2023 Strategy: Buy Cheaper Dropshipping Stores in the Private Market
As we exit 2022 it’s safe to say that nobody can really tell us how the economy will look in 2023. Corporate America is massively cutting headcount while the Fed continues to threaten more interest rate hikes.
Investing in seasoned high priced ecommerce sites has a ton of risk in this environment. As website brokers price their listing on past 12 months earnings, a buyer bears the risk of this uncertain future. Makes no sense.
Fortunately, the way an investor can get an edge is to buy newer sites on the cheap and aggressively build and scale these sites:
My strategy for 2023 is looking for sites from $5000 to $25,000 being offered for sale privately.
Here are four reasons this is uniquely attractive today.
Asymmetric risk and reward
Making many small bets and then feeding the ones that make progress is the strategy that has built the Venture Capital industry. As VCs usually invest very early in the life cycle of the company, they make a lot of bets. You can’t lose tons of capital on a small bet like you can on a six or seven figure investment. Taking that risk today isn’t prudent.
But buying a revenue producing ecommerce site where identifiable competitors exist is a surer way to succeed. You can see who you want to be “when you grow up”. But improve on what other competitors may be doing wrong. You can also skip the line of 9 failures in every 10 new businesses.
In essence, the small bets offer big upside opportunities with limited downside. This is exactly the opposite of what large site buyers are doing today. Using my strategy, I retain more dry powder– and my favorable risk-reward– to increase my bet if I like how things play out in 2023 and beyond.
Buying good assets from “bad owners”
Job situations change for people in times of turmoil like today. If you get downsized, you may need whatever cash you can get your hands on, regardless of the promise of your dropshipping store. This is especially influential on someone who built a store during the pandemic is experiencing a sales slow down. Things were great and now they’re not.
Another unique and conflict causing condition today is the call for employees to return to work. As employers are regaining their leverage, they are requiring employees to go back to the office …every.single.day! Gone are the options to work from home full time, or the other variants of certain days in/out of the office. Many of us spent a lot of work time on our side hustles during the pandemic, but won’t be able to from the office. And that dropshipping store isn’t producing what it once did….
Dropshipping store builders tend to be in their 20’s and early 30’s. Life changes quickly for them. When the economy does start to recover, these owners may have other business or employment opportunities. This makes them great sellers. The majority of the over 20 sites I’ve purchased has come from this exact situation. A younger person has built a beautiful, but relatively new site, and something changed in their life
I obviously don’t mean the owners are bad people. But their needs and alignment with their business is out of whack. This is analogous to the Wall Street discipline of “distressed investing”, which is buying a good businesses with a bad balance sheet. In other words, a great operating business got over-levered by it’s owners. The key in our case is to find a great business and fix the problems of focus and growth.
It’s a builder and operators market
Very simply put, all the variables to operate and build a store today–except revenue certainty– tilt the most positive they have since the early days of the pandemic.
Suppliers today are drowning in inventory. It’s all over the newspaper. Numerous public companies have had to admit to over-ordering. It’s no different in the high ticket niche product world we operate in.
Managing their brands prudently means suppliers will add more outlets to sell their products. They will be creative on pricing to online retailers, but they will staunchly defend their brand integrity–which is great for reputable ecommerce retailers.
I spoke to one of our suppliers in August who had over $20MM of summer season merchandise and was only selling $5M a month. We had been trying to onboard him as a supplier for three years and couldn’t get him to respond. Today we’re on board.
Google will also help as their ad prices plummeted during the early part of the pandemic. Ad prices are coming down now and I’m sure this will continue. Ad prices seem very correlated to employment, so I try to dial up ad spend as employment psychology improves. But it’s poor now and likely to decline further in early 2023.
Finally, all forms of contractors we use to work on our sites are cheaper today than earlier in the year. I like to explain what our plans and objectives are and why we are being tough on costs fro new projects. We have great long term relationships we want to maintain and consider these folks our partners. But today is a new economic reality than earlier this year.
The time is now!
The tsunami of lower priced websites about to come on the private market couldn’t come at a better time for a lot of people I know. Retirement (and its income needs) is creeping up. Job security is a fallacy in the ageism culture in corporate America today. Working when and from where you want is now a requirement of many as they think of the future they want.
Private deals are coming to me almost weekly from talented store builders for whom something has changed. One lady is having her second baby. Another guy is taking a sabbatical to travel and relocate back home. At third fellow has financial needs to help his parents. These are all talented builders of dropshipping stores who now have a great skill, but had priorities change.
Most of the time there is intense competition to buy cheaper sites, but that’s not the case today. Many smart investors have their hands in their pockets because they have been stung by the decline in the stock, bond or other markets.
Like Warren Buffett, I like to buy when there’s blood in the streets, or when people are fearful.
One last word
I just retired at the end of June. I started my financial preparation for retirement when I realized in 2013 that I’d need income long after the corporate paycheck stopped. And I’m glad I did!
Today we live in Cyprus and our online endeavors produce plenty of money to cover our lifestyle here. We have an outsourced team of folks who do all of the things my wife and I don’t want to do.
When we started selling online, ecommerce represented 7%-8% of total retail sales in the United States. Today that number is more like 16% to 17%. In the UK, it’s over 30%. I think it’s very safe to say that folks in the US will continue to purchase more online over time.
So, the best way in 2023 to secure your future is buying a cheaper dropshipping store in the private market. Stay tuned for my plan on how I can help you.
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Great article Ion and great strategy. Where do you think the best places are to source deals like these?
I think Flippa has really improved over the last 7 or 8 years that I’ve used them. Shopify closed Exchange/ Marketplace. I mostly participate in forums and people reach out to me directly.
Thanks Ian, great post. Been a while since we spoke. I’m now in the market for a couple of small business acquisitions, so keen to see what service offering you will provide.