TAS 651: Buying a Business vs Building Your Own (Pros and Cons)

Have you ever thought of buying an existing ecommerce business as a starting point or to expand your current brand? Do you want to eventually sell the ecommerce business you are currently growing? On this episode of The Amazing Seller, you’ll hear from Scott as he breaks down the pros and cons of building your own business vs. buying an already established ecommerce business. If you’ve been wondering about the options for selling a business, this is the episode for you! Have pen and paper ready; you don’t want to miss a minute of this informative episode!

Why you should buy an existing ecommerce brand.

There are a ton of risks and challenges when it comes to purchasing an already established ecommerce brand but what about the positive aspects? According to Scott, there are many sellers out there who are putting in the time and effort to grow a brand with the intent to sell it. Here are the advantages of buying an existing ecommerce brand.

  • You get to shortcut the brand building process.
  • Instantly you get an established sales history.
  • You get a built out product suite with connections to suppliers.
  • You’ll have turnkey access to a website, email list, and social media channels.

To hear Scott expand on all the benefits of purchasing an established ecommerce brand, make sure to listen to this episode of The Amazing Seller!

The drawbacks of buying an existing ecommerce brand.

If there were no drawbacks to purchasing an already established ecommerce brand, everyone would be doing it! The truth is, by opting for an established brand, you are paying for the hard work and labor someone else poured into the brand. Here are the negative aspects to consider when it comes to buying an ecommerce brand.

  • The purchase price is going to be high, likely $100,000 or more.
  • You are exposing yourself to risk. The money you use to purchase the brand is tied up.
  • The brand could hit a ceiling after you purchase it.
  • There could be elements of the brand that aren’t visible before purchase.

Make sure to catch this full episode of The Amazing Seller as Scott expands on these drawbacks and much more!

Look for ways to expand and grow the brand!

What is the best case scenario for purchasing an ecommerce brand? Ideally, you’ll find a brand for sale that is underpriced or underdeveloped but with a ton of potential. Sellers like you need to put in the time and do your homework, so you know how ecommerce brands operate. Once you’ve done your research, you’ll have a better idea of what to look for, and you’ll have a reasonable expectation on how to grow the brand. If you are inching closer to the idea of purchasing an ecommerce brand instead of building one from scratch, you need to listen to this episode of The Amazing Seller!

OUTLINE OF THIS EPISODE OF THE AMAZING SELLER

  • [0:03] Scott’s introduction to this episode of the podcast!
  • [4:45] The pros of buying an existing brand.
  • [13:20] Look for ways you can advance the brand you want to purchase.
  • [16:00] The cons of purchasing an established brand.
  • [21:00] Should you buy a stake in a brand to expand your brand?
  • [27:00] Closing thoughts from Scott.

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TRANSCRIPT TAS 651

TAS 651: Buying a Business vs Building Your Own (Pros and Cons)

[INTRODUCTION]

[00:00:03] Scott: Well hey, hey what’s up everyone! Welcome back to another episode of The Amazing Seller Podcast. This is episode number 651 and today we’re going to be talking all about buying…

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…a business versus building your own. I’m going to give you some pros and some cons and the reason why I wanted to do this episode was because, well I received a question from someone that is following me on Instagram.

And he said, ‘Hi Scott. I hear you talking a lot about this EBF thing.’ That’s E-comm Business Formula. ‘And this whole process of validating a market and figuring out if you can grow this thing and build this thing and external traffic and all this stuff. But what if you want to buy a business that’s already up and running? Like is that a better option? And If I am can I still use these principles?’

So that’s what I wanted to do here today. I want to go through the pros and the cons even giving you some stuff to think about that you might not have been thinking about before even if you currently have a business. Can you add an additional business right now or an additional website that you buy with traffic? Can you add that to your existing business. We’ll talk all about that. It’s really, really important that you understand that this is happening out there. Like there are people and I have someone right now inside of my inner circle that just purchased another business.

Now, he already has a seven-figure business but now he is building additional businesses for someone else that he’s partnered with now because that partner is like I’ve got some cash and I’m thinking about instead of putting that cash into the stock market, maybe build a couple of these Amazon/e-commerce businesses. And he’s like, well yeah, that’s kind of what I did and it’s kind of what I do. And so now he’s going all in on that and to speed up that process they are actually going to just buy a business but they are also looking at it as a way to take advantage of something that’s already up and running that they can put a little bit more gas on that fire.

[00:02:12] Scott: But you do need to know what you’re looking at when you do that. And him and I and actually everyone in our Inner Circle has been helping them through this process because it’s a lot of money to invest in one of these businesses depending on what your budget is like it could be anywhere from $100,000 to $10 million. But you still need to be able to look at all of these different things that we talk about even if you were just building your business. Like if you’re building it from scratch or you take these same principles and you look at a business that you’re going to be buying and you apply it to that.

So we’ll talk about that here in this episode. Now, if you want to see the exact process, and you have probably been hearing me talk about this a lot here lately. And that’s because that’s where my focus is going right now. Because I believe in it so much because this is really coming full circle for me and what I mean is building a real business, a real brand that serves a market, gets attention and then offers products that they want, that they need and then also showing up on a regular basis and just getting attention in that market throughout giving great information and being a resource in that market.

And if you’re interested in seeing that exact process, again I’m recommending anyone that’s in my Inner circle to follow it’s the exact same thing broken down in this guide and if you want to check it out you can head over to ecommbizbook.com. It’s 52 pages gives you the exact process and it will actually give you exercises to go through and validate your market. Discover sub markets and then from there see the potential that you can work towards to build out these external traffic sources, these external assets to bring in external revenue, all of these things.

[00:04:02] Scott: We’re literally using this to apply to a business that’s being purchased right now like I said in this one gentleman in my inner circle actually just closed the deal. Just purchased the business and before he actually purchased we got on together and we hammered through this and we made sure that we could do all of these things. So if you’re interested in checking out that guide printing it out, going through this process, head over to ecommbizbook.com. There’s my little shameless plug.

Now, let’s talk about this. The pros, let’s talk about the pros of buying an existing business. Now to some of you, this is new. Like this is, like wait a minute here, time out Like you can literally buy an existing business? And the answer is yes. And you’d be blown away at how many businesses are selling and for all kinds of money. And to be honest with you our brand we’re working on right now we’re working towards selling it. Like that is our focus. Like we want to build this thing up with assets, with revenue streams, with diversification.

And having it be a real brand that an investor is going to want to buy for seven figures. Like that’s our goal. Like that’s our target. So, are there people doing this? Every single day. I did an episode with Joe Valley back on episode 270. Joe Valley, good friend of mine. Funny story is Joe Valley I met him about two and a half years ago I think now. He came to one of my little pop up… I had a little pop at TAS meet up. I was in North Carolina. Actually, just moved here. And I was having a workshop in Charlotte and I decided to just do a free kind of like pop up where I’d just go and we’d hang out.

We had about 25 or 30 people show up. And he was like, ‘Yeah, I’m from that area. If you don’t mind I’m just going pop in.’

[00:06:01] Scott: I’m like, ‘Sure.’ And so I didn’t know exactly what he did at the time. Then he came and we met. Great guy. So he basically works for Quiet Light Brokerage which is a business, it’s like a marketplace that they do both; they list online real estate. It’s a business. So think about it like real estate like you have agents and you have people that help you buy a house and actually help you sell a house. It’s both. So that’s what they do. That’s what their company does. And then they vet out all of the companies and go all through this criteria and all this.

That’s what he does. I learned all about what he did. And I met him, he’s a great person. But anyway, long story short is recently I bought a lake house I think I told you guys recently. If you guys have been following along you guys have been hearing me talk a little bit about that. I’m going to turn it into an AirBnb. It’s a whole another project. It’s another investment. It’s going to be fun. It’s a project, never done it before. But again, entrepreneur, want to go out there and want to test this AirBnB thing. So anyway, I was telling him where I was buying the property and he’s like, ‘Oh really, like whereabouts?’

I told him. he’s like, ‘I think I know that area. And I go, ‘Yeah.’ And he goes, ‘Wait a minute here. I know exactly where you are.’ I didn’t realize this. He lives on the same lake and so he shot me a picture and drew with arrow. You can literally see his house from my new lake house. I can walk out that back and you can literally look right across the lake and you can see his house or you can see mine. Insane, right. You couldn’t even plan that. Anyway, funny story. Joe Valley great guy. If you have any questions about your own business and getting it listed or if you want to see what kind of inventory they have currently and if you’re interested in buying one definitely check out Quiet Light.

Quiet Light is also going to be a sponsor at this years’ Brand Accelerator live event.

[00:08:00] Scott: Which again if you haven’t gotten your ticket yet you might want to get over there and get it. I’m sure that they are going to sell out. We’re about 25% sold out now. It’s going to be a small event. If you guys have not gotten your ticket go grab it. And you can get that by going over to brandacceleratorlive.com. Go check out those tickets and grab one or two. But Joe is going to be there, he’s a sponsor as well. Their company Quiet Light. He did two episodes, 270 Definitely check that out at theamazingseller.com/270.

I’ll throw all these links in the show notes too by the way guys. But yeah, great guy. But anyway, let’s go through these pros and then we’ll go through the cons. So the pros.

You’re basically shortcutting this process. A lot of you are listening you’re are like all right, I want to find my market, I want to find my niche. I want to start building this business out. I want to go and start launching products. I want to go source the products. I want to build traffic. I want to build the website. I want all this stuff. And I’m a fan of it.

I think you should do all of that stuff. I think everyone should at least build their own business just so they understand what their workings are. But if you want to shortcut that process you can go to a place like Quiet Light and you can see what they have and then you can purchase one. But the pros are it’s already up and running.

The other thing is, they already have sales history. You’re basically buying on the sales history. They are generally looking at 12 to 18 months. And then they are going to do an average.

And then what they are going to do is they are going to give it a 2.5X or 3X or more of a multiple. So again if we’re looking to get seven figures, if we’re looking to get a million dollars for our business we need to get that to about a $350,000 net per year. $350,000 net per year.

[00:10:00] Scott: We’re getting there. Like we’re close. So that’s what we’re looking at. Now, that multiple can increase too by the way. The more assets that you get the more diversification like all that stuff is more appealing. You can go and get a 3.75. So it will bump it a little bit more. So anyway that’s how that works. So they are going to look at the sales’ history. That’s a pro. We get to look at the history. ‘Oh yeah, they got good track record. They’ve got good numbers.’

They also have a good product suite and they also have products to build from. So when you’re doing this you’re looking at it and you’re going, ‘Okay, yep I’m going through this process that Scott is talking about this EBF thing. And I’m seeing that we should have three to five products and that we should have also these other buckets of products that we can potentially launch down the line. But we want these to go together, we want a customer to be able to be able to buy from us again, and again, and again.’

So are there opportunities there?

The other thing is, is sourcing. The sourcing is generally already done. They already have the connections with the manufacturers. They already had that relationship built. So now it’s just a matter of re-ordering or when you want to roll out new products you then communicate with that sourcing agent or the manufacturer.  So that’s usually dialed in. The website. Generally, you’re going to have a website. If you’re buying a business it’s generally going to have a website that is going to have some traffic.

It might not have a ton but it will have some. It will probably have it’s own store even if it’s not getting a ton of sales, it’s still set up. It’s still functioning. Hopefully it has some sales. They might even have their own funnel already added to the business which is great. They might already have an email list which is attached to the business which is great. They might already be selling on eBay. They might be already be selling on Etsy. They might be already be selling in Canada or internationally.

So all of these things are kind of already done and that you can look at. You’re going to look for that. You’re going to pay for the work that it took to get to that point you have to ask your question.

[00:12:04] Scott: Is that what I want to do? Do I want to be able to shortcut this process and invest money and generally it’s going to be a large sum of money? It’s going to be over $100,000 for the most part. And in some cases it’s going to be over a million dollars. Just to let you know, like Joe is telling me like those are going like crazy. Like people are buying them up. Like there’s a market out there for this type of inventory. So just understand that you might be thinking oh my gosh, like I can’t imagine buying something for a million dollars.

Well there’s investors out there that’s what they want to do. And it might be a group of investors. It might be, they are filling out their portfolio inside of their business that they are just going to buy up a five or ten different e-commerce businesses. So just understand that there’s a market out there of buying these. There’s investors buying these right now. And if you want, you can be part of that. You can go out there and speed up this process and just go and buy a business and then build it and then if you want it in five years maybe sell it again after you’ve increased it.

But here’s a little side note and a little tip here. As you’re looking at a business, this is exactly what we did with this recent business that my Inner Circle member purchased is we want to look for holes that we can improve and grow the business in these areas. Like we want to see holes in a sense. And I don’t mean like holes in a bad way but like we want to see opportunities. So in his case they were selling this business because they had another business that was taking more of their focus and it didn’t have enough time to focus on this one.

So because of that they let a lot of things slide. They didn’t really build out their email list. They really didn’t target a specific market or a niche market. Now this product like I talked before, if we’re talking about a water bottle, I can target that towards people that are in fitness just like yoga. Fitness like that type.

[00:14:04] Scott: Like doing exercises or I can target the people that are cyclists or I can target the hiker. So I can target different parts of the bigger bigger market. And that’s kind of what we have seen. We see a big opportunity here that these products that this brand is selling, if we position those towards that other market it’s going to do great. And then the other thing was can we create information that also educates and teaches and then becomes valuable to these people and then have them be like oh, I want to buy from this company because they specialize in this.

And the answer was yes. So all of these things were checked off as opportunities. Now if this thing was maxed out and there wasn’t any opportunities there you’d probably second guess or think to yourself maybe I don’t want to do this because I want opportunity. Or you might see that there is a steady grown happening here and you just want to go ahead and just plug in and just capitalize on that. That’s fine. I like opportunities. I like to see that there is opportunity there for us to capitalize on and really build and grow because then if we do that, guess what happens.

In three to five years we want to sell an exit we can and now we’ve taken it from a million dollars to ten million dollars. And that’s what we’re talking about. That’s what we’re looking for.

The other thing that we looked at too is like can this product be endorsed by and influencer in a market? And the answer was yes. Actually it’d be a great opportunity for that. Again can there be an email list built? The answer is yes. Are people hanging out on Facebook? The answer was yes. Are people hanging out on Instagram? Yes.

All these things were checked, could there be YouTube videos created for this. Yes. Like all of those boxes were checked. Check, check, check. So opportunities, so we’re looking for those opportunities or those holes that we can fill and then we can improve upon. So that’s what we’re looking at.

Let’s talk now about the cons and to be honest with you there’s not really a ton of cons other than the initial investment it’s going to be a big investment.

[00:16:01] Scott: It’s probably going to be like $100,000 or more. Or maybe it’s going to be $5 million depending on the size of the business that you’re looking to buy. So the initial investment that’s the con. Like ouch! Just spent 100 grand. Hope it works. And then that leads me to the next con.

There’s risk but there’s risk in anything. The modern risk for starting a business is a lot less than buying one that’s probably up and running even though it has a track record. What I mean by risk is like you’re investing that 100 grand or that $500,000 and now that money is tied up.

If you’re doing it the other you’re slowly growing but you’re going to sacrifice time. So again, is it really a con? Not really. But it’s a risk but I think there’s risk at anything. If you’re starting out the risk is going to be “time that you might waste”. Or it’s going to be the $5,000 investment on your initial batch of inventory. That’s your risk instead of your risk is 100 grand or 500 grand and now you have capital that’s tied up or maybe you have capital that you’ve borrowed. Now you have a monthly payment, whatever.

There’s all that stuff. Give you an example. I just bought that lake house. I had to put 20% down on this lake house. I have money that is tied up in that property right now that I cannot access unless I did a refinance a year from now or unless I sold that property. So I’ve got money that’s tied up. But the upside is in the next, I’ve got like a five year and a ten year… That property because it’s AirBnB, it’s a luxury AirBnB like we niched this thing down as well into the… It’s the AirBnB market but now it’s lake property AirBnB and then it’s luxury lake house AirBnB.

You’ve niched it down into that and we’re going to get premium for that. Premium price and I’m looking to net a good portion every single year. Way more than you’d have just did a long-term rental.

[00:18:01] Scott: But the big payoff is that every single year that house is being paid down. Every single year the price of that property is going up and then you also get the deductions every single year. So at the end, I might have a $180,000 investment that in turn could yield me, I don’t know. I did a little bit of quick math, anywheres between $800,000 to $1 million. And that’s like being conservative on that one investment. So if you could put $150,000 in the stock market today in five years or ten years, are you going to be able to do that type of return? Probably not.

Same thing goes in Amazon or a business that’s FBA. That’s actually a good point. If you have someone that only has an Amazon FBA business and you see all that other opportunity, that’s a good business to look into because then you see all that external stuff that hasn’t been done that can be done. So anyway, a little bit off topic there. But you get where I’m going with this. So the risk is part of the con. The risk that the business will continue to grow. Like is it going to stagnate. Is it going to hit a ceiling? Don’t know. But we can do some of that research and again if we get into going through that process and really methodology and what we’re using that is the process.

Again, if we want to check that out head over to ecommbizbook.com and you’ll get that plan kind of laid out and kind of what we follow. But you want to see that potential growth. You want to see if there’s a ceiling. You want to look at the trends. You want to look at all that stuff. Can you predict? You can’t really predict anything but can you predict by doing a little bit more research to see if you have that potential growth opportunity there.

And then the other thing again on the con comes down to risk that everything was noted in the deal.

[00:20:06] Scott: Like yes Quiet Light is going to do their best job and then you’re probably going to hire an attorney that’s going to do their best job but is something missed? Is there something that you missed in that deal? Was something not clear? Did you not see something? There’s that risk. And the risk of having something like that happen when you have $100,000 or $500,000 invested versus if you have $500,000 investment on your first product and it doesn’t do well. So those are really all the pros and cons that I can come up with.

It’s a great opportunity to be able to buy a business that’s already up and running and then just plug in the holes and create those additional resources for the opportunities there. But now here’s another question that I get a lot and another way that you could attack this. What if you already have your business started right now and you want to add someone else’s website in that market that’s already got traffic, already has an email list, already selling some maybe affiliate products and then you can tap into that. So this business let’s just say has traffic, it has an email list, it has social media presence, it has affiliate sales, it has some ad revenue and it’s an authority in the niche.

What if all that is in a business and they are like, ‘Yeah, I want $25,000 for that?’ Is it worth that to you? Even if it’s only generating $1,000 a month in affiliate sales or $2,000 in ads and affiliate sales. Is it worth it for you to pay $20,000 for that asset? In my opinion it would be. But the brand or that website would have to be in line with the other business. It would have to be. It couldn’t be just like well, it’s getting traffic so I’ll just buy it because it’s got traffic. It’s got to be the right traffic. You wouldn’t want to buy something that was just in hiking and then it kind of goes with outdoor stuff so you could probably say people might be interested in bass fishing.

[00:22:05] Scott: But maybe not. So that’s a little risky. And here’s the other thing. What if you said you know what, I’m going to start maybe just by buying the website that has the traffic, has the email list, the social media presence, the affiliate sales, the ad revenue, the authority in the niche. I’m going to go after just that. I don’t even have a business that’s selling physical products yet. I’m going to look at that and I’m going to say what are the potential or what is the potential in that?

So if I bought that for $25,000 and it’s getting $2,500 in let’s just say additional revenue. Let’s just say it’s like traffic revenue like ad revenue, affiliate sales. Maybe that’s what it is and we’ve got a small email list and I’m like huh, I can look at those affiliate sales at that report and I can see what has been selling really well in the past six months, year and then I can start to create spin off products from that data. And then I can start building my product line off of real data and real traffic from buying that site.

So that’s another whole way that you can go about buying an existing business or an existing website. And there’s a lot of websites right now that do sell because they are building something, maybe someone is really good at getting traffic and SEO and maybe building out social medial and all that stuff. And they are good at that and they are good at getting something up to $5,000 per month but they don’t want to get into ecommerce. They don’t want to get into any of that stuff and they are just going to sell that and thinking to themselves that they are going to get on that there, let’s just say monthly it’s $5,000.

And let’s just say that they are going to sell that for… We’ll just give it 20X on the monthly. So what’s that… We’re talking like $100,000. So for that right there if we were to take and say okay, I just spent $100,000 on this website.

[00:24:04] Scott: Now will that yield me the opportunity to go out there and maybe 5X that because I can launch my own products now on that now. And I’ve got $5,000 coming in a month, that’s going to help pay that note back, or that loan back or maybe it’s your own investment money that you have laying around. Now I’m not suggesting that you do that but I’m just saying this is how you’d look at that. You’d say, wait a minute here, this thing cost $100,000. It’s going to take me 20 months for it to pay itself back if all it did was the $5,000.

And then in the meantime, I could be taking that traffic and that data from the affiliate sales and the ads and all that stuff. I can take that data and get really dialed in with what products I can sell and then I can start launching products in that market. So that’s another way that you could look at this. But again, there’s pros and there’s cons in anything that we do. There’s risk in anything that we do. But I will promise you this, once you decide on what you are going to do you will learn going through this process. Whether that’s building a business from scratch, whether that’s buying a business and then building it out or whether that’s buying a website type that has traffic and some revenue coming in already.

And then you want to spin that into an ecommerce business, you will learn. You will learn. But you got to do what’s most comfortable for you. And for a lot of you it’s like I just want to get started, I want to get my feet wet, then you need to learn the process. But everything goes through these filters that I’ve kind of built for myself. And that just goes from doing this business type stuff for the past well gosh, over 15 years if we count brick and mortar but really online 12 years. It comes down to the market. It’s understanding if there’s some submarkets that we can tap into and then from there are there products and services that are being sold?

[00:26:04] Scott: And then can I get in front of those people with content and can I get attention and can I build an email list, like all those things? And if I can, then we’ll go for it. And we’ll go ahead and we’ll build something out. And really, that hasn’t not worked for me. Now, has worked better than others? Of course. But it’s always kind of worked to where if you have that stuff dialed in it’s kind of hard for it not work. There’s just different levels of success of course. But I’ve really broken it down into this formula, the EBF formula.

And if you guys want to go through that again, I’m going to give you my shameless plug here, head over to ecommbizbook.com. And again, it will lay it all out for you but it really is like a case study in a sense because I took everything that we did in the past 19 months and I really documented it and I kind of went through how we are applying this to other people’s businesses but also any other business ventures that we want to go into in the future or build a business from scratch or buy a business. It’s running through this framework.

So definitely check it out ecommbizbooik.com. So with all that being said, show notes can be found at theamazingseller.com.com/651. Definitely check out Quiet Light. I’ll link that up in the show notes as well. Ask for Joe Valley and also let Joe know that Scott sent you and I promise he will take very, very good care of you and I know that the guys over there, everyone on the team of Quiet they are really, really good people and they do want to make sure that everything is vetted out and that they are representing the businesses properly but they are also representing the buyers.

Because it’s important. We want to trust that this process is vetted and all that stuff. So if you have any questions about any of this stuff definitely check out Joe over at Quiet Light and I’ll link that up in the show notes. All right, so that’s it guys. That’s going to wrap it up.

As always remember, I’m here for you, I believe in you and I am rooting for you. But you have to, you have to… Come on, say it with me, say it loud, say it proud, “Take action.” Have an awesome, amazing day and I’ll see you right back here on the next episode.

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