Business Strategy. Acquisitions Part 1
Posted: Jun 02 2016 / Richard Bairstow / We are Underground
You know how hard it was to get your store up and running and to take care of all those issues we’ve discussed in previous articles. Well, it’s pretty much the same for everyone else too. With Shopify, setting up a store is the easy part; sign up, purchase a theme and start populating your site. But then the real work begins.
As we know, though, greater volume leads to economies of scale in all your operational areas, so it makes sense to try to add sales volume wherever you can. There are thousands of people who start stores and then choose to move on. Some store owners dream of selling out for millions whereas others just have a change of circumstances and want to get back something for their efforts.
So if you have a well-oiled operation, then it is not too great a step to think about adding in volume by acquiring another business that does something similar.
In the last article we talked about the creation of multiple websites selling similar products – well this strategy is just an extension of that. If you can buy a ready-made site with an existing customer base and some income to add to your own, then it may be that the sum of the parts is greater than you could achieve organically anytime soon.
Now we’re not going to suggest that a short blog article like this one can tell you everything you need to know about making an acquisition of another business, but hopefully, we’ll take a little mystery out of the process. If you are at all unsure, then it’s best to get some specialist advice before you part with your hard earned money, but as you will find, most of what you need to know is just common sense.
What should I look for?
Most eCommerce businesses are easily transferable because they aren’t location dependent and use standard resources. OK, they may use different platforms or payment gateways, but these things are easily changed to fit in with your processes. It’s the established traffic and the customers that you want most – so concentrate your thoughts on these matters.
You might think that buying another business that is identical to your own is the best way to go – and maybe it is. Obviously, if the products are similar, and you have knowledge of the market, then it makes sense, but maybe also look at other complementary or allied markets. For example, if you sell physically small items then it may make sense to keep that format because your logistics support that type of product.
So to use our perennial example that you might operate an online store selling pet jackets, then maybe think about acquiring a site that sells other pet products and then you have a bigger overall customer base you can work both ways.
Where do I look for eCommerce businesses for sale?
It doesn’t matter where in the world you are; many websites offer business owners the opportunity to sell their companies, and eCommerce businesses are becoming a greater part of these. Some owners will appoint brokers or agents who run their sales sites, and others will advertise directly on portals. It is as simple as using the search term: eCommerce businesses for sale [location] and you’ll see many pages of places to look.
What happens when I see a business for sale that I think might fit my operation?
Well, now the fun starts!
The first thing to do before you engage with a seller or their agent is to make a list of the red lines you won’t cross to acquire another business. These red lines can take many forms; It might be that you won’t sell items over a certain value, or maybe perishable goods or perhaps physically large items that are difficult to store and ship. It may be that you only want a business that trades in a particular geographic area operates a single currency. Perhaps you want a business that’s in a given size range – not too big but enough trade to make the effort worthwhile. However many red lines you set, there will still be many options – probably still too many. So then start making a wish list of the things you’d like the business to include and you’ll rapidly start to narrow it down.
Once you’ve done that, you’re ready to start engaging with the sellers.
In the next article, we’ll look at how you approach the issues of valuation, financing and ultimately doing a deal that makes sense to you. In the meantime happy hunting!