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My experience starting a web hosting company (part1)

It was September 2004, I was 17 and started my own web hosting company. It wasn’t a big ass money making venture, but it was a great experience and there was a  lot I had to learn.

The Business Plan

OHawk.com - 6 September 2004

OHawk.com - 6 September 2004

Based on my own experience, there where three things I wanted to provide to customers:

  1. Excellent support
  2. Excellent hosting
  3. Low price

How I was going to make money was so obvious to me at the time that I didn’t think twice about it. If I gave customers excellent service at a cheap price, profits will follow. I though about it like a hard discount supermarket. The reseller hosting costed me around $5 a month and on the reseller package I could easily put 50 customers. I charged $14 a year per customer so if I get more than 5 customers, that would be 100% profit. It’s not like I would get rich from it, but it would definitely be able to make some easy pocket money. Or so I thought.

Think twice about it

Some simple mathematics should have given me insight in how wrong my business idea was. It is virtually impossible to provide all these qualities at the same time; excellent support, excellent hosting and do it really cheap. I should have picked one or two and focused my efforts on that. There was for example a customer who paid around €29 a year for whom I was installing scripts and providing weekly support. It is obvious that this isn’t scalable to a 1000 customers.. I created a company to provide a service that I wanted, for a price I wanted, but I didn’t research if it would be economically feasible.

I also did the price setting to my “norms”, prices a student with virtually no money would be able to pay. In my case that wasn’t the best idea if you want to make money. Find out who you customers will be and how much money they would want to pay for it. Change your perspective and look with the eyes of the customer.

Flooded market

The second problem I encountered was that the hosting market is flooded. Because you can start selling web hosting packages by ordering a $5 / month reseller package, it is very easy to enter the market. If you use Porters Framework to analyze the market, it is obvious that at least 3-4 out of five forces are giving negative advice. A solution is to differentiate, create a new market like Heroku did — I think the most important factor for web hosting these days is reputation and trust.

Conclusion

So how did it go? I kept it running until around 2008, I stopped accepting new orders and kept the server running until all the customers their time was finished. With all the work from University I couldn’t continue to invest energy in providing support and acquiring new customers. I didn’t earn a fortune but it was a great learning experience. I managed more than 200 domains through it which is quite a number.

  • Analyze your market, Porters Framework is genius.
  • Pick a good price for your service, not to low.
  • What you want is not always what the customer wants.

Soon I’ll post part 2 with some more insights on how I optimized the sales tunnel and how I got traffic to the website.



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