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Tag: Internet Business

What Happens When You Leave Your Job or Business Abruptly

I started working in my early teens. I didn’t make any significant money for doing so but it’s been a while. I received my first pay-check in 2004. I am 30 years old now and I can say I’ve worked for more years than I have not.

Despite being in a career for this long, I have never had a day job. Not even for 1 day. So I don’t know how that works. To top this off, my own company is also a distributed one with a headcount of less than 5 and a couple of freelancers. So I’ve never seen the other side of the picture clearly. May be there’s something I’m missing out in a day job, I absolutely don’t know about that.

However, thinking on those lines something popped up in my head and I thought to lay it out here.

When you leave your job abruptly, what happens? If after 7 years of working, you have decided to leave your job today, you may be given some bonuses I suppose for staying around long enough. I don’t know what that number would be but I suppose it won’t be a lot or that it would depend a lot on case to case basis.

When you’re asked to leave your job unwillingly, severance may be offered? How much does that sum into? Internet suggests 2-4 weeks per year that you’ve worked. Let’s average that out to 3 weeks. Since you’ve worked for 7 years, this could be mean you’re getting 5 months of salary without working. That’s not too bad.

What happens though when you leave your business abruptly? If it’s a very very small internet business doing anything between $10K-$100K per year. You will easily flip it for 30x monthly multiple. If it’s slightly bigger than that, but still a small business doing $100k-$1MM per year, I suppose you’ll get over 40X monthly multiple. If your business is larger, solid, more consistent and has been around for 7 years, you can hope to get paid even more than that. If it’s an offline business, I suppose you will get paid a lot more than what you get paid for internet businesses today.

Assuming you have a steady job giving you 6 figures per year i-e $100,000 USD, for having a business of the same size you’re looking at an extra $300,000+ for abruptly leaving it. I don’t think any bonus or severance pays that much. Educate me if my understanding is incorrect.

As humans, we’re so focused on the short term, living in today and thinking everything in the terms of daily and monthly gains, that we forget about the value that is created outside of today. The value that is created outside of today can often be much larger than today. A reminder of that is necessary and I make every effort to constantly remind myself.

Thanks for reading.

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.