Why Online Stores Sell Better Than Brick & Mortar
Selling a business isn’t easy. Statistics show just how difficult it can be. The California Association of Business Brokers estimates that less than 30% of posted business listings will actually sell. It can be even worse if your company is in a highly niche industry or a vertical seen as unfavorable to investors and owner-operators.
The numbers are completely reversed, for the better, with online businesses. There is no comprehensive data showing what percentage of online and digital businesses successfully trade hands in the U.S. But my experience, along with anecdotal figures, point to success rates commonly above 70-80 percent for online opportunities which are openly marketed for sale.
Still, plenty of folks remain skeptical. They have difficulty getting comfortable with an enterprise they can’t walk into.
There are many reasons why online businesses are so much easier to sell. That’s why I often try to nudge buyers in the online direction when they’re out trolling the myriad websites for business opportunities. I firmly believe that as more and more smart people understand online market dynamics, they’ll never want to consider an offline business again.
Here is my Top 10 list demonstrating why online businesses are a better sell. Consider this a blatant plug for pushing investors in this direction.
1) Mega Buyers: Your buyer pool is not just national but global. Since so many online businesses are location agnostic and can be operated anywhere, it’s not uncommon to receive multiple offers on these deals. It’s also quite routine for U.S. business owners to entertain buyer prospects from Australia, Canada, the UK, Europe or Asia.
2) Scalability: Online businesses are so much more scalable. It’s often difficult to impossible to experience 3x, 4x or 5x annual revenue growth in many retail, service or industrial sectors. Compare that to the explosive business dynamics of the Internet. It’s shockingly not close.
3) Brick-and-Mortar Blues: Go ask any high-end retailer or high-rise office tenant how it feels to operate under a 25%, 30%, even 50% rent factor, which is the ratio of rent to gross revenues. By the time they’ve exhausted huge amounts of capital and time to build out their lease space, they now look forward to crippling monthly overhead. On top of that, dealing with landlords is usually not joyous. On top of that, try escaping the remaining 7 years of a 10-year lease. You’ll be mumbling a lot why you ever thought THIS was a good investment.
4) Employee Ease: From millennials to retirees, you’ll have an easier time finding strong candidates when they know they’re not doomed to 3-hour daily commutes. Starting with overseas virtual assistants, who lower operating costs dramatically. Or find someone just around the corner who wants the flexibility of the home office.
5) Online Workforce: We are currently selling a 10-employee software company with an entirely remote workforce stationed throughout the U.S. When the business trades hands, my seller is going to hand the buyer a small box and three laptops and say good luck. Workflows go unchanged. Workers enjoy new ownership without inconvenience.
6) W-2 vs. 1099: Everyone knows the drill. All owners must adhere to federal and state guidelines in determining if a worker should be paid as a W-2 employee or an independent contractor. The reality is, your argument for contractor status improves when you don’t share a workspace. It just does.
7) E-Kinship: E-commerce and online businesses provide a truly unique bond among buyers and sellers. In the offline world, most business buyers hope to stay in their lane, looking to buy a gas station, restaurant, machine shop or plumbing company. Online buyers, not so much. The marketing skillsets and digital experience needed to run these companies often overshadow the particular business vertical.
8) Marketing Magic: Look at the percentage of revenue that an online business spends on marketing and promotion versus offline enterprises in the same industry. I’ve got an e-commerce shoe store currently spending $25K a month on marketing. There’s no way in the world a mom-and-pop shoe retailer could do that. Not even close. That puts the online competitor miles ahead in customer acquisition.
9) Customer Base: Customers smell success from continents away. Sales are much more likely to blow up with a broader customer base. That explosion can happen based on geography, demographics, industry, product quality or word-of-mouth. But all those factors are multiplied in the online universe.
10) Workload: It’s one of the first questions we advisers get on our listings – How much work does this business require? Online businesses absolute crush their offline counterparts in this category. The fact that online businesses, grossing millions in revenue, can require only 10 or 15 hours a week from a sole owner, creates incredible electricity among buyers.