I have had a number of sellers ask me if it’s possible to sell an internet business when they are the face of that company’s brand. The answer is yes, but it does require a specific approach, a unique buyer, some special considerations and there may be an impact to valuation.
73% of businesses in the US are sole proprietors. These are made up of consultants, accountants, lawyers, advisors, contractors, caterers, writers, housecleaners, tutors, designers, and thousands of other industry types, typically managed by one single person. They could have some staff (often on contract) but these businesses are typically small in operation.
And often the entrepreneur becomes a large part of the value of the brand. Their expertise, knowledge and previous successes have helped to propel the business to where it is today.
So how can an entrepreneur who represents the business extract themselves so the business can be sold? What can this seller do to help ease a buyer’s concerns and help transition the seller’s value with the business?
Expect a Long Transition Plan
Different businesses have different requirements for transition. A dropshipping site can be transitioned in a few hours. A content site may take a day or two. An ecommerce business with inventory may take a month or so. But a service business where the owner is the sales lead, the operational manager and the final product, can take a long time to transition.
Brand
First off, it’s going to take time to transfer the brand of the business off of the owner and onto the new buyer.
If the site does not use the owner’s name in the domain, then the focus should be on changing up the existing site’s content to remove images of the seller. This can be done in one shot or little by little over time. The seller’s images should be replaced by stock photos so the buyer doesn’t go through this same issue when they want to sell. The story on the “About Us” page should be morphed to be less seller focused.
If videos exist of the seller, consider having them redone and co-presented by the seller and the buyer to help “transfer” the perception of expertise over to the buyer. If that’s not possible (say the video is of a training session that took place a year ago) consider editing the video by having the buyer create an introduction. This makes the business look like it’s run by a team, the seller and the buyer.
If the vocabulary on the site, emails, marketing videos, etc uses first person language of “I” and the owner’s name, start changing it to “we”, “our”, and “us”. The company needs to be seen as a unit larger than one person.
If the business (and url) is actually named after the seller, then it may be best to create a new url and forward the traffic there. Have a popup for users explaining that the site has a new home so users understand they are in the right place. Try to keep the color scheme and general look of the site similar to help with user transition if the site has many return users.
Sales
Any buyer that is interested in purchasing the business will obviously want sales and operations to continue to run smoothly post acquisition.
The seller of an internet sole-proprietorship or online based small service business is going to be the driving force of most sales. It is important therefore, that the seller stay engaged to help convert prospects into customers. Slowly introduce the buyer into those sales calls to help with the transition.
As the buyer understands the business better and can represent the brand themselves, then the seller can slowly disappear from the process.
Operations
If the seller is the key individual that delivers the service, then it’s important that they keep doing that for some time. There is nothing worse for a new customer to feel they’ve received the old “bait and switch”. The customer expects the service from the seller and the seller should be the one delivering.
Having said that, the buyer should be engaged on each of these activities in order to learn and understand how the operations work. If the service is a long term program (like a training or consulting course) then the buyer can be introduced during the process and the seller can slowly be blend out. But it must be done in a way where the customer feels supported and not tricked.
Which leads us to…
Create detailed Standard Operational Procedures (SOPs)
As a seller you should expect that detailed SOPs will be requested by all potential buyers. Explaining your operations, both in written form and video form is a must have. Don’t wait for the buyer or your broker to ask you to create them. Just get them done upfront. This shows preparedness and will put buyers at ease and help you close a deal faster.
Standard Operating Procedures should cover all aspects of operations: how you deliver your service, how you manage customer issues, how you input sales leads, how you close business, how you price your services, how you pay your contractors, how you work with partners, etc.
Transitioning other assets
With most internet-based businesses, a sale typically includes multiple assets like social media accounts, email lists, Facebook groups, joint venture relationships, employee relationships etc. Each of these needs to be considered carefully.
A joint venture partner may not be willing to continue the relationship if the seller is no longer part of the equation. So, it’s imperative to introduce the buyer as a partner in the business and have a long transition where the seller can slowly extract themselves. Obviously the JV needs to be made aware of the sale but it should be done in a controlled way.
Employees and contracts may have come on board because they wanted to learn from the seller or wanted to be tied to their network. Introduce the buyer as a member of the team and making changes over a long period of time will allow the employees to get comfortable with the buyer.
Emails, newsletters and general communication to the customer and prospect base should be done with care. An introduction of the buyer as a new member of the team responsible for customer communication can be an affective approach. Emails and newsletters should have content from both the seller and buyer to help show the buyer’s expertise and value. Emails should be worded as “We” and not “I”.
Social media can be simple or hard depending on the account. Posting images on Pinterest and Instagram is relatively simple to transition. Video on YouTube and Tiktok is a bit trickier. Videos can have both the seller and buyer co-presenting, or alternating content from one and then the other to help transition ownership smoothly.
The goal in all of this is to ease the buyer into the messaging and content so the authority and trust owned by the seller is inferred onto the buyer.
Look for a strategic buyer
Naturally, selling a business where you are the brand will limit your pool of buyers. First off, as a sole-proprietor, your business is probably predicated on some unique skillset. Designers have a keen eye, caterers can cook, contractors can whirl a hammer and consultant have some niche expertise.
To make the transition simpler for everyone, look for a strategic buyer that already has the skills or some unique attributes that will lessen the learning curve.
One individual I’ve worked with has an online training and consulting program and was the face of the business for years. When he decided to sell, the ideal buyer was one of his previous students. The individual was already trained, believed in the topic and as a previous student had seen the value of the business. He had ideas on how it could be improved and expanded. The transition was simple and smooth.
Look at your current network. Can one of your competitors be an ideal buyer? Can one of your students take over? Do you have a virtual assistant or employee that would be willing to take the business from you?
Impact to business valuations
Like anything, the value of a business is based on supply and demand. A business that is limited to a specific niche, skill or buyer type will most likely attract less buyers and may command a lower multiple.
However, a seller can offset some of the devaluation by providing additional value:
1. Offer a 1-year transition timeframe
Sellers will ask for a long transition anyway so why not offer it up immediately. When putting a prospectus together and putting the business up for sale, stating (and highlighting) upfront that the seller is willing to stay on for 6-months to a year to help ensure the success of the business is a huge incentive.
It provides peace of mind to a buyer and lets the buyer know you’re aware that this is a unique situation and you want to see the business thrive.
2. Offer an ongoing consultation (for a price)
Some buyers will get it faster than others. Offering the buyer an option to hire you back as a consultant to take care of any specific part of the business (driving sales, running training, managing client issues, etc) also offers the buyer a sense of risk-mitigation.
It is fair for a seller to charge for their services on an hourly rate.
3. Offer strong seller financing options
Your target buyer may be an employee, a friend, a competitor or a customer and these individuals just may not have the means to make an upfront purchase or qualify for financing. You don’t want to eliminate anyone from a small buyer pool.
Offering seller financing can be a great way to help land a buyer. Financing can come in different forms:
- A 0% loan for a certain amount of the selling price.
- An earn-out where payments are made based on a percentage of the profit that the business makes.
- Offer to sell only a portion of equity and retain some of the business for yourself. And then offer an option for the buyer to purchase the remaining equity later at a predetermined price.
- Try a rent-to-own program. The buyer operates the business and pays for the business over a longer period of time through monthly payments. Although you as the seller have to wait for your money, there can be some substantial tax advantages going this way.
4. Offer a performance guarantee
If you are really struggling to sell your business, you can offer a guarantee that if revenue drops below a certain amount within the first 12 months, that you will offer a discount to match the profit gap with what was expected or agreed upon. This is not common but it can offer up a sense of added security for reluctant buyers.
5. Create competition
Look for as many buyers as possible to try to get some competition going. It’s always easier to sell a house when there are many prospective buyers at the open house. So, market the business heavily to drive up demand and make sure that people comment on your listing and drive up traffic to your site when they check it out.
All this activity will increase the allure of the business. If the price is reasonable, you should be able to get some competing offers (depending on the type of market we’re in).
A seller broker can be critical in helping to market the business to a large network of qualified buyers.
Conclusion
Although selling a business that is heavily tied to the owner may be a bit more difficult than a completely independent business, any business can be sold. It’s a matter of being planful and have the seller put themselves in the mind of the buyer.
Once you help alleviate the buyer’s concerns and transfer your expertise and brand to them, you’ll be able to negotiate a fair price for your acquisition and see your business flourish under new management.
If you’ve been successful in transitioning your personal branded business, we’d love to hear your story. Drop us a note at laurent@madxcapital.com