Figuring out a business model that clicks with your interests and expertise can be tough. Here at The Website Flip, I am all about the content website business model. However, as the saying goes, “the grass is always greener on the other side”, I always think about doing an acquisition in the SaaS space.
This article will do an overview of the SaaS vs Content Site business models. The following is covered for each business model:
- Basics of each model
- Build vs acquire
- Pros and Cons
- Levers for growth
- Financing opportunities
- Key skillsets needed
To cover the SaaS model, I’ve invited Ameet Mehta, who runs First Principles, a tech holding company that brings together operator expertise, network, and capital to build category-leading SaaS companies. Ameet knows his stuff with SaaS businesses and shares his thoughts in this article with me.
Let’s get into the SaaS model!
Ins and Outs of SaaS Business Model
Ameet here! I will get into the ins and outs of the SaaS business model.
➡️ Business Model Basics
You charge a fee when users use your software. This fee could be flat term-based (monthly, quarterly, yearly, etc) or usage-based as well. The customer pays for the number of accounts or licenses they purchase to use the software.
🏗️ Build or Acquire?
The build or acquire discussion is frankly a bit nuanced and really depends on your personal objectives, the resources at your disposal, and the multiples at which companies in your target segment will accept an acquisition offer. We will walk through the pros and cons of each and you can decide which one makes the most sense for you.
Starting with the pros part, acquiring a SaaS Company means that you are presented with the benefit of not having to start from scratch. You are essentially saving the effort of answering some of the product-market-fit questions and finding the initial customers. You have the base and with the right team and resources, you may be able to scale that product fast. An acquisition can accelerate your journey by a few years surely.
On the cons side, it may be costly and hard to change the product vision and roadmap and also the customer segment the product is targeted towards. An SMB user may use the product very differently than an Enterprise customer. Going upmarket or down market may also mean making significant changes in the marketing and sales plan.
Technical debt is also worth considering. In smaller SaaS Companies, a person from the founding team may have coded out the application. The application may have poor documentation and may have been coded to work on the frontend and not necessarily for scalability or for other developers to take over. One con that you may also want to consider is that a meaningful amount of the customer base may only be there because of the personal relationships with the founding team. Once the founding team is gone, so are your customers!
When you are building, you get a clean slate and while that might sound ideal, it may actually give you too much leeway to get easily distracted. Finding product-market-fit and customers is frankly not easy. It requires significant focus and dedication.
While building will probably take fewer financial resources (especially if you code), you are eating away precious time which can make or break SaaS Companies. Marketing and Sales also take significant effort, especially for products targeting profitable enterprise customers.
As I said before, it is pretty nuanced! If I had to draw land in the sand though, I would only acquire SaaS companies with at least $500K in ARR. Anything below that, the risks of acquiring the company are too high and it might just be easier and faster to build!
👍 Pros of SaaS businesses
If you are reading this blog, you probably know a bit about SaaS businesses 🙂 The recurring revenue model is a godsend and the immaterial cost of delivering services to each additional user makes the SaaS Business model insanely attractive. We will go through some pros that are less talked about
1. Annual Payments
Most SaaS Companies offer annual payments and it is possible for at least 25% of your customers to pay you annually. Especially as you sell to Enterprise Clients, selling multi-year deals where you get paid upfront is not uncommon! You can manage churn and also use the dollars to fund development!
2. Customers Pay You To Get Started
You are able to sell via visual prototypes and have your initial customers pay a small advance to fund your initial development. Along with validating your idea with paying customers, you will have the cash to invest in product development.
3. Product-Led Growth To Profitable Enterprise Clients
Your business is open 24/7 and you are gaining (and sometimes losing) customers when you are sleeping. While that has been true for internet businesses, Enterprise clients have typically required a sales team. Only a few companies like Atlassian have built a business without a sales team. You are seeing that happening with more companies now where they have no sales team or bringing on a sales team after significant scale.
4. Operator From Anywhere
Building highly profitable SaaS Companies at the scale required you to be in a Tech Hub. With Covid, the remote work culture has only accelerated and you can build a large SaaS Company from anywhere! Calendly.com has built an incredible business from Atlanta, GA.
👎 Cons of SaaS business
A lot of the pros for a SaaS business are to do with being able to move fast and that anyone with a good product can win! Some of those same elements are also the strong cons of building a SaaS Business.
1. No Rest
You have to continuously invest in and build upon your product. The market moves fast and with the ever-changing requirements of the user base, you will need to continuously invest in product development. We have seen billion-dollar companies die because they are unable to invest or make the correct product calls.
2. Managing Churn
Just as easy it is for someone to sign up, that is exactly the ease of leaving your platform. With new products popping up in the market regularly, especially for a hot market, you will need to ensure you have the proper customer support and success functions in place to ensure happy customers.
Your competitors have the same advantages as you while building out a SaaS Company. You have to continuously be on your toes to ensure you are one step ahead.
4. Expectation of Free
Large tech companies have spoiled us by giving away the tools that we use daily out for free. A portion of your customers will expect to not pay for your product and just expect it to all happen for free or at least get significant value before making a payment to you.
📈 Common Levers to Expedite Growth for SaaS
1. Go Up Market & Sell to Enterprise
Building out a Sales Team and selling to large companies is one key way to scaling SaaS Companies. While this requires an initial investment in a sales team and longer sales cycles, the rewards of large multi-year contracts are pretty sweet if you are able to get there!
Selling through partners and/or affiliates is a common method to scale SaaS Companies. Some SaaS Companies (especially in the Martech space) build out an ecosystem of implementers who are able to provide personalized support and onboarding to local customers. You will see a large number of marketing agencies that only do HubSpot or Salesforce integrations and implementations
3. Sell a Platform
SaaS Companies evolve to become a platform by offering other services that their target audience requires. Google began as a search engine and now has hundreds of other apps that its target audience uses. Atlassian is another example of a company that began as a one-product and expanded to provide a product suite.
You can either build your own apps or also provide other developers access to use your platform to build their products. Slack, Zoom, and Shopify all have their own App Marketplace where developers are able to sell their products to platform apps’ customers.
💰 Financing Opportunities with SaaS Businesses
I would recommend that you look at this article on TheWebsiteFlip because most of the options are the same for a SaaS Company. Along with these options, you can also consider Revenue Based Financing.
Companies such as Pipe.com and FounderPath.com allow you to get cash now for future monthly subscription revenues. While these options are new, you could potentially use this for growing your SaaS Company.
🧠 Key Skills Needed for SaaS Websites
1. Deep Product Domain Expertise
You need to build a forward-thinking product and that truly requires you to have deep domain insights that you only get after being deeply involved within an industry for years. There is nothing better than you being a daily user of your product
2. Product Design & Product Engineering
You either need to have decent product design and product engineering expertise or partner with a team or an individual who can serve as the team that can execute against your vision.
3. Digital Marketing
Your product resides online and most people will also discover it online as well. A deep understanding of a couple of digital marketing channels (SEO, PPC, Social, etc) can go a long way in growing your SaaS Company.
Ins and Outs of Content Website Business Model
➡️ Business Model Basics
The content site business model is extremely popular because content is the backbone of the Internet. In this model you build or buy a website filled with helpful, original content that ranks on Google. This brings many thousands or even millions of visitors that can be monetized through display ads, affiliate offers, or even selling your own products or services.
Natural traffic from the search engines or social media is the backbone to this method. If you have enough people looking for your website’s topic, you always have options to monetize.
The formula for a successful content site is simple (but not easy)!
Write great content that search engines love, apply on-page and off-page SEO, get traffic, and scale up!
If you’re building more than one site, then add the step of “Repeat” at the end.
The great part about the business model is that it’s versatile. Just look at a short list of ways you can monetize a large content site getting tranffic:
- Display ads (Ezoic, Mediavine, AdThrive, etc)
- Affiliate links & offers
- Selling a digital product
- Get paid for sending leads
- Sponsored posts
- Direct payments for advertising
Depending on the site I will use a blend of these methods meaning one content heavy site can create multiple sources of income. If you plan to be active on the site you should be also looking for ways to collect email addresses to continue selling.
Once you really understand how search engines, good content creation, SEO & site optimization works, you have all the knowledge you need to start more sites in other niches and keep scaling your income up.
Google doesn’t exist without great content.
🏗️ Build or Acquire?
This is the big question when it comes to the content site business model. Should you be building these yourself, putting in a lot of time and labor, outsourcing to trained writers, or both?
Or should you look for a content site that is already profitable and purchase it?
There are actually pros to cons to both. But your actual situation is what matters. The route I would go could be much different than yours based on time, expertise, and resources. The first step is to ask a few questions that get you brainstorming on these topics:
- How familiar am I with SEO, creating good content, or any of the online content site models in general?
- How much time do I have to work on this new business or project?
- How much money do I have to actually invest if I want to acquire a profitable content site?
- Am I acquiring content sites for pure passive income or acquiring to grow and scale?
These questions help you start thinking in realistic terms about the challenges that you will be facing. Make sure you are 100% honest with yourself when thinking about your skills, your assets to invest, or the time you have.
If in doubt, assume a worst case scenario when brainstorming these topics. Trust me, you don’t want to make long-term business decisions based on optimistic projections that turn out to be completely wrong.
1. The Case for Building Your Own Content Sites
There are several advantages for building your own content sites. No matter how much you study, nothing beats real experience. Writing engaging content takes a lot of work and a lot of practice. So does learning the ins and outs of on-page and off-page SEO.
Even if you have the time, focus, and energy to really dive in if you’re starting from scratch it will take a lot of time and energy to succeed. However, there are few businesses where you can start at virtually nothing and end up with six or seven figures in value.
When you build your own content sites instead of buying you get the following benefits:
- You have a lot of control – site appearance, content, all of it you directly control
- Very inexpensive to start
- If you’re a great writer or really know your on-site SEO you can make sure your site has the best chance to rank
- You can pay attention to your content and replicate what works really well for you
- You have full control over things like internal links, content silos, and site structure
I can attest from experience that the knowledge you get from walking through building up a site your first time through makes you better at every aspect of training or outsourcing later on.
If you have time but you don’t have the money to buy a used domain name or a pre-existing profitable site then this is the route that is going to be left to you. So why not learn from it?
What about Done for You Affiliate Sites?
Another option that straddles the line between building your own and acquiring a pre-existing site is to purchase a done for you affiliate site. In this situation you pay for professionals to take care of the setup and generally an early amount of content.
This includes all the technical aspects of setting up a WordPress site, getting the right plug-ins, on-site SEO optimization, and setting up initial content. Both the actual pages and the first actual blog posts for your site. The number of written posts, and whether or not content would continue to be produced for you, depends on the service.
This can be a very good option for a variety of reasons. This is likely to be cheaper than high revenue existing content sites, sets the foundation up for those without any technical knowledge, and allows you to take over on content if you’re a great writer.
The quality of the package will depend greatly on where you order from.
2. The Case for Acquiring Pre-Existing Content Sites With Revenues
If you have more money than time, then going with a pre-existing content site makes a lot of sense. This is what I do regularly as it gives you economies of scale, and allows for many exit opportunities.
There’s the acquire and hold. This is for individuals who are looking to build passive income, diversify their investments, or looking to turn a one-time windfall into long-term payments. There’s nothing wrong with this strategy. It does cost a lot up front, but years down the line you could still be getting paid thousands per month.
You may buy a successful site, hit it with a large array of new content to go after even more traffic, and then minimize working on it as it produces passive income for you.
Then there’s the acquire and optimize, which is the method I prefer. This is where you look for a content site that is under utilized. You’re looking for a good site that is on sale for less than the average, or a site that is making money but has many obvious issues you could fix to improve the income.
Websites with poor writing or broken English, only monetized by AdSense, or that are poorly formatted with slow hosting are all examples of this. These are easy fixes that can radically improve the earnings even before you add a lot of new content.
If you can find a site earning a meager $60 or $100 in AdSense per month that has these issues, simply improving the site speed and changing display ad providers could improve earnings several times over.
If the niche is good and you can invest time to produce new content and optimize, then you can end up spending a small amount on a content site that can make serious 4 figures a month within a year or two. I’ve done this many times before.
This type of acquisition can be incredibly profitable.
👍 Pros of Content businesses
There are several obvious pros to going with a content site business.
1. Google Needs Content
There’s a reason the saying is: “Content is King.” Content is always going to be needed by search engines. While SEO and tech can change, the need for good content sites is going to remain.
2. Versatile Business Model
While investing in building or buying content sites might not sound versatile, it actually is. You can create multiple sites in completely different niches. You can monetize those sites in completely different ways. I love the ability to build so many income streams with each and every content site.
You can actively build sites up all the time, or you can acquire them and just let them keep earning passive income.
3. High Ceiling
The upside to the content site model is huge. I’ve been involved in many content site deals that ran six figures. There’s more on this a bit further down in the article, but the ability to make a lot of money is very present with content sites.
👎 Cons of Content business
As much as I like the content site model and what it can bring to the table, there are negatives to consider, as well.
1. Time Consuming or Expensive
You either have a lot of time to invest or a lot of money. If you are buying a content site making a good monthly return, you need a lot of money up front. If you’re not acquiring sites but choosing to build your own, you need a lot of time and work to get established.
Whether it’s time or money, you will need to spend one or the other.
2. Google Can Be Unpredictable
Google updates can be dramatic and unpredictable. You may skate by dozens of Algorithm changes with no negative effects only to have the next one cut traffic by 50% or more. If you’re buying large content sites this can be especially concerning.
3. High Knowledge Needed
If you have to bootstrap there’s a lot to learn for a true beginner. You may need to purchase a course so you can learn the ins and outs; but treat that is a cost of education and it’s one-time.
💰 How To Finance Content Sites
Financing content sites whether you’re raising money to hire writers for more content or buying successful sites is surprisingly challenging. Look, traditional banks and lenders don’t understand the business model. They don’t understand what you’re doing. So good luck getting a loan.
That doesn’t mean financing is impossible. While getting a business loan is unlikely, a Line of Credit might be doable. That in essence gives you the equivalent of a loan and allows you to use that LOC to acquire more sites.
Private funding options also abound. Money from friends. Investment from family. Although you need a track record for this, Angel Investing or Private Equity funding could even be options in limited situations. Also don’t underestimate raising money via Peer to Peer (P2P) lending.
If you’re building the sites from scratch you do have the ability to straight up bootstrap to get started.
Your last option is to get creative. Look around for unconventional options. Maybe you qualify for an SBA loan, can use a HELOC against rental property, or even load up those 0% for 12-month credit cards to get the ball rolling.
If you want to go more in-depth on any of these ways to fund your content site acquisitions then check out this great website funding guide.
📈 Common Levers to Expedite Growth
There are multiple ways to speed up the process. Building on a previously owned domain name that has links (and a history), hiring multiple writers to mass produce a large batch of new content, and starting (or paying for) a link building campaign are three classic and time-proven strategies for speeding up the pace.
A heavy focus on low competition keywords and negotiating the best deals possible with affiliates are often overlooked options for speeding up the growth process, as well.
I’m a firm believer in going through the checklist and optimizing each site so it’s optimized and leveraged to earn the most possible. A lot of small changes can lead to a massive total difference.
You can look at these case studies on growth that show multiple strategies in detail to learn more.
📈 Upside Opportunities
The upside is absolutely huge. There are many thousands of people who make a full-time income from content based websites. These sites can also be sold for 30x to 40x times monthly earnings. For a site making five figures a month, that’s a nice payday.
This article from Entrepreneur shows giant sites that started out as mainly content, grew huge, and sold for giant numbers. Six figure content site sales happen all the time.
Even if you don’t want to sell, the ability to create a content website that gives you several thousand dollars a month or more every single month – that’s a great security blanket. For many people it’s also more than they could ever make at a conventional job.
The upside of the content site model is part of what attracts so many new affiliate marketers and webmasters to this business model.
🧠 Key Skills Needed to Build Content Sites
Adaptability – The online world is always changing. You need to be ready to adapt when things like an algorithm change or market change affects your traffic numbers.
Writing Skills – If you’re bootstrapping things you need to be a good writer. That doesn’t mean Shakespeare, it means being willing to learn good online writing.
SEO – High rankings are crucial to any content site success. That includes not just great writing, but it includes being willing to learn how SEO works. While off-site SEO can be outsourced, you need to find a reliable provider and it will be expensive.
Patience & Perseverance – Even the best writing takes time to rank. There are proven shortcuts but even then it will take time and work to get the results you want to see unless you’re buying profitable sites and just sitting them to the side for passive income.
Attention to Detail – To optimize how much money a good content site makes you need to not only take care of the big stuff but mind the potentially hundreds of different details. A little thing here, a small improvement there can be the difference between $2,000 a month and $10,000 a month (or more).
Verdict: Which business model is better?
There is no one business model that is better. It depends on the opportunity, you and your team’s skillsets, financing availability, and more.
Content sites are easier to start up as opposed to SaaS business. However, SaaS businesses have larger exit valuations due to having tangable assets (e.g., codebase, know-how, customers) and potentially recurring revenue streams.
If you do not have programming background, then for SaaS businesses you may need to partner with a development agency. This can be a large upfront and ongoing costs which does not exist with the content site business model.
Regardless of your approach, both of these business models are great to get into. Make sure to understand the pros and cons of each!