In line with the idea that you should be buying businesses, not building them, what happens once you decide to purchase your first business or product?
Skipping the Buying Process…for now
The process of purchasing even a simple product, much less a more complex business, is a complete library of information that I’ll detail in parallel essays. For now, let’s assume you are done buying the business and review some of the steps before the close.
Before the Close
Before the close, you get to do some of the most exciting parts of an acquisition; you get to plan your new business path!
This is one of my most favorite things to do. It’s as rewarding as daydreaming about a future sun-drenched beach vacation. The planning, the strategy, the steps to reach your goals, the tactics you plan to use, and the eventual result. My favorite! (I’m an INTJ, “The Architect”)
Let’s take a real-world example. Let’s say you’re purchasing a customer service SaaS business. What might be your “before the close” growth plan?
- Redesign Homepage, improve SEO and navigation.
- Update Marketing and Advertising Materials
- Offer 15% annual discounts for long time customers.
- Create a Mid-Term product road map
- Execute “Quick Wins” from product road map
- Expand pricing tiers and plans
- Create value-add “add-ons” like Premium Support, SLA’s, Training Curriculum.
- Hire an outbound sales rep
- Research competitor customers
- Outreach to those competitor clients
…you get the idea…
Notice what you’re not doing? Iterating through MVPs. Searching for that first paying customer. Setting up hosting. Trying to find developers. Creating landing pages. Basically, everything that the “You can start your own online business” crowd sells to you. You skip those steps entirely.
Starting with a product or business that’s already functional, bringing in a profit, and allows for a dialogue with customers about their experience is the first step to being an online business owner.
The First 30 Days – Training and Knowledge Transfer
The first 30 days after buying a new business can really make or break your near term success. It’s the best opportunity to work with the prior owner(s), learn how they ran the business, and potentially find as many Unknown Unknowns as possible.
The first 30 days should be dedicated almost exclusively to two things, keeping the wheels spinning on the business and learning as much from the prior owners/management as possible.
If the business has a small decline or doesn’t run as smoothly as before, that’s okay. It’s normal. First of all, you’re going to be new and likely not as quick to spot and resolve issues when they arise. Second, many times prior owners are really juicing their businesses before sale to get the best price, so, understandably, a dip may occur post-sale.
These first 30+ days – where you have unlimited and contractual access to the prior team – are really the most important. You need to learn the SOP’s, the employees and contractors working on the projects – their temperaments, work product, and efficiency – and the general day to day of the business.
Keeping your calendar clear of any other major responsibilities is an absolute must. This is one of the only items in a sale that you don’t have a chance to ever “do-over.”
By the end of the 30 days, you should be winding down the day-to-day hand-holding you need and pretty much be up and running on the company.
Sometimes businesses take longer to understand because the 30-day cycle is shorter than the average recurrence of repetitive issues. This can be one of the most challenging aspects of taking over a product or business. If possible, try and get an extension in your buyer’s agreement covering these types of exceptional questions for up to 90 days.
What to Focus on First
After the Acquisition and Knowledge Transfer
After your 30+ days of training, it’s time to build!
This is the fun stuff.
When people say they love starting new businesses, trust me, they do not mean setting up LLC’s, bank accounts, domain hosting, and throwing money away at unsuccessful MVP’s. They do not mean months of untested developers setting up your infrastructure and baseline product, iterating through bad versions, and finding your first 10 customers.
Instead of waiting 6-24 months for your business to get past the first steps, you get to feel that rush of excitement on day one and get rewarded for it, instead of wondering for months if this will ever work.
When you see that first Stripe payment alert on your phone, it’s going to feel really great.
Now is the time to put the plan you created earlier into action. Usually, those plans change now that you’ve been under the hood of the business for a while. But in general, it’s time to start using your talents and experience to make the cashflow strong and become a better business for your customers.
When do I get my money back?
This is a common and understandable question for many buyers, “How long will it take to get my money back?”
As crazy as sounds, this shouldn’t be the largest priority early on in your business. Because online businesses usually have no assets, the goal is to make sure the business continues to run, operate, and generate income. That’s the best way to ensure you get your money back over time.
The time it would have taken to get to where you are now is already payback
Remember, back when you thought starting a business from scratch was a good idea, you never worried about when you’d get you’re the time value of your money back, did you? If you were a $50/hour employee and had spent 200 hours trying to get your business off the ground, you didn’t sit around wondering how many months it would take to get your $10,000 back, did you?
The money you spend to buy a business with traction, customers, proven products, and momentum is paying you back the moment you own the business.
If it took 1,000 hours (roughly half a year) to get a new product designed, developed, and earning revenue with paying customers, that would be worth something to you, right? Again, using the $50 / hour mark, that’s $50,000 in value you aren’t wasting to get to that point. So if you purchased a business for $200,000 and saved you $50,000 in time value costs, your purchase price is 25% paid back right from the start.
In that case, it doesn’t take 4 years to earn your money back. It only takes three because you’re able to skip ahead a year with that $50,000 investment.
Let’s assume you’re not like the 95% of businesses that fail to never get any paying customers. (Not to mention the ‘successful’ products that have people using it but not paying for it.)
Furthermore, let’s pretend you get actual paying customers, and you reach the 10 paying customer goal. How long do you think that would take?
When you think of it that way, you’re earning your money back from day one not only financially but in terms of time spent on products that were a waste of time to begin in the first place.
Let’s Get Building
With these few items out of the way, it’s time to build the next phase of the business. We know the Internet is full of great courses on customer acquisition, marketing, product development, and sales. There is no reason to waste your time because I learned it all from these same resources.
Once you own the business, completed the 30 days transition, and have a short-term growth plan, it’s time to get to work.
This is where the fun begins.