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Where Are Valuations Heading For Internet Businesses And What Does It All Mean

I believe it’s getting tougher on the internet. All markets are getting more competitive. When I started out, it all seemed too easy. Sometimes I wonder if it’s just me getting older & inefficient or are internet businesses actually getting more competitive? The answer always lies in statistics, so I decided to dive in.

I started off my career by making content sites or blogs. There was a mega estate on desktop screens for ads, and the ad-blockers didn’t exist. It was so much easier to monetize blogs compared to now as the screens have gotten smaller and tech-savvy customers are using ad-blockers. With some browsers such as Brave designed to offer ad-blocking by default, it’s getting tougher to run a content site. Despite this trend, a blog would sell for 3x annual profit multiple now compared to 2008 where 1-2x was considered the norm. I sold my first blog in 2010 for a 1.3x multiple or for 16 months profit but the same blog would easily sell for much higher today.

In theory, such low valuation for an internet businesses appear absurd to me. It appears absurd because real-estate in comparison is sold for 15-20x annual earnings which is commonly known as price to rent ratio. This means, buyers of internet property are willing to pay only 15% of what they would pay for a real-estate if both generated similar earnings per month.

The reason why buyers do that is because they believe that real-estate would generate revenue for a longer time-period than internet businesses. But have internet businesses started generating revenue for longer time-period compared to 2008? If not, how have the valuations gone up? Is that because people trust internet businesses more and are willing to believe that they do and will last long enough.

This multiple, in my opinion, will keep going higher. For large softwares, where this multiple is the highest, it already hoovers around 10x. While small to medium softwares go for around 3.5x to 4.5x.

E-commerce, both stand-alone as well as FBA, also seem to be selling for 3.5x to 4.5x annual profits as long as they have minimum 1 year history.

Why are the multiples getting higher? I think this is a sign of trust in the internet businesses. More and more people realize, trust, and believe that internet and internet businesses are here to stay and hence they are willing to pay a higher price to acquire these. With more trust and better valuations, more people want to start internet businesses. I believe that the valuation multiple and competitiveness on the internet are directly proportional.

This is no more an open field. There is cut-throat competition, and it will keep getting harder to the point that economics will be nearly identical of what it is for offline businesses. Before that happens, I recommend that you hop on and enjoy the journey.

Hundreds of Wrong Orders & Service Recovery Paradox

We had a rather wild situation with one of our e-commerce stores in 2017. We had 10s of thousands of orders. We dealt with that kind of volume for the first time and it was increasingly difficult for us to fulfil those many orders even with the help of many many vendors.

We exported the order data as CSV for one of our vendors and sent him the list of thousands of orders that he had to fulfil. But there was one small problem during the export which became a very large problem for us.

For all post codes starting with 0 such as 01234, during the exports, change of formats, somewhere along the way, the post codes became 1234. Our vendor sent out 100s of orders with the wrong post code, all of which were only going to be returned after a huge delay and after making a round trip to US from China. In addition, we were going to lose all the money spent on shipping.

This landed us into awkward situation and we hired Zeeshan for service recovery operations. Zeeshan explained me about the phenomenon called service recovery paradox. What that means is often after you solve a customer’s problem by providing him extra ordinary service; you can leave the customer happier than he originally would have been without any problem.

Zeeshan started by producing a personalized video message which we emailed to all customers whose orders were misplaced. The video was well-scripted, 50 seconds long, stating exactly what happened. In situations like these the best practice is to be straightforward. In the video we highlighted how a small computer error resulted in wrong shipping and cost our e-commerce store hundreds of dollars in shipping. Our rep simply apologized in the video, explaining the entire situation and presented two options for the customer to choose from.

The goal was to make them feel valued by offering them control over the situation. They were offered A) if they could wait 8-10 more days so we can reship them their order, plus as an appreciation for their patience, refund of their shipping fee and free shipping for the next order. B) Giving them a chance for a full refund if they would like to refuse the order.

The video worked like a magic! A customer always feels appreciated when you go to a personal level to engage with them. In this world of corporations and computer bots, people genuinely feel touched when they can see a person right on their screens. Only 4% of the customers opted for a refund. The remaining received their orders in the promised time.

The product we were selling was a kitchen accessory primarily ordered by women. We asked our vendor to add 2 more things with the orders. A) An inexpensive plush teddy bear toy with a heart on its chest with text saying “I’m Sorry”. B) An additional 20% discount coupon that they could share with their friends or redeem themselves. Remember, we had already promised them free shipping on their next order.

In the coming weeks, we saw a large percentage of repeat customers, much higher than the usual for that store, that happened due to this activity. The best part is that there was no marketing cost involved, other than the cost for reshipping and teddy toy.

The customers felt emotionally elevated and did more shopping on our store. The strategy helped our customers to get a feeling that their prepositions were being valued. Remember, our goal was to convert an unhappy customer to a happy customer. Not only did we put a smile to our unhappy customers’ faces, but we also made some extra dollars. In hindsight Zeeshan says we sold freezers in Antarctica. We took control of the bad situation and turned it around. We call it smart selling.

We also had a record low chargeback rate of 0.1%.

Taksim Square, My Turkey Love Affair & a Military Coup

Some people say that my repeat visits to Turkey are a complete waste of money. Some suggest that I should instead be going to a different county every time I plan a foreign visit. Despite what they say, somehow, I keep coming back to Turkey.

Today I was at Taksim Square and later visited Galata tower, which by the way, looks even better during the night. Taksim reminded me of a story, and I thought to share it with you guys. But before that, I want to give you some back story about Pakistani people.

Due to constant terrorist attacks in Pakistan, two things happened to Pakistanis. One that I’m proud of and the other one that I’m ashamed of.

I’m proud of the fact that Pakistanis live with tawakkul which roughly translates into trusting in God’s plan. Most countrymen are not afraid of death or misfortune on the same level as most other people in the world. Despite seeing so much, Pakistani people continued with their lives, became fearless in the face of adversity and started to live with tawakkul and hope that nothing bad will happen. And if it does, it is meant to be. This makes it easier and better to live life despite the adversity.

The second thing, which I’m ashamed of, is that with so much pain also came acceptance of pain to the point that some people stopped feeling pain at times. This roughly means that many people became impassive or beyhis, showed no emotion or became cold at the time of adversity.

I think both the things are linked. They are just different reactions to same events.

Now back to the Taksim story. It was June of 2016. There was a terrorist attack at Ataturk airpot in Istanbul. I was still in Pakistan at that time. I had a trip to Turkey scheduled for July 2016. I went ahead with my plan and came to Turkey. My hotel was booked at Taksim square. It was my 2nd day in the city and I started hearing helicopters, jets and gunshots. In the next couple of minutes, I found out there is a coup under process.

We were asked to stay in-doors through out the evening. There was a lot of violence during the night but everything had cleared by morning. Turkish people fought off the coup with bare hands and by morning they had won and had foiled the coup attempt.

Audio recording from the hotel room at Taksim square

There was a massive celebration the following day at Taksim square. I celebrated too and was able to spot other Pakistanis doing the same.

I’m happy that Turkey is able to come out of that time and I hope they will defeat the economic turmoil too.

Why I Use Accelerated Delivery For Facebook Ads

I haven’t met many people who use Facebook’s accelerated delivery for ads. The reason why people don’t use that option, beside the fact that many people don’t even know about it, is that accelerated delivery consumes your daily budget as quickly as it possibly can ignoring to spread it evenly through-out the day.

The problem with this kind of execution is that you’re basically asking Facebook to win all the bids possible in order to serve your ads which means you’re willing to pay as high as possible to get the results. Then why would I or someone else possibly use this option? There’s a very good reason for that and I’ll explain this just in a bit.

I scale a lot of my campaigns with manual bids. For example if a campaign is working well for me @ $100/day ad-spend but suddenly stops working for me at $200/day ad-spend, I can’t possibly scale this campaign using automatic bidding. I’d instead scale this campaign by placing a manual bid of say $20/purchase and setting the budget to $1000. If Facebook can find me $20/purchase, it will spend all $1000. If it can’t get me any purchase in that amount, no budget will be spent. If it can get me a few sales in that cost, the budget will be spent accordingly.

Even with manual bids, Facebook will also attempt to evenly spread my budget through the 24 hour period. However, that may be unnecessary with manual bids. When I’ve provided a cap per result, I would ideally like to spend all my budget even in a 1 minute period as long as the cost per purchase is met. And this is where the accelerated delivery does the job just right.

In summary, I like to run most manual bid campaigns with accelerated delivery in order to steal cheap bids as quickly as possible, even if that means spending day’s budget in an hour.

Pakistan-Turkey Dual Citizenship, Myth & Facts

Today I met a Turk who is a student immigration advisor. His firm runs ads on Google but has recently stopped advertising in Pakistan. The reason he did that is because their query volume increased by 1000% in the last week. All of their budget was getting consumed by leads that didn’t convert. That happened because a news story surfaced in Pakistan about Pakistan and Turkey looking forward to sign a dual-citizenship agreement.

The news was interpreted in Pakistan with an assumption that all Pakistanis will automatically become Turkish citizens and all Turks will automatically become Pakistani citizens. The news was fueled by all Pakistani newspapers who are responsible for giving that feel to the news. This was further fueled by celebrities such as Hamza Ali Abbasi who called this resurgence of Khilafat movement and further suggested that we should also have one currency like European Union (WTF, Hamza bro?).

The truth is that all of that is baseless. There is indeed a deal between the governments happening, but the deal only means that any individual is now able to keep both citizenships in an event he’s offered one such citizenship through regular means such as by marriage, investment, naturalization (spending time etc), or through any other means that existed before. This agreement is identical to how Pakistanis can keep both Pakistani and American citizenships at the same time. But not all Pakistanis automatically become Americans.

Without this agreement in place, all Pakistanis had to give up their Pakistani citizenship in order to acquire Turkish citizenship and vice versa.

Pakistan already has such deals with many other countries including muslim countries such as Egypt, Syria, Jordan & Bahrain. Pakistan also has this treaty with many western and European countries. A treaty of this kind with Turkey is a step in right direction, but it isn’t what everyone has concluded it to be.

Shocking Facebook A/B Test Results Due to Page Name

I just concluded an A/B test that I ran simply out of curiosity. I first created a total of 10 campaigns targeting different things and having different creatives. I then created identical copies of these 10 campaigns.

In summary, I had 20 CBO campaigns divided into group A and group B. I created 2 brand new Facebook pages; one for group A and the second one for group B. The only difference between group A and group B was that the page names from which the ads ran were different. The adsets, targeting, creatives and everything else was 100% identical. On these 2 different pages I even uploaded identical display pictures and content.

The results came out to be very shocking for me. I use the word shocking because the price per result wasn’t slightly higher on one page than the other. It was more than 100% higher which means if CPA was $10 on 1 page, it was $25 on the other page.

The takeaway is that Facebook page name has a massive role in your over-all ad performance and cost per result.

How I Found Success On Airbnb As A Host in Pakistan

I haven’t frequently hosted properties on Airbnb in Pakistan but I listed one property in 2018 that I rented to sublet just for learning purposes and found success with it.

While there could be many tricks and hacks you may use to find success on Airbnb, my personal favorite is simply a pricing hack that I’ll share later in this post.

I think everyone agrees that the core success of any property comes from how good the property is, and what is the value for money. So you certainly cant discount that advice. Your property photography needs to be really good for the whole thing to look good and your pricing needs to be competitive with what others are offering in the neighborhood.

The second most important thing for your Airbnb listing is your landing page. It should be super informative. There’s little need for you to get creative, just look at the highest rated properties, and try to copy everything that they’ve done on their landing pages. Try to provide as much information as other top properties have done. If you don’t find anything extra ordinary in the neighborhood, explore properties in other countries such as US and UK and find the best parts for your sales pitch.

The third thing, that I was able to really make money from, is simply a pricing hack. When you search a property, Airbnb displays the base fare on the front-page. If you have ever booked a property, you may have noticed how your $50/night and 10 nights never add up to become $500. Instead, you’re always paying $750 or something. This happens because when you open the property, the pricing now includes price per number of guests staying, weekend pricing, cleaning fee, airbnb service fee etc.

Since I was only interested in rentals that were at least a week long, I set the minimum length as 7 days, and took advantage of the weekend pricing. I set the base pricing as $50 or about 20% lower than my competition. By doing so, Airbnb not only ranked me higher than my competition but I also looked more interesting and generated a higher clickthrough rate from my audience. My weekend pricing was twice as high ($100) as my base-fare and since the rentals were always week long, there was no way to avoid weekend pricing.

In the end, my pricing structure would sell 5 nights for $50/night, and 2 nights for $100/night cumulatively giving me $450/week or an average nightly rate of $65/night.

After taking the final pricing into account, I costed about the same as my competition, but appeared 20% cheaper, appeared higher in airbnb search ranks, and had a better click-through.

This is just one of the many ways you can take advantage of the Airbnb pricing system to generate higher revenue and occupancy rates than the rest of the neighborhood.

PS: This was only an experiment that I ran a couple of times and not something that I presently do.

Why I Like Facebook’s CBO (Campaign Budget Optimization)

Facebook launched campaign level budgets in the mid of 2019. Initially, I was skeptical but I’ve started to like CBOs a lot. By using campaign level budget, I can now test 5-10 adsets in the same budget that I needed before to test 1 adset.

Facebook simply spends higher budget on the adsets within a CBO that are more worthy of my budget and spends lesser budget on adsets that are more likely to burn cash.

There is always a risk of missing out on a potentially winning adset but the reward overshadows the risk. In addition, you could still define minimum spend per adset within a CBO to ensure that each adset gets a bare minimum spotlight. Although, I generally advise against that.

My only problem with CBOs thus far is the organizational structure. Prior to CBOs, I only had to create 1 campaign per product. My campaign could then have hundreds of adsets.

Now I’ve to create multiple campaigns per product with each campaign grouping similar adsets together. Because of this, I’ve to create 10s of campaigns per product. The downside is I can’t group together data for 1 product without using filters which is just an added inconvenience

If Facebook introduces something which is above the campaigns level only for sake the of categorization, I’d really like that.

Izteraab, Restlessness & Early Retirement

A few days ago I did a twitter rant about the inability to find equilibrium in life. You can read the rant below

My friend Haris pointed out that this is because the natural human state is not meant to be at rest. In fact, the natural human state is izteraab or restlessness and instead of avoiding izteraab one needs to embrace it.

I started writing this blog in order to finish my early retirement experiment and re-engage with work on some level. It was an effort to resume what I term in my rant as light work. Next thing I knew was that I was working full-time running e-commerce stores, content arbitrage and more.

After going through the experiment of early retirement, working lightly, and then working full-time, I’ve come to the conclusion that I can not and should not avoid work. I haven’t bought freedom from work completely probably because I don’t want to. The only freedom I’ve bought is that I can and should work on things that are most meaningful and fulfilling for my personal happiness and not whatever pays the biggest buck.

I’m also willing to engage with whatever pays the biggest buck as long as I can find people I can invest in who can then carry on that work.

Our Number 1 Winning Strategy: Test Everything

Some people make it seem like that creating viral content is a science. I think there’s some data analytics to it but it’s not entirely science.

In my opinion creating viral content means putting a ton of content out for your audience, studying consumption based on user behavior, and trying to replicate that again in the next piece of content.

It may sound like bit of a science, but the root of all viral content comes down to just pure testing.

These days I spend a lot of time and money running ads for our e-commerce store. The key to running ads right is to test everything; creatives, targeting, copywriting and all permutations of all variants.

In the end, I keep the ones that work, and stop the ones that don’t.

Product video ads aren’t much different either. I believe that before the consumers have received and used the product first hand, the product is only as good as it’s creative.

Sometimes we take segments of what works within multiple creatives and stitch together to make what now works as a whole.

In the end, for me, it’s just testing, looking at results, and improving based on the data.