Do These 4 Things Once You’ve Acquired a Business to Achieve Success (And Avoid Failure)
When you’re acquiring a business, you want to do as much as you can to ensure your success. While there are challenges out of your control headed your way, there are many factors under your control that you can use to your advantage to plan your success.
Every business is cursed with risks and blessed with opportunities. How you mitigate the risks and capitalize on the opportunities determines your success.
Understanding this concept as you’re going through your due diligence and acquisition process enables you to manage the factors under your control that affect the business you acquire.
The first step to a successful acquisition is getting support from the seller.
1. Get Support From the Previous Owner
The transition period of acquiring the business assets is the most important stage of a business acquisition. A well-executed transition can set you up for quick and easy success. Conversely, a labored, careless transition can lead to the need for problem-fixing and drawn-out back and forth.
As you’re finalizing the deal, you want to confirm with the seller how much support they’re going to provide and how.
For business transactions carried out on our marketplace, we require sellers to provide at least 30 days of email and phone call support after the sale. Usually, sellers are willing to offer more.
The type of support you need depends on the design of the business. For example, a simple content site might just need some standard operating procedures (SOPs) and a walkthrough of the site. Whereas a SaaS business might need a developer to stay on with the company for a number of months to train the new owner or their team on the software.
Make sure you ask them to walk you through every area of the business so you understand how it operates. This will allow you to see what your role will be in the business and what expertise you’ll need.
You may find you need to outsource some of the tasks the seller carries out because you don’t have the necessary skills. Or you may discover ways you can use your expertise to improve how they operate the business.
You should also ask the seller to introduce you to key third parties involved in the running of the business, including suppliers, third-party logistics companies (3PLs), and contracted employees and agencies.
Having the seller stay on with the business as long as possible will help ensure your success. You’ll get a deep understanding of how it operates and where you can make improvements. They may be open to doing this on a paid consultation basis, too.
2. Identify Single Points of Failure
Businesses with single points of failure are vulnerable to being greatly negatively impacted if not accounted for.
The most common single points of failure we see in online businesses are
- Key person risk
- Majority clients
- Majority traffic sources
- Overpowered traffic pages
- Overpowered products
- Majority affiliate sources
- Key supplier risk
Each of these areas must be addressed to mitigate their potential to take down the business.
Key Person Risk
A key person in a business is a star employee.
They could be a CEO the business relies on for the successful operation of the entire business. Without that employee, the business wouldn’t function.
Another example is a developer for a SaaS business that built the software and is the only one who understands and is able to access the source code. Without that developer, you won’t be able to upgrade or fix the software.
To mitigate key person risk, be sure to hire a replacement employee who can fill the role. They could be hired in a support role for that person so they learn how they work and can fill their shoes if they leave or take time off.
When finalizing your acquisition, ask the seller to prepare SOPs for all operations so you can pass them off to new employees.
These are clients that provide the majority of business revenue. If the business has one majority client that brings in 80% of total revenue and that client leaves, then your business has just lost 80% of its revenue.
Expand the client base by getting more high-ticket clients. You may have to redistribute your services by reducing the number of small clients you get to accommodate larger clients, but doing so will add an extra layer of security to your revenue.
Majority Traffic Sources
Many online businesses drive a large majority of their traffic from one source. For content sites, this tends to be Google organic search. For Amazon, this tends to be Amazon PPC or Amazon organic search.
These traffic sources are always at risk to Google and Amazon. If Google runs an update that affects your site then you could lose a lot of traffic and sales. If competition increases for the keywords you’re targeting through Amazon PPC, then you could lose that traffic or have to pay more to generate it, which will impact your profits.
If you notice a business is heavily reliant on one source for the majority of its traffic, you might want to consider building out new traffic sources.
Overpowered Traffic Pages
Another aspect of traffic diversification for content sites is where traffic is going to specific pages on the site.
A site could be driving 90% of traffic from Google, but it doesn’t necessarily mean the traffic isn’t diversified. If it’s ranking well for a high number of keywords, then traffic is coming from numerous sources within Google.
To see how traffic is distributed across a site, have the seller of the business walk you through the site’s analytics dashboard. They’ll be able to show you what percentage of the total site traffic is going to each page of the site.
If less than 15% of total site traffic is spread across the top three traffic pages of the site, then the traffic is very well distributed. However, if over 50% of site traffic goes to the homepage and that page is targeted by Google in its next update, then you could lose up to 50% of your site’s traffic.
The traffic distribution you’re willing to accept depends on your experience and risk tolerance. If you’re comfortable with a site generating 90% of traffic from Google because you know that traffic is spread out across the site, then you might be willing to acquire that site.
Similar to majority client risk, you don’t want your business revenue to be dependent on the sales of one or two hero products.
There are multiple ways your hero products could be taken down:
- Supplier issues
- Distribution issues
- Stock outages
- Product listing bans
- Copyright infringement penalties
- Increased competition
You can only control these factors so much, so it’s best to distribute your business’ revenue across numerous products.
Majority Affiliate Sources
For content sites, their product is the affiliate offers they share or the display ads on their site.
Sites reliant on one or two affiliate offers for the majority of their revenue are at risk to losing a lot of revenue very quickly.
An affiliate could take down their offer or your affiliate links could break on the site. These circumstances are easy to overlook if you don’t regularly check your site’s affiliate links.
To make your new site a healthy earning machine, add more affiliate offers where you can spread its revenue.
Key Supplier Risk
In most cases, all ecommerce revenue comes from product sales. There are many issues that can arise with suppliers, including production delays, stoppage, and shortage.
Any of these issues can mean your products are delivered late to customers, they don’t make it to the warehouse in time so you’re not able to accept sales, or they don’t make it out at all.
These risk points are why you want to recruit multiple suppliers for your products so you never go out of stock and your product sales can continue to feed the business.
Assessing all of these risk areas allows you to put mitigation procedures in place to reduce the overall risk of your new business.
3. Identify Growth Opportunities
While you’ve got the business seller giving you a tour of the business, you should ask them in what ways they would grow the business if they were to keep it.
Their knowledge of successes and failures in the following areas of the business’ history can help you know what could work for it in the future:
- Marketing campaigns
- Product launches
- Affiliate offers
- Advertising networks
- Software features
- Client and customer profiles
- Pricing structures
Their understanding of the market and competition is also valuable insight. Use their insights in all of these areas to allow them to help you plan the future growth of the business.
They may have already started growth initiatives you can continue.
For example, they may have designed a new product ready for launch. You can ask them about their planned launch strategy and carry it out once you’ve completed the acquisition. You could even ask for their assistance in the launch to ensure its success.
Your experience and expertise also come into play here.
When you’re learning about the business’ history, you might identify areas where you could use your skills to be successful with a particular growth strategy.
For example, if you’re an expert in Facebook Ads and you learn the seller ran Facebook ad campaigns they weren’t able to scale and make profitable, then a growth opportunity could be for you to use the data collected from those campaigns to build your own ad campaigns.
The more you can learn about the business’ history, the more data you gain as assets you can use to grow the business.
There are also other data sources you can investigate to find growth opportunities.
Customer data on customer demographics, product preferences, and buying habits can inform many growth strategies.
One strategy is product optimization. By improving the product based on customer preferences you can increase its sales and repeat sales from customers. Another strategy customer data can inform is conversion rate optimization (CRO). By understanding the customer base you can improve the site’s sales copy and user experience to generate more sales from its audience.
Another data source is site data from Google Analytics or another site tracking platform. Learning which keywords and ad campaigns have been successful for the business tells you what type of content and marketing materials to produce to increase the size of your audience.
Leverage all you can that’s already in the business to direct your growth plans and you increase your chances of success with your new asset.
4. Don’t Make Drastic Changes
“If it ain’t broke, don’t fix it.”—Thomas Bertram Lance.
Things that are working for the business are keeping it alive. If you change or remove them, the business could start to relapse.
When you’re assessing all of the moving parts, make yourself aware of how they’re contributing to the business’ success. You might find that certain operations or campaigns aren’t making a significant difference and it could be better to stop those initiatives. However, if a content site has been generating sales from its main ad network for years and you change to a different ad network, that could have a big negative impact on the business.
Another example is PPC campaigns. Some business acquirers shut off PPC campaigns that are generating a significant amount of sales to save on costs, only to quickly find out that the business needs the PPC campaigns running to maintain profitability.
Base decisions for changes and improvements to your new business on the most reliable information source you have: data.
If you assess all of the areas above as you’re going through your due diligence process, you prepare yourself for success and to avoid future pitfalls. If you take time to identify the areas of opportunities and risk and plan out how you will take advantage of the opportunity areas and mitigate the risks, you give yourself a high chance of success with your acquisition.
Acquiring an online business is a process that requires a lot of care and attention. It’s very hard for a lone buyer to account for all of these factors we’ve discussed. That’s why we recommend purchasing your business through a broker so you can use their support.
Getting Help Acquiring a Business
Getting support to find the right business for you based on your budget, expertise, experience, and resources is the best way to start the process of buying a business you can be successful with.
It’s difficult to know which type of business is right for you if you don’t have much experience acquiring businesses, even if you’ve successfully run your own businesses in the past.
This is where an experienced broker can help. At Empire Flippers, we’ve brokered over 2,000 online businesses including content sites, ecommerce stores, Amazon businesses including FBA, FBM, KDP, and Associates, SaaS, apps, and digital product and info product-based businesses.
If you’d like the support of teams in the areas of sales, negotiations, and migrations to find and acquire a business you have a high chance to be successful with, then create a free Empire Flippers account and get set up on our platform to start your acquisition journey.