So I'm thinking of getting into the web hosting business. I'm a PHP developer that is looking to invest some money so web hosting seems right up my alley.

First off, I realize their are millions of hosts out there and you just can not compete with the big boys, I dont need to make a million, I'm happy with half - haha.

Anyhow, I have $20,000 to invest in creating a hosting company or purchasing an existing one.

Here is my plan.

I am planning on signging up for a dedicated server from rackspace. I realize it is a little costly and the bandwidth is a little low but my thoughts are as an internet based business and moreso a host - having my servers online and functional is job 1. I love the feature of the monitoring service that RP offers and I feel that it would be an important asset and is worth the cost.

Now - here is what I don't know.


Do I just start a massive marketing campaign and cross my fingers? Do I buy some of the smaller hosting companies (the mom & pop shops if you will) that are for sale here on WHT ? do I do both ? Do I dump the remainder of the cash on one larger company for sale on WHT ?

I know that getting into this business is going to be a little hard because it is so oversaturated, and so many guys are trying to start small and work big and their budgets limit that, I'm hoping to start semi-big and at least stay there.

What are your thoughts on the situation ?

Well, if your going to buy a host with existing customers, how are you going to support all of them if its just you? If you do, make sure you dont buy one that offers 24/7 support as your obviously not going to be able to honestly do that with just you.

How well do you know the hosting industry and business? There is a growing period for a reason. You need to learn how it all works. An outside view of the industry is completely different IMHO.

20k is a nice investment, but hardly big. Your going to have to find a niche if your going to use rackspace as well, since your cost per gigabyte for storage and bandwidth is going to be very high.

There is plenty more to be said and im not try to discourage you, just trying to give you some additional insight to your needs.

You may want to think this out for a bit longer on how you plan on doing this.

There are many different paths that you can go down when starting a business like this. You brought up starting a company from scratch or purchasing an existing company. This is something that you are going to need to decide on your own and weigh the pros and cons of each.

Do you plan on doing this on your own? Bringing in a partner? Hiring a support staff or outsourced company? Do you have experience in running a business? Are you going to be using the hosting business to supplement your PHP development?

Putting myself in your shoes right now. If I was determined to do this, I would buy a few clients from a repeatable company and provide top notch support for the ones that you buy. Word of mouth can spread much faster then you know.

Thanks for the reply MAC, and first off posts like yours are exactly what I'm looking for. $20k may not be a large chunk of change to play this game, but its still a large chunk to spend as an individual so I'm here - doing homework.

From my understanding with the RS monitoring service they monitor all servcies (apache, mysql, mail, ftp) - anything that runs on its own port (and hardware failure) and if it goes offline they respond and take action within a few moments. I was thinking of advertising support monitoring 24/7 (which covers downtime) and support service (awnsering tickets, SSL requests, other non critical issues) your standard business hours.

I could also have any system critical after hours tickets come directly to my phone whereever I am - and respond from there. I mean, if things are down then I need to know and I need to know if the RS admin team is on the ball. Or there is the option of hiring one of the support services listed here on WHT here as well to cover those items aswell, as a backup system mostly.

One of the cons to buying up a handfull of companies is that they are, all different companies. From what I understand after purchasing a company its a bad idea to rock the boat by moving servers, changing names, and (possibly) altering rates/plans - although I want to provide the best support possible. I feel that a company with great support willing to help the user out will succede, at least somewhat.

Anything that you guys want to put out there, I would LOVE to hear it please.

If you are looking to buy an existing company, do you actually know how to do the technical site or the business site of running a hosting company? Because if you don't you either need to pay someone that does to help you or start your own company and work up from the bottom, and remember 'generic host' won't get anywhere you have to be different from everyone else. If your running from a rackspace server you can take advantage of their great support and of course their 100% network uptime :)

If you are looking to buy an existing company, do you actually know how to do the technical site or the business site of running a hosting company? Because if you don't you either need to pay someone that does to help you or start your own company and work up from the bottom, and remember 'generic host' won't get anywhere you have to be different from everyone else. If your running from a rackspace server you can take advantage of their great support and of course their 100% network uptime :)

The business side I am comfortable enough to take on, however its always a learning process.

The technical side no I do not have the experience, which as you said, is where the rackspace support, good uptime, and possibly a per ticket support team on my end come into play.

I know that the trick is being "different" but how so - because 95% of the hosting sites I have seen have a horrid template looking website, and offer the same deals, nothing breaks the mold really. I want to have a nice professional website (IMO a professional website helps potential clients trust that this is a legit company) that I will handle but other then that.... you got me.

Out of the $20,000 I am thinking

$1,000 for RackSpace setup and first months hosting
$13,000 to purchase existing small hosting companies
$5,000 for an advertising campaign - undetermined media at this point
$3,000 for unaccounted for items.

Now for $13,000, just based on the WHT forums, I see a few companies in that range that add up to anywhere from 200-300 clients and approx 15-20k annual income.

Why are web hosting companies selling for 90%-95% of their annual income? That would enable a buyer to make his money back in the first year, shouldn't it take 5 years to make your money back when buying an established business ? Now - thats a nice thing, but it makes me wonder what the deal is.

I know that the trick is being "different" but how so - because 95% of the hosting sites I have seen have a horrid template looking website, and offer the same deals, nothing breaks the mold really. I want to have a nice professional website (IMO a professional website helps potential clients trust that this is a legit company) that I will handle but other then that....

Well to start with your a PHP developer, so you can host your dev clients for a start. From that you could also make yourself a rather nice website I would think! Following on from that you need to decide what kind of clients you want to have and how you want to run your support.

Well to start with your a PHP developer, so you can host your dev clients for a start. From that you could also make yourself a rather nice website I would think! Following on from that you need to decide what kind of clients you want to have and how you want to run your support.

That is part of where this idea has stemmed from. I got burned, as did my clients, from a very large hosting company and I decided to start my own. I had planned to just get a little VPS and host my clients but my g/f asked me why I didnt go larger scale and use some of the money that we had planned to invest - so here I am.

Well, what kind of clients do you work with for your dev work? Businesses i would guess?

Well, what kind of clients do you work with for your dev work? Businesses i would guess?

My dev work is 99% businesses and 1% friends. At this point my dev work has been my primary focus, but with this hosting company I would like to change that and have the dev be a secondary item if needed.

Well, If your dev clients are mainly business, you should look at doing business hosting, the margins are higher since you can charge more, but I would also think that alot of businesses won't want to be on 'shared hosting' so things could get quite complex with that...

I feel that a company with great support willing to help the user out will succede,(sp)

These days, just about every industry is ripe for this. Not just the hosting industry. Remember the slow burn every time you have to deal with most businesses as a customer?

Maybe you could go midway between your original plan and your g/f's somewhat more ambitious plan.

Start with a dedicated instead of a vps.

Get your in-house clients in there nice and comfy.

Once you are comfortable with hosting, then look to acquire other operations.

This way, you are sure of your initial income, limit your costs somewhat, and have time to learn your way around the guts of your server.

My dev work is 99% businesses and 1% friends. At this point my dev work has been my primary focus, but with this hosting company I would like to change that and have the dev be a secondary item if needed.

Even better would be to partner with an existing host - that way you can focus on what you do and they can focus on what they do.



Regards,

Even better would be to partner with an existing host - that way you can focus on what you do and they can focus on what they do.


Regards,

I've thought about that, but I code for 8-10 hours a day anyhow, then I go home and code some more for clients for my business - I'd like to kinda lay off the code.

I don't mind doing it occasionaly but when something is your career its hard to be a hobby also.

You can hire people to code things for you:P

Back on topic... I understand you want to drop back the coding, but if you do that you really are ditching what could be used as a *huge* selling point :)

Like stated previously, I could always outsource it and I don't mind doing it occasionally, but as my bread and butter its getting old. I did it for almost 10 years and had to take 1.5 year break before I got into it again. The thing is, I dont want to build my business off coding and offer hosting, I'd rather do it the opposite way. Coding takes time that could be invested in MANY other resources. Perhaps I'll start a hosting company and hire a local development company.

As a side note I just got off the phone with a rep from rack space. I expected him to be very pushy and try to upsell everything - this was 100% NOT the case. I explained to him my plans and concerns and he told me what they offer. He was happy to find me more info about some of the things he did not know, and also informed me that the 150GB bandwidth on the site for that package is wrong - I get a terrabyte.

So far, I feel very comfortable with them and I don't think I will mind paying the little extra for their service.

Like stated previously, I could always outsource it and I don't mind doing it occasionally, but as my bread and butter its getting old. I did it for almost 10 years and had to take 1.5 year break before I got into it again. The thing is, I dont want to build my business off coding and offer hosting, I'd rather do it the opposite way. Coding takes time that could be invested in MANY other resources. Perhaps I'll start a hosting company and hire a local development company.

As a side note I just got off the phone with a rep from rack space. I expected him to be very pushy and try to upsell everything - this was 100% NOT the case. I explained to him my plans and concerns and he told me what they offer. He was happy to find me more info about some of the things he did not know, and also informed me that the 150GB bandwidth on the site for that package is wrong - I get a terrabyte.

So far, I feel very comfortable with them and I don't think I will mind paying the little extra for their service.

Just so you know, that TB of bandwidth is for up to 10 servers. You dont get a TB per server. Rackspace is great and i really like their product, sales and tech support, but i found their bandwidth to just be way to expensive for general hosting. I just wanted to make sure you were aware so you didnt assume anything incorrectly like I did when i first thought about going with them.

Just so you know, that TB of bandwidth is for up to 10 servers. You dont get a TB per server. Rackspace is great and i really like their product, sales and tech support, but i found their bandwidth to just be way to expensive for general hosting. I just wanted to make sure you were aware so you didnt assume anything incorrectly like I did when i first thought about going with them.

Hmm good to know. That could change a few things.

Here's what I've written down on paper based on what you said

use 20k buy infrastructure, misc fees
??????????
??????
?????
run business
???????
?????
Money pouring in.

I think you should stick to your roots and continue to offer coding. If you want some thrills or a respite from coding try day trading that 20k.

Here's what I've written down on paper based on what you said

use 20k buy infrastructure, misc fees
??????????
??????
?????
run business
???????
?????
Money pouring in.

I think you should stick to your roots and continue to offer coding. If you want some thrills or a respite from coding try day trading that 20k.

Could you elaborate a little more on your method of thinking as opposed to just a quick smartass reply to "stick to my roots" ?

Thanks.

There are many other hosts out there that are a magnitude less costly than Rackspace and offer similar level of monitoring and response. You could even consider getting an unmanaged server somewhere and then getting a third party management company to handle the monitoring and super technical aspects of things. Definitely look into both options because I believe you will save yourself a considerable amount of money, without having to sacrifice quality.

That said, $20,000 is not a lot of money if you plan on entering the shared hosting game. Shared hosting is terribly competitive, the customers are terribly cranky [they expect the world for pennies per day], and in general it's a thankless business. People only get in touch to let you know somethings broken. It's not uncommon in shared hosting for customers to cancel by doing a chargeback or by just canceling their credit cards.

There are many other hosts out there that are a magnitude less costly than Rackspace and offer similar level of monitoring and response. You could even consider getting an unmanaged server somewhere and then getting a third party management company to handle the monitoring and super technical aspects of things. Definitely look into both options because I believe you will save yourself a considerable amount of money, without having to sacrifice quality.

Thank you. Could you reccomend some either by post or via private message?


That said, $20,000 is not a lot of money if you plan on entering the shared hosting game. Shared hosting is terribly competitive, the customers are terribly cranky [they expect the world for pennies per day], and in general it's a thankless business. People only get in touch to let you know somethings broken. It's not uncommon in shared hosting for customers to cancel by doing a chargeback or by just canceling their credit cards.

I know compared to what some of these companies have its just change in your pocket as a startup. However what about purchasing an existing company with an existing cash flow? I'm thinking it may be much more time and cost effective to do this and continue to grow it by adding my local client and other local hosting accounts.

One thing about customers is they ALWAYS want the world for free, I'm sure its like that on all hosting mediums. Is there any way to combat the chargebacks or canceled cards ?

If you are interested in finding other dedicated hosts just run a search for them. There are an abundance on here and many of them have reviews as well. If you decide that you are interested in going unmanaged and hiring and outsourcing managment, there are also a number of management companies out there that are reviewed on here.

John

Careful on purchasing existing hosting compaines.
While it sounds good on the surface many clients do not take well to being sold and a good portion of them start looking elsewhere. This is where you really have to go above and beyond the call of duty to convince them that you are a better deal for them. With out real 24/7 support I doubt you are going to be able to do that.

Also if that is your budget and you are thinking you are going to be cash flow positive right after purchasing them, think again.
Most of the ones for sale here on WHT are yearly clients that have prepaid for a period of time, that means you are going to be providing hosting for a free until their renewal time. And with yearly clients you never know if they are going to renew or not.

My advice is cool your jets a little, build a little slower, rent a server from someone else besides RackSpace, you are going to need more bandwidth to compete. Get yourself a few clients and start looking local offer free hosting to charities in your area like the Lions, Kiwanis, Rotary Clubs etc. after all most of the membership is made up of business clients.

Do a little advertising on places like WHT.
And don't expect to get rich over night.

It took me a solid year before I got enough clients to pay for my first server.

Be aware that hosting is not a 5 - 9 job. It is not something you can just do in your spare time and get rich from. It takes extereme dedication to get off the ground.

My first year and a half I promised 24/7 support with a max 4 hour response time, so I used to set my alarm every 3 hours to get up and check the help desk. I slept many of nights in front of my desk. (still do at times.) I was tied to my desk for over 2 years, can't count the number of family functions or friends parties I had to leave the wife and kids at to go tend to a sever problem etc.. My wife was ready to kill me and leave me before it was over. So make sure your GF has an idea what she is suggesting before she eggs you on.

Careful on purchasing existing hosting compaines.
While it sounds good on the surface many clients do not take well to being sold and a good portion of them start looking elsewhere. This is where you really have to go above and beyond the call of duty to convince them that you are a better deal for them. With out real 24/7 support I doubt you are going to be able to do that.

I have many concerns about purchasing the existing company, and this is one of them. How do clients react when they find out that Company B has been purchased by Company A? Do they expect things to improve, do they expect nothing to change, do they assume that the change is due to troubled waters ahead and jump ship ? From what your telling me they do not like it.

If it takes having a monitoring company on the server (be it with rackspace or otherwise), a support company on tickets, someone to awnser the phones, and myself doing anything thats missed then so be it. For everyone of those items is a monthly fee but as a team they are invaulable and the core to proving that this company is stable and your sites are safe and reliable. I am at a computer at minimum 13+ hours a day, usually 8am-6pm and 8pm-3am, if I'm not on a computer I'm on my blackberry inbetween times.



Also if that is your budget and you are thinking you are going to be cash flow positive right after purchasing them, think again.
Most of the ones for sale here on WHT are yearly clients that have prepaid for a period of time, that means you are going to be providing hosting for a free until their renewal time. And with yearly clients you never know if they are going to renew or not.

Other then the yearly renewals, is there any reason I should not expect some monthly income? I guess with the yearly customers I have that much longer to show them that this is the real deal, and this is where you want your sites to be.



My advice is cool your jets a little, build a little slower, rent a server from someone else besides RackSpace, you are going to need more bandwidth to compete. Get yourself a few clients and start looking local offer free hosting to charities in your area like the Lions, Kiwanis, Rotary Clubs etc. after all most of the membership is made up of business clients.

Do a little advertising on places like WHT.
And don't expect to get rich over night.

Thanks for the advice, as mentioned prior this is something that I had debated in my options, either start small and work up or buy someone elses mess. I'm really not looking to get insanely rich here, if I made my money back in the first year I'd be flat out estatic.

Again one thing that I've noticed is that web hosting companies for sale here on WHT are selling for approx 90% of their annual income. A normal established business should sell for 2-3 times its annual income. Why are web hosting businesses so different, I've seen this on many occasions lurking here at WHT ?

Because 90% of the web hosting companies for sale on WHT are reseller accounts. Even well established companies seldom bring more than 1.5 times the annual return.
There are lots a variables in buying a hosting business.

Yearly clients = less money.
Huge plans = less money.
Years in business less years = less money.

When buying a business other than hosting things such as gross return, annual profit, balance sheet, plays a roll, but also things such as brand name and goodwill and assets play a big roll.

In the hosting business seldom do buyers want or need the assets, most are going to move clients to their own billing software and servers so all that is worth nothing. Few buyers want the web site or domain name unless it is very well branded and well known. So that leaves the clients pretty much, gross return, annual profit, balance sheet and most buyers consider 60 to 90% of a years income to be what the customer is worth compared to what they would have to shell out in advertising $$ to get the same amount of clients another way.

Change your budget calculations around and you will see you are going to have less to spend on buying hosting clients or advertising than you thought.

You are going to at the very least have to hire out sourced support company to answer tickets when you can't. So figure what ever that and the server is going to cost you and put away at least 6 months of it. That alone could knock 6 to 10 grand off your budget.

Even the best managed server provider will not be there to answer the client at 3 am that lost his password or one whose mail box is not working. The server monitoring will show them if something is down on the server but it does not show individuals that are having problems with things specific to their account.

We monitor our clients servers and react when they are out of the norm but we cannot see when a individual cannot send an email to his cousin on AOL for some reason and he is all upset and wanting it fixed right now or he is leaving.

Only you can do that your help desk and in this day and age to compete you are going to have to have almost instant responses to those type of tickets. During business hours alone will not do.

One thing you should be careful about is spending too much time planning the technical side of your business, and not enough time on the business side of things.

Let's take a worst-case scenario that may be typical. As a small host, most of your customers will be small businesses, like a local restaurant that has a website. Let's say their site is down for a few hours. Yes, they won't be happy (assuming they notice), but for the reasonably monthly price you charge, it's probably not too bad. Then look at the chance of downtime. I think that with whatever provider you choose that has a decent reputation, they will all provide good uptime, etc. Otherwise, they'd be out of business rather quickly.

So, just pick whatever reasonable company for the hosting bit, and move on to the business side.

The thing you have not written about much is how you plan to get clients (other than buying them). Putting up Google ads, and ads on WHT may be OK, but I really don't see that getting many customers. Look at a typical small business like a restaurant, and think how they look for hosting. First, if they have an existing site, they will not want to bother switching unless thier current provider is really screwing up. They just can't be bothered if the downtime is only occasional. (This is referred to as "switching costs.")

So, how do restaurant owners find hosting? They probably don't go to Google, and I really doubt they go to WHT. Instead, they ask friends and family for a recommendation. Marketing on a local level, perhaps not even online, might work out quite well.

As for buying customers, it's not a bad idea. I don't think customers really leave in droves when their company is bought by another company, assuming you provide the same level of service, pricing, etc.

The reason hosting companies sell for low yearly revenue (or is it earnings?) multiples is that there is a lot of churn in the industry. Customers stop paying their bills, customers move around, etc. It's a problem in the mobile phone industry as well, though they have better margins due to limited supply.

So in summary, I'd say spend more time looking at how you're going to get customers, as that will be the key. If you have lots of customers, you can easily move up to better/bigger hosting options as needed.

One thing you should be careful about is spending too much time planning the technical side of your business, and not enough time on the business side of things.

Let's take a worst-case scenario that may be typical. As a small host, most of your customers will be small businesses, like a local restaurant that has a website. Let's say their site is down for a few hours. Yes, they won't be happy (assuming they notice), but for the reasonably monthly price you charge, it's probably not too bad. Then look at the chance of downtime. I think that with whatever provider you choose that has a decent reputation, they will all provide good uptime, etc. Otherwise, they'd be out of business rather quickly.

So, just pick whatever reasonable company for the hosting bit, and move on to the business side.

The thing you have not written about much is how you plan to get clients (other than buying them). Putting up Google ads, and ads on WHT may be OK, but I really don't see that getting many customers. Look at a typical small business like a restaurant, and think how they look for hosting. First, if they have an existing site, they will not want to bother switching unless thier current provider is really screwing up. They just can't be bothered if the downtime is only occasional. (This is referred to as "switching costs.")

So, how do restaurant owners find hosting? They probably don't go to Google, and I really doubt they go to WHT. Instead, they ask friends and family for a recommendation. Marketing on a local level, perhaps not even online, might work out quite well.

As for buying customers, it's not a bad idea. I don't think customers really leave in droves when their company is bought by another company, assuming you provide the same level of service, pricing, etc.

The reason hosting companies sell for low yearly revenue (or is it earnings?) multiples is that there is a lot of churn in the industry. Customers stop paying their bills, customers move around, etc. It's a problem in the mobile phone industry as well, though they have better margins due to limited supply.

So in summary, I'd say spend more time looking at how you're going to get customers, as that will be the key. If you have lots of customers, you can easily move up to better/bigger hosting options as needed.


I think that advertising in places like WHT and Adwords would target the web savvy users. The bloggers, webmsters, resellers, and things of that nature.

Advertising in local publications, and in time word of mouth, I feel will be the strongest. I have not narrowed down which pub's would be best but those would be my initial gameplan. An alternative would be a letter/flyer/postcard to local businesses explaining the who, what, and why of abc hosting company.

I also plan to offer an affiliate program as well. Possibly something like the referred's first month bill all up front and 10% monthly. So someone who refers a client who signs up for a $20/month hosting would get $20 up front, and $2 per month.

So many hosting companies are small fly by night operations that come and go, have horrid support, questionable uptime, and overall shady business that I feel my niche will be a combination of uptime and support. Having the server monitored 24/7/365 with a support team that jumps on the case immediatly, followed by an outsourced 24/7/365 support team to awnser tickets and phone calls, and then finally (possibly a bit down the line) a 9-5 M-F team to awnser sales questions, and then myself ready to jump in if anything is not covered I think, or rather, hope that I can build a successful team.

I was thinking last night, that I may offer local ISP services as a reseller through my local broadband provider as well - I would have to look into that a bit more but I think ISP access, hosting, and web design would be a well rounded local company.

You need a good plan. One with all of the customers you would buy you would need support. So think of some of that money as payroll. Or you can offer them free webspace if they work for you either way you have to take into account you need people working for you because this is to much for one person to do with your idea anyway.

i would suggest buying off a medium host for about $10k who makes $1k profit per month...
then invest the remaining 5k in an even advertising and marketting campaign over 2 months...
keep the remaining 5k for emergency...just in case some unforeseen expense comes up

i would suggest buying off a medium host for about $10k who makes $1k profit per month...
then invest the remaining 5k in an even advertising and marketting campaign over 2 months...
keep the remaining 5k for emergency...just in case some unforeseen expense comes up

Pretty much my origional plan.

So, back to very origional question - am I nuts or is this a posibility ? Can I turn that $20k down into $20k a year in sales ?

Would I be better off to invest my money in a different market all together, or just spend it all on hookers and coke ? (j/k)