In recent years computer programming, software, and web development have been widely promoted as a good skill to have to the point where the message has been watered down. For some, it means the difference between poverty and having money to others the ability to work from anywhere means the difference between being a refugee and a tourist. If the country you live in (let’s say South Africa) goes to shit, if you have this high-value skill, you can get on a plane, Uber, and Airbnb yourself around a new city, even working from coffee shops anywhere in the world.

We will be looking at online micro startups, as an asset that can be developed, operated bought, and sold. I will first look at the business side, and then the technical side of things. If you have the skills the building and selling of websites can generate better returns than using highly competitive freelancer marketplaces, if you have the money to buy it might generate better returns than a similar investment in a different field.

What is a online micro startup and why is there suddenly so much talk around it?
In recent years a micro trend has emerged in online business, both as micro startups and as micro private equity (funders) and an ecosystem has emerged around this including marketplaces such as MicroAcquire and a few others where these projects are listed for sale. This has created a whole end-to-end ecosystem of people mostly working on their own from the development, launch, operating and selling of these “micro startups”.

There is also a trend called MicroSaaS, this refers to small SaaS (Software as a Service) businesses that focus on a particular need, it targets a niche market and uses minimal resources while solving a problem. A massive market has also emerged around the Shopify platform and their app store where plugins are developed to supplement the platform to grow businesses, improve marketing, sales, and social media.

This trend has not only seen things on the development side but also the investment side who view micro-startups as their own asset class and buy, hold and sell revenue-generating websites.

What has changed?
You must be thinking wait a minute, what exactly has changed, websites, even niche sites have been bought and sold since the beginning of the internet, and there have been marketplaces such as Flippa which small businesses used for the exact things mentioned above. Fair enough, it is part buzzword, part doing old things a new way and part new opportunities that has emerged from cloud computing allowing websites to cheaply scale.

If we look at the old way of doing things, whether it was a content website like a blog, or a website that offered a certain service, it was often sold in a multiple of revenue. The poor quality sites or low value sites sold via Flippa would often trade at a multiple of around 12 months revenue. So a site making R1000 a month with acceptable margin you could sell it for R12000. Then there were better quality sites, often sold through broker sites that would fetch a higher premium due to the work involved to get the site to that point, at some places the premium was around 3 years SDE (sellers discretionary earnings), this is the the total financial benefit that a single full-time owner-operator would derive from a business on an annual basis. SDE is actually the metric that most single-owner small businesses should use when selling, because unlike big companies with audited results usually, they don’t even have accountants, yet in SA brokers want financial statements (balance sheet, income statement, and statement of cash flows) from a vetkoek stand using a Capitec account.
However as a website owner you don’t need all that, if you make money from advertising, you make your ad network account data available to show the revenue, or if you make money from subscriptions you make your PayPal account data available or if you make money from e-commerce you make your PayFasy account available, the website’s visitors can also be scrutinised by adding a potential acquirer to the analytics account of that website where they only have read access to verify that data. Your expenses can be shared in the same way if you spend money on advertising, social media scheduling, hosting etc. What is left then is your SDE, it does not care what you do with what is left, nobody gets access to your bank account if you are spending your website’s profits on hookers and marching power it does not matter it is simply a sale of the site.

Now we enter the new generation micro startup, you don’t even need revenue if you have the technical know-how. And this is what is fantastic because now we are entering how real business is done. X times revenue and SDE are bullshit metrics if we have an application with no revenue that has developed by a competent dev over the period of 100 or 1000 hours, because like in business the ecosystem of micro-entrepreneurs can take that site and run with it. A person with marketing and management can team up with an investor to take that site to market. This happens all the time in business there are many idea men that cannot take it to market, that is why you get people that only develop and sell patents.  It moves away from the obnoxious Flippa mindset that a website is only worth its revenue multiple and not the idea time and effort. This shift has also moved away from Flippa and its paid listing model which means any site no matter how crap can list leaving it with a lot of shit listings and too poor quality listings to be taken seriously.

Now when I speak of a micro startup I am particularly referring to either a custom-developed website or application or a revenue-generating website that falls under this. I’m not talking about putting WordPress on a domain and selling it or selling “instant” e-commerce stores, that is just setting up a website.

The technical part
When we look at these micro startups as assets, we know that there will be people to built it and there will usually be a different person who will launch, run and fund it. So there is an opportunity to buy>launch>run>fund phase only if you have money. But if you have the skills or can learn the skills then you can build the site and sell it as a micro startup. Many people have good ideas for sites and have the skills to built them but are not good at launching, marketing, and running it.

Now I’m not here to tell you that you should learn to program but if you are interested in this business and have no money then that is your only option.

MicroSaaS
This is an area that I am watching at the moment, and I have one or two ideas that I want to try. This involves solving a small problem with a monthly subscription. This can be something like taking a website’s RSS feed and publishing it to their social media pages at a cost of say $10 or R150 a month. Here is a good overview of micro startups.

Here is a technique using something that I have advocated before – heuristics to guide you instead of starting with an idea.