Buying online is easy, but selling online is hard. What’s even harder is constantly evolving your brand to keep up with the rapid pace of change in ecommerce. It’s easy for brands to build operational debt over time and become over leveraged, ultimately backing their business into a corner and left with hard decisions.
Whether or not you’re interested in selling your brand one day, understanding your operations, differentiators, and data is critical to running a clean business that makes it simple to enter into an M&A process when/if you’re ready.
We’ve outlined 7 components to building a great business that will set you up for success today and make continued growth easier.
Have a strategy
A lot of brand strategy we see is blowing in the wind: a reactionary process that is looking just one step ahead. Often the entire brand can be a reaction to a perceived opportunity with no long-term strategy.
On the contrary, a sound strategy allows brands to connect deeper with their customers resulting in increased sales and a lower cost of acquisition. It also allows brands to look farther ahead, remain focused, and avoid short-term mistakes. Finally, a strong strategy provides a valuable heuristic to ask yourself, “Does this align with our brand’s goals?”
What does a good brand strategy look like?
First, define your brand.
- What is your brand's purpose?
- What sets you apart from other brands in your category?
- What are your mission and values?
- How do you present your brand through text and imagery?
Next, think long-term and then break them down into short term projects.
- Where do you want to be in 12 months? 5 years? What needs to happen in the next 12 months to hit your goal and set you up for next year?
- What are the risk factors and how do you mitigate them?
- How do you take your brand to the next level?
Buyers are looking for brands they can grow, so focus on keeping your operations simple, streamlined, and scalable. That means clean, transparent workflows and organized SOPs, as well as an emphasis on technology to prevent overstaffing and wasting resources.
Having centralized operations is always a good idea regardless of your intentions to sell — but it’ll certainly make the M&A process faster and easier if you come ready with a straightforward system.
And while you may be thinking of how to diversify revenue across different products and channels, this could actually hurt you in the M&A process: some acquirers only value businesses based on their top products, or they may not be attracted to certain channels (e.g. wholesale). We’re not discouraging you from diversification but just keep in mind it may limit your choice of buyers down the road.
Understand the data
Sales and profitability are likely the two most important metrics for your brand. But there’s a trove of valuable data that drives decision making and bubbles up to improve sales and profitability. Understanding your own data as well as higher level data, like industry trends, makes strategy and planning easy and lets you cut things that aren’t working faster.
- Look at data by SKU, by channel. Not all SKUs perform the same on every marketplace or webstore. Understanding what to sell where, and how to maintain or grow margin is a key to long-term success.
- EBITDA - This is the classic metric used to measure the overall profitability of your brand. It’s what drives future M&A discussions.
- Inventory turnover and cash flow. Are you overbuying or underbuying inventory? Do you have a grasp on how SKUs sales could change and how to anticipate that?
- What’s going on more broadly? There are supply chain headwinds, pandemic tailwinds, and industry changes that will undoubtedly affect your brand.
Build and protect your brand
Just like a memorable brand will stand out to customers, a memorable brand will stand out to acquirers. Develop a story that resonates with customers so that shopping with your brand isn’t a one-time purchase. Instead, it should be an experience that sticks with them and brings them back again and again.
Hitting the right keywords in your listing and making use of tools like A+ content and Amazon Posts will tell your brand story across many forms. This helps to both improve conversion and serve as key touchpoints for your customer to learn more about and understand your brand.
Beyond a merely recognizable brand, you need legal protection and defensible IP. According to Suma’s Director of M&A, “For us, Amazon Brand Registry is a must” so if you haven’t enrolled in the program yet, you should do so.
Know your customer
What your customers think of your business and their shopping behavior are important to understand. Take the time to learn about your customer inside out, including:
- When and how often they come back to shop your products
- Lifetime value
- How they respond to new products, kits, and bundles
- Why they may return your products
In addition to tracking these metrics, pay active attention to feedback and monitor your reviews. If you’re planning for a future exit, your buyer will look at the above metrics as well as your review moat, which is a product’s number of ratings and number of stars relative to its competitors.
Reviews are a gold mine for valuable information to use to improve your products. And when customers see you value and respond to their reviews, they form a stronger connection with your brand.
Have an advertising strategy
Invest in PPC paid advertising (e.g. search, display, and social ads) and continuously analyze its performance, including whether your ads are reaching the right audience at the right time and how your audience is converting. If you can measure ROI, then you can optimize your marketing campaigns and justify and allocate your marketing expenses accordingly.
Play by the rules
It can be tempting to take shortcuts or try and ‘game’ the system in order to boost sales. It might yield short term benefits, but in the long run it’s not going to work out for you. Brands that leverage black hat tactics are not building their brand or customer loyalty. Building a successful brand is a long game that snowballs over time. Don’t throw that opportunity away by being shortsighted.
On the other side, you’ll want to be able to identify when a competitor might be using black hat tactics against you. Some of the common black hat tactics we see are…
- Grouping unrelated products
- Gathering reviews outside ToS
- Sabotaging competitors with negative (or positive) reviews
- Filing false reports like safety claims or infringement claims
- Click farming
- Prohibited Content
Building a brand should be fun and rewarding. Taking the wrong actions or creating undue stressors on the business leads to burnout and poor results. Regardless of whether or not your ultimate goal is to sell your business, having a well-run and long-term focused brand always makes sense.
This blog was co-authored by Connie Chen @ Suma Brands and Paul Capriolo @ Zentail. If you’re interested in selling your business or simply learning more about the M&A process, reach out to the Suma team at email@example.com. If you’re interested in scaling your business and managing all your operations in one place, reach out to Zentail at firstname.lastname@example.org.
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