Why You Shouldn’t Buy an Expensive Domain to Launch a Startup
I spent $25,280 to acquire one and it was a big mistake.
I once spent $25,280 to acquire a domain.
Well, not me personally, but the first company that I was CEO and co-founder of did— which feels like the same thing.
The domain was FancyDressCostumes.co.uk. This was back in 2011 and the transaction value was significant enough to be noted in industry news journals.
On the surface, there was reasonable business logic behind this decision. In hindsight, it was a flawed approach and I would not do this again unless the circumstances were exceptional.
That’s because we purchased the domain before we had a functioning product— when the entire business was little more than a bouquet of plans and assumptions.
Part of the reason we paid $25,280 was due to it being an “exact match domain.” This is search engine optimization parlance for a domain that matched the exact keywords consumers enter into Google looking for a specific product, service, or information.
More significantly it was a high volume exact match domain, meaning tons of super relevant searches.
Back then Google’s algorithms would assign a pronounced weighting to websites with exact match domains.
That can translate into a serious amount of sales if you can leverage the domain potential with fantastic search engine optimization techniques and rise to the top of the search results. It could’ve been a unique material competitive advantage that paid off handsomely.
Plus, the branding could be positioned as more specialized and authoritative within the e-commerce niche we were going after and used among other initiatives to achieve a higher conversion rate — in theory.
But, at that early stage, that’s all it really is, theory.
So, what went wrong?
Soon after launch, our $25,280 domain got banned by Google due to bad search engine optimization practices performed by a marketing firm we hired.
It killed the prospects of the business and I‘d much rather have learned this lesson on a $35 domain.
This specific scenario is unique but the moral of the story is many things can go wrong once you launch. Mistakes are made, markets change, business assumptions prove to be incorrect.
This is particularly relevant if you’re a startup that’s pre-product-market fit. There are too many unknowns to logically substantiate purchasing a high ticket asset that’s little more than a branding and marketing exercise and provides no intrinsic value to customers in itself.
A pre-launch startup is a high-risk experiment that should explore its business thesis via the most capital-efficient methodology possible.
Every dollar spent should have an essential role in verifying whether or not your thesis has merit. Dollars spent on an expensive domain do not do this.
The issue with going all-in
A flawed argument sometimes circulates that “no one sets out to fail” so you should go all-in and purchase a premium domain from the start.
This ignores the fact a startup’s capital at the beginning is extremely limited —particularly if bootstrapped or funded by angels and friends and family.
If you spend a ton of money acquiring a domain you’re sucking capital away from other more important initiatives.
Acquiring a domain takes time. There’s a sales and negotiation process to go through with the domain owner. It can take years.
Plus, there’s always the risk you buy an expensive domain and pivot the business once you’ve collected customer feedback. Your existing domain may not suit the new product direction.
Pricey domains are not easy to sell so your capital will be tied up for a long time, or you’ll have to sell at a huge discount. Here, some tips on what to do instead.
Build an audience first
If you buy a premium domain name before you’ve reached product-market traction you’re solving a problem you don’t have.
Your limited resources are better utilized developing a product and finding a sustainable customer base that wants to use it — applying resources you would have otherwise spent acquiring an expensive domain to the Build-Measure-Learn cycle.
From this, you’ll build a valuable business from a foundation of first adopters that love your product.
This cohort of customers are the most enthusiastic about your service and will be the most forgiving to mistakes or imperfections.
Not having a fancy domain is of little concern to them.
I’ve personally tested this numerous times. Two businesses I’ve built had made up words for names — Wahoha and Yavli — so that I could acquire the domains for $20 apiece. They were both successful and generated multimillion-dollar revenue.
Other products I’ve tested on lengthy or spammy sounding domains — such as healthylivingconsumer.com and quickmoneyanswers.com.
The domains looked terrible in the web browser address bar but the websites conveyed the value proposition well and the conversion rates were similar to industry benchmarks. Certainly high enough to validate an idea.
Having a premium domain is an incremental optimization gain
The time to consider upgrading your domain is once you’ve built up an audience and have a steady platform to grow from.
When you reach this point your conversion funnel starts to become super important as word-of-mouth and your sales efforts start to take off.
Attributes related to your brand—such as authority, memorability, accessibility, and ethos—affect the virility and conversion rate of people visiting your website and converting into value-generating customers.
Having a premium domain can enhance this but if you chose to build your brand around a made-up word you may not need to upgrade after all.
The good news is once you have traction, you’ll be in much better shape to acquire a fancy domain if you need to. Your momentum will translate into investable capital through revenue or a fundraising event.
You might end up paying more for a domain since the owner you’re buying from may be aware of your success and demand a premium, but its the price of success and a good problem to have.
Some of the most successful startups this century started life on non-premium or obscure domains.
Facebook launched on thefacebook.com in 2004. After building up a solid audience they raised over $12m in venture capital the following year and bought facebook.com for $200,000.
Twitter launched on the domain twttr.com in 2006. Once they had meaningful traction the team purchased twitter.com for $7,500.
Groupon started out on thepoint.com. After explosive success, they made an offer to the owner of groupon.com and acquired the domain for $250,000.
Uber.com started out as ubercab.com.
Airbnb.com started out as airbedandbreakfast.com.
Google.com started out on google.stanford.edu.
The key takeaway here is if you’re pre-launch and looking to test a thesis, don’t give the domain you use too much time or capital allocation from your limited resources. It has little significance on the outcome.
Sometimes founders get trapped in a thought cycle of needing a premium domain to look professional. In reality that’s more about satisfying a need to feel professional on a personal level. Early adopters don’t think the same way.
Your capital and cognitive energy are much better served by building a product and by finding an audience. Register a cheap relevant domain quickly and press on.
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