3 Ways Startups Screw Up Domain Deals

Startup Founders

As a startup founder who invests in domain names (rather than the stock market or real estate like most people), I’ve been able to see the domain industry from two sides, and I can tell you the perspectives from each are very different. Domain Investors buy a domain for the lowest price possible, and sell it for the highest price possible. Well, that’s not just Domainers, let’s be honest, investing in general is about buying low and selling high.

Startup founders, on the other hand are always looking for ways to get a deal because, well, cash is limited and in a startup every dollar really does count.

So what happens when these two worlds collide? It can get interesting. In general, most of my friends (i.e. startup ppl) consider people who own a bunch of domains squatters. Every time I hear that word I cringe, and I correct people probably once a week and let them know that just like people buy physical real estate, people also buy digital real estate.

At the end of the day, there’s really no way to change public perception, startups are going to see Domainers as squatters, no matter how much it bugs me. This means that when a startup wants to buy a domain name, in many cases, they’re starting from a negative place. Rather than thinking, “hey this person has a valuable asset that could make a huge impact on my business,” instead they think “hey this jerk is sitting on a domain that should be mine!”

The end result. Many startup founders reach out to domain investors and offend them in the first email which usually results in, no deal at all, or a higher price. In either case, this negative attitude ends up screwing up the deal and making it harder for a startup to buy the domain they want.

This week I was talking to a founder who was interested in buying a domain name. They have a low six-figure budget (i.e. $150k – $250k) and had a specific name in mind that I think probably will cost them more than that. In the conversation I started going through ways that they could screw up the deal and they said, “wow – thanks for letting me know, I was actually planning on doing all of those things! You should write a blog post about that.” So this is that post.

Below are three ways that I’ve seen startups blow a domain deal:

  1. Emailing the domain owner and saying “I see you’re not using this domain” – this is like going up to someone that owns a $2M house that doesn’t currently have a tenant and saying, “I see you’re not using this house.” Domain names are digital real estate, millions of dollars in domain names are sold every week (just take a look at DNJournal). This is probably the #1 mistake I see founders make and it is guaranteed to start your negotiations out on the wrong foot.
  2. Pretend to be a college student doing a project – Domain Investors get emails all the time from people claiming to be “college students” with a low budget. Stop pretending, everyone knows this is a lie so don’t try it, you’re just starting the negotiations off with deception. Plus, would a home owner rent to a college student for less just because they have a lower budget? Wouldn’t that be great, I would have lived in a mansion during college rather than a dorm room if they would just cut me a break! 😉
  3. Threatening legal action – it still amazes me how many times this happens. I’ll hear from a founder when it’s already too late. They decided to email the domain owner of the name they want, demanding the name and threatening legal action. If someone is legitimately squatting on your trademark, go get em’ – but in most cases these accusations are baseless. This will guarantee that the domain will be priced higher, for you and you alone.

Now I want to hear from you – if I were to make a top ten list, what else should I add to it? Comment and let your voice be heard!

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{ 5 comments… add one }

  • Nathan September 1, 2018, 11:57 am

    Great article. Perfect. Love to hear more on this issue. Keep it up.

    Reply
  • Eugene Fraxby September 1, 2018, 1:48 pm

    “How does $50 sound?”

    Reply
  • Nick September 2, 2018, 6:18 am

    Morgan, what advice do you have for someone who has owned a domain name for 11 years. Its a brandable, made-up word using the word “cloud”. A start up has created a company with that made up name 4 years ago. They are quite successful. They made a lower 5-figure offer, which was accepted and sent to escrow. They then balked when it came time to fund escrow. Instead they made a derogatory comment and made another offer of $50 claiming its not worth more than that.

    Having received the buyers details after they reneged, its clear that this buyer is directly related to that company. Do they have a legal right to that name which was created 7 years prior to them and is listed for sale without any ads on it? There are other, smaller companies using that name elsewhere in the world but the one who made the offer and backed out is the most successful of them.

    Reply
  • Bill Sweetman September 2, 2018, 11:48 am

    Great article, Morgan.

    Major mistake #4 is not doing your homework to understand what fair market value for the target domain name is. This is where working with a Domain Buyer Broker (such as yours truly) can really be of benefit because a professional Domain Buyer Broker will help the startup understand what sort of budget will be required for the category of domain they want as well as what their other viable domain options are. Can’t afford to spend six or seven-figures on that one-word .com you really want? No worries, a Domain Buyer Broker will help you figure out if you can lease the domain, explore the viability of a cash plus equity deal, or identify other domain that you can get for your budget.

    Reply
  • Rich September 3, 2018, 8:42 pm

    Now this is a great post Morgan!
    Very appreciated and well done sir.
    Best Regards

    Reply

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