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Thread: how do i acess the market for a product

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    how do i acess the market for a product

    I'm looking at buying an e-commerce business with a B2B SaaS product. The target client is a small to mid sized company offering services to consumers in a small subset of the tourism industry. After significant effort I've concluded that there isn't any data available from which i can get an accurate read on the size of this market and whether it is growing or slowing. I'm confidant that there are lots of potential clients out there and that there will continue to be, in terms of the number of clients this company needs to survive and thrive, which ever way the market is going. There are also lots of competitors ranging from very large well established companies to very small companies. The big guys tend to offer a level of functionality to their product that is needed by clients with more complex operations but they are expensive.

    The company i'm looking at has great SEO rankings for any Keywords i can think of and does well with just over 100 clients (but needs twice that to move to the next level). I've done some calling around and find that my target company is not well know and that the general sense of the clients using its product are pleased with the product saying "it does a great job for the price." So my only competitive advantage is that i have an acceptable product and that the price it sells at hits a kind of sweet spot with a range of smaller companies. As I said there are many competitors out there. I don't know how many of them have offerings that directly compete in price/quality but i'm sure that it is more than a few. there doesn't seem to be a market leader although it is clear that the big guys are taking the largest market share.

    The seller maintains that the primary opportunity for growth is with companies that have not adopted any product that serves this function (it is without question a very useful product for almost any company in the target market). I'm in the process of researching, anecdotally, how many companies there are that that don't have any product to carry out this function.

    Finally to my question. How do i decide if this product has a life in the future or will it fade away with slow attrition and difficulty replacing the ones that leave. Currently, according to the seller who provided me with a spread sheet showing how many clients he has acquired or lost each month for the 2.5 years he has been in business, he almost always takes a few more clients than he looses and there doesn't seem to be any mass exodus going on. So can a company who is just one of the players with nothing particularly unique work?

  2. #2
    aka "meathead1234" Thomas is a Premium Member
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    It's difficult to know where the market will be in 2-3 years time, but you can look at current trends and see which direction it is going (use http://www.google.com/trends/) and then make a judgement call based on logic. E.g. iPhone 5 might be popular now but it's likely in a few years time there will be a new model with a different name. So iPhones will still be popular, just not the iPhone 5.

    I have seen quite a few SaaS businesses matching a similar profile. Their product is okay, they a stable client base but no proven scalability. There are big and better competitors who own the "scalable" part of the market. What you will probably find (if there are only 100 clients) is that the vast majority of CONVERTING clients (NOT traffic) are referrals or word of mouth. This explains why they hang around a while (the churn in this case sounds fine and active subscribers are growing) but also why the current owner has not been able to scale it. Referrals/WoM are not particularly scalable as a source of new clients. If the seller has run paid campaigns in the past (PPC, media buys etc.) that have been profitable, then find out why they are not now (probably not profitable).

    If I was buy-side advising you on the information you have provided, then I would say it's best to avoid a business like this if you are planning on scaling. 100 clients doesn't show much regarding scalability, especially if they have been acquired organically. The other red flag is the only competitive advantage (which is not a competitive advantage at all) is price. You'll end up in a race to the bottom chasing after price sensitive clients (who are always the worst - they pay the least but want the most). That's not to say the business won't continue to be relatively stable, but in this case it doesn't sound like there is anything in favour of the business being scalable and unless you have experience in the market/niche/SaaS it's probably best avoided (if I remember correctly this is a first-time buy for you). Obviously the seller will not tell you this (or the broker) but that's why you are doing the right thing seeking third party/unbiased opinions on here.
    Last edited by Kay; 30 July 2014 at 2:52 pm. Reason: Promoted to front page article

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    I would agree with Thomas in researching the keywords he is ranking for on google trends to find out if it is trending upward or down. They also have a related search section were you might be able to find other keywords to rank for.
    Since you say the current owner has done well on SEO, it would be hard to see you gaining more market share through Google awareness. One way you could grow the business is to contact the current clients (which you have already done) and ask for referrals or provide some kind of referral fee to existing clients. Another avenue is to research your clients and find out who their competitors are, (can be found on Hoovers, Semrush, etc.) since they are in the same business and you know your software benefits your clients it should benefit their competitors also.
    Just like you I am first time buyer and I would also say this might not be the site you want to start with. Either way good luck.

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    Top Contributor crabfoot is a Premium Member
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    I may be talking twaddle - or I may have noticed a way forward. You decide ...

    Given that the product is good and companies like using it, but the market is not saturated for the function it fulfils, that suggests that a lot of companies are unaware that such products exist - which also suggests that there are marketing opportunities.

    Quote Originally Posted by Thomas View Post
    What you will probably find (if there are only 100 clients) is that the vast majority of CONVERTING clients (NOT traffic) are referrals or word of mouth.
    One thing I know about workers in the tourism sector is that they are generally helpful IF they get something out of being helpful. They also tend to move companies a lot more frequently than workers in other sectors.

    So I might guess that sales of the product are helped by people moving to a company which doesn't have this useful product, then getting brownie points for introducing the product to their new company. Or the occasional person telling a friend how he can get some brownie points by using the product. So these guys are either unaware of competing products, or aware that the competitors' implementations are costly.

    I would research trade shows in the tourism sector, specifically to see if the competition are marketing at trade shows. If they are not doing that, you have a marketing opportunity to exploit. If you can sell at trade shows, that is one of the most bang-per-buck effective places to sell.

    You don't want to take this on if you can't see a way to grow the company - but if that growth was easy to find, the company would not be for sale. The bigger the company gets, the more likely it is that real word of mouth opportunities will walk in the door. And if you find a marketing strategy that will grow the company, you are on to a winner.

    Then again, if improved marketing works to start with and then levels off, you need to also be thinking about an exit strategy in, say, four years time.
    Last edited by crabfoot; 30 July 2014 at 2:09 pm.

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    Crabfoot, Thomas & Lobigalo, Some good thoughts there. I'll try to take a look at trade show activity. My guess is that if i think it through i can figure out where it might be productive to do some affiliate advertising that could help. Also, if i'm going for my clients competitors who don't have this functionality on their web site at all targeted diret marketing might be productive.

    BTW I think the seller is selling because he needs capital for personal, not business, reasons and he has another internet business which is his primary company. This is based on the little bit he's told me about his personal life. He seems sincere but of course anything he says is suspect.

    I think I'm suffering a bit from analysis paralysis. I do know alot about this company, all of which would need to be confirmed in DD but there is an unlimited amount of research i could do and eventually someone else will buy it at some price and i'll be relieved of my indecision. Not a good way to make choices.

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