johnder
12-11-2004, 01:01 PM
The Starving Web Host
It’s tough enough just trying to pay the server off every month. I still have to pay for my phone, my car, the rent, and food!”
The challenge of starting up a business is quite daunting, and sometimes web hosts do not see the hurdles. Making the decision to launch a web hosting business is fuelled by excitement and the motivation to make money, but is that really all there is to consider when taking the plunge?
Perhaps one of the most important considerations of starting a web hosting company is the financial challenge of being able to survive.
As a web host start-up, what you should aim for from the beginning is not whether or not your company will be profitable, but whether or not you will have enough money at the end of the month to be able to cover all of your expenses while being able to provide your personal needs. But isn’t that profitability?
Concentrate on Cash Flow
What you’re looking at is not profitability, but cash flow. Depending on your source of financing, whether it’s the large wads of cash you’ve been saving under your pillow over the years, that savings account in your bank that you decided to cash out, or borrowed money from whatever source, you must keep in mind that in order to prevent your company from being driven into the ground, you must be able to survive from a cash flow perspective.
Say, for example, you start a web hosting company from the comfort of your own home. What are your expenses? First of all the most major expense would be your reseller account or dedicated server. While a web host of this scale would be considerably small in comparison to the large operations out there, you are a startup and chances are you decided to get into web hosting bootstrapped with a shoestring budget.
Now that you have your server, there are other costs including your internet access, telephone line, software or application you use to run your billing or server administration, and the employees or contractors you pay to do work for your company. These expenses have to be paid every month, either from your investment or debt resources. It is therefore important to be able to manage your expenses, while generating enough cash flow from revenue in order to survive without getting yourself into a financial risk.
Initial Investment
But that’s not all. You’ve made initial purchases (web design, interactive tutorials, live support software, billing software and so much more) that account for your initial investment in the business. Not only do you have to account for your monthly expenses, but in order to reach the break even point, you need to keep in mind that you have to earn money to recover your initial investment.
Are the numbers buzzing around in your head at the moment? They very well should be. With your initial investment and monthly expenses in mind, you now have to generate something we call revenue. Assuming that you have an advertising budget or a devised plan to attract customers to purchase web hosting services from you, the revenue you generate every month should exceed the expenses you pay. That’s common sense, isn’t it?
Be Prepared
But it is a very big challenge for start-up web hosts to generate revenue, especially in the first few months of operating a business. It takes time, effort and monetary resources to get those first few clients in the door and giving you their money in exchange for web hosting. With this in mind, it is important, from the start, to apportion your finances to cover the cost of operation, at least for the first six months to one year of business.
Why? The most crucial time of any business is the start-up phase. Consider this: what happens after six months of operation, and you have a number of clients already paying for hosting services, but you find yourself in debt for more than you bargain for, and you don’t have any financial resources left to pay for the server and cover your costs? Will you continue to operate, or will you be forced to shut your business down?
Minimize Expenses
With all of these considerations in mind, there is really one way to ensure that your web hosting business will survive the first year or so of operation while not jeopardizing your financial status. Quite simply, all you need to do is minimize your expenses. From the start, the most important thing about your business is building up your client base while being able to provide your customers with exceptional service.
Do you really need all the bells and whistles? Do you need to spend all that money to hire more technical support representatives than you need? Will billing automation software that you purchase pay for itself within the first few months?
There are many things you can go out and spend money on, but you must discipline yourself and consider which things are important and need to be acquired, and which are merely luxuries that drain cash from your business. Keep things simple. Find a talented friend to design your web site. Do your research and look for the best deal for your first dedicated server or reseller plan. Scour the web for free resources such as help desk scripts, forums and support software. Be cheap! Once the revenue starts pouring in, then you can spend to your heart’s delight!
Don’t Forget the Food
Well, now that you have the finances of your web hosting startup down on paper, you have to remember to feed yourself and pay for your own personal expenses, including the rent or your mortgage. But how do you accomplish this on a shoestring budget? Once again, be cheap. If you still have your day job, keep it until you are confident enough that your financial resources will allow you to survive without it. Prepare a personal budget so you can see where your money is going, and make sure you will be able to survive every month!
Starting a web hosting business will be quite demanding, but it rewarding. For the persistent web hosts with the tenacity and willingness to succeed, it is well worth the experience and the challenges you face in the beginning will eventually pay off when you reap success!
Copyright © 2004 Johnder Perez
It’s tough enough just trying to pay the server off every month. I still have to pay for my phone, my car, the rent, and food!”
The challenge of starting up a business is quite daunting, and sometimes web hosts do not see the hurdles. Making the decision to launch a web hosting business is fuelled by excitement and the motivation to make money, but is that really all there is to consider when taking the plunge?
Perhaps one of the most important considerations of starting a web hosting company is the financial challenge of being able to survive.
As a web host start-up, what you should aim for from the beginning is not whether or not your company will be profitable, but whether or not you will have enough money at the end of the month to be able to cover all of your expenses while being able to provide your personal needs. But isn’t that profitability?
Concentrate on Cash Flow
What you’re looking at is not profitability, but cash flow. Depending on your source of financing, whether it’s the large wads of cash you’ve been saving under your pillow over the years, that savings account in your bank that you decided to cash out, or borrowed money from whatever source, you must keep in mind that in order to prevent your company from being driven into the ground, you must be able to survive from a cash flow perspective.
Say, for example, you start a web hosting company from the comfort of your own home. What are your expenses? First of all the most major expense would be your reseller account or dedicated server. While a web host of this scale would be considerably small in comparison to the large operations out there, you are a startup and chances are you decided to get into web hosting bootstrapped with a shoestring budget.
Now that you have your server, there are other costs including your internet access, telephone line, software or application you use to run your billing or server administration, and the employees or contractors you pay to do work for your company. These expenses have to be paid every month, either from your investment or debt resources. It is therefore important to be able to manage your expenses, while generating enough cash flow from revenue in order to survive without getting yourself into a financial risk.
Initial Investment
But that’s not all. You’ve made initial purchases (web design, interactive tutorials, live support software, billing software and so much more) that account for your initial investment in the business. Not only do you have to account for your monthly expenses, but in order to reach the break even point, you need to keep in mind that you have to earn money to recover your initial investment.
Are the numbers buzzing around in your head at the moment? They very well should be. With your initial investment and monthly expenses in mind, you now have to generate something we call revenue. Assuming that you have an advertising budget or a devised plan to attract customers to purchase web hosting services from you, the revenue you generate every month should exceed the expenses you pay. That’s common sense, isn’t it?
Be Prepared
But it is a very big challenge for start-up web hosts to generate revenue, especially in the first few months of operating a business. It takes time, effort and monetary resources to get those first few clients in the door and giving you their money in exchange for web hosting. With this in mind, it is important, from the start, to apportion your finances to cover the cost of operation, at least for the first six months to one year of business.
Why? The most crucial time of any business is the start-up phase. Consider this: what happens after six months of operation, and you have a number of clients already paying for hosting services, but you find yourself in debt for more than you bargain for, and you don’t have any financial resources left to pay for the server and cover your costs? Will you continue to operate, or will you be forced to shut your business down?
Minimize Expenses
With all of these considerations in mind, there is really one way to ensure that your web hosting business will survive the first year or so of operation while not jeopardizing your financial status. Quite simply, all you need to do is minimize your expenses. From the start, the most important thing about your business is building up your client base while being able to provide your customers with exceptional service.
Do you really need all the bells and whistles? Do you need to spend all that money to hire more technical support representatives than you need? Will billing automation software that you purchase pay for itself within the first few months?
There are many things you can go out and spend money on, but you must discipline yourself and consider which things are important and need to be acquired, and which are merely luxuries that drain cash from your business. Keep things simple. Find a talented friend to design your web site. Do your research and look for the best deal for your first dedicated server or reseller plan. Scour the web for free resources such as help desk scripts, forums and support software. Be cheap! Once the revenue starts pouring in, then you can spend to your heart’s delight!
Don’t Forget the Food
Well, now that you have the finances of your web hosting startup down on paper, you have to remember to feed yourself and pay for your own personal expenses, including the rent or your mortgage. But how do you accomplish this on a shoestring budget? Once again, be cheap. If you still have your day job, keep it until you are confident enough that your financial resources will allow you to survive without it. Prepare a personal budget so you can see where your money is going, and make sure you will be able to survive every month!
Starting a web hosting business will be quite demanding, but it rewarding. For the persistent web hosts with the tenacity and willingness to succeed, it is well worth the experience and the challenges you face in the beginning will eventually pay off when you reap success!
Copyright © 2004 Johnder Perez