question about a prospective online business.

Discussion in 'Growing and Managing a Business' started by Marcionette_t, Jul 2, 2010.

  1. Marcionette_t

    Marcionette_t
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    Hello all,
    I am planning to meet with an entrepreneur who created an internet business based on marketing companies who sell green "eco" products and services. We have been communicating through email and plan to meet for lunch next week. Her business is essentially a very small amazon type online company but only for green products. I like her idea and she has been working on the business for 2 years. From what she has told me she has taken a bad turn in health and cant manage the company much longer so she wants to sell it. I am interested in the venture and the site intrigues me but I have some proplems:

    - I will never offer her close to what she is asking for the company, and I believe no one else will either.

    -I don't have any experience with an online business at all. So I would need a partner who is savy with dot com type business.

    Any suggestions would be great. I am planning as of now to make a proposition with her. She says that she really believes in the company and wants to see it succeed but cant continue to run it. So I am thinking of asking for equity in the company and taking over management but still leaving her with a large steak in the company. she would show me the ins and outs and share her Ideas and I would learn more about this business and how she has been running it. In exchange I would let her keep a large amount of equity forever while I eventually take over managemnt fully and she can just eventually sell out her equity or keep it and act as an advisor. I believe I have some good ideas for the company but need a mentor as far as how to run and navigate an online venture. (Im not totally dumb when it comes to technology and internet, but im not comfortable enough to run a dot com on my own either). Does this sound like a terrible deal for her?
    p.s I know you will probably want to see the company but I want some feedback first.
     
  2. Fergal

    Fergal
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    That sounds like an interesting opportunity Marcionette_t. It would be very helpful if the founder of the company could continue to work on the business part time and provide you with the technical and Internet support that you would need to keep the business successful.

    I've seen website businesses sell for ten times their monthly profit, although some of them sell for more. It would be worth your while having a look at http://flippa.com (a marketplace for website sales) to see what similar websites might be selling for and to look at other sites that you might consider investing in. Doing some research like that will give you a stronger knowledge as to what the business is worth and will put you in a much better negotiating position.

    Good luck with it!
     
  3. Tecknowoman

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    Ah Fergal you beat me to it! Flippa.com is absolutely the place to look. Internet businesses sell for 10-11 times their monthly income (as a rough guide).

    To be worth anything her online business needs to be making sales and the pricing should be based on those sales. As with anything the business is not worth it's potential but its actual current worth. You are worth your potential.

    I was thinking you were being extraordinarily generous in equity depending on where she has managed to build the business. I have seen both sides of this where the original owner is a great help and also where the original owner is the biggest limitation and their equity often allows them to be. I would want to know a great deal about the worth and functioning of her business and her "contol" aspects or potential issues before offering anything more than a sale price.

    Maybe an equity offer is something that could be had up the sleeve when you've investigated and know that it would be a sound business decision for you to offer it. That way you have wriggle room in your negotiations and a second offer to be able to place on the table.
     
  4. Marcionette_t

    Marcionette_t
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    Thanks for the great advice and website. I took a fairly good look at her site and she does have a fairly good amount of business paying to be on her site, but she is charging them a yearly rate and I believe getting no percentage of sales. So from what I can see the way she has her business set up it will have diminishing returns and not much room for further expansion. When I said I would give her an option of keeping equity I meant that she could keep equity in her business and I would manage it but at no cost to me. I would essentialy be paying her in my services not in a dollar amount.
     
  5. crivion

    crivion
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    Depending on the website stability, age and income proofs you can pay starting from 3x up to 24x revenue.
    I would definitely just put up a question like "would you be interested in a 50% - 50% share?"
    If says no, it means the business it's not that shiny in terms of income or potential
     
  6. Fergal

    Fergal
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    That's a clever idea and something that might be appealing to the owner, if you can convince her that you have the skills and expertise required to successfully manage and promote the business. Have you had any discussions with her yet, how are they going?
     
  7. businessamateur

    businessamateur
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    I agree with what Fergal is saying. The only problem might be that if the current owner is selling due to health reasons, she might not be able to contribute any time after her business is sold.

    If I were in this situation, I would definitely ask if she would be willing to help out to ensure that I would not end up losing money.

    This is one of those things that you got to make a judgment on yourself after looking at all the variables.
     
  8. Marcionette_t

    Marcionette_t
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    We have been talking some through email but I have not discussed a proposal or anything in depth about the business. We are supposed to be meeting later this week for lunch to go more in depth about the company and our questions/concerns so I will know more shortly.
     
  9. Fergal

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    Thanks for the update Marcionette_t. Please post back once you've had your meeting or in the meantime, if you have any questions. Good luck with it.
     

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