Interested in acquiring a hosting company when you want to begin your own startups? Here are a list of questions that you may ask yourself before making a deal. But all considerations go back to one term, customers.
There is a thread here posted today asking if someone would like to buy an existing hosting company. The starter of the thread did not give very detailed information in the beginning, and neither did he/she add enough for potential buyers’ evaluation. A few followers sent their questions then, hoping to extract their desired and relevant answers. The various questions range from the geolocation of the mentioned company to the number of currently contracted clients, and even some mentioned the expected acquisition price/quotation. However, it looks that these inquiries have not touched the key issues of an acquisition until someone replied with the following questions (I hereby repost all the content below).
How sticky is those 300 customers currently contracted even though not a lot. Will also depends on how good the reputation of the brand is.
The worth will depends on:
- active customer base/growth (not losing yearly or monthly)
- how servers/services are used (co-location) (own-hw)
- how many staff are employed as offshore or onsite?
- how expandable that is.
if 6000$ can generate 14000$, that isn’t so bad biz. If can share 7-8 years financial data, the worth will be even more.
From the questions, you may see it that the high priority is put on the customers, a key source of momentum of a company’s growth, and of course, of its profits. When some people focus their attention on the places of company registration which may be due to considerations of tax related issues, or to law enforcement implementations, and yet some on details of the selling or signing contracts, people interested tend to ignore the core value and competitiveness that guarantee the sustainability of the acquired company.
The term sticky tells how long the company can expect cash inflow from the market as long as it operates. The stickiness is especially important when the economy or the external business environment is not that favorable or even harsh because customers relying on your business will generate cash flow during the recession and help the company survive.
The good reputation of the brand also rely on the customers, in addition to the company’s investment via advertising. Normally, the reputation is only established after long operations and customers perception plays a key part during the formation of the overall brand recognition. If they don’t trust your brand, or your company, the negative perception will have an impact on your value. The lessened value can surely be a killer when negotiating a satisfactory price with your buyer.
And of course, business needs to grow. In another term, the customer base should expand, better gradually so that you can expect steady income. When I mention expansion, don’t forget that your existing loyal customers are indispensable as when they leave the whole customer base will shrink and become unstable even if the churn is replaced by introducing newcomers.
To sum it up, think about the customers twice when taking (and of course, selling as well) a new company, startups or existing ones. Think about how you would handle relationships with these customers, because mature and successful companies establish ties with customers and make them valuable resources/asset. Also, think about strategies and tactics that can be applied to retain customers so that you can maintain, consolidate or even expand current market share. All these done, you may rely on your sound judgement as how much the acquisition is worth, and make assessment on the input for future ROI evaluation.