Had A Stroke, Wrote A Book, & THIS Makes $329k Profit?
You have no excuses, and how to make $329,000 profit off a newsletter.
Welcome to the 298 new Contrarians who joined last week. You good looking humans you… if you’re reading this but haven’t subscribed, really???
If you enjoy, stop keeping it a secret share with your homies and I’ll give you presents and a virtual hug, via ambassador program (free swag).
Have you ever heard of Jean-Dominique Bauby?
I’ll spin you a brief yarn. The other day I sat thinking about the excuses we give ourselves:
I’m too busy.
I don’t have time, maybe tomorrow, next week, next year.
We are prolific excuse machines (present company included - I’ve been putting off a book for yearssss). Well today, no more. I start with a reminder of our INFINITE CAPABILITY. As well as a sharp kick in the a$$ to go do the things you’ve been putting off.
Meet Jean-Dominique Bauby, he was a high flying man around town in Paris, who had a catastrophic stroke. A year and a half later, falling deep within a coma, he resurfaced…
… into a new existence as a victim of ''locked-in syndrome,'' mentally alert but deprived of movement and speech. Just 44 years old, his body useless but still painful (''my hands, lying curled on the yellow sheets, are hurting, although I can't tell if they are burning hot or ice cold''), he was forced to recognize that his former life in Paris as the witty, high-living editor in chief of Elle magazine had become as unreachable as the books and trinkets across his hospital room, where he now lived ''like a hermit crab dug into his rock.''
His time ''as a perfectly functioning earthling'' ended, one might say, in the blink of an eye. But it was blinking -- that age-old image of heedless speed turned into literal, concentrated labor -- that saved Bauby from becoming just another object in the room. By moving his left eyelid in response to an alphabet rearranged according to the letters' frequency of use, Bauby managed to write a book as moving as Job's and as expansive, in its way, as any composed by the wheelchaired, boundless Stephen Hawking. - (Excerpt NY Times, June 15, 1997, In the Blink of an Eye, by Mallon).
Let me reiterate this for you—Jean dictated an entire 132 page book, The Diving Bell and The Butterfly, entirely by blinking.
It’d go like this, someone would sit next time him and say:
A,B,C,D,E,F,G (he blinks). Ok G. (blink confirm).
A,B,C,D,E,F,G,H,I,J,K,L,M,N,O (he blinks). Ok O.
And onward for tens of thousands of words, hundreds of thousands of letters. Pause, contemplate that.
Just when I start to feel badly about anything, I try to remember Bauby. I keep this picture of him in my favorites folder. I turn to his words written with one blinking eye:
''One day . . . I can find it amusing, in my 45th year, to be cleaned up and turned over, to have my bottom wiped and swaddled like a newborn's. I even derive a guilty pleasure from this total lapse into infancy. But the next day, the same procedure seems to me unbearably sad, and a tear rolls down through the lather a nurse's aide spreads over my cheeks.''
If you’re down to cry like a toddler watch the movie, or read the book.
If we can read, and write, and type, and walk, and speak, and hear… are we not infinitely blessed?
Jean would say we are. Don’t let anyone tell you differently. Let no human make you out to be a victim. We are infinitely powerful if we so choose to be.
Now that I’ve got you all warmed up with knowing your capability. Let’s talk doing the big things. Sometimes the big thing is starting something, stopping something or in this case buying something. One acquisition in particular I’ve been working on…
BUYING A NEWSLETTER:
The How, The Why, The WTF
My business motto; Why Build, When You Can Buy. I love the buying model as the foundation to anything I want to build upon. Why? You get to start on third base. It’s so much easier to innovate (for me) when I have cash to work and risk with.
My formula for acquisitions: Buy, Build, Cash Flow Forever.
But, why Newsletters? Wrote about this before here but what I realized is at Contrarian Thinking each subscriber is worth about $2.9-$3.29 per year to me.
So with 100k subs, if I monetize I can generate $290-329k a year PROFIT. (Model below).
Um, yes please.
So - if I can generate that off my own subs why couldn’t I buy others, discount them, and juice up the return and subscription much faster than by adding a few hundred emails a week?
BUILD VS BUY
Ya’ll subscribers play hard to get when you have to do it organically. Instead of tracking you down 1 by 1, if I buy a newsletter, I get to grab a big huge net, throw it over a ton of ya and lovingly bring into the mix tens of thousands. THAT is the power of acquisitions! (Disclaimer - you have to be thoughtful of rules on email opt-in’s but that’s easy).
Let’s break this bad boy down, why I love newsletters:
#1 Baby You Got Some Good Looking Margins
Newsletters are my favorite type of small businesses; high margin, low people businesses. Margins in newsletters for independent creators can be as high as 90%, as is rumored Stratechery, or around 80% which is what they are for Contrarian Thinking. On average after talking to 10 different newsletter owners most independent operators, have margins of 75-80%. Those who have a team are widely variable, NY Times (subscription media at 8.8% margin) or the average of around 50% margins.
#2 They’re Benjamin Buttons
As Scott Galloway says, any business that gets more valuable as it gets older follows the Benjamin Button formula. With newsletters each subscriber you have comes with data, and if you’re good, they come into your flywheel where you create ancillary products around your newsletter to sell them once and profit continuously.
#3 You Can Turn Around & Sell ‘Em For Solid Multiples
While I don’t like to sell cash flowing assets unless they’re a lot of work to run, not only can you sell newsletters but also many are doing it at solid multiples.
Morning Brew Getting Acquired for $75M by Business Insider (doing $20M Profit purportedly)
Axios, politics newsletter launched in 2017, reportedly $58M ARR
The list goes on, Trends did a great piece on these (worth the signup - click here and you get $100 off for CT homies).
#4 Less Risk Than Other Digital Assets
Stefan Van Imof, a bud of mine from Flippa, said it perfectly in newsletter acquisitions:
Unlike with other digital assets, there’s no real learning curve, no messy code to transfer, and no chance Google will whack your SEO with a core update. All the data around subscribers, open rates, and click rates is either out in the open or easily verifiable. Costs to operate are minimal, and revenue streams are abundant. Oh, and you don’t need to be highly technical to get going. Brilliant!
#5 Usually Under Monetized
They often haven’t optimized all the ways they can profit. $0 in profit ain’t abnormal. Which is perfect for us as buyers who know how to monetize. So I value them at what they’re currently making but I model them out based on all the additional revenue lines I’d add. How you like them apples?
WE DON’T BUY AT HIGH MULTIPLES
We want deals. Here’s how.
What Are They Worth?
Valuation Method #1: Profit
Let’s make this super easy. I’m in private equity, many in this industry make a living out of overcomplicating acquisitions. Here’s the secret to businesses that do less than $5M in rev and are standard businesses, by and large… they’re all worth 2-3x profit. Period. Don’t EVER buy upside potential when you’re buying for cashflow You can model growth potential for yourself but don’t buy off it. Try to sell for higher YES, but don’t buy for higher.
Now you can value newsletters like the Duuce CEO here, or take a more complicated model like Avoid Boring People does here. But I wouldn’t waste your time when you’re in buying mode on a super small scale. Profits x 2-3 = Your Purchase Price.
Valuation Method #2: No Profit?
Went back and forth with Stefan again on this one, I think he has it right. Using cost to acquire a new email i.e. replacement cost as your valuation metric. Look at your newsletter/business and figure out what it costs you to acquire an email:
If your average acquisition cost is $2 per subscriber, then to you, a newsletter with 10,000 subscribers would be worth $20,000. And if you paid exactly $20,000 you’d basically just be saving yourself time and energy.
It may be worth more or less to someone else. And this market is probably too young to have a generally accepted benchmark CPA. But at least with this method you know if a newsletter is priced in the same ballpark.
However those emails haven’t opted in to you, so I’d have a hefty discount on the price since they won’t all convert as high on your offer or to join your list.
Valuation Method #3: 50% Discount to Your Monetization
This is how I’d do it. Look at my business, determine how much I can monetize each email I have, then discount the conversion. I’d assume a 50% drop off rate, giving me room to buy a newsletter with no profits on it at all at a massive discount from the standard 3-5x.
10,000 subs, $0 profit.
Let’s say may replacement cost is $2
I could pay $20,000 for that newsletter
Or I could look at my monetization ability and take $2.9 I mentioned above and discount 50%
End up at a price of $1.45 an email
Or $14,500 for that email list. Is that enough of a discount? (HMU if you have experience with that).
Remember all this is for us buds—when you’re negotiating don’t give them the keys to castle. Make a man wait a bit, ya know? Wink.
If I Was to Value Contrarian Thinking
Nothing like leading by example, how about I do the opposite of the aforementioned line and open up this kimono? Here is how I monetize CT.
First assumptions: IMHO you can’t monetize newsletters well until you hit 20,000 subs. Right about then is when you’ve hit enough momentum (and given enough value) to be able to ask for money. So I modeled out my revenue with 20k and 100k coming into 2021. This is all assumption laden and super simplistic, but here’s a framework. This is a literal model I use to think about the business as very simplistic models keep you from believing your own total b*s* guesstimates. Cough cough, I mean projections.
That said, this is SUPER CONSERVATIVE, ugh gross did I just say that? I hate when entrepreneurs tell me their model is conservative when investing. Shhh… don’t tell ‘em.
My Revenue Lines:
Premium Membership - This is what Substack does, allows you to charge for a premium version of your newsletter. They say assume 10% conversion on your subs. I think that’s too high, because I believe no one, so I assumed 2%. I set it as a $10 monthly charge.
Ad Revenue - To go search out sponsors and ads seems laborious and a poor ROI until you’re larger, or hire someone. Unless hey, HMU if you want to sponsor CT and your product/service is RAD. So the model assumes you don’t start for a few months after launching. I assume an ad price of $500 per 20k subs based on a CPM of $25.
YouTube Ad Revenue - I’m going to experiment on YouTube w/ CT so you can ignore or add this, but might be interesting revenue line to add.
Affiliates - Which means making money off listing other people’s products, and taking a commission. Right now I would only do that for products I own such as Unconventional Acquisitions or Grow Getters. I will likely add other products but I’m an over-vetter, under-monetizer on CT, so I haven’t found products I feel confident standing behind yet. You could probably add another $1-2k a month here on 20k subs.
Other revenue options: e-commerce (first easy step would be merch), community forums (UA has a mastermind), podcasts, consulting etc.
So with 20k subs I can generate revenue of $97k and $58k profit, without really knowing what I’m doing. Not bad.
Lots o’ Assumptions:
Assumed margins are 60%, as I’ll hire some contractors.
Assumed yearly growth rate is 60% (although if I’m only growing that much up front I’m probably not happy with myself.
Now here’s what it would look like at 100k subs:
With 100k subs I can generate revenue of $549k and $329k profit. :). Extra not bad.
I’m sure there is wide variance here but that’s the thing about models… they’re all made up. If my numbers are right I could probably sell for 5x multiple of profit following 2-3 years. However, given my face is on here (eek) I’d probably need to diversify, add more writers, and get rid of the key “wo-man” risk or shackle myself to the buyers foreverrrrrrr. Thanks but no thanks.
But instead I’ll just follow my motto:
Cash Flow Forever
Alright Codie, YOU ARE A GENIUS. I bow down and now want to buy newsletters.
What Makes A Newsletter Attractive to Me:
Picture’s worth a thousand words. What kind of newsletters would I buy? Right now I’m in discussions with one that has:
50k monthly page views
50k facebook group
5 year history
$8k a month profit or $96k a year
They want $75,000 for it (that’s a .08x multiple). If it all checks out I’m highly likely to acquire this one. Probably for a discount still as it’s only 1 year old. HTF did they grow that all in one year?!?
The key tenants are a list of 10k+, in business/finance niche, ideally 3-5 years old, 50k+ page views, and profits or not.
But don’t you worry, I’ll go ahead and lift that kimono for you naughty girls and boys again when I find my prince charming…
Speaking of finding…
How to Find Newsletters:
Listen Houston, we have a small problem. The market is very very shallow. When I screened for all the parameters above across marketplaces I found less than 15 who were even marginally interesting.
That said, first start with marketplaces:
Duuce is site exclusively for buying & selling newsletters. Had a nice chat with Jonas, the founder of Duuce and while it’s still an MVP I like the idea a lot. Probably why he did so well listing on Product Hunt.
Flippa - online biz marketplace.
Blogs for Sale - Lord is this a terrible user interface, but two sites in here are interesting albeit very overpriced so I pinged them to see if we can whittle those down.
Second spot, Facebook groups related to newsletters, email marketing etc. I’m posting this in them: “I’m looking to buy a newsletter, blog business with over 10k+ subscribers and some traffic. Please let me know if interested.”
Third spot, pinging large(ish) Instagram and Facebook groups in my niche to see if interested in selling with the same verbiage above. Will report back but so far 10 requests sent 7 responses received. Yup, it’s early days here and I think we’re all going to wish (just like with websites) we had snapped more up.
After all, when’s the best time to plant a tree? 10 years ago, second best time? Now.
How did the story of Jean-Dominique Bauby end?
It’s a heart wrenching tale. The doctors thought he might over time improve, his digestion and respiration might return a bit, his vocal cords utter small words. Hope. And yet, two days after the publication of his book, he died.
It’s a lesson. Don’t die with your creations inside of you. Take one small movement to let them free, if you’ve hands to craft and mind to build, do the thing, buy the thing. Do it now.
Questions everything and let free that thing inside of you,
Tweet of the Week:
More here on this blog —> www.howtobuyasmallbusiness.com
This is the be an adult section, not advice, just what I did. If you buy a newsletter and it crashes and burns, welp bud that’s on you. Said otherwise: This article is presented for informational purposes only, is an opinion, and is not intended to recommend any investment, and is not an offer to sell or the solicitation of an offer to purchase an interest in any current or future investment vehicle managed or sponsored by Entourage Effect Capital, LLC, Codie Ventures, LLC or its affiliates. Any such solicitation of an offer to purchase an interest will be made by a definitive private placement memorandum or other offering document.