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- It's a dud...
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At a certain point on your journey of having equity in business and acquiring you’re going to have a moment where you say…
This is a dud…
Translation? This isn’t going to work.
The reason for it not working, may vary, however, the truth stays the same. The opportunity is not worth the obligation.
In acquiring and partnering I expect about 20% of the deals that I do will end up in the “dud” list. Meaning that there is simply no real way for it to work and in most cases be utilized going forward.
Today, I’m going to share some stories and how to ensure you don’t let your “duds” take all of your capital and ensuring your ego doesn’t overpower your brain— like it likes to do.
First, let’s go through the reasons I generally see for a business that simply won’t work out…
In my mind it comes down to 1 of the 7 following reasons (there are plenty of others).
It simply doesn’t have enough upward potential to be able to grow.
The effort required for it to grow and scale isn’t worth the time or resources.
There is no clear point in which it can hit enough profit or is able to be exited.
The opportunity that you thought existed or the business thesis is no longer true.
There is too much debt or it is too leveraged.
You no longer have the passion or desire to continue.
The value the business serves to other isn’t high enough to generate significant profit.
Second, let’s go through what you can do when you realize you have a dud…
Sell the business as an asset sale or a lower EBITIA.
Merge the business with another business that can solve its core problems that it won’t work.
Sell a percentage of the business to someone who can operate and build the business.
Call it a day and completely shut it down.
Reduce expenses and ride it out in stability mode.
Of course, what choice you take is truly up to you and what you’re optimizing for… simply due to the amount of variables.
A lot of the time, your business might not work because you didn’t hit the timing and so reducing expenses and “waiting” might be the best call.
Sometimes, when you have a business, you realize the business fundamentals doesn’t work for you, selling it might be the best case.
And sometimes you might realize that no matter how much money you put in the possibility of an upside, is almost zero.
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Story #1: Sea Bird Sanctuary
This one is a pretty small blunder that I wrote about a while back…
Essentially, I bought this business because I was buying another business where it was going to help me— buying the other business didn’t work out. While it didn’t cost a lot of money, it did take from my time.
In this case, I decided that it was going to cost too much money to sell it because it was worth so little and in general it was a test to see if I could take an SEO-specific site and redirect it to an education company and make it work.
In general— it didn’t work and I decided to abandon it as the ROI of doing anything wasn’t worth it.
An experiment that didn’t get the light of day. However, it did lead us to trying in a different way with www.alittlesparksofjoy.com (which is working nicely!).
In this case, if I REALLY wanted to get my money back… maybe I could… however, I’m not obsessed with getting a return on everything or “never losing money”.
I’m about optimizing R.O.I on our winners and cutting our losers.
Story #2: CampNative.com
We purchased this website from Flippa.com (who sponsored today’s post) and it was an experiment into the lifestyle niche.
My belief was that I could take Media, SaaS and Education together for this and we bought this website that had traffic, was generating about $40,000 per year and had a solid base of over 1,000+ campgrounds in America.
We invested about $80,000 into the business beyond the acquisition to date and we’ve seen what works and what doesn’t and we see a clear path to the future.
For example, on Facebook ads we were able to get people on the list for $0.20. We’re able to have a super active social media, high engagement, people love the blog articles, 70% open rates on emails.
You name it. People who love camping, love camping.
The problem? We need a few hundred thousand more or someone who is able to take it to the next step… and the issue?
From a capital allocation perspective this is in the “experiment” side of what we do and not the “we’re all in” category.
When I look at spending $200,000 on this versus say one of our A.I businesses which is going to give me the highest ROI? The AI business.
Thus, while we’re still building and growing CampNative.com we put this into the reduced expenses and maintained area waiting on either
A. The right partner to approach us or
B. Capital that can be allocated at the right time.
It’s not a “full dud”… it’s a dud due to the comparison of capital and resources.
My intention is for us to return to this in time and build this out as a great acquisition target in the lifestyle niche, while learning a lot about that world (which I deeply believe in as a market to be part of).
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Story #3: TheHouseofRoutine.com
Another experiment— I wanted to see if we could take a struggling eCommerce store with an interesting brand and product and turn it into an education and media company.
What I learnt? Yes, I can. However, it’s far more difficult than you might think and will take far more resources than you’d think.
We started with an email list of 45,000 people (all customers) and that turned into a 4,000 email list of engaged people for the email list.
The inability to sell digital products to a physical audience, on top of the high costs of physical products and managing physical products and not being optimized to do anything inside of eCommerce led me to realize that it’s much easier to turn SaaS or Education companies into Media companies (or vice versa) than eCommerce.
In hindsight, this acquisition ended up breaking even when all was said and done (we bought it with $750K worth of product), however, it needed an experienced eCommerce operator, another $500K in investment and someone who truly understood the eCommerce game to “pair” with the Education and Media side.
Out of all the stories shared, I discovered the most from this deal. In the end, it’s one of those that aren’t worth for us to sell, simply due to the amount of time required in selling a business (as a general rule for us if a business is worth less than $1M, it’ll cost more to sell it then to not).
If someone with the right experience came tomorrow and correct grit with some capital, I’d give equity on this one and let them run with it tomorrow. Lots of potential— simply needs the right “perfect fit”.
The thing is you learn the most from the things that do not work…
As you can tell by these stories, most of our “duds” are from experiments and testing what might work and what does work— thankfully almost every “dud” we have is in the experiment side of our portfolio (which has very little asset allocation)…
In each case, it led us to making an investment or a choice that was extremely fruitful.
From story 1, we made a great investment into a content site that is doing extremely well.
From story 2, we discovered that the lifestyle niche has a lot of potential, we simply don’t have the resources to make it happen, however, our skills of media and education can be applied here with massive return.
And from story 3, we discovered that trying to bring eCommerce and combining it with Education or Media may be possible, however, the ROI is much lower than other options.
Which brings me to a powerful lesson for you today…
Ensure you have plenty of duds because you’ll learn 95% of your lessons with the businesses, partnerships and acquisitions that don’t work.
Experiment. Grow. Get your hands dirty. Lose money. All of it is the pathway to making things go in the direction you desire.
See you next time 🙂
-Scott
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