How to Build an Ecommerce Business Designed for Exit with Jason Wong [EP. 50]
What’s your end goal with your ecommerce business?
When you first start your business, it’s unlikely that you’re already thinking about selling it. However, the earlier you start to think about a potential exit the more likely you’ll walk away with a life-changing sum. Think about all of the opportunities you could have if you doubled your windfall with a simple exit planning strategy in place early on.
Jason Wong, Managing Partner of Wonghaus Ventures and an ecommerce business entrepreneur, recommends preparing your business for exit early to help facilitate a smoother, more lucrative sale. He shares his tips and advice for ecommerce entrepreneurs thinking about making an exit in the near future, and how business owners can utilize an exit planning strategy to increase the expected listing price from small changes implemented in the early stages of operations.
Listen to The Opportunity Podcast Episode #50
Topics Discussed in this episode:
- How Jason became an ecommerce expert at just 24 years old
- The ecommerce opportunities that inspired Jason to become an entrepreneur
- Why now is a tough but beneficial time to be an ecommerce entrepreneur
- How to prepare your ecommerce business for exit, from conception
- The common mistakes people make when selling their ecommerce businesses
- How Jason built a community with his buyers–and why it’s crucial for exit
- The difference between running a business with exit in mind vs. for a lifetime
How to Prepare Your Ecommerce Business For Exit from Day One
While selling your ecommerce business and moving onto your next venture might sound like an exciting project, Jason says that the due diligence process needed is extremely tedious but necessary.
Unfortunately, this is the boring (but incredibly important) side of business. People want facts and details before they invest or buy a business – being told a business is scalable is one thing, but it’s another to have the documents to back it up.
Jason suggests organizing all of your internal documents right from the get-go. That means recording your P&L, taxes, operations, SOPs, and anything related to your finances. It can be easy to get swept up in all the more exciting parts of growing a business when you first get started, but it can save you plenty of time and a huge headache later down the line if you make this a priority early.
Jason’s top recommendation? Monthly financial audits.
“I actually recommend entrepreneurs to do a financial audit on their own company on a month-to-month basis just to see where you’re at in terms of financial health, your cash flow health, and overall business health.”
Preparing Your Business For Sale: The Three Ts
Whenever you decide to sell your ecommerce business (whether it’s part of your plan from day one or not), Jason says there are three things to focus on to achieve a more straightforward and financially beneficial selling process.
He calls these “the three Ts”: traction, team, and technology. If you’re able to equip your company with these, says Jason, it will make your acquisition a lot smoother and increase your valuation.
People often want to buy businesses that are on an upward trend – and can prove it. If you can demonstrate that your business has traction and is gaining momentum, it makes it easier for people to forecast the future of the business. This makes it a lot more attractive for potential buyers.
Conversely, a downward trend makes your business less attractive. It’s harder to project where it’ll be in the future and may give buyers doubts about the company’s potential.
To show traction, Jason recommends tracking and clearly showing key metrics, such as month-over-month and year-over-year growth.
Simply put, when your team is good, it’s easier to sell your company. Knowing your internal infrastructure and understanding how it’s organized is incredibly important to communicate to potential buyers.
Selling a business isn’t just about figures and metrics, it’s also about everything within that business, including your systems, processes, and the people responsible for executing them. If you’ve got a great team who help to run the business like clockwork, it can give the buyer more confidence in purchasing your company.
If you’re a solopreneur and don’t have a team, Jason says to focus on your systems and processes instead. If there’s a role or parts of it that you could automate, for example, then do think about that. Businesses that run smoothly without the need to hire people or pay salaries can be incredibly attractive for buyers, so don’t be put off selling if you don’t have a team.
If you have any technologies, patents, or assets that you can add to your business, Jason says this will help increase your value. This includes anything that’s proprietary to your company that helps with operations, for example.
“You want to sell [a business] that’s more tangible. So the more tangible items you can add on to your acquisition, the better your sale will be.”
But Jason notes that not all brands can do this, and if it sounds like you, not to worry. Plenty of DTC brands, as an example, don’t need to build their own technology. In this case, he recommends homing in on your systems, processes, and that all-important traction.
How Soon You Should Prepare Your Business for Exit?
Jason recommends using these three Ts as pillars when building your business as, while you may not be preparing for exit yet, the sooner you’re ready, the better it will be. There’s no specific timeframe or checklist for what to do when you sell your business, so it’s best to optimize as you go.
Jason doesn’t plan to sell his business for years, and yet he’s constantly thinking about how to increase efficiency and implement enhanced workflows. When the time does come, Jason will confidently be able to show his buyers how it’s possible to scale the business with validated results. Trying to achieve this 60 or even 30 days before your acquisition just isn’t going to be possible.
Running an Ecommerce Business With Sale in Mind vs. Indefinitely
So what is the real difference between running an ecommerce business that you plan to sell versus one that you plan to keep for a lifetime? Jason says the answer is all to do with scaling and profit.
Companies who build with the sole purpose of selling need to demonstrate considerable, 10x year-on-year growth, and they’ll even sacrifice their profit margin to achieve it. Whereas companies with a much longer game in mind are far happy to sustain small incremental growth and maximize their profits to protect their bottom line as much as possible.
When you plan to sell an ecommerce business, a key factor is being able to acquire new customers in high volumes. But for a business you plan to own forever, it’s more important to nurture your relationship with each customer to increase their lifetime value. If the latter sounds like you, Jason recommends optimizing your operations, finances, and hiring the right managers and talent rather than prioritizing growth.
“Companies who are looking to exit very soon allocate like 67% of their budget towards marketing and growth and whatnot. Whereas companies that are building for sustained growth, and even slower growth, are putting more money into the operation side of things.”
The Number One Exit Mistake to Avoid
The number one mistake Jason sees ecommerce businesses making when they go to exit is not making their brand as attractive as it could be. They present their brand too simply as it currently stands, rather than going into detail about the future and potential of the company.
“You really need to sell on the future of the company, where this company stands right now and what the optics present for the next three, four years – that’s what the buyer really wants to look at.”
When it comes to selling your business, your job is to present your company as a strong foundation that the buyer can build upon. You need to demonstrate how they can expand on the groundwork and what potential there is to scale for the next two years, three years, or longer. Jason suggests thinking about what other products could be offered in the future, or how to increase customer LTV, or other ways your business could grow.
The other mistake Jason cautions sellers to avoid is overlooking your relationship with your customers. He says that a strong community can be a huge draw for potential buyers as it sets your brand aside from competitors in the market. While competitors can offer the same or very similar products to you and compete with you on price and marketing, they cannot replicate your community.
Fostering a community with your customers protects your business against devaluation if another brand decides to recreate your products. Jason’s advice is to start building your audience and community early on to stay front of mind and earn customer loyalty. His ecommerce business operates in a very competitive space (selling lashes) and he believes that it’s his tight-knit community which helps the brand maintain such a strong place within the industry.
The Future of Ecommerce
As Jason is always looking toward the future, he shared his thoughts on what to expect within the ecommerce landscape. He notes that new technologies are enabling more players to enter the game, so trying to reach buyers may become more expensive. While this may sound intimidating, Jason believes that greater competition means more innovation.
“What I love about competition is that it really forces us to innovate in the ways we acquire customers.”
Consumers are still spending money, so Jason says the best way to stay in the game is to strategize how you’re going to reach those customers. He says we can expect to see businesses becoming more creative in how they retain customers, get them to spend more money, and acquire them in unique ways.
With other ecommerce challenges like pricing also looking like it’s going to change, Jason argues that creativity is key to solving future problems within the ecommerce industry. With an ecommerce business set up for sale (aka, suitably future-proofed), it gives him more scope to innovate in the meantime.
Just another reason to get the boring side of business in order and out of the way now.
For more of Jason’s thoughts and advice, including how he built his brand community, how the ecommerce landscape has changed in recent years, and what it all means for ecommerce business acquisitions today, listen to the full podcast episode. You can find it at the top of this page or on your favorite podcast app. The Opportunity Podcast is available on Apple Podcasts, Spotify, and more.
If you’re considering selling your ecommerce business, we can help. Learn how.