{"id":4287,"date":"2020-03-12T15:00:42","date_gmt":"2020-03-12T05:00:42","guid":{"rendered":"https:\/\/flippa.com\/blog\/8-things-i-wish-i-knew-before-my-first-acquisition\/"},"modified":"2026-01-16T17:16:00","modified_gmt":"2026-01-16T07:16:00","slug":"8-things-i-wish-i-knew-before-my-first-acquisition","status":"publish","type":"post","link":"https:\/\/flippa.com\/blog\/8-things-i-wish-i-knew-before-my-first-acquisition\/","title":{"rendered":"8 Things I Wish I Knew Before My First Acquisition"},"content":{"rendered":"

In Stephen Schwarzman’s book, <\/span>What It Takes<\/span><\/i>, he remarks that \u201c<\/span>it takes the same amount of effort to do something big, as it does to do something small.<\/span><\/i>\u201d This was his impetus for starting Blackstone in 1985, now one of the world\u2019s largest private equity funds.<\/span><\/p>\n

While this may be true, I personally recommend first-time buying entrepreneurs start small. Yes, the effort to succeed may be the same, but the advantage to starting small is limiting your downside. This means you get to learn the skills you need with low risk, then can \u201cpromote\u201d yourself to a larger venture.<\/span><\/p>\n

I’ve been following that advice since 2016, but had I known even more, my success would have been even greater. Here are 8 things I wish I knew myself when I was starting out.<\/span><\/p>\n

\"customer<\/p>\n

Support is 24\/7<\/strong><\/h2>\n

We\u2019ve all been there. You\u2019re analyzing a project, doing some pre-offer diligence, and in the sales materials the seller explains that there are \u201cvery little support requirements.\u201d Perhaps they claim just a few tickets per week, or a few hours per month, is spent on customer service.<\/span><\/p>\n

While this may be true tactically, the reality is you have to be available 24\/7 to actually deliver the support. In today\u2019s highly competitive landscape, you cannot \u201cbatch\u201d support requests on a 1x or 2x \/month schedule, simply because that\u2019s more convenient for you.<\/span><\/p>\n

Customers expect prompt replies, regardless of how big your company is, or how many resources (employees, debugging tools, error loggers) you have to service them.<\/span><\/p>\n

The mental overhead of being \u201calways-on,\u201d even if just to receive 2 emails or phone calls per week, is a much greater cost than the moments you spend corresponding with customers.<\/span><\/p>\n

Every product has bugs<\/b><\/h2>\n

Suppose you buy a product or website with \u201cno updates in months.\u201d This is a common selling proposition, to imply that the business is stable and will require little maintenance.<\/span><\/p>\n

Even then, customers will still <\/span>insist<\/span><\/i> something isn\u2019t working correctly. Thus you\u2019ll\u00a0 still spend a lot of time debugging user error, resetting customer expectations, and apologizing.<\/span><\/p>\n

Sometimes, products with no updates in months can actually pose more of a <\/span>liability<\/span><\/i>, as we found out when purchasing <\/span>Lobiloo.com<\/span>. The previous developers hadn\u2019t changed the code for 2 years, which did imply few bugs. But when we wanted to add a simple new feature, this took a couple weeks in \u201cdependency upgrade hell,\u201d wherein we had to change a lot of code just to deploy a simple update.<\/span><\/p>\n

\"a<\/p>\n

You cannot A\/B test your way to success<\/b><\/h2>\n

The following advice applies to those of us buying <\/span>small<\/span><\/i> companies, which i consider anything under $1mm annual revenue.<\/span><\/p>\n

Let\u2019s do some math. For statistical significance, determining a \u2018winner\u2019 A\/B test requires 100 – 1,000 conversions on <\/span>each variant of your test<\/span><\/i>. For small companies, this means you might spend 2-3 months running a single test. Yet, in the meantime you\u2019ll be making dozens of other changes, which makes your test results useless.<\/span><\/p>\n

What the selling founder often has, that you may not have, is unique market insights. Either from experiences leading up to their creation of this product, or simply the grunt work of building it over months and years. As a new owner, you will be working with less information than the seller, yet you will be expected to make <\/span>better<\/span><\/i> decisions.<\/span><\/p>\n

Therefore, tactical knowledge of marketing tools isn\u2019t enough to claim you will have a better shot at growth than the previous seller. Fundamentally you need to understand the intersection of human behavior and analytics. If the selling founder was already an expert in these areas, you may struggle to produce outsized returns.<\/span><\/p>\n

At Fork Equity, our portfolio is a mix of products in which we already have special insights (B2B <> marketing tech <> eCommerce), as well as products with little up-front knowledge. To combat our ignorance, part of our post-acquisition checklist is to perform SWOT analysis on the market and create a 90 day marketing plan to prevent inertia and scale up quickly.<\/span><\/p>\n

Talent doesn\u2019t care how big your company is<\/b><\/h2>\n

As a founder with skin in the game, it\u2019s easy to associate \u201cless revenue\u201d with \u201cless compensation.\u201d After all, you are likely working the most hours, for the least pay, in the early stages of your company.\u00a0<\/span><\/p>\n

But talent doesn\u2019t care how much money you make. A good marketer costs X. A good developer costs Y. You can try to mitigate this with significant equity stakes, but that often doesn\u2019t work.<\/span><\/p>\n

Why? Because the talent willing to be paid in equity is usually not the talent you want leading things after the company grows. Further, using lower quality talent in the beginning stages of your project means you\u2019ll likely experience technical debt. Later, a more expensive developer will have to fix this, cancelling out your seemingly capital-efficient savings. A year later you now have less equity and less cash, in exchange for the illusion of progress on Day 1.<\/span><\/p>\n

To be clear, this is not an argument for hiring expensive talent. Instead it is a recommendation to learn to do as much as you can yourself. Simply put, you need 1:1 time with the company to understand which skills even matter. What if you hire a great copywriter, but it turns out that advertising isn\u2019t profitable? What if you hire a content writer, but your site has no chance of ranking in search? What if you hire a senior engineer, but all you need is a decent designer to improve the look and feel?<\/span><\/p>\n

Learning to code, learning how to write, and learning how to manage developers are all high ROI skills that you can begin developing today, before you even purchase your first company. Then when the time comes, you\u2019ll maintain higher margins and more freedom.<\/span><\/p>\n

Whether you pursue these skills through an online college<\/a>, coding bootcamps, or self-directed learning, the key is to start building your technical and business foundation now. The knowledge you gain will directly translate into better decision-making and cost savings when you eventually acquire your first business.”<\/span><\/p>\n

Competition doesn\u2019t care about your lifestyle business<\/b><\/h2>\n

Many of us get into micro PE because we believe in the power of <\/span>niche<\/span><\/i>.\u00a0<\/span><\/p>\n

This is a real phenomenon: small businesses that solve hard problems for a group of people enthusiastic enough to pay for it. But even in the bleeding edge niche markets there are competitors. And some of them have a lot more resources than you do.<\/span><\/p>\n

So, in case you\u2019re tempted to buy a nice little business, \u201csit on it\u201d until you hit the payback period, then make it a \u201ccash cow\u201d after hitting breakeven\u2026 from my experience buying ~10 companies, it never works exactly like that.<\/span><\/p>\n

The truth is, a competitor is always trying to eat your lunch. They will ship superior features, find and email your customers an enticing incentive to switch over, and throw in better pricing to boot.<\/span><\/p>\n

Buying a small company —\u00a0 even in a \u201cboring\u201d niche — means entering an arena. You better be ready to fight.<\/span><\/p>\n

All marketing channels have scale limitations<\/b><\/h2>\n

I\u2019m personally attracted to companies that grow via inbound search. But even if a project we acquire ranks #1, #2, and #3 in search, there are only so many queries per month for our ideal terms.<\/span><\/p>\n

If the selling founder already \u201cmaxed out\u201d a couple marketing channels, you need to find new channels quickly in order to hit your payback period and enjoy ROI.<\/span><\/p>\n

To do this, learn as much as you can from the seller about \u201cwhat they tried\u201d in terms of customer acquisition. Also acknowledge that you\u2019ll need to budget additional capital to find new growth channels. In other words, the previous seller\u2019s margins may be a lot higher than yours, because they settled into a status quo.<\/span><\/p>\n

In our experience, we increase costs after acquisitions, not decrease them. At least for a few months. We anticipate this \u201cpain in the butt\u201d expense as our entry ticket to the market. <\/span>To go 2 steps forward, we often must take 1 step backward.<\/span><\/i><\/p>\n

\"tow<\/p>\n

Smaller companies don\u2019t have smaller fires<\/b><\/h2>\n

You may think nothing could go horribly wrong with \u201cjust\u201d a small content site or SaaS application. False.<\/span><\/p>\n

Server crashes, major dips in search rank, and even security breaches can happen at any stage. And customers, whether you have 1 or 1,000 of them, will be just as upset if they are paying $5 per month or $500.<\/span><\/p>\n

Buying a small company that provides a simple or inexpensive service does not give you lenience to provide lower quality service or support.<\/span><\/p>\n

No real business can be fully automated<\/b><\/h2>\n

Two of our portfolio companies, <\/span>Fomo.com<\/span> and <\/span>Cross Sell<\/span><\/a>, each receive 100’s of support tickets per month. Despite 300+ wiki and knowledge base articles, video guides, highly iterated UI\/UX improvements, and a robust admin panel for our support team, we still observe edge cases.<\/span><\/p>\n

A few examples:<\/span><\/p>\n