Over the last twenty years the internet’s adoption around the world has been unprecedented, changing the landscape of society and global commerce forever. There are currently more devices connected to the web than the global population of human beings. It is not surprising therefore that online businesses have emerged for sale all over the world, far beyond the traditional backyard of North America.
But foreign or ‘non-domestic businesses’ have had a hard time in the predominantly US-oriented business-for-sale marketplace and there are a variety of reasons for this.
In this article, we explore the pros and cons of buying an international business and show buyers how there is value to be captured in exploiting the current under appreciation of foreign websites for sale. If you follow the notion that running an online business is about being location independent and scalable at a low-cost – why limit yourself to the US?
What is a Foreign Online Business?
It is worth defining what we mean by a foreign or non-domestic online business to avoid any confusion. In our mind, a foreign business will share two or more of the following characteristics:
- Business has a country code top-level domain (ccTLD). For example, .AU, .IT, .IN.
- Audience / search volume is largely non-domestic (e.g. 50%+ traffic from one or more non-domestic countries)
- Seller is based in foreign country (e.g. Australia, Italy, India etc.)
- Products can only be purchased/shipped to residents in non-domestic country.
‘Domestic’ is defined as the country jurisdiction of the purchaser.
Why consider a Foreign Online Business?
There are a number of compelling reasons to buy a foreign online business, below we explore some of these in greater detail.
The business meets the majority of your investment criteria
It is important to remember that the right online business for you, may not be based in the same city, state or even country and that should be fine when considering the remote management capability of most online businesses.
A buyer’s focus should instead be on the fundamentals, namely the traffic, financials and operating history of the business in question. It is also important that when looking to buy an online business a degree of flexibility is required to help limit the overall search time. This flexibility should extend to allowing for foreign businesses, where the fundamentals are strong and investment criteria have been met.
The preferred niche is growing abroad, but not at home
Finding a growing and relatively unserved niche is a sensible approach to identifying a successful online business to buy.
If demand for a product/service that you have an interest in exists overseas and is relatively untapped, then the best way of serving it is to establish a presence there. Acquiring a foreign business in the specific niche or a business serving a similar demographic is often the best and quickest way of doing so. Capturing a niche in its infancy requires an ability to move quickly. Starting from scratch may be too slow if you are to realise upside from first-mover advantage.
Playing the micro and macro-economic environment
Investors should be cognizant of macro-economic conditions when looking to acquire an online business. Although the US is technically out of recession, the economy will require propping up by the Federal Reserve for years to come. Some European countries such as the UK experienced favourable growth rates compared to the US in 2014. With lots of businesses for sale in the UK, it is a good time to be paying more attention to these opportunities.
Looking further afield, India is widely regarded as Asia’s new ‘economic tiger’, having grown 7.5% in the first quarter of 2015. With the Internet-based market predicted to expand to $140 billion by 2020, there is huge opportunity for buyers looking non-domestically. With burgeoning smartphone and mobile Internet usage, the app sector is already growing rapidly, buying a small Indian app business / portfolio now could prove to be extremely lucrative down the line.
Common Misconceptions around Foreign or International Businesses
Buyers discussing foreign business opportunities tend to cite a few common reasons for not pursuing opportunities further. These are quite often misunderstandings as explained below.
Lack of local understanding (audience behaviour, market dynamics) will hamper growth
Understanding market dynamics is important when looking to run and grow an online business.
Being an expert in a specific niche and/or business model is not always a precursor to investing. Often, buyers acquire businesses and learn as they go, using post-sale training to learn as much as they can from the seller. The same rule applies when acquiring a non-domestic business. The seller is at hand to coach the buyer about running the business, including how to localize content, services and messaging.
If there are specific areas that require more focus e.g. choosing native keywords for the specific market, training can be flexible in this regard. It is also important to remember that training period length is negotiable before the sale and that requesting an extension with valid reasoning is not uncommon.
Foreign search traffic is worthless to advertisers
Looking at the list of countries by CPM rate, one could assume that it is easier to earn more in the US from passive online advertising than it is in the UK or Europe. That said, with CPMs set to rise across the board to $4.68 by 2017 and with generally less competition for keywords, Europe is becoming a very attractive investment proposition. It is time to think about ‘diversified’ traffic more broadly to include a geographical element as well as source – CPM rates by country are shifting and geographically diversified traffic is a plus point when it comes to valuation and potential re-sale.
Jurisdiction is of course only one element, CPM rates vary by vertical too. For webmasters that understand CPM optimisation, there can be a lot of untapped opportunity in foreign websites running display advertising.
It is worth researching the CPM Rates further before investing. If concerned about the rates in a given country, buyers could consider selling ad placements direct or look to bolster earnings by diversifying income streams. Again, the seller is at hand to direct the buyer in this regard.
Expanding the online business at home will be more difficult
Firstly, it is important to understand whether the business requires marketing/expansion at home – does it need to be diversified? Start with researching the global search audience, in this case the home market. Analysing “Geo” reports in Google Analytics is a good starting point. If there is medium-level organic search traffic in your home market, it is trending upwards and looks to have a good CTR, then international SEO in the home market may be worth executing. There are plenty of tips available, including considerations for international SEO.
If there doesn’t look to be much interest among your home audience, ask yourself ‘does it matter’? If the business is established and doing well in other markets, it is worth considering the cost/benefit of bringing it home vs. continuing the business’ expansion in regions in which they flagshipped.
Managing non-domestic elements is risky
We live and work in a global economy where working with foreign counterparties has become commonplace in our day-to-day lives. Many successful online businesses with a predominantly domestic customer base (and considered ‘safe businesses’) operate with foreign contractors, suppliers and customer service agents already. A foreign customer base is just the next step for many of these businesses to be considered a foreign business.
Inevitably dealing with foreign suppliers poses some challenges and as such business owners should carry out the necessary due diligence, ensure robust legal contracts are in place and focus on building long-lasting relationships. The benefit of acquiring an established online business means that supplier agreements are likely to already be in place, it is typically a case of taking over supplier agreements and monitoring performance over time. Further, tax/financial reporting measures can vary by region, it is important therefore to understand local practices and their implications for running an online business. Occasionally, such laws are not applicable to online assets.
Post-sale training and operations may be hindered by cultural / language barriers
The training period is an important part of the buying an online business and one that we take very seriously at FE International. Terms are included in the Asset Purchase Agreement (APA) and brokers are on hand to help organise the training schedule, if required. All sellers we partner with have sufficient written and spoken English to facilitate the best possible transfer of knowledge post sale.
In the instance where international staff are staying on with the business, it is important that buyers position a favourable deal structure. Incentivising the seller (and the business’ staff) through holdbacks and/or performance incentives is a good way of creating a win-win scenario for both parties and reducing any potential flight risk.
Currently, foreign online businesses garner less demand than domestic ones which means there is a value trap for buyers willing to challenge the existing paradigm. Looking at the advantages of investing in an international business, it is clear that there is plenty of value to be captured, particularly in non-domestic countries experiencing favourable macro-economic conditions.