With the rise of Amazon and online shopping due to the pandemic, ecommerce has become an increasingly popular avenue for startups and small businesses.
The savvy business owner will groom their business for sale to an M&A company once the revenue is high enough to catch an acquisition firm’s interest.
But building a business that appeals to the M&A market can be tricky. You have to navigate challenges like where to invest your time and capital, whether or not to focus on branding, and the ultimate question: when to put your business up for sale.
John Hefter, SVP of Creative and Brand Strategy at Thrasio, and Teikametrics’ Ecommerce Marketing Manager Liz Downing share their insight for how to get your company’s brand ready for an exit.
Think like a customer
If you want your business to appeal to your customers, you have to look at the product from their point of view.
John Hefter works at Thrasio, primarily an acquirer of Fulfillment by Amazon (FBA) businesses. John is constantly looking at up-and-coming businesses, and he said the most successful sellers are the ones who prioritize their customers’ perspectives.
“When you’re an Amazon seller, you should always be thinking about what does the customer want?” John said.
“So if you’re building new creative, if you’re making improvements to your product, your packaging, you should be obsessed with the idea of what does my customer want to see?”
When you know what your customer wants, it’s much easier to shape your product to fulfill the desires of your potential buyer.
The idea of thinking like a customer also translates to selling your business to an acquisition firm. Get inside the head of your potential buyer so you know where your business needs to improve.
“If you’re thinking about selling your Amazon business to someone like a Thrasio or whoever else, you want to be asking yourself that same question. Put yourself in the mind of the customer, which in some cases might be us. So what would Thrasio want to see? What would anyone want to see?” John said.
If you know what your potential buyer wants from your business, you can market your company more effectively to get a better sales offer.
Don’t underestimate simplicity
It’s easy to get caught up in elaborate plans when you’re trying to impress a potential buyer, but oftentimes the simplest solution is the most effective.
When John wants to acquire a business, he looks for what’s called operational simplicity, which means straightforward, sustainable growth patterns in a company’s products.
“As we’re building a portfolio of things, the more simplicity we have, the better. So in some ways, ourselves and other aggregators might be looking towards simplicity as being the paramount of what you could present to us,” John said.
You want to build a brand that a buyer could look at and immediately see its potential for growth and success.
When your business plan is laid out in a simple and straightforward way, it becomes much easier for other people to track with your ideas.
“Building something that looks like an attractive brand that people would want to engage with and be interested in, having a clear differentiation story as to why your product is a winner and is going to continue to win, having a roadmap of activities that you could do, even if you’re not actively doing them yourselves, that you can use to tease the buying entity to say like, ‘Hey, this is the next move you can make,’” John said.
If your potential buyer can see for themselves the trajectory your company is on, they are more likely to buy into your plan—and your business.
Leverage your bestsellers
As your business begins to see success, you will naturally want to expand your product line. But to get the greatest return on your investment, leverage your bestselling items instead of gambling on something totally new.
John used the example of a kitchen brand to showcase how to leverage your bestsellers. If you are seeing great success with salt and pepper shakers, instead of creating an entirely new product like a coffeemaker, create a product that you can sell with the salt and pepper shaker, such as salt that can go inside the shaker.
“Leverage that asset to likely guarantee the chances that you will be successful,” John said.
“And then maybe it’s something as lucky as all right, is there a size offering? Is there a variation or something that I could do? A color that’s the second most popular in this space, and you only sell the top one?”
If you can pair your bestseller with a similar or connected second product, you will end up putting in less work to create something new and will have a higher chance of that second product succeeding in the market.
“You can get an easy win to optimize the thing that you’ve already built and thus increase the proportionality of a success rate on the back end,” John said.
Know where to put your time and effort when creating new products. Build on what’s already working to increase the likelihood of continued positive results without starting over from scratch.
Aim for success, not a sale
If you want to build a business worth selling, you have to think bigger than that final end goal of acquisition by an M&A company.
“I will say this: never build your business to sell, build your business to be successful first,” John said.
To build a successful business, know what you want your company to become and plan the trajectory that will get you there.
Not every brand on Amazon needs to have a DTC site or a certain kind of branding. Sometimes it makes the most sense to follow a nontraditional business model.
“Some people don’t use that sort of common sense approach of like, should I be engaging in this activity? Is this actually worth me doing, or am I doing this to follow some sort of playbook written by someone else that’s not for your particular business?” John said.
Don’t let other people’s expectations steer the course for your company. What works for one company may not work for another, so make your decisions based on the reality of where your business is today.
Create a meaningful brand
Branding isn’t a necessity to make your business grow, but sometimes it can be a real asset.
Thrasio acquires companies that have strong branding and those that don’t. But branding can boost your sales and give you a stronger online presence, so it’s worth considering.
“I would say, if you think that creating a brand for this thing will get you meaningful differentiation that will lead to better unit session rates or conversion rates, whatever you want to call them, you should do it,” John said.
Branding isn’t for every company, but it helps you present your product in a way that adds value and authenticity to your merchandise. It adds a level of trust between buyer and seller, even if your brand isn’t widely known.
“A lot of things start that positive feedback loop or the flywheel. But one is definitely conversion rate, and people would say brand doesn’t matter on Amazon, but brand always kind of matters.”
Branding matters. Unless your main selling point is the price offering, having a brand can increase your company’s reputation and long-term health.
Know when to sell
Deciding when to let your business go is a tough call. Do you grow it as much as you can or sell it now and move on to something else?
For acquisition firms, a well-established business is often more appealing than one that’s just beginning to grow.
“Whether you’re buying a business that does 500,000 a year or 500 million, the amount of work you do in diligence is very similar if it’s a pure Amazon business,” John said.
“So you have to look at the value time of taking over a small business. When someone’s in the M&A space like we are, it’s a real weight to take.”
The bigger your business is, the better the offer will be, but you have to figure out how much time you’re willing to put into your business before trying to sell it to an acquisition firm.
Ask yourself which payoff looks better to you: a smaller one now, or a potentially much larger one later on down the line.
“The question is, is your time better spent saying, if you really have a great product, then getting some help to grow to be what it can be is probably a good use of your six months or a year of your life,” John said.
“So it’s not that you won’t get offers from people. You will, but know they certainly won’t be as good as a proven thing.”
The spike in online sales has made sites like Amazon a lucrative avenue for small businesses worldwide. With these tips, you’ll be able to navigate growing—and selling—your company in today’s ecommerce boom.
