Should you obtain a failing ecommerce brand?

Are you itching to get into ecommerce? Perhaps you’ve watched a whole lot of training videos. You’re prepared to take the plunge.

There are a few ways to join the ecommerce game. The first solution would be to get work in the ecommerce company, maybe as an apprentice for a successful entrepreneur.

Another method is to begin a small company. You can do it as a side-hustle or as a fulltime, all-in endeavor.

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A third solution is to acquire an ecommerce business. Many ecommerce companies sell for approximately 3 times the annual profit. A firm with $200,000 in annual profit could sell for approximately $600,000, although there are a lot of exceptions.

But what if you have got an opportunity to acquire a failing ecommerce brand, one with little if any annual profits?

… what if you have got an opportunity to acquire a failing ecommerce brand?

A opportunity?

A friend came to me recently with an opportunity to buy what he believed was a strong ecommerce brand. But there was one catch: The company had failed. It was not open for business.

He asked me what I thought.

He was clearly excited. He also watched a brand with years of Google organic positions for prime keywords. It had an email list of thousands of customers and prospects and tens of thousands of Facebook and Instagram followers. Supplier relationships were put up.

It seemed like a no brainer.

Have you ever tried to catch a falling knife? That is a saying from Wall Street. It refers to scenarios that are too good to be true. However attractive the price, some deals are only stinkers.

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My friend does not have ecommerce working experience. Certainly he’s a smart fellow. And he has taken a lot of training courses in web marketing and copywriting. But he’s never run an ecommerce business. And however good the metrics appeared, the firm he was contemplating had failed.

Maybe my buddy could make it work. In the long run, failing brands — such as Brooks Brothers, J.C. Penney — are being bought this year with hopes of a revival. However, the folks snapping up those brands are seasoned operators. Presumably they have a grand plan and understand how to perform it.

Falling knives

But if you’re an ecommerce newbie like my friend, I strongly suggest not trying to catch that falling knife, for a lot of reasons.

The entrepreneurs behind those brands rarely acknowledge that they neglected and, as such, their brand is not valuable.

By means of example, a few years ago a strength and conditioning manufacturer collapsed. I made an offer to find the remaining assets. The owner had founded the company. My deal was in the range of $100,000. He cautioned that anything less than $2.5 million was an insult.

I rescinded my bargain and wished him the very best. He never sold the funds for any price, let alone the $100,00 I’d offered. In hindsight, my offer was too high. I’m happy he rejected it.

Secondly, the failing firm may have an extensive collection of consumers and social media followers, but do those people today remember the brand? What do they think of it?

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Many failing firms engage in anti-customer behaviour. I’ve seen neglecting manufacturers sell their lists to spammers, use substandard inventory, disavow guarantee policy, and get involved in poor customer service — all to save the company.

Third, the brand could have burnt providers. And providers speak to one another. If a supplier gets stiffed, its representatives usually tell others. Thus my friend may think he can resume production quickly, however, in actuality, he may want to locate new suppliers (who need specialized terms).

Think twice

In summary, think twice before buying a failing ecommerce brand.

Instead, buy a effective brand. Consider selecting a reputable agent. Conduct due diligence. Many successful entrepreneurs routinely sell strong brands, for valid reasons.

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