The Business Inquirer #139
Sharing a turnkey dropshipping store, an Adobe add-on with courses, a legacy document automation SaaS, a tutoring marketplace, and a residential & commercial services business.
Hello Friends!
In this week’s issue:
🛒 eCommerce - 1 listing
☁️ SaaS - 2 listings
💼 Marketplace - 1 listing
🏡 Main Street - 1 listing
⚒️ Tools & Resources
💡 How I Can Help
This issue of The Business Inquirer is sponsored by Smash.vc
Buying a business with the SBA?
Would having a capital partner help?
At Smash.vc, they do two things:
Buy minority stakes in existing small businesses.
Partner with entrepreneurs trying to acquire new ones.
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They contribute capital, give advice, or help with growth when asked... but stay out of the way the rest of the time.
Silent partners there to help when necessary, nothing more.
If interested 👉 go say hi!
🛒 eCommerce
Men’s Watch Dropshipping - $25k
Launched in 2022
Fully automated dropshipping store using WordPress and WooCommerce
1,159 lifetime sales
Revenue: $101k
Profit: $28k
Margin: 28%
Multiple: 0.9x
💬 Quick Take
This may be an interesting opportunity for someone just getting into the online business space. Here's a turn-key dropshipping business in the men's watch niche with an automated sales process. While the 28% gross margin is not huge, it's respectable, especially for a relatively hands-off dropshipping operation. What piques interest is the rock-bottom valuation at just 0.9x of the annual profit. This could be a steal, but due diligence is required—particularly to validate the long-term viability and automation claims.
✅ What I Like
Low Valuation
The asking price is less than the annual profit, making this an attractive financial proposition for a quick ROI.
Automation
Most business activities are automated, including supplier-handled shipping, freeing up the owner's time for other ventures.
Consistent Profits
The business has consistently generated profits and shows no signs of seasonality, adding a layer of stability.
Simple Product
Watches are a relatively simple product compared to electronics or other popular types of dropshipping items.
❓ Concerns
Owner Transition
The seller has started multiple ventures requiring substantial time and focus. Will there be sufficient support during the transition?
Dependency on Suppliers
Being a dropshipping model, supplier reliability is crucial. Any hiccup can significantly impact business operations.
Niche Market
Men's watches are a specific niche. Market trends and consumer preferences could influence future profitability.
Dropshipping
The business model is very risky and offers no differentiation. It is very levered to online advertising rates.
Young Business
The business doesn’t have a lot of operating history which presents risks during the due diligence process.
💼 Due Diligence Questions
Supplier Contracts: Are there exclusive contracts with suppliers, or could they service competing stores?
Customer Retention: What is the repeat customer rate, and are there any customer loyalty programs in place?
Advertising Spend: What is the current marketing spend, and what are the most effective channels? How has the ROI fluctuated over time?
Inventory Turnover: How frequently do items get sold, and what's the average time for order fulfillment? What is the product return rate and who handles that process?
Automation Details: What parts of the business are automated, and what requires manual intervention?
🚀 Growth Levers
Expand Product Line: With an established customer base, introducing related accessories could increase average order value.
International Markets: If the business is mainly U.S.-centric, there may be opportunities to expand into international markets.
Customer Retention: Implementing a loyalty program could increase the lifetime value of each customer, improving the bottom line.
Partnerships: Collaborate with men’s fashion blogs or social media influencers to boost brand awareness and drive sales.
🙋🏻♂️ The Buyer
Dropshipping Veteran: Someone experienced in dropshipping could take this already automated business and scale it quickly.
First-Time Entrepreneurs: Given the low valuation and automated processes, this could be a fantastic opportunity for someone looking to get their feet wet in eCommerce.
Investor with Spare Time: Since the business doesn't require intensive oversight, it could be an attractive side venture for someone with limited time.
Strategic Acquirer: An existing eCommerce business in a related niche could leverage synergies to make the most out of this acquisition.
☁️ SaaS
Adobe Software Add-On - $4.0M
Launched in 2012
90% of revenue from SaaS; 10% from courses;
5 PT staff; Owner works 1-hour per day;
Revenue: $952k
Profit: $754k
Margin: 79%
Multiple: 5.3x
💬 Quick Take
This SaaS business business offering an Adobe add-on is appealing with excellent gross margins and year-over-year SDE growth of 17%. Operating with only five part-time team members, the business has demonstrated efficiency and scalability. While the valuation at 5.3x may seem steep, the strong recurring revenue and low overhead could justify the price. However, the owner has not implemented any growth strategies which could be both a limitation and an opportunity. There are also risks associated with dependency on a third-party platform.
✅ What I Like
High Profitability
With a 79% gross margin, this business is exceptionally profitable and should offer a healthy ROI for the right buyer.
Streamlined Operations
With only five part-time staff members managing the business, operational overhead is quite low, making it efficient and manageable.
Room for Growth
The owner has deliberately not pursued growth opportunities, leaving the potential for the new owner to expand. The business generates a majority of it’s revenue from SaaS but there is also a small online course component. There may be an opportunity to expand that part of the business.
❓ Concerns
Limited Owner Engagement
The current owner working just an hour per day might imply a set-it-and-forget-it business, but it also suggests a lack of recent strategic growth activities.
Dependence on Adobe
The add-on relies heavily on Adobe’s software. Any changes or updates to the parent software could impact this business. Adobe may also simply add the features into it’s core offering.
💼 Due Diligence Questions
Recurring Revenue Details: What's the average lifetime value of a customer, and what's the churn rate?
Staff Contracts: Are the part-time staff on contract or employed at will? Will they stay with the new business owner?
Intellectual Property: Does the business hold any patents or unique tech that provides a competitive edge?
Legal Obligations: Are there any existing or pending legal matters that could affect the business?
Market Position: How does the business compare to competitors? What’s the market share?
Customer Support: What types of customer support issues does the business see? How are they resolved?
Tech Stack: How scalable is the tech stack? Is there a product roadmap?
AI: How could the growth of AI-tools impact this business? Would it be a positive or negative?
Courses: When were the courses updated? Who puts them together?
🚀 Growth Levers
Marketing Boost: If the business has grown without much advertising, then a well-planned marketing strategy could significantly increase revenue.
Expand Product Offering: With existing staff and a customer base, introducing new add-ons or functionalities could capture more market share.
Partnership with Adobe: Consider forming a partnership with Adobe to become a featured or recommended add-on.
Premium Courses: Less than 10% of the revenue comes from premium courses, which means there is an opportunity to scale this vertical.
🙋🏻♂️ The Buyer
Tech-Savvy Investor: Someone with a background in SaaS or related technology fields would be ideal.
Marketing Oriented: Given the business’s growth potential, a buyer with strong marketing skills can elevate it to the next level.
__ __ __ __ __ __ __ __ ____ __ ____ __ __
Document Automation - $1.7M
Launched in 1993
9 employees
Revenue: $1.0M
Profit: $380k
Margin: 38%
Multiple: 4.47x
💬 Quick Take
This 30-year-old document automation business exhibits a blend of vintage expertise with modern potential. The organic growth, multiple revenue streams, and minimal owner involvement are attractive. However, the largely untouched marketing avenues and the reliance on a specific tech environment (IBM) may pose as both an opportunity and a challenge for the prospective buyer. The robust operational structure in place, coupled with a global presence, lays a solid foundation for further scaling.
✅ What I Like
Established Market Position
The business's three-decade-long journey reflects a strong, sustainable market position and a loyal customer base.
Diversified Revenue Streams
The five core revenue streams - maintenance, supplies, software, services, and freight - provide a balanced income portfolio, mitigating financial risks.
Autonomous Operational Structure
The business runs smoothly with a competent team, requiring minimal owner involvement, indicative of a well-organized operational framework.
❓ Concerns
Marketing Dependency on SEO
The reliance on SEO and organic growth, while cost-effective, could be a bottleneck in rapidly competitive markets.
Tech-Specific Audience
The focus on IBM or IBM Midrange clients might limit the business's reach in a tech-diverse market.
Untapped Marketing Channels
The absence of active marketing campaigns, trade show participations, and paid advertising might be leaving significant growth on the table.
💼 Due Diligence Questions
Revenue Breakdown: What percentage of revenue is generated from each of the five core streams?
Client Retention: What's the client retention rate and average lifetime value of a customer?
Tech Stack Evaluation: How adaptable is the current tech stack to modern document management solutions and other tech environments?
Marketing Data: What is the effectiveness and ROI of the current SEO strategy? Are there metrics available on past marketing efforts?
Operational Costs: A detailed breakdown of operational costs, including employee and contractor wages, maintenance, and other overheads?
🚀 Growth Levers
Marketing Expansion: Diversifying marketing strategies by integrating paid advertising, trade shows participation, and partnerships could propel brand visibility and customer acquisition.
Technology Adaptation: Expanding the tech stack beyond IBM-centric solutions might open new markets and client bases.
Market Penetration: Tapping into other industries or geographies, especially ones moving towards digitization, can offer new revenue channels.
Product Development: Innovating in product offerings or venturing into adjacent services could augment the business value proposition.
🙋🏻♂️ The Buyer
Tech-Savvy Entrepreneur: An individual with a tech background can leverage the existing tech stack and explore new technological advancements.
Marketing Maven: Someone with marketing acumen can unlock the untouched marketing potential, driving brand recognition and customer growth.
Operational Manager: An experienced operational manager could streamline processes further, ensuring efficiency and possibly reducing operational costs.
Strategic Investor: An investor looking to diversify their portfolio with a steady income-generating asset might find this business a suitable fit.
💼 Marketplace
Online Tutoring Marketplace - $995k
Launched in 2017
1,110 tutors; 95% of clients are college students;
CLTV is $511; AOV is $83;
Revenue: $792k
Profit: $282k
Margin: 36%
Multiple: 3.53x
💬 Quick Take
This online tutoring platform presents a distinctive blend of qualitative and quantitative appeal. Its model, reminiscent of Upwork’s, has built a robust community of dedicated tutors and a sizable student clientele, reflecting a proven market need. The reputation-driven incentive structure stands as a unique value proposition, aligning the interests of tutors, students, and the platform alike. However, the current owners’ self-acknowledged growth ceiling and the lack of marketing endeavors are red flags. The stark absence of customer acquisition cost (CAC) could be both an opportunity and a challenge, depending on the acquirer's marketing prowess.
✅ What I Like
Established Community
The business has successfully created a thriving online community of over 1,110 tutors and 26,339 students. This existing base can be a strong foundation for further expansion.
Reputation-Driven Model
The platform’s reputation-centric model incentivizes quality service from tutors, fostering trust among the user base.
High Customer Satisfaction
With 18,731 five-star reviews out of 20,413, the platform demonstrates a high level of customer satisfaction which is crucial for word-of-mouth referrals and organic growth.
Solid Tech Foundation
The sellers have invested in building the tech infrastructure, which can be a significant asset for the new owner.
Growth Opportunity
The fact that the platform has grown without any notable customer acquisition cost reflects a strong organic appeal and potential for higher profitability with the right marketing strategies.
❓ Concerns
Growth Stagnation
The current owners have hit a wall in terms of growing the business, which might require a fresh perspective or a different skill set for further expansion.
Lack of Marketing Efforts
The business has not invested in marketing, which is a critical factor for growth, especially in the competitive online tutoring space.
Dispute Resolution
The platform’s dispute resolution system, although a necessary feature, could potentially become a bottleneck with an increasing user base.
Dependence on Search
The business's growth has been significantly dependent on natural search, which can be volatile and is subject to changes in search engine algorithms.
💼 Due Diligence Questions
User Retention Metrics: What is the retention rate of both tutors and students on the platform? How many are repeat users?
Competitor Analysis: How does this platform compare with other online tutoring platforms in terms of pricing, quality, and user experience?
Marketing Analytics: Are there any existing marketing analytics or data that can provide insights into potential marketing strategies?
Technical Assessment: What is the technical stack of the platform, and what would be the cost to maintain or upgrade the technology?
Dispute Resolution Efficiency: How efficient is the dispute resolution process? What has been the historical dispute rate?
🚀 Growth Levers
Marketing and Advertising: Implementing a comprehensive marketing and advertising strategy to attract new users and retain existing ones.
Expanding Tutor Base: Diversifying and expanding the tutor base to cover more subjects or cater to additional student demographics.
Community Building: Enhancing community engagement through forums, webinars, and interactive events to foster loyalty and referrals.
Partnerships with Educational Institutions: Forming partnerships with schools, colleges, and educational organizations could provide a steady stream of users.
🙋🏻♂️ The Buyer
Marketing Background: Given the current owners' emphasis on the need for marketing to grow the business, a buyer with a strong marketing background would be ideal.
Tech-Savvy: A buyer with an understanding of the platform’s technical infrastructure can leverage it for further growth.
Interest in Education Sector: Having a genuine interest or background in the education sector will be beneficial for understanding the market dynamics and user needs.
🏡 Main Street
Residential & Commercial Flooring & Painting in NY - $2.9M
Launched in 1963
Based in Hudson Valley, NY
2 business - flooring and painting business
Residential, commercial, and retail outlet
Revenue: $3.7M
Profit: $724k
Margin: 20%
Multiple: 4.00x
💬 Quick Take
This dual-business opportunity shows strong potential for continued success, with a stable customer base and established team in place. With a respectable gross margin of around 20% and a valuation at a 4.0x multiple, the asking price appears to be reasonable. However, the option to purchase the real estate adds another layer of consideration.
✅ What I Like
Strong Reputation
Both businesses have long-standing relationships with clients and a positive reputation in the Hudson Valley and NYC markets. This could provide a strong foundation for further growth.
Diversified Revenue Streams
With both residential and commercial segments, the business is less susceptible to market downturns in either sector. This offers a safety net for investors.
Solid Team
The staff is described as loyal, experienced, and well-trained, which will likely make the transition smoother and reduce the learning curve for a new owner.
❓ Concerns
Valuation
The 4.0x valuation seems reasonable at first glance but it may be more difficult to receive SBA financing for deals that are valued at > 3.0x EBITDA.
Market Competition
The businesses are surrounded by national home improvement retailers, which could pose a threat in terms of pricing and market share.
Real Estate Commitment
The commercial building valued at $5M adds an extra layer of financial and operational complexity for a prospective buyer.
💼 Due Diligence Questions
Customer Retention Rates: What are the customer retention rates for both the residential and commercial segments?
Staff Turnover: What is the staff turnover rate, and are there any key employees planning to leave? How easy is it to hire?
Owner: What is the day-to-day role of the business owner?
Equipment: How old is the equipment and what condition is it in?
Licensing: Are there any licensing requirements for running this business?
Contractual Obligations: Are there any long-term contracts with suppliers or clients that the new owner should be aware of?
🚀 Growth Levers
Online Presence: An improved online marketing strategy can significantly boost customer acquisition and overall market reach.
Geographic Expansion: With a strong base in the Hudson Valley and NYC, there is potential for geographic expansion to nearby regions.
New Service Offerings: Diversifying into related home improvement services could add additional revenue streams and provide upselling opportunities.
Loyalty Programs: Implementing a customer loyalty program can increase repeat business and customer lifetime value.
🙋🏻♂️ The Buyer
Experienced in Home Improvement: A buyer with previous experience in the home improvement or construction sector would be advantageous.
Interested in Real Estate: Given the option to purchase the commercial building, a buyer with real estate experience or interest would find this appealing.
Strong Operational Skills: Given the need for a seamless transition, operational expertise is a must.
How did you like this issue of the newsletter?
⚒️Tools & Resources
I want to share some tools & resources that I have found helpful. Please note that some of these are paid sponsors of the newsletter.
PrivSource - PrivSource helps you source deals and connect with transaction partners without ever paying a success fee.
X5 Deals - Proprietary deal sourcing. They do the outreach and send you relevant, actionable deals directly into your inbox.
Rejigg - Platform that connects searchers/investors directly with owners of off-market small businesses ($500k - $10m revenue) considering exits. All deals are sourced by the Rejigg team. Their team adds 7-10 new deals each week.
Acquisition Lab - The Premier Accelerator for Buying a Business created by Walker Deibel, Author of Buy Then Build: How Acquisition Entrepreneurs Outsmart the Start-up Game. They combine world-class education, a vetted community, extensive group coaching, and resources to provide the first do-it-with-you buy-side advisory service.
Smash.vc - Whether you're looking to sell minority stakes in your business to take some chips off the table, looking for a partner to acquire an asset, or needing capital to complete an SBA deal, we'd love to chat with you.
BizNexus - Marketplace + off-market origination in one platform. The marketplace averages about 10k active listings & pre-CIM opportunities, and the off-market origination focuses on data & multi-channel.
Search Fund Coalition - community for the Entrepreneurship Through Acquisition ecosystem. Monthly events and meetups for acquisition entrepreneurs.
Deal Sourcing Guide - a comprehensive list of business marketplaces, brokers, deal origination firms, and more.
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