Should I buy an online business?
It’s a question Carl and I get all the time in some variation.
As with most questions of this nature, the answer is rarely simple or binary.
The answer is: It depends.
Though there may be far wider criteria for how we look at whether an online business is right (and ripe) for acquisition, let’s define an online business as any business that relies almost exclusively on e-commerce or web traffic for sales.
Heck, I’ve bought an online business… Carl’s! An online publishing business.
Why would Carl’s business be an attractive acquisition in comparison to other opportunities?
Besides the great value of the business itself, Carl had the primary component of a successful online business — the one that rules out a lot of the other types of online businesses…
Control of how his business interacted with his customers.
Why is this so important, and why is it the determining factor in whether to buy an online business?
With massive networks such as Google, Facebook and Amazon exerting a massive amount of power and influence, how you communicate with and control the customer experience is critical.
For example, in a Fulfillment by Amazon (FBA) business, who actually controls your customers? You or Amazon?
It is Amazon. Unless you can push customers to interact with you off the Amazon platform, your entire customer relationship and revenue stream is dictated by Amazon.
If they decide to increase their fees, re-rank your products, eliminate some level of distribution or more… your entire business or investment is at risk.
Same goes for businesses that are built entirely on Google rankings, like niche sites designed to rank high for certain keywords. A single change in Google’s search algorithms can destroy traffic and the inherent value of the digital property.
I’m not suggesting that an FBA business is bad. They can be really profitable.
Same goes for a portfolio of niche sites…
The challenge is that any change by one of these giants can potentially destroy the value of the business you’ve acquired overnight.
You buy an online business like I did that allows you to build a direct relationship with your customers. One in which you’re able to directly communicate, influence and, yes, make money through an extended, two-way relationship.
It comes down to email lists, web properties, social media groups… and a combination of other channels that crossover from the digital to the real world.
One massive benefit of online businesses is the location flexibility you have. If you’re an owner-operator, you can run these businesses from anywhere in the world.
If you’re an owner-investor, your team can be around the world managing the businesses for you.
Another benefit is the possibility for strong recurring revenues. Money coming in while you sleep, thanks to recurring billing or other re-ordering customers will do.
At the end of the day, owning an online business has tremendous upside for a potential buyer. Just make sure you spend time ensuring you can control and maintain the relationship with the customers of the business.
Nothing is more important than the relationship with a customer. It’s what keeps us up at night at Dealmaker Wealth Society.
Reply to this email and tell me about an amazing customer experience you had. What made it great? Did it make you feel more loyal to the business or brand? On the flip side, if you’ve had a terrible customer experience, what did that do to damage your relationship with the business?
Without customers to buy your products or services, you don’t have a business. Always think about the strength of the customer relationships when you’re looking at potential businesses to buy.
You’re only one deal away,
Co-founder and publisher, Dealmaker Wealth Society