quite a few people who are part time domain investors, and I also believe just about anyone involved in the industry can apply some of this advice to their own business models.

To my amazement, I received nearly 50 responses, and instead of posting them all in one HUGE post, I am going to divide it into 5 parts. With the assistance of WordPress, I have scheduled these to be posted at around 1pm every business day for the next 5 days. I will also create a downloadable pdf (at no cost) once they’re all posted to allow you to have this great advice at your fingertips in one place.

I really appreciate all of the contributions from the industry leaders who contributed, and I hope the advice contained within is helpful to you now – or will be helpful to the growth of your business in the future. As an FYI, I intentionally did not put these posts in any particular order.

Frank Schilling, Name Administration:

I clearly remember walking to the grocery store in the rain, years ago with my wife, doing some fingertip-math, coming to the realization that if I kept repeating what I was doing, I would soon be making $75,000 a month selling traffic. Three times what I was making at the time.   I had acquaintances back then, also in this business, who are gone today.   They sold out, capped out, got sidetracked by sideshows and shopping and booze and drama. They could have done the exact same thing, but they lost their focus.

You need to keep envisioning that goal, that thing you want to attain and strive for, the next deal, the next acquisition or pick-up. If you can dream it, you can do it. In tandem with that, but no less important I also remember getting that first big name. I got it on a drop. In today’s environment, whether you buy it undervalued, or trade for it or even pick it up on a fluke is irrelevant. It wasn’t even that valuable a name in retrospect, but it was priceless at the time because I believed it was valuable. I thought I could build a business to live off this one name. It was one of those names that made me “feel” rich: “Don’t you know what I’ve got here?!? This is like the best name on Earth! I could sell it to anyone with one phone call for $100,000 easy!!”.

Okay, well maybe I was wrong. It was alright, but not that great. But it felt great at the time and it gave me courage, and enthusiasm to ‘focus’ on the next deal. Keep that enthusiasm for whatever it is you’re doing, because the truth is YOU’RE RIGHT if you believe you are, and that enthusiasm will keep you focused on moving forward to find the next transaction, deal or acquisition.

Most of the successful people I’ve met (in any field) allow this simple piston-engine like chain reaction to happen in their lives. Allow it into yours and you’re unstoppable.

Merlin Kauffman, True Magic, LLC:

Take a bigger risk instead of a lot of small ones. By this, I mean that instead of buying ten domains worth $100 each, buy 2 domains worth $500 each, or 1 domain worth $1,000. Bigger risks usually have bigger rewards.

Monte Cahn, Moniker:

My advice would be to look for a diversified approach.   By this I mean, to look for names that have good meaning that are brandible as well as names that generate a revenue stream.   Look also to use the domains in different ways, some for parking, some for micro sites, some for affiliate networking and lead generation.   As everyone knows, some domains generate more money just parked…just like billboards sit usually on undesirable pieces of real estate but make more money showing ads.   Some are better for full fledge deep content websites, however that requires commitment and work to maintain, and to improve.   Working with affiliates offers some additional options as you can steer traffic to CPA or lead generation sites that pay based on conversion, sign ups, or even CPC.

Always look to sell domains for decent multiples.   Most domainers look at a domain sale where you make 20% – 100% profit as not worth their time.   If you buy a domain for $59 and sell it for $120, you just doubled your money…I do not see that happening in any industry right now.   So take money off the table and diversify that money into other types of investments….do not hold everything, look to sell when there is good profit, try to retain a piece of the upside where ever you can. For example, if you sell a higher priced domain, you can negotiate in stock, warrants, options, profit sharing, retain percentage of ownership so that if it does become more valuable in the future, you have upside.

Look to do creative financing and lease to own deals.   We are seeing more and more lease to purchase, multi month and year domain purchase transactions using our escrow services.   This is a great way to buy in and offer others to buy with flexibility rather than all money down all at once.

Work also with a company that is aligned with your interests, secures and protects your domain assets, one that makes money when you do so that they are incented to work harder to help you be successful.

Brett Lewis, Lewis & Hand:

Do the right thing.   Don’t build a business on registering trademark domains, because it will get you sued.   Some of those guys make money and some of them get sued.   Honor your agreements.   Don’t sign agreements unless you plan to follow through on them.   In other words, do the right thing!!

David Castello, Castello Cities Internet Network:

Domain Investor (non-Developer)
1) Only invest in dotCom or Top 10 ccTLDs until you really know what you’re doing (or usually win at roulette in Vegas).
2) Target names that have high end-user potential (most of them will also have high SEO potential).
3) Do not buy a name simply because you think other domainers will want it. Most of them are broke anyway 🙂
4) Read DNJournal.com’s weekly sales report.

Domainer/Developer
1) Only invest in dotCom or a ccTLD (if your business is based that country). Yes, you can possibly make money with dotTV, dotME or DotCM, but I don’t believe in working ten times as hard for the same revenue. Furthermore, dotTV does not stand for television, dotME is not about you and dotCM is not typosquatter heaven.   They are the ccTLDs for Tuvalu, Montenegro and Cameroon – and if you think that will never matter down the road think again.
2) Target names that also have direct navigation and built in SEO potential. Steer clear of catchy names with no meaning (for more insight into this read about most IPOs from 1999-2000 – for every Pets.com there were a hundred more you can’t remember because the names didn’t mean anything to begin with).
3) Learn WordPress or Dreamweaver (or you’ll end up working and taking direction from your webmaster instead of the other way around).
4) Read DNJournal.com’s weekly sales report and every other blog out there by a Domainer/Developer (like Elliot’s Blog).

Mike Mann, Grassroots.org:

Do extensive research on each investment, use all the technology available, invest a lot.

Adam Strong, Domain Name News:

ALWAYS SHOW UP TO THE AUCTIONS

If you don’t go/attend/watch you may miss out on a great deal. I’ve been to many auctions and scored a deal I wasn’t expecting to get. I either thought the domain was going to go higher or had a higher reserve. I may have not seen the possibilities behind the domain until that day or known about some of the revenue/traffic/potential of the domain until that day.   Auctioneers lower prices mid-auction now.   At live events auctioneers are now giving insights in to the domain you might not have known. . . traffic, revenue, etc. New domain inventory gets added last minute.   There’s all sorts of reasons to show up.   I see it on the forums all the time . I hear it from my colleagues all the time.   . . “WOW that was a steal ! I wish I’d have been bidding ”

I’ve been going to auctions outside the domain realm for over 20 years and the same thing applies. . . you just never know what’s going to happen until you show up for the auction.

Chad Wright, WebQuest.com, Inc:

Find out who makes the big money in this business, then copy them.

Rob Sequin, RobSequin.com:

If I had one piece of advice to offer a part time domain investor I would suggest that you know the difference between investing and speculating:

Investing:
* Purchase quality domains from a trusted source
* Purchase .com domains (with some exceptions)
* Buy and hold with plans to develop
* Buy and hold domains that have natural type in traffic

Speculating
* Hand registering quantities of domains based on a longer term investment strategy.
* Buying non .com domains (with some exceptions)
* Any traffic or revenue would be a bonus
* Fine if you plan to simply sell domain names
* Fine if you plan to develop a domain or domains to cover a niche you know and like.

Either way, I would suggest that you focus on keywords or industries that interest you.

Andy Botzer, LZ Domains:

Be remarkable.   That’s it.   In anything you say or do keep that your mantra.