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How to Make Sure You’re Buying the Right Ecommerce Business
By Quiet Light
“What business should I buy?” Online Business Brokers hear that question a lot. When you buy an eCommerce business, you have to make sure you’re looking at the right business for acquisition. But how the hell do you know if an acquisition is The One or a future battle scar? We chatted with Mike Nunez, an eCommerce acquisition veteran, about how entrepreneurs can pursue the right deals for their skillset. If you’re tired of running circles looking for the right match, follow Mike’s 6 tips to buy right and set yourself up for success.
IN THIS POST
Like dating, there’s nothing more exhilarating (and occasionally confusing) than buying the right eCommerce business. If you’re sick of swiping left on transactions that just don’t work out, it’s time for you to find “The One:” the perfect eCommerce acquisition for you.
But hey, there’s a lot of fish in the sea. How do you reel in a winner while avoiding the bloodthirsty piranhas … and the occasional catfish?
Well, like dating, you’ve got to quickly learn how to spot a business transaction you can take home to momma—and which ones will drain your bank account and lock you out of your apartment. That means you’ve got to be choosy with the transactions you pursue.
Mike Nunez graced our blog before to chat about how to be a good seller. This time, he’s sharing the must-have features he looks for in any business. By spending more time upfront searching for the right eCommerce business, Mike’s been able to skyrocket profitability without losing sleep at night.
Ready to stop the one-night stands that never go anywhere? You deserve to find a sexy, profitable eCommerce biz that won’t leave you out in the cold. Swipe right on the right eCommerce acquisition with Mike’s 6 tips for buyers.
But who is Mike to tell you how to buy a biz? Well, with over 20 years in the online marketing world, Mike’s both worked at and owned marketing agencies. In fact, the dude actually worked at Google for 4 years in their paid search division. Google.
Paying attention now? Good! The eCommerce love doctor is now in session.
Although Mike also has an affiliate marketing company and a paid search company, he purchased two eCommerce companies through Quiet Light:
- An outdoor outfitter.
- A custom suit business.
… And Mike learned a ton from these two acquisitions. When you’re buying an eCommerce business, you’ve got to learn from the people who came before you; they’re there to save you a world of pain. Now isn’t the time to go on a blind date; keep your eyes open and ready when you dive headfirst into buying an eCommerce site. If anything, play the field a little bit. Be patient and look at a lot of listings. Like browsing dozens of people’s online dating profiles, zipping through a handful of biz listings will help you find what you’re looking for.
Mike’s had two kickass acquisitions because he knew what to look for. “Within 20 minutes, we could evaluate a Google Ads account and save $10,000 a month,” Mike adds. Of course, what’s right for Mike might not be right for you. Your best buddy’s girlfriend isn’t going to be right for you, either (at least I hope not).
But hey, there are still best practices and red flags to watch out for. And the more acquisitions you go through, the more you learn. It’s like dating in your mid-thirties: you’re over the BS and just ready to get on with it already.
For the love of Cupid, don’t eff up your chances at profitability by choosing the wrong eCommerce business. Use these 6 tips to buy a business that’s competitive, poised for growth, and a natural fit with your interests.
Have you ever gone on a date where you have nothing in common with the other person? Maybe you’re a sports buff and she can’t stand ESPN. Or he’s really into country music and you’d rather die than listen to George Strait.
Shopping for an eCommerce biz isn’t that different. You’ll come across listings that make you think, “Ugh, why would I want to do that?” and others that make you hop out of your seat in excitement. But this ain’t about picking a t-shirt business because you like t-shirts.
Mike recommends that buyers choose an eCommerce site where they can add value. Translation: buy a company that plays to your strengths. You know, the stuff that you’re above-average at.
Sure, you’re an entrepreneur and that means you’re a generalist to some extent, but the trick is to buy a biz based on your Entrepreneurial Superpower.
Let’s break it down:
- Say you’ve got a talent for sales. Don’t buy a company that’s already got an immaculate sales team. Instead, buy a company that has a great product, but needs help in the sales department.
- If you’re a wiz at operations, buy a business that’s flying a white flag from its operations team.
In other words, you need to buy a business with opportunity. “There has to be opportunity when we’re purchasing. The bigger the opportunity, the more we’re willing to pay,” Mike says. If it’s already optimized out the wazoo and your expertise can’t take the biz to the next level, what are you doing, boss? Take your talents somewhere that you’ll be useful!
And yes, “talents” is plural. Mike recommends that you have at least two Entrepreneurial Superpowers to skyrocket your eCommerce acquisition growth. After all, what do you do after you optimize operations? You’re an entrepreneur, so you’re not going to rest on your laurels. If you’re also a badass marketer, that gives you another area of deep expertise you can use to grow the biz.
Not sure what your superpower is? Try a few of these strengths assessment tools for starters:
- Gallup CliftonStrengths
- A personal SWOT analysis
- VIA Character Strengths
- What Kind of Potato Are You? Okay, this is just for funsies. …But don’t you want to know?
A Real-World Example
Mike approached his business transactions with the mentality of adding value with his skills. His Entrepreneurial Superpowers happen to be business and online marketing (specifically affiliate marketing and paid ads).
Mike’s not a finance or an operations guy. So guess what? He’s sure as hell not going to buy a business that needs help with finances or operations. That’s a recipe for late nights, empty bank accounts, and a wicked stress-hangover.
So, Mike was smart and bought a business where he could deliver value. Remember, this dude worked in paid search at Google—he knows a thing or twelve about Google Ads. Naturally, when he thought about buying an eCommerce business, he asked the owner for access to their Google Ads.
How Mike Added $160,000 In Value To His Brand New Biz
But why care about Google Ads? Aren’t things like shipping and manufacturing more important? Not for Mikey-boy. “Bad ads are death by a thousand papercuts,” Mike says. After looking over the business’s Google Ads accounts, Mike knew he could deliver bangin’ value to the biz. So he bought it.
Mike’s team slashed $15,000 in expenses right out of the gates. And let me rewind and say that again. He found $15-flippin’-Gs! That value went straight to the bottom line. In fact, after crunching the numbers, the business generated more sales for way less, thanks to Mike’s improvements. “We generated more sales than last year and spent $160,000 less to do so,” Mike says.
“But wait!” you might think, “Why can’t I buy a company with a great sales team if I’m also good at sales? What’s the harm in that?” In Mike’s case, he has no problem buying a company if it already has a pitch-perfect Google Ads setup. It’s okay if the eCommerce business is stellar in several areas.
The point here is that you need to go where you add value. After all, if you can barely boil water, you wouldn’t try to cook dinner for your Tinder date, would you? Buy an online business that will reward you for your strengths.
The eventual goal of dating is to (hopefully) find a special somebody you like hanging out with. Eventually, you want to know if it’s a “Netflix and chill-only” kind of vibe, or if there’s room for something more.
When it comes to buying an eCommerce business, you always want there to be room for more. Your goal is to take a $15 million biz and grow that sucker to be a $250 million company, right? Well, how are you going to get that shiz from $15 million to $250 million? There’s got to be room to grow.
That’s not to say that the business seller is doing a bad job—far from it. Owning a business is like running an ant farm: you’re staring at these itty bitty, intricate things all day. You’re so laser-focused on the minutiae that you forget to drop the magnifying glass, stand up, and look at things from a 40,000-foot view. Depending on the eCommerce business you want to buy, there may be some really obvious wins.
That’s your time to shine, baby.
Eliminate BS Fees And Nagging Issues
When Mike purchased his eCommerce business, he thought his shipping was hunky-dory. Hell, he had an external vendor helping him with shipping. That meant everything was good, right?
Nope! The company overlooked a difference in the packing dimensions. FedEx was fining Mike THOUSANDS for this little mishap. “It added up to tens of thousands of dollars in fines,” Mike says. He was off by an inch, but FedEx made sure to charge him an arm and a leg.
Mike quickly fixed the issue by purchasing something called a dimension scanner. Yeah, it set him back $20,000, but it more than paid for itself by avoiding silly FedEx fees.
Take a similar approach to your business. Can you work on:
- Credit card processing fees?
- Manufacturing terms?
- Interest rates?
- Inventory optimization?
The possibilities are endless. By taking a hard look at his shipping processes, Mike added thousands upon thousands of dollars of value back to his business with that simple change.
Don’t Spend That Saved Money Just Yet
Yeehaw! You’ve got a crapload of money in the bank now from making those changes. It’s time to give yourself a nice owner distribution, right?
Nononono. That’s not what Mike recommends. “Use that money to fund growth,” he says. Now that you’ve recovered funds from the business, use those funds to grow the business.
Is there anything that the seller told you is impossible, impractical, or too much work? That’s your opportunity! It might cost time or money, but as a new eCommerce buyer, you’ve got momentum. After cutting out annoying fees and BS, you have the money in the bank to do these more complicated fixes. You’re ready to take that $15 million brand to a $250 million brand, remember?
Recover your wasted money and reinvest it into areas of the company that need love. Whether that’s part-time help, a new website, or funding purchase orders, you know what your business needs the most. “My team calls it ‘Feed the winners, starve the losers,’” Mike says. By all means, slash expenses where you can, but route those dollars somewhere that matters.
Amazon is like a big, hulking dudebro at the beach who’s trying to steal your gal. He could easily kick sand in your face and sweep your sweetie off her two feet. You certainly don’t want to piss him off.
What do you do? If you follow Mike’s approach, you’re friendly to the beach bully, but keep him at an arm’s length.
Jeff Bezos has more money than God. If his company takes a shine to your product, it will find a way to do what you’re doing, but faster and cheaper. Maybe it’s obvious to say this, but you don’t want that to happen.
That’s why Mike recommends purchasing a brand that’s as Amazon-resistant as possible. Here’s how he approached it for his two brands:
- Outdoor brand: Mike knew he couldn’t compete with Amazon here, so he decided to join ‘em. At least then he could capitalize on Amazon’s gigantic user base to boost sales.
- Custom suit brand: Amazon’s model doesn’t lend itself well to customization, so that was a plus for this business. However, Mike started selling non-customized suit accessories on Amazon to boost brand recognition and sales. “Custom products are slightly more defensible against Amazon,” Mike adds.
If you’re terrified of Amazon stealing your girl, customization is the name of the game. Amazon makes its money on mass-market appeal; it just doesn’t have the infrastructure to lovingly handcraft something.
Look for businesses with custom products because they’re more defensible against the Amazon juggernaut. That means you can sleep well at night, knowing Amazon will have a hard time customizing neon green leather handbags en masse.
Not sure if your product is actually unique? Try a few of these tools:
- Search online through the US Patent Office.
- Look through Google’s Patent Search engine.
- Jungle Scout (great for checking Amazon for competition)
Now, customization is important, but diversity is the name of the game for reducing your eCommerce biz risk. Try a few options to diversify the hell out of your biz:
- Sell on multiple platforms: Try to sell on both your own website and Amazon. Mike had great success doing this with his suit accessories. And if Amazon goes belly-up overnight, you aren’t dependent on that revenue.
- Diversify products: Don’t just stick to one niche. What if Congress issues a new law tomorrow that makes leather handbags illegal? That’s unlikely, but you get the idea. Shiz happens, so sell more than one type of product to stay safe.
- Serve small niches, too: Mass market appeal is great, but niches need love, too. Diversify your current product mix with a handful of niche-friendly products. You never know what could be your next big-seller.
Maybe this is Mike’s bias showing a little, but he looks for businesses with strong operations. That comes as no surprise from the guy who claims he struggles with biz ops.
But even if you’re the Wizard Of Business Operations, you need to buy an eCommerce business that’s reasonably functional. When you buy the business, the previous owner might not be in the picture anymore. You don’t want to inherit a dysfunctional company with what-the-hell levels of confusion. That’s going to limit your growth opportunities.
“Who else within the company can take this over?” Mike says. If the seller leaves, how are you going to fill that talent vacuum? In the form of the existing employees? Contractors? Yourself? You’ll have access to the seller during a transition period, but still. The cleaner the ops today, the better the ops will be when you’re steering the ship.
You might think you’ve escaped the lascivious eye of Amazon, but that’s not your only competition on the beach. There are dozens of other sweaty, nerdy dudes gunning for what’s yours, too.
And the fewer barriers to entry, the more likely it is you’ll end up competing with these jerkoffs. Don’t give yourself the headaches of competition from the start. Buy a business with as many barriers to entry as possible. “How replicable is this business? What is the barrier that people have to get through?” Mike says.
Mike did this with his custom suit business. He figured anybody could figure out how to source materials and make suits, but once he got familiar with the business, he realized that wasn’t true.
Could someone else replicate what you’re doing? Could they buy product from the same manufacturer, slap their name on it, and sell it for half the price? If so, Mike recommends you keep shopping for a different eCommerce business. Copycats are a pain in the ass and they’ll only drag you down.
Sometimes there are little, petty things that happen in a relationship that drive you nuts. She chews with her mouth open, he leaves dirty socks on the floor—there are always going to be weird, nagging things that eat at you.
But sometimes these problems can snowball into A Big Issue when you’re buying an eCommerce business. For Mike, that issue is the business’s sales platform. If he could hop in a time machine, he would have seriously reconsidered buying a business built on NetSuite.
As it turns out, NetSuite is really, really tough to mold and customize. Mike spent many hours and many dollar bills trying to whip NetSuite into shape for his eCommerce business.
And no, he doesn’t recommend buying a business and then switching the sales platform. That’s way too messy and it can decimate your sales. When in doubt, buy an eCommerce business that uses a platform you’re already familiar with.
Magento and Shopify are great options. You can toss a stone and find 13 developers for these platforms, easy. NetSuite? Not so much. Make sure your eCommerce business isn’t built on something archaic that’s going to cause a lot of heartache.
The time will come when you find The One. Sometimes you’ve got to swipe left dozens of times before you find your match. But when you buy an eCommerce business that fits your needs, you can skyrocket profitability without breaking a sweat.
When it’s time to buy your eCommerce business:
- Choose a business that complements your Entrepreneurial Superpower.
- Reinvest recovered funds back into growth.
- Resist an Amazon invasion.
- Look for healthy operations.
- Choose one built on a common sales platform.
You learn something every time you acquire an eCommerce business. Instead of experiencing heartbreak, follow Mike’s 6 golden rules for buying the perfect eCommerce business. Isn’t it time you found The One?