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5 Ways For Startups To Succeed Making Acquisitions

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After catching up with Marcus Lim of Oneflare it has become very apparent that startups need to take a leaf out of their book and become bolder. To demonstrate that boldness, Oneflare has just completed its second acquisition of an Australian company called WOMO, after acquiring Renovate Forum last year. WOMO is Australia’s largest online review website and has over 422,000 reviews. Given that both Oneflare and WOMO target the local services market, this is a great match. To see a startup making these bold moves is very impressive and shows that they understand the power of cash flow and scaling quickly.

Australia is very lucky as we have been the market leader for these types of marketplace businesses and have had success stories such as Carsales, Envato / ThemeForest, Seek and 99 designs.

Oneflare is another startup to join the online marketplace niche, and they connect customers and service providers together that span across over 250 categories. They then send that request out to all the businesses that are relevant to that category. A customer can then hire a person to complete that service based on price and reputation. Their vision is to be the most trusted source for local services, and they do this by checking details about their service providers such as ABN, insurances and licensing. In order to be successful at local services online, Oneflare realised that trust was much more important to their clients than the price – WOMO really helps complete this circle of trust nicely.

Their vision is to be the most trusted source for local services, and they do this by checking details about their service providers such as ABN, insurances and licensing. In order to be successful at local services online, Oneflare realised that trust was much more important to their clients than the price – WOMO really helps complete this circle of trust nicely.

Their revenue model for an online marketplace is unique and rather than charging for a successful job, they charge based on a monthly subscription that gives the service provider a specified number of leads. Charging by the job can be tricky because people can go outside of the platform to avoid paying service fee’s.

A lot of startups overlook acquisitions because they don’t have the capital, and it’s an area of unknown to them because they have never acquired a business before.

Marcus is going to share with us 5 ways for startups to succeed with acquisitions.

 

1. Find your target

Once you have decided that you want to look at an acquisition Marcus says that the best thing to do is pick up the phone to some founders of potential businesses that you’re interested in and see where they stand. A lot of success with this comes down to whether the founders of these prospective companies are motivated to sell.

When you’re looking for targeted companies to acquire, consider things like market fit, a big user base, strong traction, immediate income accretion with a positive EBITDA (the business makes a profit), unique content and a strong business model that’s been around for a few years.

Startups TargetAlso, look at what opportunities might exist if you acquire your target. Is there something that the target company you are looking at doesn’t do so well, where you can add value? In Marcus’s case, when they acquired Renovate Forum, the previous owner was not that tech savvy, so they had an instant opportunity to use their expertise in page optimisation, to adjust the position of the ads on the page, so that good content was not being deprioritised over ads. Googles algorithms picked up this change, and they began to see an increase of 30% in traffic.

The other tip to remember when you are talking with a target company for acquisition is that founders are typically emotionally attached to their company; it’s like their baby. In order for them to be comfortable to sell it to you, you need to show them that their business will have a good home with you, you will help grow their baby, take care of their baby and both businesses will be a perfect match.

Finally, make sure the target company aligns with the vision of your startup and don’t give up too quickly when looking for the ideal acquisition. Marcus had looked at 3 or 4 before he decided which one to go for.

 

2. Think about how you are going to fund your acquisitions

Oneflare have raised $1.5 million to date and have a strong cash flow position because they bill monthly and annually in advance. This excess cash has allowed them to save up and look for strategic acquisitions. The beauty of a strong cash flow is that they haven’t had to raise a lot of cash and thus been able to retain more equity amongst the founders.

Trying to raise money from private equity and venture capital to fund acquisitions is really difficult to do. The reason for this is because it’s very hard to know how much the acquisition is going to cost.

 

3. Scale is important

In order to scale quickly, Marcus said that acquisitions were the quickest way for them to do that. There were incumbents coming into their space, and the local service marketplace was very hot. By being able to make two acquisitions, they could build traction and users a lot quicker. With your startup, think about what your plan is and whether just building users in your niche is enough or whether and acquisition into a similar niche could be of value to you.

 

4. Understand whether you are going to acquire assets of a business or the business itself

In Oneflares case, they had made an acquisition last year of the Renovate Forum, and they brought the user base, the site and the traction, not the actual business itself. When you’re making these types of decisions, you need to look at whether the talent of the company is something that you’re interested in. One thing that is popular in the USA right now is acqui-hiring, which is the process of acquiring a company for its talent rather than assets or user base. If you were keen on the talent of a company, then you would probably be more likely to buy the whole company, not just the assets. If you have an acquisition in mind where the product is specialised, then you would want to try and keep the founders on as employees for as long as you can.

If you have an acquisition in mind where the product is specialised, then you would want to try and keep the founders on as employees for as long as you can.

“When you buy an asset you are not exposed to any outstanding liabilities of the old business, and you are also not responsible for the staff and their employment contracts”

 

5. Understand the process of negotiation and get good at it

When a company is for sale, the first thing you do is read through the information memorandum (investment summary, financials) and decide how much the business is worth to you. From here it’s time to get the boxing gloves on and go round for round in negotiating the final price. Ideally at this stage you hope there is no competitive tension (the opposite of Let’s Pop’s sale story) and that you’re the only bidder.

Startups mergers-acquisitionsIt’s always best to start at a price that is a value buy for you, and then the seller will usually come back with a higher price, and eventually you will probably meet in the middle. If the founders of the business are throwing out crazy numbers, then you need to come equipped with examples of similar types of acquisitions that have already been publicised. Your ability to present similar cases, in a simple form, will help you get the price you want. Oneflare used examples like when Yelp brought Qype and when Zomato brought Urbanspoon as Qype and Urbanspoon are both online review directories that are competitors to WOMO

Your ability to present similar cases, in a simple form, will help you get the price you want. Oneflare used examples like when Yelp brought Qype and when Zomato brought Urbanspoon as Qype and Urbanspoon are both online review directories that are competitors to WOMO

Once you reach the agreed price, you then sign a term sheet (a non-binding, indicative offer) where you need to work out payment terms. The payment terms Oneflare agreed on were two payments (industry standard), one payment up front and a second payment in 6 months from the acquisition. Out of these two payments, the first payment would usually be a lot larger than the second one

For Marcus, the due diligence took 4 weeks and they were really clever and used a checklist from when they were raising funds and had due diligence done on their company, as well as adding a few extra things.

After completing due diligence, it’s time to sign a SPA (Sales Purchase Agreement) which outlines the earn-out period, the payment terms and the final purchase price. As part of the SPA, there’s a warranty section that says that all the information they have given to you is correct, and they don’t have any outstanding liabilities. If later on something wasn’t disclosed then part or all of the second payment could be used to cover that liability. The only time this gets dangerous is if the loss from the liability is greater than the second payment you owe the founders. Once the SPA is signed, then it’s time to transfer the money for the sale.

If your startup has not made acquisitions before then, you need someone who has done this process. For Marcus, he hired a Commercial Director (Howard Leibman) who had a lot of experience, so he could guide them through the different stages.

 

Some books that helped Marcus with his startup journey were “How Google Works,” and “Good to Great”.

Marcus Lim / Founder of Oneflare

Marcus Lim / Founder of Oneflare

If you would like to know more about any of Marcus’s businesses, then you can visit Oneflare, WOMO or Renovateforum to find out more

Tim is best known as a long-time contributor on Addicted2Success. Tim's content has been shared millions of times and he has written multiple viral posts all around personal development and entrepreneurship.You can connect with Tim through his website www.timdenning.net

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2 Comments

2 Comments

  1. ABDULLAHI

    Mar 26, 2015 at 2:18 pm

    That was a good points

    • Tim Denning

      Mar 27, 2015 at 7:05 pm

      Thanks Abdullah

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Startups

The Problem Is Not Your Website Or Your Product.

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spend a lot of my time talking to business owners. They focus on their product, their marketing channels and trying to make more profit.

I met one such business owner who was in the plastic surgery business. Their product (boob jobs and nose jobs) was not working. Their website sucked and people clicked off as soon as they visited it.

People would call their office, get put on hold, listen to the on hold message and hang up.

This business didn’t seem all that special. I’ve talked to many businesses and didn’t think for a microsecond that a plastic surgery clinic could ever teach me anything valuable.

I’ve been to Hollywood on holidays and the issues of body image are all too apparent to me. Anyway, this post is not about body image.

I ended up losing this business as a customer — not that I would ever have sold anything to them if it were up to me. I sat down one afternoon and thought about why we no longer did business with them.

That’s when I realized it’s not about your product or your website. All the issues with this plastic surgery clinic and a lot of other businesses I’ve dealt with stem from one thing. Let me explain in more detail.


Your Google Reviews say you’re an piece of work.

I looked up their Google Reviews and their customers said they were assholes.

They spoke down to clients, they didn’t deliver their clients what they wanted, they argued with their staff in front of customers and they treated people like they were nothing more than a dollar sign.

All I had to do was read their Google reviews to see that the problem wasn’t their product or their website.


Your clients tell you every day that you suck.

I asked the plastic surgery what their clients said.

Many of their clients told them that their services sucked and they would prefer to go to places like Thailand where they could get a better product at a much lower price.

The business owner made the mistake of thinking it was their product that was the problem and that a new website will tell clients a different message.

That wasn’t it.


You abuse your staff and they consistently leave.

I spoke with many staff that worked for this business.

Every single one of them hated the company and were not afraid to say what they thought of the business owner.

The business owner would sit outside on a nice sunny day and look across the street at all the yachts and the people boarding them.

They’d sit there and think that every lead they got was going to take them one step closer to owning their very own yacht.

“If only I could deliver more boob jobs, maybe I could have one of those,” they thought quietly to themselves hoping that no one else could hear how ridiculous this sounded.

I can remember multiple times being on the phone to the business owner and having one of their staff burst into tears halfway through the call.

The first time it happened I didn’t think much. After the third time, I got the message. During the short time I dealt with this business, people consistently left. If you made it to the six-month mark, you were some sort of hero and would probably be given a free surgery to say thank you for your work and make you feel worse about your own body at the same time.

It was free noses and boobs in return for daily abuse.

The problem still wasn’t the website all the product.


You don’t solve real problems; you solve your own problem.

A good business solves a problem.

That problem typically affects human beings and solving it is how you make money in business. Solving problems can start out with a problem that affects you, but at some point, you’ve got to start solving that same problem for other people/businesses.

This owner of this plastic surgery clinic was only trying to solve their own problem which was making more money to buy fancy items like yachts.

Only solving your own problem is not just selfish but bad business.

Good business is solving a big problem or lots of small problems for entire strangers who you don’t know thus doing something valuable for the human race.

Solving only your problem will make you poor.

The problem still wasn’t their website or product.


Creating more problems.

Everything this business owner sold created more problems.

They’d film videos to purposely make people feel like their body wasn’t perfect.

They’d write articles suggesting that everyone needs botox to feel young.

They’d take photos of men and women who were supposed to be perfect so that young people would dream of looking like them.

Not only was their business not solving a real problem; it was also creating more problems every day that it existed.

If your business creates more problems than it solves, you’re in real trouble.You need to take a long hard look at the business and become obsessed with doing everything you can to change it — and do so damn fast to limit the whirlwind of problems you’re creating behind you.


The heart of the problem.

It’s the business owner.

The business I mentioned will fail. That part is certain. The problem with the business is not the website or the product.

The problem is the business has no heart because the business owner has no heart.

You cannot focus on your own selfish desires, create really bad problems in the world, treat other human beings like garbage and expect to go buy a yacht and live happily ever after. It just doesn’t happen like that.

Whether you are a plastic surgery clinic like the one I described or a solo entrepreneur, the problem with your business is you.

Fix the problem of YOU. You can’t get away with being horrible forever.
Being horrible is bad business.

Being respectful, kind and valuable is the final answer to the problem with your business.

<<<>>>

If you want to increase your productivity and learn some more valuable life hacks, then join my private mailing list on timdenning.net

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Entrepreneurs

18 Must Read Business Books for Emerging Entrepreneurs and Startups

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business books

Reading is both relaxation and training for the mind. Who reads, dives into another world. Learning, entertaining and breaking out of everyday life for a short moment. One could go even so far as to say reading is the second most beautiful thing in the world! Whether it is non-fiction or a novel of all the world’s man has created, the book is the most powerful tool. That is also, why we wanted to find out which business book you should undertake in the new year. (more…)

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Startups

Everyone Wants Sales Leads But No One Wants To Sell

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Sales leads are the lifeblood of any business.

Without leads, your business doesn’t make money. That’s why many businesses treat leads like the most valuable resource in existence. Leads are a topic that never goes away and you can never have enough.

Sales leads are the cause of so many disputes in business.

We have it all wrong, though.

Having something to sell is the real answer.


Knowing what you’re selling.

Many companies don’t know what they are selling.

They think they’re selling products or services that magically turn into revenue and light up your accounting software with lots of green, shiny graphs.

Until you know what you’re selling, sales leads won’t help. Getting more sales leads, increasing your Adwords spend, buying more Facebook ads, doing more networking events, printing more t-shirts and producing more ‘content’ for your blog will not help.

You’re not getting enough leads or closing the leads you have because you’re not sure what you’re selling.


Are you selling to humans?

Go and Google ten company websites. Pick any ten.

You’ll notice one thing: more than half the websites don’t sound like they are selling to humans.

There’s no human language, very little content created by the people that work at the company, zero compassion and not a lot of humility.

Most websites are designed to sell to robots that can’t stop looking at their smartphone. That’s not us. We’re human despite our phones changing the way we live.

Humans look for thoughtful businesses.
Humans look for solutions to problems that are not being solved.
Humans like a business to stand for something human.


How you sell matters.

Selling like you’re in the office with The Wolf Of Wall Street Jordan Belfort will not help you sell.

How you sell matters just as much as what you sell.

The process you put a client through has to be simple, thoughtful and in their best interests (not yours).

That last point is crucial. Many businesses exist to serve the board or shareholders, but they do very little to help people like you and I live a better life and do our best work.

The values of your company and what you stand for effect the leads. Before anyone ever becomes a lead in your sales funnel they are a person or a group of persons (a business) with a problem.

Many people never make it into your sales funnel because how you sell what you do is wrong.

Paying for more leads is not nearly as powerful as changing how you sell to the leads you have.


Loving the people who do the selling.

Leads are only half the puzzle.

The bigger question is who is selling to the leads? Does your business treat those people who call your leads well? Do the people who call your leads even care or are they after nothing more than a pay cheque?

These are the unanswered questions that get lost in conversations about why your business needs more leads.

More leads won’t help if your salespeople burn them or don’t know how to convert each lead into a customer that becomes a raving fan and introduces more people (leads) for free.


Treat one lead really well.

I had a sales guy that used to work for me. He treated one lead in Queensland, Australia really well. He spoke to him every day. He knew a lot about the persons family. He even went to the leads barbecue.

That lead was so impressed that he referred several hundred (that we could track) leads to our business. Treating one lead really well is far more powerful than buying more leads who don’t care about what you do.

Digital marketing has become a drug that every business thinks they need.

If only the business world knew the power of one lead.


The good cause factor.

Your business may do something simple like mow lawns.

That may not sound like a life-changing business that can take this lead advice I’m giving onboard. “My business is simple,” you say to me.

Well, I’d challenge that. Any business can have what I call the ‘Good Cause Factor.”

Let be give you an example. The local butcher down the road from me has a BBQ every Saturday afternoon where they invite the community to come and eat some food for free. Everyone is welcome including the few homeless people in the area that never buy any meat from their business.

People stand out the front of that butcher and talk about things that are happening in the community. This Saturday ritual has become a place where business ideas have flourished, homeless issues have been discussed and people who were lonely and possibly suicidal, decided to live for a bit longer.

The last part is the most interesting. In my community here in suburban Melbourne, there is a large group of people that suffer from mental illness. When I went through my own battle with mental illness, I went to the local town hall where people gathered who suffered from the same condition.

It was that event every Wednesday that helped me become a different person.The loneliness and the isolation I felt were cured by the simple act of connecting with other people and having the guts to talk about the demons I was facing.

These same people go to our local butcher on Saturday and eat at the free BBQ. The butcher is thoughtful and they know that they are doing something far more important than selling meat; they’re selling connection to the community, and a possible solution for isolation and loneliness that leads to mental illness.

So back to the point of this post, the community butcher is selling a good cause — an X Factor as some people would call it.

What your business does with its resources to help a worthy cause that affects humans like you and I is just as important as sales funnels, lead generation and your product roadmap.

Link your business to a worthy cause no matter how simple it is.


Lead quality.

I lose my mind when people talk about lead quality.

The quality of leads comes down to the quality of people talking to those leads and what you have to offerEven the coldest lead can buy from you if you know how to find their problem — which they may not know they have — and use your product or service to enhance their life.

Quality of leads is a myth. All leads are equal.

No matter what stage of the sales funnel someone is in, they can be converted by the right business, with the right message and the right intentions to serve rather than take.


More leads are not the answer.

I know you want more leads. We all do.

I’m telling you to think much wider and deeper than that. If all we had to do was get more leads and we’d become the next Bill Gates, we’d be all billionaires.

I could go and set up a business that does nothing more than generate leads and call my business the ‘Billionaire Factory.’ One, two, lead, wham, bam and now you’re rich.

Refine your business down to helping one lead.
Make that lead believe in you.

Rinse, repeat.

<<<>>>

If you want to increase your productivity and learn some more valuable life hacks, then join my private mailing list on timdenning.net

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Startups

5 Digital Marketing Habits Geared for Success in 2019

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digital marketing

The digital marketing landscape is in constant flux. New social platforms are born daily, while others fizzle out, and search engine algorithms are updated hundreds of times a year. What worked last year may not work this year. The reasons you need a digital marketing strategy remain similar each year, but to be successful in 2019, you should practice the 5 digital marketing habits below. (more…)

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