Funding your new hosting business

[SenseiSteve]

Looking for some input on what others consider a reasonable financial investment to start a webhosting business. I see posts from time to time where the OP can't afford a $100 deposit to sell domains. I'm looking at this relative to starting a brick and mortar business where the deposits alone can run into the thousands of dollars.

 

[webfreak08]

Looking for some input on what others consider a reasonable financial investment to start a webhosting business.

Define "web hosting business."

Someone on a reseller account? Someone on a VPS? Someone that leases dedicated servers? Someone that co-locates? Someone that wants to start a new data center?

 

[siforek]

You mentioned a deposit on domains, but I personally use a free dotstrar(directI) account that requires nothing but payment for the domains. As webfreak asked, what's the scale to start at?

Personally I could start a small operation and cover first 3 months expenses on $100..

 

[romes]

Like tj said, using one of those program would help cut cost down and you would only pay for a domain that was ordered instead of putting $50-$100 as a down payment.

Also, $100 for a web hosting company is not a lot. When I started my company I had $3k. $100 would get you a few months unless you get clients right away like some lucky few do.

 

[SenseiSteve]

Define "web hosting business."

Someone on a reseller account? Someone on a VPS? Someone that leases dedicated servers? Someone that co-locates? Someone that wants to start a new data center?

LOL. Wasn't looking for data centers!! Any of the rest would work. I realize the investment is different for each - simply looking for reasonable numbers.

 

[webfreak08]

$x,xxx to $xx,xxx

If I were to start a web hosting business (which I won't), I'd want to estimate how long it would take for me to be profitable, double it, and have that many months of operating expenses in a cash investment.

 

[romes]

Yep, well said webfreak08.

 

[SenseiSteve]

$x,xxx to $xx,xxx

If I were to start a web hosting business (which I won't), I'd want to estimate how long it would take for me to be profitable, double it, and have that many months of operating expenses in a cash investment.

Absolutely, and that's probably why so many new providers fall by the wayside - lack of capital to withstand operating expenses until the business can support itself.

 

[romes]

Not to mention so many new hosts are started by 11 year olds lol That could be one reason why they fail.

 

[Turelio]

Main problem when someone starting hosting company is that he/she expect to earn a lot of money for month or two!

When we started first 2-3 months we was in minus or positive 0, earnings was minimal, but every start is hard. No one cannot make profit for month and back whole investments. He can, but if he buy some "Unlimited" Reseller account and start faking his clients

 

[romes]

Exactly...When I started my company went 2-3 months before we saw a client. It takes time.

 

[handsonhosting]

Even the world of regular eCommerce has the same attitude of people starting out in web hosting. Too often I hear from people that they can't afford the $10 for web hosting fees for their online store, or that the $200 for the software to operate their online store is too big of an expense. The $15/month fee for WHMCS, plus $5 for their own account is too expensive.

Business is not cheap, and should never be approached that way. If it's being approached on a shoe-string budget, that is the type of clientele it attracts. I understand maximizing proffits etc, but when people fail to establish a business plan, I think this in itself can hurt people.

The advantage of a business plan is to see just what factors are needed to operate a business, this includes salary for the business owner. Too often people don't factor their time or effort into starting the business, and this is an ONLINE trend. Any Brick & Mortor store will have these figures or their bank won't allow them to get a loan.

Can you start for less than $50? Sure - would I? No way. If I was to start a new web hosting company, I would seek financing for between $20,000 and $50,000. This gives me apporx 5 months (3k/month) to pay a salary, and money for advertising and turn a proffit. Remember, it's an INVESTMENT OPPORTUNTIY, that doesn't mean guarantee, and that's how investors operate! If you cross your T's and dot your i's, investors sometimes don't even mind if you lose thier money as they get to write off a big chunk on their taxes. If you show neglagence however, that's a different story.

So for me, 20k minimum is what I'd need to open and keep things floating for a 5-6 month period. Investment to be paid back within 12 months.

 

[webfreak08]

investors sometimes don't even mind if you lose thier money as they get to write off a big chunk on their taxes.

Do you have any personal contacts with such an investor?

 

[romes]

Investors care if you loose their money lol As webfreak08 said, do you know such an investor?

 

[charlier]

When my brother and I started, I think we split the costs, and it was about 600 a month. 300 in server payments, 200 in bandwidth / hosting, 100 in licensing.

We made some of that back, but not even close to that 600 for the first year. We eyed that as an investment in ourselves, and I worked a second job to pull this off, so I worked a 40hr, a 15hr, and a whenever hours job all at once.

It all depends on how much you want it.

 

[handsonhosting]

Do I know investors willing to lose money? Yes I do - that's how I got started years ago. Over the years they have lost 100's of thousands in businesses that have failed. Every investor knows it's a risk, and the risk/reward is what attracts them to the business.

Maybe the word "care" is what threw people off on this one. They do "CARE", but they know the risk, and are able to write it off as a bad investment.

I worked for a guy (many moons ago) who built a business with the sole purpose of losing money. He was using his other businesses to fund the project and incurred a loss every year for the purpose of tax writeoff. (actually 1 in 5 years must make a profit or break even according to california law if I remember right). There are a number of corporations that build such shelters to offset costs - it's not all that uncommon.

 

[Zachary McClung]

If I was to start a new web hosting company, I would seek financing for between $20,000 and $50,000.

Conor:

I could not agree with you more. I'd even go as far as the $100k range. The markets are very competitive now because of those $25.00 low cost host. You need to get your name out there and with the cost of advertising on the true sites that are going to bring you business its going to cost.

 

[ldcdc]

The problem I fear stems from the fact that people turn to hosting, or starting a business in general, when nothing else is available to them, and they're in some of the worst financial situations. No job, $1000 in their account, and ready to have a business. Essentially, they have no money and not enough time. They need to become seriously profitable within weeks.

Personally, I don't think one needs $20000 in cash to be a host, but one probably does need $20000 worth of time on his hands to make it work.

We do need a definition for "host". A reseller account, or one dedicated server, virtually not advertising budget, is what many hosts started out with, yet they have survived, and even made a name for themselves. The right person can still do it, or so I hope.

 

[Zachary McClung]

The problem I fear stems from the fact that people turn to hosting, or starting a business in general, when nothing else is available to them, and they're in some of the worst financial situations. No job, $1000 in their account, and ready to have a business. Essentially, they have no money and not enough time. They need to become seriously profitable within weeks.

Personally, I don't think one needs $20000 in cash to be a host, but one probably does need $20000 worth of time on his hands to make it work.

We do need a definition for "host". A reseller account, or one dedicated server, virtually not advertising budget, is what many hosts started out with, yet they have survived, and even made a name for themselves. The right person can still do it, or so I hope.

I think you make a good point; however, I do believe to do it properly you need cash. There is to many expenses and changes of failing if you do not have that financial backing.

A reseller account, or one dedicated server, virtually not advertising budget, is what many hosts started out with, yet they have survived, and even made a name for themselves.

The IRS defines this as a hobby. A person can make a lot of difference; however, money pays the bills. If your serious about your business and your clients then it will be a full time job and you'll have the cash to make sure your not swallowed if clients don't pay their bills.

 

[SenseiSteve]

I think you could survive on less of an investment than most brick and mortar businesses, but the devotion still needs to be there. The odds of surviving on a limited budget intensifies the need to be aggressive - if you hope to turn to a profit. Being a successful small business owner requires hard work, and a sense for making good business decisions.