Never Miss a Beat - Get Updates Direct to Your Inbox
There’s Only One Reason Someone Will Acquire Your Website
By Mark Daoust
Why would anyone want to acquire your online business? For that matter, why does any acquisition ever occur? Despite all the reasons you might give someone as to why they should buy your online business, there is really only one reason that any acquisition is ever completed. Once we realize what this reason is, we can apply it to make our business more valuable.
So why do buyer’s acquire businesses? For the same reason you acquire anything in life: you want something in return. In the language of investments, we call refer to this as ROI – return on investment.
A Return Can Mean More Than Just Money
Usually the term ROI refers to the financial return someone receives on an investment. But there really is no reason to limit ourselves to just financial returns. Every buyer who buys is looking for something in return. The same principle holds true for buyers who acquire businesses and websites, even if the return isn’t directly financial.
A little while back, Quiet Light Brokerage had the opportunity to list a website that had no revenue, cost a few thousand dollars per year to run, and did not have significant prospects to become a profitable business. Despite this, it sold within a matter of hours.
Why did it sell so quickly? Because it provided an incredible return to its owner.
The website’s founder suffered from multiple sclerosis. Rather than let it defeat her, she started a website and developed an online community dedicated to empowered living while dealing with MS. Unfortunately, her health declined and she was no longer able to keep working on the website, so she put it up for sale.
Several buyers bid on the website. Most of the buyers had some personal tie to the MS community. For these buyers, although there wasn’t an obvious financial return on this acquisition, there was the real return of being able to give back to the community.
Google’s Acquisition Strategy
The example above demonstrates an altruistic acquisition. But there are other acquisitions which occur that do not have a financial return as their primary goal.
When Google acquires a young startup, it is usually not because they want to add that startup’s revenue to their own books. Often times these startups have negligible earnings, especially when compared against Google’s massive financials. Rather, Google acquires startups principally for their talent.
In Ben Popper’s article, he explains how this strategy has worked for Google:
Google has taken plenty of flack for its extremely broad — some would say lack — of focus. But by and large it’s been the most successful among the massive tech firms when it comes to incorporating new companies. Doubleclick and AdSense, both acquired, are major drivers of Google’s revenue. YouTube dominates online video. Android goes head-to-head with Apple in mobile. And it’s not just companies that are bolted on whole cloth. Premier products like Google Maps, Docs, Analytics, and Voice were also crafted in large part by teams brought in from outside.
Google’s measure of a good acquisition is based primarily on the talent they bring in-house and retain. When speaking of Google’s ROI, they want a “talent return”.
That said, even Google’s acquisitions have a goal of providing a financial return. Google just happens to know and realize that they add the most value to their company when they add top talent. For Google, top talent results in new innovative products which Google is able to monetize.
Applying ROI To Your Business
While it would certainly be flattering if Google were to call because of your immense talents, we must recognize that the vast majority of acquisitions occur within a marketplace where the overriding desire is to realize immediate and strong financial returns.
The marketplace describes the collection of business owner’s who are actively seeking potential acquirers. The buyers who make up the buy-side of the marketplace overwhelmingly make their acquisitions based on the prospect of financial returns, although other considerations may also enter into their decision.
So let’s apply this reality to your business with the following lessons:
- Your Financial Records Are Important. There is no other way to state this: a business’s financials are the lifeblood of most acquisitions. You need to have financial records.
- A Growing Business Is Easier To Sell Than a Shrinking Business. Since buyers overwhelmingly want a return on investment, it follows that a growing business will have more general appeal to potential buyers. Shrinking businesses can still be acquired, but fewer buyers will be interested.
- Potential Matters. While the word “potential” results in a collective eye-roll from buyers and brokers alike, potential does actually matter to buyers. But the potential of a business has to be real. If your pitch to a possible acquirer is “all it needs is some marketing and development”, then you won’t make much progress. However, if your pitch is “We have 20,000 email subscribers and average a 15% open rate, but we have never tried promoting affiliate products”, now you have some potential.
- Keep It Transferable. While your business may be ridiculously profitable, if you are the only one who can make it turn a profit, then buyer’s won’t care. Make sure that any owner can step into your business and earn the same return you earn on an annual basis.
- The Bottom Line Is The Bottom Line. Revenues are an important metric in valuations, but not as important as earnings. Most people could generate $1,000,000 of revenue if they were given $10,000,000 to do so (resulting in a $9,000,000 loss). Ultimately, a business’s earnings are it’s greatest benchmark.
- Don’t Ignore The Non-Financial Return. Finally, remember that what your business does, how it does it, and other non-financial factors play into the value of your business.