The Reality of Taking a Leap of Faith (Why Niche Matters when Buying an Online Business)
“Remedial Chaos Theory” is one of my favorite episodes of the TV comedy series Community. (Spoiler alert) The crew of lovable college-graduate-hopefuls explores different timelines as a result of rolling the dice to see who has to pick up the pizza.
Long story short, each roll has disastrous consequences. In a bid to leave picking up pizza to chance, Jeff is willing to risk a leap of faith (by the way, how bad can picking up takeaway actually be?).
Some of us take the same approach when buying a business. You might come across a business for sale for way less than its market value and on a great profit trajectory.
The only caveat is you’re not at all familiar with the niche.
“But how bad can not knowing the niche be?” you might ask yourself. If you decide to figure out how the niche works along the way, you are likely to end up with a timeline akin to the worst ones in Community — maybe even the one where everything has gone wrong and everything is on fire.
Sounds rather serious, doesn’t it? But if you take niche expertise for granted and commit to a deal in unknown territory, you could set yourself up to fail before you even begin.
Do You Need to be a Niche Expert? Yes . . . and No
Whether you need to be a niche expert depends largely on your goals in buying an online business.
The idea of owning and running an online business as a way to earn a side income without much work has gained serious traction over the past few years.
Most aspects of an online business can be outsourced or automated, which means it can be a relatively hands-off affair, earning money either as a side hustle or as a main source of income. However, it’s a misconception that it’s fine to buy an online business if you have the necessary skills but no knowledge of the niche.
We understand why you might consider committing to a deal for a business that looks too good to turn down: the numbers look great on paper (e.g. there’s a low sales multiple and decent profit), and the niche seems to be on an upward trend.
Ultimately, the decision depends on whether you’re looking for growth or for something to sustain you for a short period.
Happy with Your Lot? No Niche Expertise Required
If you bought a digital asset as a lifestyle business, niche expertise doesn’t matter so much.
Whether you purchased a content site that focuses on home improvement or an Amazon FBA business that sells mud masks, if you’re happy with its current profits, you just need to learn how to maintain it.
If the previous owner automated most of the business’s operations, it will run pretty much on autopilot. You simply have to know which metrics are important and how to repair any issues, so the business continues to achieve its normal traffic and revenue performance.
Let’s say you have a content site that requires a few hours of work each week to maintain. Your weekly or monthly tasks will be to update content so it remains relevant to industry standards, monitor analytics, and refresh affiliate links in case your previous links are broken.
If you own a similarly automated ecommerce business, you might need to respond to customer inquiries, pay for any permits or licenses when they’re due, and reorder inventory when necessary.
This type of maintenance sounds straightforward, and it usually is.
But what if you want more from your business? Niche then starts to matter.
Long-Term Success Requires Niche Expertise
Many entrepreneurs buy online businesses as long-term investments that rival the ROIs even of real estate and stocks. To cultivate such growth, you need to know enough about the business’s niche.
You don’t necessarily need to know all the ins and outs of a specific market. However, you will need enough knowledge in order to improve or repair the business.
If you plan to run your new acquisition as a one-man band, you won’t have any help immediately available. In other words, the only knowledge you have at your disposal is your own.
Let’s say you run a content site. Some of your daily tasks include performing keyword research, checking out seasonality, and producing content. These aspects of a business are hard to improve when you don’t know the buyer’s journey for that niche.
Can you identify with confidence the customer’s pain points? Or why this product or service is attractive to customers?
If you buy a content site with the intention to grow but have no niche expertise, you’ll likely experience a drop in traffic and revenue as you learn.
As you learn, you’ll probably make mistakes. While it’s fine to stumble during the learning phase, a significant drop in performance isn’t normal for an already profitable online business.
The biggest advantage of buying a digital asset means you get to skip the grueling startup phase of growing pains and hiccups. Allowing the performance to drop below its usual levels isn’t a recommended strategy since you want to keep the recurring revenue consistent.
One workaround when you don’t have niche expertise is to let an expert handle content creation. Even in this case, you’ll still need some knowledge of the niche. For instance, if you outsource content creation to freelance writers, you need to know if they’re writing terrible content.
Options If You’re Not an Expert
The long and short of it is that you’ll need to become an expert in the niche eventually.
There aren’t many ways to fast-track experience and knowledge. But if a deal looks too good to pass up, there are a few precautions you can take to help with the transition, so you can pursue the sale.
Seller Support
\You could ask if the seller is willing to remain in constant contact for a specific period of time following the sale.
There’s no set support period within the industry, but many sellers are open to providing 30 days of email support and some Skype or phone calls. Many buyers find this option invaluable as it gives them access to the greatest expert on this business.
If you’ve got the skills needed to run the business, you can leverage the seller’s knowledge of the niche to see how best to apply those skills.
If you’re outsourcing some tasks to a team member, you can include them in any correspondence with the previous owner, so they can learn too.
You might end up paying slightly more for the deal than you originally planned in exchange for this extra support, but it will be worth its weight in gold when it’s time to run the business on your own.
SOPs
Knowing how to do something and explaining how to do it well are two very different tasks. To help pass on the knowledge of running effectively, you could ask the seller to create SOPs as a manual to follow.
These instructions should detail every step of a process so that anyone could follow the guidelines to complete a task.
Some sellers forget to create SOPs, especially if their business is a one-man band and they’ve never had to relay this know-how to anyone else.
Hire the Seller
You could entice the seller to stay with the business on a long-term basis by hiring them as a consultant or by giving them equity of the business.
Their experience means they’ll understand how the business best operates. Even if you need them only for certain tasks, you can leverage their knowledge whenever you need while you learn the ropes. However, many sellers turn down such an offer if they want a clean break from the business.
To increase the chances of keeping the seller on, give a clear indication of how long you’ll need their help and what would be expected of them.
After this period, you could fade the seller out, making them a silent investor. In this scenario, you might pay less for the overall deal but lose out on some long-term profit.
Niche-specific Knowledge: The Underlying Price of a Great Deal
It’s possible to buy a business with no knowledge of the niche, but the risks might outweigh the pros. It’s much better to have someone with some knowledge of the market on board.
To find the right deal, you’ll need to know where to look. You can register on our marketplace to start building your deal flow and find businesses worth buying.
