State of the Digital Business Marketplace 2021

We had the privilege of speaking with Mark Daoust about the state of the digital business marketplace.

Hi Mark,

Let’s go with something that investigates the current state of affairs, with a little pre-history, if you’re willing.

Interview

1. Introduction

Hi Mark! We had a great interview for Quiet Light’s podcast in which we discussed HARO. You’re savvy about digital business and marketing.

In fact, your work history spans founding, owning, operating, selling, and now brokering online business deals.

Can you introduce us to Quiet Light and tell us briefly how you’ve seen your space change since founding Quiet Light in 2007 and what the marketplace looks like today as we begin to pull out of COVID-19?

Hi Greg! Thank you for thinking of me for this interview!

2. If you were to start a business today, would you choose a similar space as your prior website properties, or would you go e-commerce or SaaS?

I’ve tried e-commerce in the past and learned, quite quickly, that I didn’t enjoy it nor was I good at it. I actually wrote about this experience, but the short story is that I am not a fan of managing logistics or complex ordering processes. There are some people who are great at this and rather enjoy it, but that is not me.

If I were to start a business today, it would be in the content space and/or the service space. I really enjoy the process of creating content, taking complex topics and making them easy to understand, and writing compelling content that people actually want to read.

In terms of a service-based business, building Quiet Light has taught me that I really enjoy working with people in a way that adds some benefit to their lives.

My greatest moments with Quiet Light are not completing large deals (although that is fun too!), but rather working with “smaller” clients who experience a life-changing exit.

3. Do you think that a business owner should have an exit strategy from day one?

It may surprise those who are reading this but not necessarily. At least not in the way most people think about having an exit strategy.

You don’t need to have a specific plan on how to exit before you’ve even proven your business idea and model. Those first days and months—and even the first year—should be spent proving that business idea and gaining market adoption.

HOWEVER, there are certain best practices that I do think business owners should follow from day one, and these best practices make an eventual exit much more achievable (and build in flexibility as to your options for an exit).

Some of these practices are:

  • having great record-keeping procedures, for example, holding onto invoices, contracts, and statements and using a basic system to organize them;
  • building in redundancies with relationships;
  • building and maintaining a repository of SOPs; and
  • having well-kept financial records.

Most exits can be executed rather quickly if a business owner follows good business practices like those I’ve just described.

4. Let’s dive into motives: why do digital business owners today want to sell? Is it all about being a digital nomad and relaxing on a beach?

The reasons vary quite a bit, but I’ll start with one reason that I think is a bad reason to sell. I don’t think a business owner should sell just for the money.

While the current market is quite strong, it is strong for a reason: investors are starting to see just how valuable digital assets can be. They are making the bet that your digital business will generate more in earnings than they’ll need to invest (otherwise, why invest?).

That said, there are several good reasons for current owners to sell:

Burnout and the startup game.

Many digital entrepreneurs love the startup game and have little desire to bring a business from the startup phase through a full maturation phase. These phases of a business require different sets of skills and make different demands on the founder. Many entrepreneurs know themselves well enough to know that they don’t want to do this.

Life changes.

Our lives are more than just the businesses we start, and my genuine hope is that all our clients have the opportunity to enjoy life outside of business.

So it’s no surprise that many people sell due to life changes. I’ve had clients sell because they are expecting a baby and want time to spend with that baby.

Clients have sold because they are getting married and want to have a prolonged honeymoon. We’ve seen people sell due to sickness, breakups, and other sad life events.

And then there are those who sell so that they can buy an RV and spend a few years roaming the country (and yes, I’m jealous of them!).

Grown to the max.

Many people sell their online business because they know they’ve grown the business as far as they can possibly grow it, but they’d like to see it continue to the next level.

Life-changing money.

While I said that selling for only money reasons is a bad reason to sell (in my opinion), I can’t begrudge those who have the opportunity to cash in on truly life-changing money. For those achieving a high seven- or eight-figure exit, it’s easy to understand the upsides or positives of selling—maybe that beach is finally attainable?

5. What would you suggest are possible downsides to selling?

The biggest downside to selling your business is that you are giving up an income-generating asset.

When you own and grow a business, you increase your financial net worth in two ways: through the income it (hopefully) generates and through the value of the business itself.

When you sell your business, you are making the decision to unlock the unrealized value of the business itself in exchange for giving up the income that the business generates.

In addition, anyone who buys the business from you is going to buy the business with the expectation that they will make more money from the business than they will spend on buying it from you.

It therefore often doesn’t make sense to sell your business for purely financial reasons since in most cases you’ll earn more money by holding onto your business over the long term.

This is why I’ve historically encouraged business owners to think deeply about their reasons for selling.

6. What percentage of deals that go through Quiet Light (or a typical brokerage) go through to sale?

As you can imagine, this number changes from month to month, but it is consistently over 90% of our transactions.

There can be a few reasons a business does not go through to a sale. The most common reason is that we went to market with the understanding that it was going to be a lower-probability process, and after getting market feedback, it became clear that it would make more sense to wait before selling.

Another common reason for a business to go to market but not sell would be a sudden change in the fortunes of that business.

For example, when the pandemic struck, we had a few businesses that were very heavily impacted by the lockdowns. These business owners chose to wait out the pandemic to allow their businesses to recover.

7. What would you say is the most common hang-up for a business failing to sell?

We work pretty hard upfront to not take a business to market if it won’t result in a successful outcome for our clients. During this upfront work, we focus pretty heavily on the documentation and details of the business.

For someone who has never sold a business before, the level of detail needed for buyers can be pretty surprising. The fact is, however, buyers do not have the first-person experience advantage that a business owner has.

As a result, buyers need to dig deep into the details of a business to make sure that they can successfully run it after the sale.

For deals that do not run through Quiet Light, the most common hang-up is typically the documentation, especially the financials.

8. If a business owner is curious about what selling would look like, what would you recommend they do first?

a. Do their own homework.

b. Contact a broker.

c. Start advertising.

3. Something else.

Either option A or option B would be recommended (or both!).

Exit planning really isn’t terribly complicated, but it can be hugely impactful.

When contacting a broker or investment bank, your goal should really be to get a realistic valuation of your business.

That valuation should contain more than just the estimated value of your business; it should also shine a light on what is working well from an acquisition perspective and what might be a challenge in a sale.

Knowing what levers increase the value of your business vs those that decrease the value of your business is extremely important.

Once you have a basic grasp of the current value of your business as well as its drivers, figuring out how to get to a number that makes sense to you usually isn’t too difficult.

9. That was great—thank you for sharing all that information! Is there anything you’d like to add that I might have missed? If there are any particular graphics you want to include, feel free to send them over, and I’ll be sure they’re inserted in the proper place!

Nothing in particular! I think you asked very intelligent questions! If something isn’t clear or if you’d like me to change up an answer, just let me know!

Subscribe to Newsletter

More To Explore
Blake Denman from RicketyRoo shares some of his insights around running a Local SEO Agency.
We had a great talk with Quinn Zeda from Conversion Crimes about CRO and User Testing. Conversion Crimes helps you increase conversions by providing qualitative feedback.