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  • 🙅🏻‍♂️The Good Business of Bad Reputations

🙅🏻‍♂️The Good Business of Bad Reputations

Hello fellow seekers of deal nirvana, we’ve got an interesting issue to dive into today.

Let’s get right into the good stuff.

On the deal docket this week:

  • 💸 Riches In Niches: The good business of bad reputations

  • ♣️ Deal Me In: Is KDP the new FBA?

  • 🧠 Idealation: Zero to 1 or 1 to N?

  • 🔗 Helpful links: $25K SaaS acquisition grows to millions

💸 Riches In Niches

Have you ever wanted something removed from the internet? I don’t just mean the all too common stupid YouTube comment or dumb Twitter post. I mean something about you. Something slanderous. Hopefully you haven’t gone through anything like that, and assuming you weren’t in high school in the age of social media, you likely haven’t. For businesses, however, it’s much more likely that they have been on the receiving end of harmful online content. With more power than ever for consumers to voice their opinions, it’s no surprise that some people have abused that power. I’m talking about the unethical use of negative reviews to harm a business. It happens, and that’s why this business exists.

Check out this listing and see if anything jumps out at you. Incredible growth right!? 355% year-over-year (YOY) growth and even more impressive 640% projected for 2024. This business is exploding. Priced at $4.5M, this business is just slightly out of my price range, but I really want to see what we can learn from this fairly simple business because they are absolutely crushing it and have nailed some major things.

  1. They’ve stumbled into a massive opportunity because the TAM (total addressable market) for online reputation includes basically every business that exists (500k companies).

  2. They have a no-brainer offer because you don’t pay until they are successful in getting the harmful content removed.

  3. They white label their product to provide wholesale solutions to other agencies in the space.

  4. According to the listing, there are very few companies providing this service (a quick Upwork search might refute this claim, but the quality and results for any of those contractors are unknown).

  5. High margins (the broker takeaway section inaccurately claims 55%) but it’s 46%.

Let’s check out some key Stats:

Profit Margin: 46%

Earnings Multiple: 3.79x

Return on investment: 26.37%

Employee Productivity: $284,769

AOV: $2,500

Lead generation: 1,000/month

Client base: 1,000+ companies

This seems like a very healthy business and a pretty fair valuation based on projected growth. But if we were to acquire it, how could we grow it? And what are the risks?

Now I know what you’re thinking, how can you tell the difference between a negative, harmful, and deceitful troll and an honest dissatisfied customer? This is an important question I would definitely ask the company as the risk of developing a reputation as an unethical business targeting honest reviews could be detrimental. Although, to be fair, no worse than the Yelp business model.

Opportunities:

More advertising: Currently, it looks like the company has an email outreach campaign as their main form of lead gen. This could be expanded into social media marketing, content SEO, and PPC ads.

More services: I would be curious as to how transferable the skills of review removal are with other brand protection services like fake website removal and trademark and copyright infringement, deep fake fraud, or leaked explicit content protection. If these can be added as services, it would diversify revenue and allow cross-selling to existing and new clients.

Raise prices: I don’t know where the current prices sit within the industry, but there could be an opportunity for a quick win with a new pricing strategy for new customers.

Risks:

Competition: If this is half as good a business as it appears to be, there will be more competition soon (maybe from you).

Regulation: I would want to understand where this all falls in relation to legality. There are online content and privacy laws that could come into play here, and a shifting regulatory environment could lead to uncertainty.

So that’s it, this business definitely has me thinking. I don’t know how challenging it is to get reviews removed, but lately I’ve been thinking about how AI makes it easier to commit fraud with social engineering tactics. You can deep fake voices, pictures, videos, etc., to create scams. Surely this presents an opportunity or even necessitates the creation of defenses, and I think businesses similar to this listing will exist in the B2C space to protect individuals from these types of attacks as well.

♣️Deal Me In

Is KDP the new FBA?

When it comes to online business models, there are many ways to get it done: content, e-commerce, FBA, SaaS, marketplaces, etc. We’ll be covering businesses of all types in this newsletter, but today I want to touch on a model that doesn’t always get as much attention: Kindle Direct Publishing, aka KDP. Every model has its advantages and disadvantages, but let’s talk about the pros and cons of KDP and if buying an existing KDP business mgiht be worth it.

Pros:

  • Low startup cost if doing most of the work yourself

    • Option to boost things with ads

  • Very outsource-friendly

    • Writers and editors are available for low cost

  • Low time commitment once up and running

  • No inventory

  • Leverage (write once sell forever)

  • Amazon platform handles a lot of the work

    • Distribution, customer service, returns, existing traffic

Cons:

  • Platform risk on Amazon - account can be shut off but it’s unusual

  • Low barrier to entry = high competition

The business model can be summed up pretty simply as a 3-step process:

  1. Market research

    1. Determine which niche to publish in (evergreen is best)

  2. Create book

    1. Create outline

    2. Hire writer, editor, and formatter to create the full book

  3. Publish and Market

    1. Release the book on KDP and spend money to market it and drive traffic

Let’s check out a decent-sized KDP listing to see if buying one of these businesses might be worth it.

Here are the key Stats:

Return on investment: 34.6%

# of books: 180

ROAS: 2.18

Valuing something like a collection of books feels kind of awkward. How do you know how much more demand exists? How do you decide how much ad spend can be absorbed profitably? What does the seasonality look like?


Although these might seem like difficult questions when related to a collection of books, they are not such different considerations from any other business.

For this particular collection of 180 books, the revenues for the past 4 years total $310k with $160K coming from last year alone. This gives some confidence that the business can grow despite the age of the collection.

Ways to grow:

  • Translate books into other major languages (It’s working for MrBeast)

  • Further expand into profitable niches related to core brands

  • Advertise books that are not yet sponsored (places them above the fold within Amazon search results)

Would I buy a KDP brand? I don’t know yet. I think it would depend on the price and my understanding of the niche and opportunity, but I am thinking about doing a little experiment to learn more about this business model. I am intrigued. Whether that experiment is to start from scratch or buy an existing KDP store, I will decide soon and update you on my decision and progress so we can learn together.

And this leads into the next section:

🧠Idealation

Are you a Zero to 1 or a 1 to N entrepreneur?

“The chokehold on the growth of any business is the psychology and skills of the leader”

Tony Robbins

I think this quote reveals something very important, namely, that a founder or operator of a business will inevitably direct that business to success or failure based on what exists in his or her head. The six inches between the ears, as they say.

This makes self-awareness of one's own psychology and operating system one of the most important skills to develop.

One thing that will help us get clear on our journey is to ask what type of entrepreneur we are:

  • Zero to 1 - Going from no product, no customers, no infrastructure, to creating something that didn’t exist before.

  • 1 to N - Taking an established business with existing traction, and expanding on it in new ways to unlock growth, efficiency, and advantages.

If you’ve never thought about it before, there are some considerations and constraints that might pull you in one direction over another, such as:

Do you really want to operate a business and test yourself as an entrepreneur but you don’t have a ton of original ideas or a clear direction?

You should think about buying something and then building it up.

Do you have limited funds but a lot of time on your hands?

You should probably be learning skills and starting projects as fast as possible to stack as much experience as you can so that you have the tools to build something from scratch.

Are your skills more geared toward starting or growing a business?

Take an inventory of what you are good at.

For example:

Are you more creative and visionary or strategic and operational?

Do you like to think about what new things could exist or do you like to optimize and work with a set of data to test and refine solutions?

Do you prefer market research and validating ideas or selling and marketing?

Do you prefer to work by yourself at odd hours of the day or are you ready to take on a leadership role and manage other people within a more confined structure?

There is no right answer to any of these questions - the point is that we are the bottleneck of our business and our self-awareness is one of our most important assets. We might as well examine our strengths and weaknesses before we pick a direction.

Let's touch on risk.

Risk is a fascinating topic to me - how do you really quantify and qualify it? It’s not an easy topic and most people probably get it wrong, including me, but I think a lot of success is attributed to how we think about it. Most startups end in failure so they are considered high risk vs acquiring a successful business. But the financial risk of a bootstrapped startup is only your time, while the risk of buying an existing successful business and running it into the ground is much more of a financial failure as you have to pay for the privilege. Yet the odds of a successful business continuing to be successful are much higher than the odds of a startup becoming so.

That’s all to say it must be a personal calculus of risk and reward. The important thing is to define and accept the risk so we can deal with worst-case scenarios. Don’t ignore the risks or they will cause you to make bad decisions in high leverage positions.

What type of entrepreneur are you?

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.

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