Planning Your Web Hosting Business
Planning Your Web Hosting Business
Just as you wouldn’t travel in territory you don’t know without a map, you should not proceed in business without a plan. That’s as true for the web hosting business as it is for any other. In this article, the first of two parts, I will mention the six important parts of any business plan, and discuss three of them.Many people who get into the web hosting business figure that it’s just a numbers game. While it is important to get the numbers right, those figures that add up to a profitable business on paper may be hiding some mistaken assumptions. Let’s look at someone who plans to sell web hosting for $5 per month. He does the math for his business at 300 customers. Here is what it looks like:
Gross income=$1280 (300 times $5 minus credit card fees)
Server cost=$100
Control panel cost=$100
Advertising=$300
Customer support=$350
Total Costs=$850
Net income (profit) =$430
Net income per customer = $1.43
That might be a nice projection, but there are a lot of things it doesn’t take into account. How is he going to manage until he actually gets those 300 customers, hmmm? Until then, he’ll have to cover his costs himself. Likewise, how did he figure that his advertising cost would be $300 per month? That number can’t just be drawn out of a hat. How will he advertise? How well can he close sales?
If you want to go into the web hosting business, you need to treat it seriously, just as you would if you were starting any other business venture. A good place to start is by taking a job with another web hosting company to learn the ropes. Another way people start is by becoming a reseller web host, but even that is a serious business and should not be treated casually.
However you choose to start, you’re not going to be able to escape the responsibility of doing your research. That means reading books, asking questions on forums, checking out the industry online and at conferences. There are certain questions you need to be able to answer before you turn on your first server, and certain issues you need to at least be thinking about. In other words, you need a business plan.
If you are just starting out, and the business plan is chiefly for your own edification, you may be able to get away with just a few pages. But you should be thinking of the future, and what you plan to do with your business five years down the line. There are plenty of books that describe how to write a business plan; I’m going to cover the most generic elements of a business plan here, with a focus on web hosting. Even if you don’t see these elements as applying to your business—yet—you can benefit from reading all the sections, as they will get you thinking about the areas of your business you will probably need to address sooner or later.
Planning Your Web Hosting Business – Key Parts of a Business Plan
A good generic business plan features six key parts: executive summary, the enterprise, the market, operations, organization, and key risks/timeline. Not every business plan will cover all of these parts in the same amount of detail, and in the same business plan, these will vary significantly in length. Your own business plan will change as time goes on, you acquire more information, and your own needs (and those of your customers) change.
If your business plan is like a nonfiction book, the executive summary is a comprehensive introduction. As with most introductions, it should be written last, and for the same reason. You need the information contained in the rest of the work to give an introduction that truly covers the subject.
An executive summary tells the reader what the company is all about, who the founders are, and what they see the business doing—the vision for the company, if you will. It should also include a statement about the market opportunity: why now is the right time, and your company is the right company, to take advantage of the current situation. You’ll see these points repeated in other parts of the business plan.
The part of the business plan that covers the enterprise describes your company’s product or service, and how it holds an advantage in the marketplace. Obviously, for a web hosting firm, the basic service is hosting websites, but you will also offer customer support, and you might offer services related to web hosting (such as website design). As for your firm’s advantages, they will vary with your own and your employee’s backgrounds, among other factors. Maybe you have actual experience running, say, a small boutique. This gives you an advantage in understanding the needs of this kind of business, which may assist you in hosting websites for small boutiques. Or maybe you have a lot of experience explaining technical details to the less technologically savvy in a way that they can understand.
Planning Your Web Hosting Business – Key Parts of a Business Plan: The Market
This brings us to the third section of your business plan: the market. It might also be one of the most comprehensive. Yes, you need to do research (and maybe some soul searching) when you write the section about your enterprise, but you really need to dig when you work on this section. A thorough version encompasses seven parts: the industry; market size and rate of growth; target market; the competition; sales approach; pricing policy; and promotion and advertising. Some of these sub-sections may contain only a paragraph or two; you might find that putting the information from certain sections into a graphical format (such as a chart or a table) helps you think about it better than writing lots of text.
When writing about the industry, you’ll need to do significant research to get a good overview. What are the major challenges that face web hosts today? How much does it cost to get into the business? How much does it cost to serve customers? What keeps the industry a going concern? How much turnover is there? Finding the answers to these questions will get you off to a good start.
Discussing the market size and rate of growth naturally follows from the previous topic. How big is the web hosting business? How much money was made in the business last year? Two years ago? How much will be made in the next couple of years? How many people will need someone to host their websites? These are the kinds of questions that this section deals with.
Next, and perhaps most importantly, you must consider your target market. This is the specific segment of people looking for web hosting that you hope to serve. Do you hope to serve businesses in a specific geographic region? Podcasters? Online auction runners? Not-for-profits? Whatever segment or segments you serve, you need to know what they want and need, how to fill those needs, and—for the future security of your business—what the trends are for your target market’s future behavior (i.e. how their needs will change, and what they’re likely to do about it).
Planning Your Web Hosting Business – The Market, Continued
Now we come to another important subsection: the competition. Don’t pretend that you’re so special and unique nobody can compete with you. I used to make paper bead jewelry that looked so good, even an antique dealer mistook the beads for Murano glass. I displayed my work at art shows, and it was unique; no one else was making paper bead jewelry. So I had no competition, right? Wrong. Every other jewelry maker was my competition.
Likewise, every other web host who could fill similar needs is your competition. So you need to cover their key attributes in this subsection. Or, if it doesn’t make sense to look at specific web hosting companies as your competition, you might look at broad classes of web hosting companies—all firms that offer web hosting in a particular price range, for instance.
Next, you need to look at your sales approach. How are you going to reach your customers? Will your sales be conducted chiefly face to face, or (much more likely for web hosts) over the Internet? How much experience do you have with Internet sales? If you don’t have a clear idea of how you are going to reach your customers, guess what? You might not get any customers at all.
You may not have given much thought to your pricing policy, but you should. How and why did you pick the price level for your service? Is it higher, lower, or comparable to similar offerings on the market? Is there any particular risk to the business in having your prices at their current level? Or, on the contrary, is there some benefit to your price level? The point is, you shouldn’t just pick a number; you should know what it would take to turn a profit, and whether you can get enough business at that price point to stay in business.
Finally, we come to promotion and advertising. This covers any public relations, advertising campaigns, educational programs and other tools that you will use to drive demand of your service. Planning to get a booth at the local county fair and give out brochures about your web hosting service? That falls under this section. How about pay-per-click advertising through the search engines? Ditto. Radio ads? Sure. Visiting the local public school to give a presentation on building a website, then helping the students to set up their own—hosted on your server, of course? That counts too; even if you set the students up for free, their parents just might become paying customers.
That’s all I have room for in this part. Hopefully, it has given you a better idea of what you need to think about when starting your web hosting business. In the second part, I’ll tackle the final three sections of a business plan: operations, organization, and key risks/timeline. See you then!
Planning Your Web Hosting Business, continued
Welcome to the second and final part of this discussion about planning your web hosting business. Last time, I gave you only half of the roadmap for what goes into a business plan. This time, after a recap, I will give you the other half.In my previous article, I explained that web hosting was a business just like any other. Sure, it has its own unique challenges, but you want to approach it as a business. That means that you want to have a plan before you proceed.
I also mentioned the six parts one usually finds in a business plan: the executive summary, the enterprise, the market, operations, organization, and key risks/timeline. Since I did not have the room to cover all six in the previous article, I covered the first three.
To review, then, the executive summary gets written last because you need the information in the rest of the plan to fill in the information. It provides an overview. It should include what the company is about, who the founders are, and what your “vision” is. It should explain the market opportunity. If you are using your business plan to seek funding, it should also explain what you plan to do with your funding. It should also cover where you are now and where you hope to be in the future (say five years from now).
The section talking about the enterprise describes your company’s product or service and what its advantage is in the marketplace. With so many different web hosting companies in the field, this is particularly important. If you hope to compete, you need to have some kind of focus.
I went into a great deal of detail about the section that covers the market. And rightfully so—if you hope to compete, you’d better do your homework. You need to know the industry, your market size, your niche, who your competitors are, and how you will reach your customers, among other things. It can seem more than a bit overwhelming, but the point isn’t to paralyze you; it’s to help you understand that there’s work to be done, and research is your friend.
So much for the recap. Now I will cover the remaining three parts of a business plan: operations, organization, and key risks/timeline. While these parts may not seem as important as, say, the market section of your business plan, they will give you and anyone who reads the plan a better handle on how the company is projected to operate on a day-to-day basis.
Planning Your Web Hosting Business, continued – How Will You Operate?
The word “operations” covers a plethora of items. And what you put in this section may vary depending on whether you’ll keep this plan private or show it to other people (and which other people you will show it to). I’m not saying this is a section in which you will be dishonest. But not every company is comfortable disclosing the same amount of information in this section. For instance, if you’re a manufacturer and the creation of your product involves certain trade secrets, you probably won’t go into too much detail about those here.
Certainly web hosting companies may have trade secrets as well that affect their operations. While you might be circumspect about those, there are other things you will need to include. You might discuss staffing, productivity (sales and processing among other matters), standards of quality for customer service, and so on.
You will want to discuss your current facilities, location, and information systems (yes, that means the software you will use to keep track of everything, among other things). Basically, this is the part where you consider the nuts and bolts of what you need to keep your business running. You should also consider your future needs here. Are you planning to expand? If so, where and into what kind of space? Will the space be available when you need it?
As with every part of your business plan, you need to do your research. You can, and should, call on your experience in other businesses as you consider what is reasonable here. In fact, if you haven’t already worked for another web hosting company, you should definitely consider it; it will help you learn whether this kind of business is for you. What better way to do research than on the inside? It will also help you engage your imagination as you visualize more completely what your business will look like.
Planning Your Web Hosting Business, continued – Getting Your Organization Organized
In some ways, this section is an extension of the operations part of your business plan. The sort of information that you would put on an organizational chart goes here, but that’s just the starting point. As a new web hosting company, you may not need to include everything I’m going to list here, but you should consider it.
The first thing you will list in this section is the company’s executives. Include short career bios of anyone whose title starts with “chief.” This also gives you a chance to look objectively at skill sets—what skills do you have at your disposal, and which ones do you need to make sure your company will be successful? You will also want to include how much you plan to pay your officers. Yes, you should even draw a salary for yourself. If you want your business to support you, you need to plan that from the very beginning.
You should also include information about supporting professionals in this section. You probably won’t hire certain people full-time, but you will want to have access to their skills when needed. Do you have an attorney that you trust? What about an accountant for your taxes? Will you handle your payroll yourself or use a payroll company? Your list may be a little different from this one, and you certainly won’t need every kind of professional! Give it some thought, and include the names, addresses, and telephone numbers of the ones you need.
If you plan to grow significantly, you should also include projected headcount increases. Split them up by area: so many sales people, so many customer service reps, so many technical people, and so on. You may even want to include an organization chart. This might sound like a lot of detail, but these are the kinds of things you will need to be thinking about if you plan to grow your company.
Planning Your Web Hosting Business, continued – Preparing for Risks
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Nobody likes to think about how things might go wrong with a new venture. But if you want to be successful, you do need to be prepared in case the worst happens. There are certain risks that are inherent in every industry, and web hosting is no exception. Those risks should be noted here (and again, this is where doing your homework comes in handy).
There are also certain risks that are specific to any new venture. Any young company faces certain dangers. What if one of the founders or officers suffers a debilitating illness or dies? They could be difficult or impossible to replace. Many firms will buy life insurance, with the company as the beneficiary, to mitigate this kind of risk. This of course brings up the other thing that belongs in this section, namely, how you plan to respond to these risks if and when you have to deal with them. If you have experience dealing with these particular risks, this is also a good place to mention that point.
Another good thing to put in this section is your timeline. While you have already talked about your future plans in other parts of the document, you might want to summarize them here. You can do it in a timeline format, which gives you a nice at-a-glance view as to what your targets are and when you hope to achieve them. Another advantage of using a timeline is that you can also go “backward” by showing what you have already accomplished as far as achieving your goals: skills acquired, employees hired, research completed, web host found if doing reseller web hosting, customer packages created, that sort of thing.
A timeline that shows your targets makes a good counterpoint to the list of risks. It can help clarify your focus: “here are my goals, here are the things that could get in the way of my achieving these goals.” Thus, putting the two together in this way helps to give you a good context. If the entire business plan can be seen as a map, this section can be thought of as the dotted line along the road you plan to travel. This doesn’t mean that the rest of the plan isn’t important; with the research you’ve done to flesh it out, it’s what helped you draw that dotted line to begin with.
If you want more information about business plans or starting a new business in general, the Small Business Administration’s website (http://www.sba.gov) should serve as an excellent resource. Among other things, it features articles that can help you learn about starting, financing, and managing your business. Good luck!
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Planning Your Web Hosting Business
Planning Your Web Hosting Business, continued