MBA1865 Q&A Wednesday: Should I buy a failing business?

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Visit Dell.com deals. Hey Yo. Welcome to the $100 MBA show where business problems get solved every single day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my co founder back in 2014 and today's episode is Q and A Wednesday. On Q and A Wednesday, I answer a question from one of you, one of our listeners. If you got a question you want to ask, just email me over@omar00mba.net Today's question is from Greg and Greg asks. Hey Omar, really dig your podcast. Thought I would ask a question. I'm considering buying an online business. It's an e commerce store that hasn't been doing well. The owner really wants to get out of it because he perceives it as a failing business and I'm able to get a really good deal on it because of the position he's in. Personally I think that the business actually has potential to be a successful one, but I'm a little hesitant buying a failing business. Would love any advice you can offer. Thanks so much Greg. Thanks for the question Greg. This is an interesting opportunity for you and an interesting question because often when there's struggles, often when the market is Crashing. There's opportunity when people are selling off their assets, when people are trying to be liquid, they're going to sell off things like their businesses. And in this case, this business is maybe not doing so well. It seems like you think there's potential, but you want to make sure that you're not being hoodwinked. I get it. So in today's episode, I want to share my advice on what to look for, what information, what data you should ask for, what kind of research you should do before buying this business so you can have real information to make a decision on whether you can actually turn it around or you're buying a dud. And if you're listening and you're not even thinking about buying a business, successful or failing, one of the best exercises to do is to take these learnings and apply it to your own business. Meaning pretend you were buying your own business. What are some of the things you would fix? What are some of the things you'd look into or try to improve? We've got a lot to cover, so let's get into it. Let's get down to business.

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So Greg is considering buying a failing business. An E commerce store owner's not too hot on it, it's trending downwards and he's looking to. So Greg sees an opportunity to snatch up this business and turn it around. And that's really the crux of it. Can you actually turn it around? And one of the ways to quickly find out is to look into why it's failing, right? Really isolate what is the problem because if you can't fix that problem, then you can't turn it around. But if you can, then you have a really good chance of getting a great deal and, and really making a profit and recouping your investment quickly. So how do we identify what is wrong with this business? Why is it not doing well? Well, we're going to go back to basics. Well, business is quite simple when you look at it from an experience point of view. When you buy anything, you go through pretty much a three step Process. You are aware of this product or service. This is what we call marketing. We then make the decision to buy and that's the sales process. And then we experience the product or service and this is basically where we retain our customers and we get word of mouth marketing, which means if they had a good experience, if they love the product, they're going to tell other people. And in essence, if your product is outstanding, it's exceptional, then it really is just a flywheel. People will tell other people that become your marketing. They'll buy and from there they'll tell other people as well. So that's really the experience. So you're going to run through the paces here and you're going to basically look at this as three different steps. The marketing, the sales and the product or service itself. And most people, they like to analyze and go in that order. Like say, let's take a look at the marketing first. Then we look at the sales process and then the product. I actually advise the opposite. If you don't have a solid product or experience for your customers, everything else doesn't matter. You're going to have refunds, you're going to have complaints, you're going to have bad reviews, it's going to really shoot you in the foot. All your marketing efforts and dollars and attention and time is going to be wasted because they're going to go, they're going to buy and then they're not going to really enjoy the process. So working on that first is important or analyzing that first. So you need to find out, hey, what they're actually selling. The products itself. In the E Commerce store, the experience of, you know, dealing with customer support after they buy is all that exceptional. How does it compare to its competition? Are you a leader in the marketplace when it comes to the product or are you somewhere in the lower levels of that market? Then we're going to go one step back. The sales process. How's the website? How's the checkout process? Is it seamless? Is it easy to understand how to buy? What about the cart system? What about what cards they accept and do they have? Apple pay, all that kind of stuff. This is really important because the point of sale is crucial. It's where people make the decision to buy. This is why in retail, any successful retail store understands that the point of sale is where you put most of your efforts and employees. The checkout process. You want to make sure that people can buy easily and get out of there and not get frustrated. Even if that's self checkout, that's fast and easy. And then we take one step back and say, marketing, how are people getting to the site? How are people learning about this product? What is said about them on social, what's their reputation? Once you really examine all these three steps or these three parts of a business, you'll start to understand, okay, here are the problems here. Here are the problems there. The next question is, can you fix these problems? For example, you might have a great product, you might have a great sales cycle or a great sales process. Then you get to the marketing point and plenty of ads, plenty of marketing happening, but not a lot of traffic. And that could just simply be that the market does not want your product. You don't have product market fit. There is no quote unquote market for your product. Some markets will just thrive and some won't. One of the markets that's really notorious for being really hard to be successful in is in the student market. So people that are young, young students in university markets that cater to that audience. Why? Because children don't actually buy their own products. The parents do. So parents have money. And adults, let's say single adults in their late 20s and 30s are starting to make some income from their jobs or careers. So they have money, they have disposable income. But students in college have a very limited income. Most of them, most of them are not really living a lavish lifestyle or have a lot of disposable income. They're either full time students or they have a part time job to sustain themselves. So this market is really tough to crack. So understand what market your business is in as well. And if you have to shift markets, that's a huge shift. Now once you've done all that and you've analyzed the business, there's another thing you have to analyze and that's the actual numbers. Okay? A lot of people need to open the books. If somebody's offering your business, you need to see all the numbers where they spend their money. An exact itemized P and L, like a profit and loss sheet. You know, who do they pay, what in terms of salaries, in terms of suppliers, in terms of services, all that kind of stuff. How do they make more money, what are their prices, all that kind of stuff. Know the numbers. You have to read the numbers and find out. Because they could just be charging too little for their products and not making enough profit. They could be over bloated in their staff or have too many people in the wrong department. They may not be efficient with their cash. So the numbers are really important. And then lastly, you need to look at the team. If this company has a team, even if it's a small team, you got to evaluate do they have the team, do they have the talent, do they have the people to make this a successful business or are they just hiring people just to do the bare minimum and do menial tasks and not tasks that really are going to move the needle? Talent is very important. If you want to start the next Google, the first thing you would have to consider is can you get people as smart or smarter to work for you than Google so you can create and deliver that kind of experience? Same goes with any other business. So these are the areas I definitely recommend you take a look at. Now. Buying, improving a business and then selling it is very, very common. And a lot of entrepreneurs do this because they're actually very good at solving problems. They're very good at identifying things that already exist and say, hey, this business has so much potential, but you're doing XYZ wr. I'm going to fix these things with my resources, with my talent, with my network, and I'm going to run a better business. I'm going to get the business to a certain level and then sell it and make a profit. The key is, is it worth the investment you're going to make to get it to where it needs to go? Of course we're all confident and we feel like we can solve the problem, we can fix this business, but is it worth it? Is the question because your time is limited, your resources are limited in terms of energy, in terms of time and even any capital, you're going to be investing in it.

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To wrap up today's Q&A Wednesday's episode, Greg, my friend, you have an opportunity. Evaluate the business, evaluate what you have to do to turn it around. And then evaluate is it worth it? And remember, there is the option that it's not worth it or I can't turn it around. There's just too much to do for me to actually invest and buy this business. In these big decisions, there is no need to rush. Take your time. Ask for as much information as you like. Even speak to the team you might be inheriting. Figure out if you can or want to turn this ship around. Thanks so much for asking your question Greg. And that wraps up today's episode. Thanks so much for listening. If you have a question you want to ask, just go ahead and email me over at omar@100mba.net don't forget to hit subscribe so you don't miss our next episode. Our next two episodes are a two part episode two part lesson and in that two part lesson I'll be covering how to create a great video asset on your website that you could offer people in exchange for their email so you can grow your mailing list, get qualified leads to turn them into customers. Tune in tomorrow and Friday for that. Hit subscribe so you don't miss it. But before I go, I want to leave you with this. One of the other things you should consider when you're buying a failing business. Ask yourself the question, why can't I just create this business properly from scratch instead of buying it? What's stopping you from doing that? Is it a better deal for you to buy it? Are you actually going to be saving money or time? This is a good barometer, a good exercise or a thought experiment for you to kind of explore and say hey, I'll pass on buying this business if I can just create it myself and just do it right from the first place. Because doing it right from the start might save you a lot of headaches. Or it could actually be more costly than buying the existing business that's running that has customers that need a little bit of tlc. Alright, I'll check you in tomorrow's episode. I'll see you then. Take care. Of.

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