Responding to Customer Reviews

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Did you know that almost 80% of people say that they trust online reviews as much as personal recommendations from friends and family? Or that 94% of consumers say that good or bad reviews have been instrumental in helping them make decisions on whether to patronize a business?  While at first those statistics might sound astonishing, the reality is that online reviews are a major part of how both businesses and consumers make decisions these days.  That means it’s a vital part of building a business you plan to sell, and an important component of any business that a buyer might be interested in.

Good, Bad, or Ugly, Always Respond

Responding to Customer ReviewsYou can’t control what people say in reviews, but you can control how you respond.  In fact, a good response to a bad review might be precisely what encourages someone to do business with you.  But not responding at all means that the reviewer has had the last word.  Let’s examine some principles behind responding to good and bad reviews.

Bad Reviews

It’s never easy to see your business taken to the woodshed, much less in a public way via an online review.  But what we’ve seen all too often is an emotional response from owners.  This is, obviously, not the way to do things.  Of course business is emotional and you hate to see your business, and by implication, yourself, attacked.  But an emotional response will only fan the flames.  

Firstly, assess and evaluate the feedback internally with your team.  Find out “your side of the story” and see if you genuinely failed, if the customer is acting completely irrationally, or somewhere in between.  Once you have the facts, respond, as rapidly as you can, publicly.  

In that public response, make sure to show that you are interested in having a one-on-one conversation.  Aspects of your public response can include:

  • Asking questions
  • Acknowledging mistakes
  • Empathizing
  • Offering multiple solutions

Standards of service are so low these days that any sort of ownership and desire to “make it right” from companies are applauded by even angry reviewers, and we can tell you of multiple business owners who have discovered a brand ambassador that began his journey with the company as an angry reviewer.  

Once you’ve had a conversation with the reviewer and had a chance to make things right, ask them to update their review, or write a new one if the platform doesn’t allow for updates.  

Good Reviews

While everyone loves getting a pat on the back, too often we see business owners taking these for granted and not reacting with the same urgency as they would to a bad review.  Any reviewer has taken time out of his/her day to talk about your business.  Respect that.  

Just as you would with a negative review, check with your team to see if there’s any “inside knowledge” that would make your response more authentic.  When you do respond, lead with gratitude and further, ask if you can add further value, in a way that makes sense for your company and services.

Most importantly, be willing to ask for a referral.  Customer goodwill is on a high after a positive review: it’s the perfect time to ask if there is a friend or a family member of that customer you can serve as well.

The conversation about your business is happening on the Internet every hour of every day of every week of every year.  Don’t let it be a one-sided conversation.  Let potential customers see one more aspect of your business: the way that you respond to praise.  And criticism.

We’re pretty proud of our customer reviews.  If you’d like to be one of them, give us a call to see if we can help you with a buying or selling transaction.

Why Are You Selling Your Business?

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Why are you selling your business?We’ve often talked about the paperwork that you need to put in order for a business sale.  But something often underestimated is the storytelling behind selling a business.  Just as there was a narrative for how you started the business, there’s a story for why you’re selling, and that’s something you need to take some time to capture.

The Easy Questions

The questions you should tackle first all lie in the past:

  • Why did you start the business in the first place?  If you didn’t start it, why did you buy it?
  • What challenges have you overcome along the way?
  • What goals have you achieved?

The Big Question

In between the past and the future is the present, and that most present-tense of questions in this process is always the first one a buyer asks us when we share a business, namely, Why are you selling the business?  Now, there are hundreds of “correct” answers to this question, but only a couple very wrong ones, for example:

  • I think revenue has topped out (this means there’s no chance for growth which puts a damper on the profit needs of the buyer)
  • I’m working too much (this could imply you don’t have processes or key team members in place)

The Hard Questions

The previous questions you knew the answers to intuitively and could answer them just as quickly as they were asked.  These next questions are also in your past, but they are in the buyer’s future.  They also are unlikely to be easily answerable on the spot.  They include:

  • What have you not done, and why?  While it might be unpleasant to revisit failures or missed opportunities, remember that buyers are  coming in with fresh eyes and energy, and with your experience to guide them, they might be able to revisit some of those opportunities and convert them into successes.  We’ve seen it plenty of times.
  • If you were continuing in the business, what would you do first?  What would be your focus?  This gives buyers a road map.  They may have their own (sometimes not good) ideas, but most times they will really value your advice.
  • Why would you be interested in this business if you were a buyer?  This is a chance to speak about the industry and its growth, the fact that it’s a lifestyle business, or how much you enjoy working with the employees.

If you want to explore these hard questions in more depth, we’ve talked about some of them before in an exit interview for sellers.

Remember that your answers to these questions don’t need to be lengthy and detailed, but no potential buyer is going to complain if you do decide to share a lot.  Even better, if you are willing to be vulnerable and share some of your own personal challenges along the way it can put a human face on the business and allow buyers to understand your journey better (and consider how good of a fit it might be for them).  Writing these answers down allows buyers to get to know you even better before a first meeting.  As such, you might even save a few anecdotes or points to share in person to underline some key ideas.

But most importantly, taking the time to answer these questions will help you stay calm and focused on the WHY of selling your business, which will be important on those days when you might be frustrated about due diligence or feel like the buyer’s questions never end.  Selling a business is emotional, though the level of emotion varies for each individual.  A helpful counterweight to that emotion are the cold hard facts of your entrepreneurial journey.

Do you feel like you’ve got a compelling WHY for selling your business?  We’d love to hear about it.  Give us a call!

Case Study #50: A Pet Adoption App that Lured in PetSmart

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AllPaws AppDarrell Lerner was sitting in an office with an employee looking at various business ideas.  He had just sold an early-stage Facebook dating app that at its peak had 100M users.  His family and friends were so excited about his success that they gave him $1M of their own money in exchange for roughly 25% of whatever Darrell planned to do next.  

As he looked at different ideas he kept coming back to wanting to do something with pets. 

As he considered the online dating world he had recently exited, he thought about creating a platform for people to “match” with pets they could adopt.  He realized he would need a critical mass of users in order to make the site viable. 

He hired a programmer and a paid search specialist.  The programmer tapped into animal rescue groups around the country and found a way to pull those listings into one centralized location.  The paid search specialist helped create Facebook ads and landing pages around the concept of a “pet adoption database.”  Between 35-37% of people were willing to volunteer an email address at the end of that process.  That was the proof he wanted of customer demand and he started building the platform and app which would become known as AllPaws.

Darrell was familiar with the costs of advertising due to his experience building on the Facebook platform and as such decided to monetize the site that way.  He partnered with a company that had quite a few pet-related businesses but before he could close a media deal with them, they were acquired by PetSmart.  The people that Darrell was speaking with before the sale stayed on and decided to move forward with some ad deals, including with PetSmart itself.  

Darrell wanted to leverage the highly-specific data that his platform provided into great ad deals so he personalized the approaches.  To win Royal Canin’s business, he created a breed-specific landing page that prompted the owner (with coupons) to consider Royal Canin’s type of food for the breed they had just adopted.  He also won PetSmart’s business in a similar fashion, offering a number of coupons as well as a link to the closest locations to the customer.

What these welcome messages were, at a deeper level, was an attempted capture of the customer at the beginning of their pet journey, before habits, patterns, and preferences set in.  This is known in the industry as the “point of market entry.”

People loved the app. 

AllPaws had 1.5 million registered users, 1 million unique website visits a month, and was known as the “Tinder for pet adoption,” ranking in the top 100 for all lifestyle apps in the App Store.  But despite these stats and all the good press, most people assumed that a pet adoption business was a nonprofit, hence there was no real investor interest, which is what Darrell was looking for to get to the next level.

While Darrell and his team had rapidly gotten to $1M in annual revenue, mostly on the backs of advertising, the possibilities for growth plateaued and Darrell decided if the business wasn’t going to get much, much larger, he wanted to move on.

There was no app to help him find a broker, but he wanted one who had some experience with pet businesses.  He found one and made it clear that if he could get at least $3M for the business, he would take the offer.  But to keep his brokers highly engaged, he took the unusual step of offering a higher commission for each level above that $3M number.  The more the sale price ended up being, the larger percentage his brokers would get.

Darrell had cultivated relationships with different writers, particularly one at Forbes who he had consistently pitched stories to before.  The writer hadn’t bit on any of them before, but when he shared the ability to capture a customer at the point of market entry (and that they were already doing this with PetSmart), the writer saw a good angle.  That article actually got acquisition interest from both PetSmart and Petco, but since PetSmart owned the company that Darrell had many advertising deals with, they exercised a right of first refusal among similar companies and went against a food brand that was a holding company for many different brands, not just pet food.  

Both companies gave indications of interest that were north of the $3M range that Darrell was targeting.  Ultimately, PetSmart won with a higher bid.

Darrell was required to be an employee for one year and specifically asked not to have to travel, as he was in New York and PetSmart was in Arizona.  There was a $1M holdback tied to the completion of this term.  Despite this “no travel” clause, Darrell got an email shortly after the sale that asked him to “be in on Monday.”  Darrell knew that the way he responded to this would determine his relationship with the company for the next year, so he called to check in and found out they just wanted him to come down and take a look at the company sometime in the next few weeks.  That was fine with Darrell.  He made plans to do so and averted the crisis.

But Darrell also had to let go of the fact that this free app was just one more weapon in PetSmart’s toolbox.  It wasn’t a priority for them. If something was broken, it wasn’t fixed immediately, the way it would have been when he was the owner.  He had to let go and “not care.”  He ended up finishing his time at PetSmart, receiving the remainder of the sales funds, compensated his investors, and did what he might have done after his first business sale: take a break.

Lessons Learned

As we always do in these case studies, we share some important takeaways:

  • Strike while the iron is hot.  Darrell just came off an acquisition and before he even had an idea he had taken investment money and hired an employee.
  • Take some time off.  While there’s something to be said for Darrell’s approach, there’s also the value that is missed by so many in taking time off.  There was nothing to prevent Darrell from coming up with a great idea while he was on vacation instead of sitting in an office with money and pressure to come up with the next big thing.  Don’t feel pressure to immediately move into a new business.
  • Validate your business idea.  Darrell invested just a bit of money upfront with Facebook ads and landing pages to validate customer interest.  Existing businesses can do this as well for new products or services they are considering.
  • Cultivate relationships with the press.  Darrell’s Forbes relationship led to a story that ended in a sale.  Not bad!
  • Know your number.  When Darrell realized his business had topped out with his resources and connections, he came up with a number for acquisition and used that to guide his process.
  • Bribe your broker.  While we are always focused on getting our clients the best possible number for their transactions, we’re rarely going to turn down even bigger commissions if that’s what they structure into their deals!  All joking aside, Darrell’s idea showed his level of motivation and that’s a big determining factor in getting to a successful transaction.

Are you thinking about buying a business or have you hit that revenue wall that Darrell hit and are considering selling a business?  Give us a call!

Don’t Forget about Working Capital

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Don't Forget about Working CapitalWith any purchase in life, if there’s a large item at the bottom of the bill that you don’t see coming that makes your grand total larger than you expect, you’re generally not pleased.  When you are talking about business transactions, working capital is precisely one of those “didn’t think about that” amounts that buyers don’t realize is a necessary part of running a business after a transaction is completed and should definitely be on their minds as they move towards closing on a sale.

Definition

In this particular case, the textbook definition of working capital isn’t helpful.  That’s because it’s defined as your current assets minus your current liabilities.  The other unhelpful definition, which is used by too many systems-less business owners, is “the business checking account balance.”  The proper way to think about working capital is the amount of money you need to keep the business going: paying for your overhead and your staff and a little extra.  

Factors

Working capital needs are going to vary based on the type of business.  Think, for example, about the seasonal fireworks stands or Christmas tree businesses.  They have a lot of their working capital essentially tied up in inventory that needs to sell over a period of a few weeks.  Their working capital needs are much higher than, for example, a training business that collects all of the payment upfront and then uses those funds over a period of weeks or months to pay for the resources needed to complete that training.  

When calculating your working capital needs, the four categories you need to explore are:

  • Receivables (when do you get paid)
  • Payables (when do you pay your vendors and staff)
  • Inventory (how much do you have in stock and how quickly does it turn over)
  • Time (how do the three previous categories interact)

How to Obtain It

On some larger deals working capital can be negotiated into the transactions, with the buyer taking on some of the payables in exchange for some of the receivables and cash.  On many Main Street transactions, however, like the ones we handle here at Apex, we simply counsel our buyers to make sure that they have the working capital in place, whether that’s by setting aside some additional capital or by getting a line of credit or a combination of the two.  

Communication with the seller is key here and when it comes to working capital, you’re never going to get penalized for having too much of it to start off…but too little, and you’ll have the worst kind of problems imaginable.

Growth

So far we have been talking about working capital as a means to sustain a business.  But what about if, like most buyers, you want to grow a business?  Well, you’re going to need more.  Where can you obtain that working capital?

  • From your retained earnings.  This is the easiest place to find the funds.
  • From a line of credit or crowdfunding.  This needs time to get set up (having a bank relationship or preparing the proper paperwork for an offering) so you’ll want to do it before you need it.
  • Alternative financing.  This is typically used if you can’t find other means of financing, but it should be considered against the profits you are hoping to gain in growth, as this is the most expensive form of financing out there.

This is also another conversation that can be had with the seller.  “If you had more money to grow the business, where would you deploy it?” and the natural follow-up, “How much do you think that would cost?”  The seller wants you to succeed: it’s part of the motivation behind the transaction.  However, to err on the side of safety, when it comes to working capital, always remember to add at least 20% onto any estimate they give.  If you have some extra, again, that’s better than not having enough.

Do you have questions about whether you have the right amount of working capital in your business or are you considering buying a business and want help calculating how much working capital you’ll need?  We’re here to help.