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I Made a Bad Website Acquisition. Here’s What I Learned
By Quiet Light
As the owner of Quiet Light Brokerage, I should have a good education on how to spot a great opportunity and how to cash in, but like most people who buy websites, I’ve had my share of failures as much as victories.
Although it isn’t fun to openly discuss my failures, especially when I professionally recommend businesses for sale, I want to share with you one particularly bad failure I had recently. A misstep that cost time, money, and dignity. A blunder that hopefully you can learn something from.
In my line of work, I am always asked if I ever buy websites from my clients. Since I started Quiet Light Brokerage in 2007, I have only bought two (one of which you will find out about today). There are only 24 hours in every day, and most of that is dedicated to my day job. Plus I need to sleep at some point, and remind my family what I look like.
One of the websites I bought came in 2013, when the then-owners asked for a valuation, which then led to a “for sale” sign being hung on the group of sites. I immediately fell in love with the sites for the following reasons.
Old Valuable Content
Spread out over 8 websites, the previous owner spent a lot of effort creating high-quality content on the technical aspects of both fire safes and cabinets. For example, she wrote a detailed guide on how to install a Gardall Wall Safe, complete with diagrams and step-by-step instructions.
This was invaluable content for anyone considering buying and installing such a safe. It was also a good sign for potential customers that the site owner was somewhat of an expert in the field.
Fairly Good Website Rankings
In the past, the website had great rankings. Those rankings slipped as she got closer to the point of selling the business, but much of that slip seemed to be related to having a poor site structure and poor user experience. New management could fix that in no time at all.
No New Products
Since the websites had an outdated design, updating her product catalog of 500+ products was a monumental task. As a result, prices were outdated, as were models. As safe companies discontinued models, she continued to receive orders for those discontinued models, despite not being able to fill those orders.
No Pay-Per-Click Program
Without a modern shopping cart, she certainly couldn’t upload a product feed to Google Products or any other shopping feed.
I fell in love with the opportunity to take her aged, grandfathered websites and upgrade them to a professional shopping cart that could be added to Google Products and other shopping feeds. I loved the idea of regaining her lost rankings and automating the inefficiencies that caused her business to fall behind.
The Niche Was Boring
You may think this would be a big turn-off, but far from it. I am a fan of ‘boring’ niches as they tend to scare away heavy competition. These sites sold fire-rated locking cabinets and gun safes.
I Saw The Potential For Growth
In 2013, guns rights advocates were worried about potential legal restrictions to owning a gun. As such, there were indications that the industry was growing. This was the right time to jump in and profit from that.
The Sites Were Terribly Web 1.0
All of the websites were coded with flat HTML pages and emailed webforms. I could see that it was time to drag these websites into 2013 with a modern shopping cart and every process automated. That way, I could do what I do best – market the sites.
Any lingering doubts I may have still had completely disappeared when one of my most trusted buyers offered to invest with me in the sites. His reputation for finding money-making investments was virtually bulletproof. He had only failed once. If these sites were good enough for him, they were good enough for me.
Three weeks later, we closed the deal, took possession of the sites, and I began my work fixing them. A year later, I cut my losses and tried to forget about the whole experience, especially the part about selling them for a 66% loss of the original purchase price.
What Went Wrong?
So what went wrong? Well for a start, the returns were not exactly breathtaking. Especially when you factored in that 40% of my workweek was being spent on these sites, and I had very little to show for it. Meanwhile, my main job at Quiet Light Brokerage was getting busier every day, so giving up almost half my week to work on what had essentially become a hobby site was not going to be sustainable and justifiable in the long term.
I did get a great tax deduction at the end of the year, and I got a great education on the differences between selling a website, and actually running one. It’s not all doom and gloom.
What else went wrong? Let’s take a run through of the list.
I Assumed I Knew Too Much
Letting your ego get the best of you is never a good idea. Since I had a huge amount of experience managing hundreds of website transactions that brought in nice returns for our clients, I naturally assumed that these developed skills would translate to recognize a money-generating for myself.
What I failed to recognize and remember was the planning and work that buyers put into their sites that we list for sale. Even the easiest sale on our books requires a transition plan and full due diligence. A successful sale doesn’t happen magically. It only happens after a successful transition plan has been put in place.
But because I put too much faith in my experience selling websites, I thought I could skip a few steps during the due diligence stage. I was willing to trust the seller in areas where I would have ordinarily asked for proof. Most importantly, I completely underestimated the work and skill required to successfully transition a failing, outdated business to new management.
Past success doesn’t necessarily automatically translate into future success.
My Love For The Opportunity Made Me Ignore The Threats
This business was ripe with opportunities, and it didn’t take Albert Einstein to see them. But as I focused on these opportunities, I ignored the various threats that should have been obvious:
Her Search Engine Rankings Had Dipped
Whereas she used to hold top rankings for all of her money keywords, the previous 12 months experienced a slow slide down the search results and onto the dreaded pages 2 and 3, where very few people bother visiting. There was no penalty, just an inability to keep up.
Her Prices Were Not Competitive
I didn’t even bother to inspect her pricing – partly because most of her products were on old pricing sheets since it took her so long to update her websites.
Her Vendors Weren’t Terribly Friendly to Online Retailers
I completely skipped the step of verifying that vendors would transfer to my ownership. In witnessing hundreds of acquisitions, finding a vendor who doesn’t transition to a new owner is extremely rare. Because of this, I skipped this step entirely just to get the deal done. Bad move.
The Industry Was Difficult To Standardize
Central to my plan for an upgrade was the idea that I could put her business on a modern shopping cart and automate the order process. However, I never did due diligence on what this would require, and it hurt me months later.
Again, my ego got the best of me. I knew she wanted to get out of her business quickly, and I knew the business was suffering from her lack of attention. I wanted the business in my control before she could do more damage.
The lesson I learned here was that even though the opportunities for a transaction are mouth-watering, you need to have a game-plan down the road for the possible threats, and you need to investigate what you do not know.
I Underestimated The Investment In Upgrades
Moving a website from flat HTML to a modern shopping cart while trying to preserve old rankings and content is a difficult task. Now multiply this task by eight websites, and throw in a centralized product database. This raises the difficulty level to Ludicrously High.
I have also never actually owned an e-commerce business before. So you will not be surprised to learn that my first three months owning the sites were filled with late nights at the office trying to slap the Magento shopping cart into submission.
Looking back on these few months, I do not regret the concept and the opportunity, but I do regret not having a technical transition plan in place before the sale. Even if it wasn’t a detailed transition plan, knowing some of the technical troubles I’d run into would have been extremely helpful in planning those first few months.
About Those Vendors
One of the biggest mistakes I made, and one that I should have known better than to make, was to skip the step of verifying that vendors would let me sell their products. After all, vendors are in the business of selling products, and the previous owner had had a 10 year relationship with hers.
But when I took over her business, I found out three things.
Not All Vendors Would Accept Me
Despite working with the previous owner for 10 years, a few vendors implemented new policies to not allow any new online vendors. These vendors were pressured by traditional brick and mortar stores to no longer allow online sales. It would seem that shoppers would use these brick and mortar store showrooms to inspect the various safes, but then go online to buy the products at a discount. Smart for them, bad for me.
Since I was a “new” vendor (I had a new Tax ID and a new business name), a few vendors were not receptive to my application, and one key vendor outright rejected me.
I Didn’t Get Any Sweetheart Deals
One of the benefits of buying an established e-commerce business is the possibility of getting special pricing on products as a result of a long-term relationship. Unfortunately, I didn’t get such a deal. In fact, I was very taken aback at the unbeneficial introductory prices every vendor wanted to give me. This meant my competitors had an immediate price advantage over me. I was handicapped before I had even got out of the gate.
No Enforcement Of MAP Pricing
A policy called MAP (minimum advertised price) is used by some vendors to protect retailers from getting into a pricing war, that leaves everybody with little to no profit margins. Out of the 10 vendors I used, only a handful had MAP pricing, and no one enforced it strictly.
The Previous Owner Ran Out Without Paying Her Bills
After I bought the business and established accounts with the previous owner’s vendors, I learned from several of them that she left them with outstanding invoices. I should have caught this early in the due diligence stage. It made for an uncomfortable transition.
The Vendors Had Antiquated Processes
My plan was to turn the websites into highly automated e-commerce shops. That way, I could automate the order processes. However, as I signed up with various vendors, I was shocked to find that few of them were using any automation-friendly process.
To give you an extreme example, one vendor would require a telephone quote for shipping, and then snail mail a handwritten invoice. Even though he was a great vendor (and proved to be a valuable confidant and source of valuable advice), it was impossible to automate people like them.
So always verify your vendors and their business methods before the transition period!
I Didn’t Know The Industry
If you are a newcomer to an industry, it is impossible to get to know it well during due diligence. However, it wouldn’t have been such a bad idea to spend some time with the owner in advance, learning how orders are processed and what difficulties frequently arise.
The biggest problem I faced was shipping. Most of the products I sold were not small, UPS or Fedex type of items. These were freight items that required complex shipping instructions, such as the following:
- Is the 2-ton safe being shipped to a business?
- Does it have a shipping dock, or does the freighter need a liftgate?
- Will the drivers need to bring the safe inside the building? If so, where will they leave it?
- Do they have to go up or down stairs?
- Do they need to unpack the safe?
- What happens if this extremely heavy object falls?
- What happens if there is a nick in the paint?
- How does someone refuse delivery?
Shipping was an absolute nightmare. Since the products were so heavy, shipping costs varied significantly. I eventually managed to automate the shipping process, but it took months.
Beyond the unfamiliarity with shipping heavy objects, I was also blindsided by the sheer volume of technical information about safes. I was not naive in this regard – I expected to have to learn some things. But in light of everything else I had to deal with, I wasn’t able to also learn the technicalities of safes.
I Would Do It Again If…
Looking back on the acquisition, I don’t think I made a mistake in identifying a good opportunity. Instead I would say I made a mistake in how I approached and managed the opportunity.
If presented with this chance again, I would probably do it again, but only if the following conditions were met:
If I Put Together a Detailed Technical Transition Plan
After working with Magento for a year, I’ve developed a special hatred for that platform. I was completely unprepared to deal with the difficulties of upgrading the websites. Based on the expected upgrade expenses, I would have lowered my offer.
If I Verified My Potential Relationships With The Vendors
Not verifying what my relationship would be with the vendors put me in several embarrassing situations and also put me at a disadvantage. If I had the previous owner speaking up on my behalf, I may have had better luck, and I also would have known where there were potential problems.
If I Digged Into The Processes More Deeply
Order processes always seem simple to the current owner. But speaking for myself, navigating all of the complex processes distracted and pulled me away from learning about the industry itself. This could have been overcome by proper education in the due diligence process.
There are great opportunities available to generate incredible returns on an investment, but they don’t happen magically. Relying on instinct, past successes, and intuition cannot replace a solid, well thought out plan.