The e-commerce industry is a crowded but growing marketplace right now. How can you cut through the noise to build and sell a profitable online business?
Build it up and flip it. That’s the catch cry for Australian entrepreneurs keen to make a quick profit in these e-commerce boom times, and it sounds pretty simple. But is it really so easy? What are some of the considerations for building and sell your online business in a short time frame?
There’s no doubt that right now is an exciting time for eTailers in Australia. E-commerce market revenue in 2017 is projected to be AU$13.2 million according to Statista, with an annual growth rate of 9.5% until 2022.
E-commerce has the traditional bricks and mortar stores rattled, as more consumers than ever are getting their retail therapy fix through the online marketplace.
A major consideration for all Aussie retailers is that the online e-commerce giant Amazon is making its debut into the Australian market this year, predicted to take e-commerce retail sales from 11% to 19%. No 2018 strategy should be without a plan for how to respond to this behemoth.
The good news is the thresholds for starting an e-commerce business are very low and it’s easy to get set up. The more challenging news is that the marketplace has become crowded and it’s increasingly difficult to get cut through the noise in such a busy space.
In fact, figures showed an increase in the number of businesses for sale in Australia in 2014, hitting an all-time high of 41,200 enterprises up for grabs in October last year.
Building it up
Before you can sell your business, you’ll need to build it up into a viable concern. Here are some practical tips for a successful quick set up.
Always be selling your business
As an entrepreneur, you always need to be thinking about your exit strategy. It’s also the best way to prepare yourself mentally – after all, you’re going to be putting a lot of blood, sweat, and tears into running this business and you don’t want to get too attached to ‘your baby’.
Knowing that you’re building it up for someone else to take over will make the wrench easier. Right from the start, put yourself in the buyer’s shoes and view your business from their perspective, rather than yours.
When making every business decision, ask yourself, can this business run without me? If the answer is yes, you’re on the right track.
What’s your niche?
To be successful, you need to occupy a niche and deliver it in the most efficient and customer-friendly way you can, especially with an eye to selling in the near future.
For example, the Australian market’s largest segment is ‘fashion’ with a market volume of AU$3,273m in 2017, which gives a nice broad segment with a lot of potential for niche products.
Some options for finding your niche could be:
- Gauge customer interest– as an e-commerce business, you can use a keyword search tool (such as Google Keyword Planner) to find out what the traffic is like for an individual product. If there is too little traffic or too much, you’ll need a rethink.
- Analyse the competition– is your product category already dominated by one particular brand? Do an SEO check to determine how high you could potentially be in the ratings. Appearing on the second page of search listings is not optimal for an exit strategy.
- Figure out your margins and price points– essentially, will you make enough money from this business to sell it for a decent profit? The product margin has to make sense to show that you have the scale.
With a niche business, you can carve out an excellent opportunity by providing a positive shopping experience and cultivating goodwill, ultimately adding value to your business.
Buy an existing business
Of course, if the idea of building up a business from scratch is not something you want to do, it might be worth looking into buying an existing business, one that you can see has potential. That way you can build it up, make it profitable and sell it on.
A bonus of going through the purchasing stage yourself is that you get the first-hand experience of buying a business – by the time it comes to sell yours, you’ll know what to do to make your company a good prospect.
Build it for a buyer
With every step of building your business up, you’re keeping your exit strategy in mind and making decisions for yourself and your future buyer.
Some of the key decisions for building a successful e-commerce business are:
- A well-designed and functioning website – mobile first and with a decent flow of traffic
- A large and loyal email database of customers and strong leads
- A streamlined and efficient logistics process from purchase to delivery
- A robust and regularly updated social media presence, particularly on Facebook
If you can build the above, you’ll have a viable business with selling potential.
The Amazon effect
Even the most robust business has to contend with the odd market curveball that could significantly change your business.
One such curveball is the arrival of e-commerce giant Amazon into the Australian retail landscape, which the industry is meeting with equal measures of fear and excitement. How will the arrival of Amazon effect you? It depends on how smart you are.
Intelligent businesses will jump on this opportunity, using Amazon as one of their major selling channels, taking advantage of their almost flawless delivery process to meet the rise in customer demand and expectations. Online penetration will accelerate, perhaps forcing businesses to improve their websites and adopt dynamic pricing methods.
The arrival of Amazon will also mean Australian businesses will improve their supply chains to match Amazon, with more accurate stock management and faster delivery services.
However you decide to work with Amazon, your business can’t afford to ignore it; a future buyer will want to know how its arrival is incorporated into your business strategy.
Making a quick exit
You’ve got a profitable business and the time has come to sell. How do you get your business ready; what type of sale do you go for and how do you find the right buyer?
How to get prepped for sale
The most attractive businesses for sale have got first class employees, loyal clients, a smooth process and a high cash flow. They have all this and meticulously organized and transparent paperwork.
Xcllusive Business Sales recently completed a survey of 700 buyers who didn’t end up buying a business after looking at the market for 12 months. Asking the buyers why they hadn’t purchased a business, around 40% said they found businesses they liked but couldn’t get enough information because the owners were too secretive to open up their books.
Being transparent, open and organized about your finances will put you way ahead of the game, every time.
Timing is everything
You can think of your business as having four phases: start-up, growth, maturity, and decline. The ideal time to sell is at the start of the maturity stage; it’s the optimal time for profits, your business processes are running smoothly, you have an established client base, and you have enough of a track record in sales to show progression.
No matter how good your idea, there’s no point in selling at the start-up phase when you are trying to survive day by day. Similarly, don’t wait until the industry is in decline. You’re aiming for the sweet spot between growth and maturity.
What’s it worth?
One of the most important questions to ask as you’re preparing to sell, is how much is my business worth?
It’s a little harder to figure out for an e-commerce business, as much of your value is not a tangible asset. Broadly, you can determine the value of a business by multiplying the earnings before interest and tax (EBIT) by the growth potential. The key to getting a good sale price is increasing that multiple.
By showing an expected continuity of the business once you exit – for example, if you have a loyal customer base and you can show a regular cash flow – your multiple will be higher.
Bear in mind that overpricing your business could be just as detrimental as undervaluing it. Potential buyers will be put off either way, which is another reason to be transparent about your paperwork.
What type of sale?
Something you’ll need to consider when putting together your exit strategy is what kind of sale suits you and your business. Different types include:
- Merger/acquisition– this might be the best option both regarding time and profit – depending on the aims of the bigger company, they might want to buy your business to combine with their own or eliminate you as competition.
- Open market sale– the most traditional way to sell and most like the real estate process. You put your business up for sale and attract buyers. Be aware that this method could be a lengthy process and is dependent on the whims of the market.
- IPO– this strategy is where you ‘float’ shares in the company on the market, seeking capital from public investors.
- Liquidation over time– with this method you can extract profits from the enterprise, rather than reinvest them in the business or waiting for the lump sum from a sale, gradually winding down the company
- Friends/family– potentially an easy option, you could hand over the business to a someone you know, perhaps keeping a hand in operations.
Call in the experts
Whichever method of sale you go with or how you value your business, you’ll need to do your research and talk to a handful of experts to get an accurate picture of the best exit strategy for your business.
Get an independent valuation of your business and include your accountant, another independent accountant and a reputable business broker.
It has never been easier to build a niche business in the online marketplace. If you’re smart, take advantage of the opportunities offered and get the right advice from the experts, then you should have no trouble building a business for a quick and profitable exit.