TO: All those considering a hosting biz...

  • placid psychosis
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Post 3+ Months Ago

I see a lot of requests on this forum about information on starting a hosting business, often with limited to no budget and limited technical experience. I'm making this post because as someone that started out 4 years ago I want to maybe spare some pain. So, here it goes:

The Hosting Market
In the early days of the Web, e-commerce was the new promise of technology, and businesses scrambled to get online before thier competitors. They were willing to pay any price to those few companies that had the resources available to get them online. As the dot-com bubble grew, many hosting companies branched out with affiliate programs and reseller offerings. These became very popular as many dreamed of easy money to be made on the Web. The few resellers that made good profit eventually bought into thier own data centers and offered reseller plans of thier own.

Eventually there were literally thousands of hosting companies to choose from, some selling on quality and some on price, and some still to special niche markets. The dot-com bubble burst, and recently e-commerce has declined due to the threat of identity theft, virii, scams, and other nasties. Many companies continue to offer reseller and affiliate plans, plus the option to colocate your own server at thier facility. Often these companies do nothing BUT reseller plans (look at EV1Servers for example).

I've said all that to say this: The market is saturated. From penny hosts to hundred dollar hosts, hosts with feature A and hosts with feature B. there is most likely somebody that caters to most markets out there.

So I Should Forget It?
If you only plan on offering hosting, I'd say good luck, I'll even sell you a server or too. Point is, your chances for success are very slim. A no-name brand trying to break into a highly competetive market will have to sink a LOT of money into marketing and support. The best way to get into hosting is to ease into it, and offer it as a value-added resource to your current offerings.

Who Stands to Succeed?
Quite honestly, the already successful. If you're offering Web design services or some sort of computer sales/repair service and already have a decent customer base to pull from, you'd be well off to get a reseller account and start offering basic service. As the account grows, migrate to a bigger plan, then a bigger one, then maybe a dedicated server, and for the very lucky, in a few years a colo. Web designers especially stand to do well here, as we are often tasked with finding the client a host anyway, and sites on your own server are easier to deal with when on maintenance contracts.

Okay, I'm Ready. What Do I Need?
First off, you'll need time. Plenty of time. You have a lot of homework to do. You need to find a reseller account that offers plenty of space and bandwidth, and a rich feature set for a decent price. That doesn't always mean a cheap price, but a FAIR price. Do some research on a potential host. Read reviews, check on thier support options, and always compare prices. There are plenty of companies out there that just want your cash, and will rape you with over charges.

First step: Figure out what you want to offer. Get some plans drafted together, don't worry about setting prices yet. More research involved here, as you need to find out what your target client pool needs. Do they want Linux or Windows hosting? PHP? ASP? MySQL? PostgreSQL? MS-SQL? There are a lot of options. I highly recommend sticking to what you know. Web designers, stick to what you develop with. It's pointless to try to sell your customers Windows ASP hosting if you develop in PHP!

Next, figure up what your BASE costs will be for your plans with whatever company you want to work with. For example, if you can get a package at $75/month with 80GB space and 500GB bandwidth, and you want to offer a plan with 500Megs and 5GB bandwidth (your smallest plan is best to use on these initial calculations), your base cost would be around $7.60 for that plan. Now, figure up how many you would need to sign up to break even. In this case, 10 accounts would break us even at $76. Obviously we don't want to just break even, so we figure up fair retail price for our $7.60 plan. I'll leave this up to you.

Now we know what we want to offer and how much we need to charge to turn a profit. Please bear in mind that you will NOT magicly get all 10 customers you need to hit the break even point in the first month! It takes time and marketing. This is why already established businesses do the best, their other offerings can offset the losses of hosting until it picks up.

Okay, Now What?
You need a way to accept orders and process payment. Remember this: image is VERY important on the Web. People will likely not sign up if you take orders by email and request PayPal payments. It's not professional, and it makes you look sleazy. You need to automate orders. If customers have to wait even a couple hours to start using thier accounts many will turn away. There is a lot of software available for this, and what you use depends on what type of setup you have. Unless you're an excellent programmer you will likely have to spend some money on software. For payments, PayPal isn't that bad if you can accept other forms of payment, too. People hate having to sign up for another service just to send payment, thus PayPal's bad image as a sole processor. Look into other options, but I wouldn't advise jumping straight into a full merchant account until you're turning over some business and the costs will be justified.

I'm Ready! Why No Signups?
Because you're a no-name with no marketting. You need to advertise, locally at first and on sites that are related to your market. For example, if you target hosting towards gaming clans, buy ad space on gaming review sites and gaming related webcomics. You have to spend a little to make a little. Otherwise, if you're already doing other tech related work, probe your current clients. They're more trusting if they already have a GOOD business relationship with you.

I can't stress this enough: Do NOT expect to turn a profit in the first 6 months to a year unless you do some serious marketing! It can take that long or longer for you to become known!

Anything Else I Should Know?
Yeah, remeber that I said you needed time? It still applies. You need to be able to promptly respond to support issues and keep on top of your own stuff relating to software updates and security patches. You need to run backups and security checks. If you don't, it WILL come around and bite you. All it takes is one person to have a bad experience with you relating to support or data integrity and it could be over for you. If a disaster does occur, you need to make sure you're knowledgeable enough to react! You can salvage customer relationships by alerting users and reacting quickly to solve an issue. Slow reactions and/or failure of communication will cause clients to jump ship real quick. Make SURE you know your stuff! Know the software on the server inside and out, and know your own plans, options, and pricing. It's really humiliating to be asked what you offer and having to tell them you can't remember right away. And it looks bad on you. Again, image is VERY important. In any technical field, you must give users a reason to trust you.

Thanks! Anything Else?
I didn't cover a lot, actually. There's still the process of applying for your business, business types, etc. There are a lot of legal options you need to consider. I recommend consulting with a small business lawyer to draft up contracts, terms of service, etc. May seem like a pain, but trust me they can save you from lawsuits later.

About the Author
I am an owner of a Web design studio and Systems Administrator of the hosting branch of same studio. I started the design firm 6 years ago, and the hosting side 4 years ago. I have several employees now, although our hosting side didn't bring in a profit until this year.
  • Anonymous
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Post 3+ Months Ago

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Post 3+ Months Ago

Good info...
  • Fitness4Living
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Post 3+ Months Ago

thats quite a detailed piece of information there, thanks
  • musik
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Post 3+ Months Ago

yep right on, its no quick money maker thats for sure, but offering other services as well will help alot.
  • jmweb
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Post 3+ Months Ago

If your going to start a hosting business....

Start small and don't try and be big. The hosting industry has been around longer then you have so don't try and play big right off as it can turn customers off. As well other industry insiders will be asked if they should go with you or not. This can make or break your reputation within the industry.

When considering purchasing things, start off with small purchases. For instance, don't go out and purchase a $50 reseller plan right off. Start off small with a $10-$20 plan and then upgrade as you need more space/bandwidth. Most hosts who start small and work their way up have a higher probability of staying in business. We did it. Numerous years ago we started out with a reseller account and now we are co-locating.

Don't lie. A lot of hosts that have legitamently been bashed are because they lied to the customer right off. Telling the truth creates trust between you and the client, which means they are more likely to be long-term customers.

If your just in it for a buck, go work at McDonalds. Most hosts do not make a buck for a while, although it is possible to make a profit a lot sooner if you do things properly. We've seen hosts start up and spend a lot of time on their business and after 5 months get sick of the profits and close up shop, without notice. Simply put, they coulda made more working at McDonalds for minimum wage then they did over that 5 month time frame, and working long hours.

Expect to work long hours and odd hours. Hosting is NOT a 9-5 job. It is a 24x7 job, even with employees.

Make sure you become familiar with hosting. Don't start a business just because you think you can make a buck off it. Learn what hosting is about and learn your control panels. Customer's don't want to have to wait while you learn the basics of a control panel. Learn it right away.

Register your business. Failure to comply with Canadian laws in terms of business means Jailtime in a Federal Prision. Plus, it prevents them from giving you a bad name after you do get out, years later. Not to mention the tax credits.

Don't base everything off price. For instance, you go with a host offering 5 gb space and 50 gb bandwidth for $10 a month, expect to be burned. Sure it might not be right away and things may be going great at first. But out of the last two years i've yet to see a single company whom offers "too good to be true prices" last more then 5 months. Also, remember that when your setting your prices, your setting your target market. If your going to try and offer the lowest prices, expect more support inquries. For instance a new person to hosting would have more questions then a more experienced person.
  • CartikaHosting
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Post 3+ Months Ago

Very interesting little article placid psychosis and excellent insight from jmweb -

However, as saturated as this market is - and with as much competition as exists - there is always room for a reasonably priced service (by reasonable, I dont mean cheap) by a company that offers professionalism, performance and support.

Having said this - a value add is of utmost importance -

Thanks for posting this article - definately something everyone who wants to get into this industry should read...
  • Psilokan
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Post 3+ Months Ago

As a person starting their own web design company (having decent work come at me lately) I found this article very usefull. I've recently started to considering getting my own business together instead of finding a job thru some big company (as I'm not having luck with that so far).
  • placid psychosis
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Post 3+ Months Ago

I'm glad people have found it useful. I'll likely expand and follow-up on this with a little more depth at some point. I just want people to know the truth of it all before they dive in 8)
  • Mythos
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Post 3+ Months Ago

It's very usefull 8)

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