How to Start a Web Hosting Business with $50,000.00 USD available in funds: The Growth Phase – Part II
So, we are still having approx. $18,000.00 in the bank from our startup fund. If your planning, budgeting, and marketing plans work out, you will not need to touch these $18K to build your business. You could put them into a money market account for rainy days or you can use the money for strategic investments. If you see the business heading the right way and you think an office and more local employees would help for further growth, you could use this money to plan for that move. However – personally I would not recommend this at an early stage as signing a lease and furnishing an office is not a small expense and you will still need a loan in most cases. I’d rather recommend to use the money to eventually acquire some smaller web hosting businesses. At least one web hosting business is started almost every day and at least one seems to go out of business per day. There will always be opportunity to pick up some customers and therefore more income. Watch some of the deals to see how it is done. Set yourself a limit of how much you want to pay per customer. A good value is 9-11 months of income per customer. What does this really mean? If a customer brings in $15.00 revenue a month, you calculate out how much this adds up to over 9 months. There would be your 9 month value. Be cautious and rather step away from a deal if you something smells fishy. Rather safe than sorry.
A second thing the remaining funds can be used for is the expansion into co-location. I mentioned this earlier already, but want to go into more detail. Leasing a server rack will set you back – let’s say – $1,000.00 a month. That does not include a single server or network equipment of any kind. Buying quality server hardware and network equipment (switch) will set you back another $5,000.00 (1 server / 1 switch). Those numbers may seem a little high for the beginning, but it is easier to work with a higher number and to eventually enjoy some savings as you go and not suddenly being surprised by a bigger price tag. The initial step of leasing a full rack is expensive. Filling the rack with servers is less and that’s where the savings will come in (soon). Being able to make this initial investment from available funds and not having to cut into an existing stream of income or even take out a loan is a very nice luxury to have. You might think why did I not do this in the very beginning. The reason for that is to build income first and then grow when you see your business model working out. It is easier to adjust your business model with less contracts and less recurring expenses under your belt. Ease of mind and flexibility are also to be considered.
Spend the money where it is critical and don’t go cheap. Quality will pay off and keeps your resources available for more important things. Don’t spend money on something that you cannot exactly judge at the time of the purchase. Leasing a rack and starting with co-location with no customer base is risky and not necessary. Spend the money for the right things to allow for growth and to improve your infrastructure.