Entrepreneurs are driven by many different motivators. Some may create a new business because they feel an abstract impulse to bring a particular vision to life. Others enjoy the prospect of building a legacy for their family, generating a steady stream of passive income, or even building a multinational enterprise. While many entrepreneurs won’t necessarily consider a hard exit the main reason to start a business, building a company with the express intention of selling it is also a very feasible reason to get into the entrepreneurial game.
Fortunately, there’s a lot of overlap between building a successful business with the intention of selling it and building a successful business for any other reason. However, there are certain strategic and operational mechanisms you can put in place from the start to ensure maximum profitability and an expedited sales process.
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Below, we’ll take a look at how e-commerce startups can ensure that they’re building a business that’s positioned for a highly profitable sale, whether that’s the owner’s ultimate objective with the company or not:
Selling in an evergreen market
E-commerce sites that sell products that are always in demand are very attractive to potential buyers. The security that comes with a brand that never goes out of fashion is something that lowers the investment risk and drives up the price for an online property.
Some e-commerce sites specialize in selling a specific evergreen product. Take for example, Zoma, an e-commerce mattress seller. This brand relies on its products’ countless benefits to position themselves in the health and wellness market. By strongly aligning their brand message with concepts like pain relief, Zoma is also entrenching themselves in a space that is extremely unlikely to see a drop in consumer interest. This is the very backbone of evergreen e-commerce.
But, what if you’re already running an e-commerce website that doesn’t focus on an evergreen market? Is there a way to reduce the risk from a prospective buyer’s point of view?
The obvious solution would be to diversify your inventory. For instance, niche electronics stores often sell items that are at risk of being outdated by disruptive technology. Stores like these could branch out into peripherals, software or other related products that don’t face the same risk.
Of course, acquiring the new inventory and updating the site to accommodate new categories of products comes with a cost that has to be balanced out against the benefits of entering a less risky market. It’s a good idea to not make this move before your business can accommodate the investment and new operational expenses.
Diversify points of sale
Many e-commerce stores operate only on a single selling platform, like Shopify, Amazon or their own website, while other online retailers sell their products from a combination of these platforms. Having your goods available via multiple platforms severely limits the risks of being dependent on one service provider or e-commerce platform. If one of the platforms becomes unavailable for an extended period, your revenues will plummet—especially if it’s your one and only.
People looking to invest in businesses are aware of this risk. They’ll regard an online store that is only established on one platform as much riskier than one selling from their own website while also having a solid presence on Amazon.
This valuation driver can be taken a step further with strategic offline partnerships. Just because your company generates plenty of sales online doesn’t mean you can’t expand your reach into the brick-and-mortar world. Doing this successfully is a massive risk-reducer and will increase the value of your business.
For example, Elemental Labs’ electrolyte-replenishing drink is sold online but is also ideal for being sold at places where health-conscious people work out. Making a flagship product available at physical locations as well as online not only creates additional retail channels, but also reduces dependence on electronic sales.
Reduce owner dependence
People looking to invest in businesses are extremely wary of the ones that rely too heavily on the direct involvement of the current owner. This can play out in many ways, but one of the most frequent is when the current owner’s personal image or brand overlaps too much with that of the company’s brand.
An extreme, but very relevant, example is Goop, Gwyneth Paltrow’s global lifestyle e-commerce site. If the site was to be acquired, there would likely have to be some agreement in place that would keep Paltrow’s image attached to the property, something that the seller may be unwilling to do.
Another way this could play out is if the owner’s personal social media presence plays an important role in the site’s sales funnel. If this were suddenly to be extracted from the company’s operations, how would it affect lead generation? This is something that a potential buyer will regard as a significant risk, and if you want to position your site to sell, it’s critical that you find ways to extract your personal brand from the company’s brand image and operations.
Dominate a niche using strategic partnerships
Selling products that can only be sourced from extremely specific suppliers is an excellent way to raise the barrier to entry for potential competitors. No matter what market you’re selling in, there are often opportunities to be the major player in your niche by building exclusive relationships with sought-after suppliers.
These relationships may take a long time to develop, but the rewards can place your business in an extremely enviable position. When competitors are unable to sell the same products to a loyal audience, potential business buyers will regard your business as a very attractive option.
Take, for example, Orizaba Original, a company that went out of its way to establish lasting relationships with suppliers of extremely niche products. The founder of this fashion brand spent years traveling Mexico and developing relationships with manufacturers of high-quality clothing that cannot be sourced anywhere else. By establishing and cultivating these relationships, the company makes it extremely difficult for competitors to dilute their share of this particular market.
However, on the flip side, some business buyers may see this as a risk, given the dependence on a single product source. That’s why it’s extremely important to ensure that these partnerships are made official and treated with the respect they deserve.
Leverage a high-profile global trend
Essentially, this concept involves leveraging an emerging trend that is extremely likely to become evergreen. Certain products address needs that involve global urgency and are unlikely to go away – like climate change, for example.
A vast number of consumers are willing to invest in products that will limit the impact that global warming has on the future of the planet. Innovation in this space is rife. If you are able to produce and sell products that provide a solution to a problem of this magnitude, the room for growth is limitless. Once production, distribution and sales infrastructures are set up for a company like this, potential buyers will consider the company a very attractive investment.
An excellent example of this concept at work is Modmo, an electric bike manufacturer selling attractive alternatives to urban transport that resonate with a customer base extremely focused on saving the planet. The pain-points that these bikes solve are incredibly clear, and when a thriving business is built around that need, valuations go through the roof.
Whether an eventual sale is your primary objective when starting a business or not, there are several reasons why building a business that’s positioned to be sold is a solid strategy.
First, and most importantly: you will always exit your business. There are some things in life that can’t be avoided. You’re not going to be able to run your company forever.
Secondly, even though you may intend to create a never-ending legacy for your family, fewer than 33 percent of family-operated companies survive through a second generation. An even more surprising statistic is that only three percent of businesses survive a fourth-generation handover.
Other reasons to build a business that’s geared for a sale include experiencing a change in personal priorities, or needing capital to launch a new, exciting venture. So, whatever your current objective is for starting a business now, think long-term and take these tips into consideration to help you build a successful, highly marketable enterprise.