The Business Inquirer #152
Sharing a two-product FBA business, a small invoicing SaaS, and a digital marketing agency with some hair on it.
Hello Friends!
A common question I receive from new subscribers is how to best use these Tuesday deal reviews.
These analyses are broad and surface-level, as they're derived solely from publicly available listing information. My primary objective with these reviews is to equip you with the ability to swiftly evaluate potential acquisitions. Whether you're considering a SaaS, ecommerce, landscaping, or any other business model, the structured analysis aims to prompt the right questions you ought to be asking to understand these opportunities better.
In this week’s issue:
🛒 eCommerce - 1 listing
☁️ SaaS - 1 listing
💼 Online Service - 1 listing
⚒️ Tools & Resources
💡 How I Can Help
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🛒 eCommerce
Amazon FBA - $1.1M
Launched in 2017
2 hero ASINs
Revenue: $1.2M
Profit: $354k
Margin: 30%
Multiple: 3.11x
💬 Quick Take
This Amazon FBA business presents an attractive opportunity, characterized by its robust year-over-year growth, nice margins, and stronghold in its niche. What's particularly appealing is the business's scalability, facilitated by comprehensive SOPs and a minimal time requirement from the owner. The valuations of FBA businesses have been trending lower and this one should be at a 2x or 2.5x multiple.
✅ What I Like
Strong Market Position
Top rankings for hero SKUs in Amazon subcategories highlight a competitive edge.
Operational Efficiency
Well-documented SOPs and a team of virtual assistants ensure smooth operations with minimal owner involvement.
Growth Trajectory
Year-over-year revenue and SDE growth demonstrate the business's upward momentum and scalability.
❓ Concerns
Platform Dependency
Heavy reliance on Amazon could expose the business to risks associated with policy changes or fee adjustments.
Competitive Landscape
Maintaining top product rankings requires continuous investment in advertising and optimization.
Product Concentration
Dependency on just two hero SKUs might pose risks if market trends shift or if there are issues with product availability.
💼 Due Diligence Questions
Sales Concentration: How dependent is the business on its two hero SKUs for revenue?
Advertising ROI: What is the return on advertising spend, and how has it trended over time?
Supplier Reliability: How diversified are the supplier relationships, and what backup plans are in place?
Market Analysis: How does the business position itself against emerging competitors?
Operational Costs: Are there opportunities to optimize current operational costs further?
Customer Demographics: Who are the primary customers, and how do their buying behaviors affect inventory planning?
Product Lifecycle: What stages are the new products in development, and what is their anticipated market impact?
Intellectual Property: What intellectual property rights does the business hold, and how are they protected?
Exit Strategy: What is the seller's reason for selling, and what does the transition plan look like?
🚀 Growth Levers
Marketplace Expansion: Diversifying into other marketplaces like Walmart and Home Depot to capture new customer segments.
Product Line Extension: Developing and launching new products to reduce reliance on hero SKUs and tap into new market trends.
Enhanced Marketing Strategies: Leveraging social media, influencer partnerships, and email marketing to drive direct traffic and sales.
Optimization of SOPs: Continuously refining operational processes for efficiency and scalability.
Customer Engagement: Implementing loyalty programs or community-building initiatives to enhance brand loyalty.
SEO and Content Marketing: Investing in Amazon SEO and content marketing to maintain high product rankings and visibility.
Supply Chain Optimization: Streamlining supply chain management for cost reduction and improved product availability.
🙋🏻♂️ The Buyer
E-Commerce Experience: A buyer with experience in e-commerce and Amazon FBA operations will understand the nuances of platform-based business.
Operational Savvy: Ability to manage and optimize a lean operation with virtual assistants and SOPs.
Marketing Expertise: Skills in digital marketing to enhance product visibility, brand awareness, and customer acquisition across various channels.
☁️ SaaS
Invoicing for Freelancers & SMBs - $325k
Launched in 2016
Blinksale is the software tool
Revenue: $103k
Profit: $87k
Margin: 84%
Multiple: 3.74x
💬 Quick Take
Blinksale is a lucrative acquisition target in the SaaS space, especially for those eyeing the freelancing and SMB sectors. Its decade-long track record, strong profitability, and simple yet effective invoicing solution highlight its appeal. However, its heavy reliance on organic growth channels and the absence of feature development could be an issue for a potential buyer. The valuation seems a bit elevated.
✅ What I Like
Sticky Service
The invoicing service's long-term user retention, with some customers exceeding 15 years, underscores its value and stickiness.
Simple and Effective
The software’s simplicity and effectiveness in handling invoicing tasks make it a reliable choice for its user base.
Payment Integrations
Offering a wide range of payment options, including cryptocurrency, makes the service highly versatile and forward-thinking.
Stable and Scalable
The platform's stability and readiness to support significant user growth without the need for additional feature development are major pluses.
Customer Satisfaction
High user satisfaction, driven by an intuitive interface and simplicity, indicates a solid product-market fit.
Organic Growth
The business has grown organically, highlighting a solid foundation and potential for increased growth with strategic marketing efforts.
❓ Concerns
Dual Platforms
Maintaining two platforms could complicate operations and user experience unless effectively managed.
Market Competition
The invoicing software market is crowded, and standing out without continuous innovation could be challenging.
Pricing Strategy
The recent price increase could impact customer acquisition and retention, especially if not matched with value additions.
Crypto Payment Volatility
While innovative, integrating cryptocurrency payments could introduce volatility and complexity in financial management.
SEO Dependency
Heavy reliance on SEO suggests vulnerability to changes in search engine algorithms and online marketing trends.
User Migration Risks
Migrating users to a single platform could lead to dissatisfaction among loyal users of the Classic version.
💼 Due Diligence Questions
User Retention Rates: What are the specific retention rates, and what drives long-term loyalty among users?
Operational Costs: Detailed breakdown of operational costs and potential areas for efficiency improvements.
Market Analysis: Insights into market positioning, competitor analysis, and differentiation factors. Why would a client use this solution instead of a competitor?
Customer Feedback: Summary of customer feedback, including any requests for features or notable complaints.
Technology Stack: Overview of the current technology stack and any anticipated upgrades or migrations. How easy is it to maintain?
Legal and Compliance: Information on legal compliance, especially concerning payment processing across different regions.
Marketing Strategy: Details of past marketing efforts and the impact of the price increase on customer acquisition and retention. What worked and what hasn’t?
🚀 Growth Levers
Marketing Diversification: Expanding beyond organic growth through targeted digital marketing campaigns and strategic partnerships.
Feature Innovation: While not immediately necessary, periodically introducing new features or integrations could reinvigorate interest and utility.
Pricing Models: Experimenting with usage-based pricing or a freemium model to attract a broader user base.
Market Expansion: Exploring untapped markets or industries that could benefit from simplified invoicing solutions.
Customer Engagement: Enhancing customer engagement through regular updates, webinars, and community-building efforts.
SEO Optimization: Continuously optimizing for SEO to maintain and improve organic search rankings.
Referral Programs: Implementing a referral program to incentivize word-of-mouth promotion more systematically.
Platform Consolidation: Strategically migrating users to the Next platform to streamline operations and enhance the user experience.
🙋🏻♂️ The Buyer
Strategic Vision: A buyer with a clear vision for scaling the business, possibly by leveraging existing networks or complementary businesses.
Tech-Savvy: Understanding of SaaS platforms and the invoicing market to navigate the software’s potential and technological needs.
Marketing Acumen: Capabilities in digital marketing to expand beyond organic growth through innovative marketing strategies.
💼 Online Service, Media, Marketplace
Digital Marketing Subscription Agency - $1.6M
Launched in 2014
Revenue: $863k
Profit: $561k
Margin: 65%
Multiple: 2.85x
💬 Quick Take
This one has some hair on it. This digital marketing business stands out with its strong growth metrics and innovative subscription model. The transition to a subscription-based agency offers recurring revenue, but it is unclear when this transition occurred and how much revenue it generated. While the explosive growth in revenue and SDE is impressive, it is most likely not sustainable and shouldn’t be heavily weighted in the valuation of the business. Interesting opportunity but a lot of due diligence is needed in this one.
✅ What I Like
Innovative Subscription Model
Pioneering a subscription-based agency model offers clients cost-effective access to a range of marketing services.
Comprehensive Service Offering
Providing a wide array of services from web design to influencer marketing meets diverse client needs.
Scalable Operations
Utilizing freelancers allows for flexible service capacity without the fixed costs of a full-time staff.
Paid Advertising Success
Current reliance on paid advertising campaigns has effectively driven business growth and visibility. There’s a benefit to having an established playbook for paid marketing.
❓ Concerns
Sales Team Development
The necessity to build a robust sales team to increase MRR represents a significant operational challenge. It will also lead to margin compression.
Organic Growth Opportunities
Underutilization of organic traffic channels, such as SEO and content marketing, could limit growth potential.
Market Competition
The digital marketing space is highly competitive, requiring continuous innovation and service differentiation.
Subscription Model Adoption
The market's receptiveness to the subscription model and its sustainability over time remains to be seen.
Key Man Risk
The owner's 17 years of experience in digital marketing lends credibility and deep industry knowledge. How will the transition impact this business?
Freelancer Reliability
Dependency on freelancers for service delivery introduces variables in quality and availability.
Scaling Customer Support
As the client base grows, scaling customer support effectively will be critical to maintaining service quality.
💼 Due Diligence Questions
Customer Acquisition Cost (CAC): What is the current CAC, and how has it trended with the growth of the business?
Revenue Breakdown: How is revenue distributed among the various services offered?
Client Retention Rates: What are the current client retention rates, especially for subscription-based clients?
Freelancer Management: How are freelancers vetted and managed to ensure consistent service quality?
Subscription Model Metrics: What are the key performance indicators for the subscription model, including churn rate and average lifetime value?
Paid vs. Organic Traffic: What strategies are in place to increase organic traffic and reduce dependency on paid advertising?
Market Positioning: How does the business differentiate itself from competitors in the digital marketing space?
🚀 Growth Levers
Organic Traffic Development: Investing in SEO and content marketing to drive organic customer acquisition and reduce reliance on paid advertising.
Sales Team Expansion: Building a dedicated sales team to proactively increase MRR and expand the client base.
Service Diversification: Introducing new services or packages to address emerging market trends and client needs.
Client Retention Programs: Developing loyalty programs or incentives for long-term subscription clients to enhance retention.
Strategic Partnerships: Forming partnerships with complementary businesses to broaden service offerings and reach.
Technology Integration: Leveraging technology to automate and streamline operations, enhancing efficiency and customer experience.
Brand Building: Enhancing brand visibility and reputation through targeted marketing campaigns and thought leadership.
🙋🏻♂️ The Buyer
Digital Marketing Savvy: A buyer with a strong background in digital marketing and an understanding of the subscription model's nuances.
Operational Flexibility: Ability to manage a distributed team of freelancers while maintaining high service standards.
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 ($1M - $10M of revenue) considering exits. All deals are sourced by the Rejigg team. Their team adds 7 to 10 new deals each week.
Interexo - Curated deal flow and data solutions. Since 2016 Interexo has been M&A industry’s trusted source for deal flow, with extensive coverage of industry data, from Private Equity to Lenders, Hedge Funds, Brokers, and more.
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.
💡 How I Can Help
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