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Lessons From A Crash and Burn Online Business Acquisition

Author

Corey Philip
May 11, 2025

Todays edition is a little interesting.

As buyers of ‘online businesses’ we all have to be conscious of risk. And I think online business acquisitions bring more risk than offline businesses.

Not that they are riskier, but there are more high risk businesses for sale. And by risk, I mean ‘flimsy’. They’re one trick ponies, that may not exist tomorrow.

Part of the reason why I started this news letter is to focus on established, profitable, and stable online businesses. That’s why many of you are are.

Now 10 months ago in a post on “5 Driving Factors Of Ecommerce Business Valuation Multiples” I included an example of a business that I thought was over valued at a 32.4x monthly multiple

Here’s the details and exactly what I had to say about it back then:

“

Revenue: $4,413,859 - Profit: $1,704,289 - Asking Price: $4,600,000 + Inventory - Valuation Multiple: 32.4x

Positive: 38% margin, 7 years in business.

Negative: The business has one soaring product (green high-visibility safety shirts) on one channel (TikTok) and requires a 4,000 sqft warehouse. Two products have generated $1mm+ in only 180 days — this seems ‘trendy’ not robust.

Quick take: The seller sees a hit of success and wants to cash out before the tide changes. As a buyer of this you’re taking on the risk of that one product (which doesn’t seem unqiue/difficult to produce) to fund the expense of a warehouse. The 32x is too high for my tastes — I wouldn’t touch this. It seems like the seller needs to ride the wave for at least another 12 months until stability yields a fair valuation.

“

That was 10 months ago


Here’s where it’s at now.

It’s relisted (link) as a distressed business.

The listing is painful to read — seriously. It’s talking marriage problems in the business listing. A few points.

  • The listing explicitly mentions diminishing returns on adspend after purchased.

  • Revenue declined 12.4%

  • Profit declined 74.5%

  • The relatively small decline in revenue while profit has declined substantially is characteristic of diminished return on adspend.

  • The business uses a 4,000 sqft warehouse (vomit)

So what’s the take from all this:

  • The original seller likely noticed competitors popping up selling the same thing and recognized the ad arbitrage that was coming
 or people that looked at the listing and got the CIM just decided to rob and duplicate (this is very unfortunate)

  • Never buy a business reliant on one product, that is easily duplicatable and has no moat. I will say that for every online business I look at I say “could I spin this up and compete with less than $10,000”. If yes the business is discredited (and often chalked up to an ‘interesting find’ in the newsletter here).

  • Never rely on the broker. In my experience Quietlight (who brokered the original listing and now the re-listing) is among the most reputable in the only business acquisition world. Someone at that brokerage firm, that is at least as skilled as I am, looked at it and said (metaphorically) “one trick pony but fuck it we’ll list it”. I would assume the current seller is pissed at Quietlight, but most other brokerages were like “yea not selling that falling knife now”, and Quietlight felt obligated to help this person clawback what they could.

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