Whether you’re purchasing a content site, an eCommerce store, or a Software-as-a-Service (Saas) app, an online business can be an incredibly sound investment. Provided, that is, you know how to cultivate it. And perhaps more importantly, that you don’t bungle the purchase.
That’s easier to do than you might think. No one is perfect, and everyone makes mistakes. Numerous buyers have made bad deals — many of them veteran investors who strolled in with the arrogant assumption that they knew better.
They didn’t. The end result was them being saddled with a digital lemon and out a ton of cash. Many of them didn’t realize what they’d done wrong.
They did their due diligence. They painstakingly researched the business, poring over reviews, news, and more. They asked all the right questions — why the seller wanted to be rid of the business, how long the business has been around, a thorough accounting of the business’s assets, expenses, and liens.
Yet in spite of all their best efforts, they ended up getting the short end of the stick. Why, exactly? What happened?
Simply put, there are more mistakes you can make when you’re buying a business than failing your due diligence and market research. Those are table stakes. Common amongst new buyers, less so amongst experienced ones.
The mistakes discussed below are both serious and egregious. Worst of all, they’re insidious. Let your knowledge and experience go to your head, and you’re effectively guaranteed to bumble your way unto at least one of them.
Not Taking The Time to Understand the Business
You’ve probably heard on more than one occasion that a well-managed online business effectively runs itself. While it’s true that the best sellers will streamline their operations as much as possible for their buyers, that doesn’t necessarily mean you can just kick back and wait for the profits to roll in. Unless the owner intends to stay on to run things, you’re going to need to do at least a little work. And that, in turn, means you need at least some knowledge of the business and its industry.
You don’t need to be an expert. If you buy a SaaS company that’s specialized in artificial intelligence, you don’t have to understand concepts like decision trees and semantic mapping. If you purchase a content site focused on construction, you don’t need to be a veteran of that industry.
You just need to know enough to manage the business’s working parts. You can bring in actual experts for the rest. Of course, with that said, the more knowledge you can glean, the better, and you will want to know, at the minimum:
- Information about the business’s backend infrastructure.
- The business’s target audience, and how it typically markets its products to them.
- Basic knowledge of search engine optimization and the business’s content marketing efforts, if any exist.
- Details about the business’s products and/or services.
- Knowledge of current and emerging industry trends.
Low-balling
Imagine you’ve found your dream business. By all appearances, it’s a dream investment; everything you could possibly want in a purchase. There’s just one problem.
The asking price is above what you were originally willing to spend. The sellers’ asking price is set in stone, and they have plenty of other buyers interested.
You’re determined to acquire this business, so you do something you’ve never done. You pay the seller’s asking price, even though it could potentially bankrupt you. You understand that you’re taking a leap of faith, but hey — nothing good was created without taking risks, right?
There’s taking risks and there’s being foolish.
You’ve set boundaries and written out your buying criteria for a reason. They’re there to help you make the best, most informed purchase possible. Assuming you’ve taken the necessary measures to ensure they’re realistic, stick to them.
That’s a good segue into another huge mistake that fits under this umbrella. Plenty of buyers haven’t the faintest idea how to set realistic buying criteria. They either end up looking for the holy grail of online businesses or set out a list of buying criteria so lax that they may as well not have bothered at all.
It’s fine to have an ideal acquisition in mind. But you should also know ahead of time which of your criteria are non-negotiable, and which of them are flexible.
No Disrespect
You may have heard of a tactic known as negging. Basically, it involves barraging someone with backhanded compliments to damage their self-esteem. Plenty of people take it too far and just flatly blurt out insults.
Both tactics work about as well as you might expect.
Buyers who buy into the idea of negging are frequently rude, standoffish, and even insulting. They might even browbeat the seller, telling them everything that’s wrong with the business in an effort to get a good deal.
Remember the old saying? You can catch more flies with honey than with vinegar. The seller is not your adversary in sale negotiations.
On the contrary. You should be doing everything you can in order to build a rapport with them. This includes:
- Asking them detailed questions to demonstrate your knowledge of their field (or your willingness to learn).
- Recognizing and acknowledging the work that’s gone into what they’ve created.
- Asking for their opinions on your best path towards growth.
- Actively listening and engaging with them in discussion.
In other words, treat the seller (and the business) with the respect that both deserve.
But if you come in acting like a spoiled child, you’re going to put the seller immediately on edge — ironically guaranteeing that they’re not going to sell to you if they have any other options.
Everyone Makes Mistakes
You might not make rookie blunders like forgetting due diligence, not thinking about the transition of your purchase, or failing to collect the necessary documents. But that doesn’t make you infallible. There are still plenty of ways you can bungle both the negotiation and the purchase process.
What’s listed above is just a sampling.
