If you want to start a business but need to develop it to scale right away then there is a method that serial entrepreneur Tai Lopez has adopted that can work for any size of enterprise.
The problem with starting up as anyone will tell you is that there is a balance between time and money to develop brand recognition; the more money you spend on advertising the quicker you achieve critical mass, spend less and it takes much longer.
However, there is a way that brings in both brand recognition and loyalty to what is essentially a start-up situation meaning that you can skip straight to a business that has scale.
Don’t buy the business, buy the IP
The Intellectual Property(IP) of a business consists of things like the name, branding, rights and customer lists that in many cases are the most valuable part of the company.
Tai Lopez, through his Florida-based holding company Retail Ecommerce Ventures (REV) has been scouting out distressed brands and then buying up the IP which gives the company the key part of the business that can then be developed.
REV almost exclusively looks for brands that have fallen into chapter 11 bankruptcy and then buys up the parts of the business that are most valuable.
Often the companies concerned have been saddled with high debt levels, have entered into unsustainable brick and mortar leases or have simply failed to develop their online offering.
In essence, the businesses aren’t necessarily bad but they have been managed in a way that just isn’t compatible with the changing face of retail.
A perfect example of the strategy in action is the acquisition of Pier 1 in July 2020 with the brand reopening as an all-online store by October.
As Lopez said in a recent interview with Bloomberg “we don’t think the brand is broken, the trust is there. Pier 1 has over 90% brand awareness [in the US] and it’s really hard to do that if you start a brand from scratch. Impossible really”
This is a method that has stood REV in good stead as they have worked their way through a series of different distressed brands and turned them into new online trading sensations.
Dressbarn, a brand that the group bought out of liquidation last year, is now reporting more than 3.5 million visitors to its website as of June 2020 (beating May by an impressive 18%) with $165m sales forecast for the full year.
Combining modern methods with a traditional brand
The key to the success of REV is that they take tired brands and revitalise them using methods that are more appropriate to the internet era.
Gone are the brick and mortar stores to be replaced by a modern fulfilment system that utilises direct-to-consumer dropshipping with delivery methods that fit more with peoples’ lifestyles.
The business runs light too with the entire REV operation said to comprise only 30 people at its head office.
What is interesting is that instead of compartmentalising each of the companies, REV has chosen to develop a platform approach rather like Amazon marketplace.
The stable of companies are diverse, ranging from sporting goods seller Modell’s to Franklin Mint and the seemingly random approach is deliberate.
By having multiple brands the REV group have made a virtue of being able to cross-sell goods on each of the brand’s websites, removing the chance of cannibalising its own customers.
In time, they intend to open up the platforms to other sellers and in exactly the same way as Amazon, develop into a sales platform rather than a series of discrete companies.
Can you do this with any size company?
Whilst the $31m capture of Pier 1 will be beyond the resources of most new entrepreneurs the more modest purchase of Modell’s at $3m shows that targets don’t have to be big to succeed.
The price of the IP for any company being sold out of bankruptcy or liquidation is directly related to the number of buyers that are out there so it is possible to find businesses that are a lot cheaper and if it operates in a very niche sector this is especially true.
Niche businesses are difficult to sell, which naturally reduces the price as there will be a scarcity of customers so if you operate in a specialised sector it is always worth keeping your eye out for competitors or complementary brands that could enhance your company.
Administrators and liquidators are charged with realising the best value they can for creditors but they also have the opposing responsibility of doing so quickly. This means that a buyer who can move with speed will more than likely be able to drive a much harder bargain.
Remember too that these businesses will often be massively underpriced compared to the same enterprise that is operating in a healthy state, so although a potential target may look to be out of your price range it is always worth asking the question.
Following the covid crisis, it looks likely that there will be no shortage of potential purchases as lockdowns and a general reduction in activity sends businesses over the edge.
As Tai Lopez says “There’s a lot of choice and the choice is growing” and active buyers need to be in contact with administrators and liquidation specialists to make sure that they have early access to potential targets.
An opportunity for new starts or established businesses
Whether you are a brand new startup or an established business looking to scale up there are some important lessons to be learned from how REV does business.
The important thing is to carefully assess the brand and IP of targets and think about how you could use this to add value to your existing business or redevelop it into a high-growth startup.
Consider the things that have held the old company back and look to move the business forward with innovative marketing or operational methods.
And if you see a competitor or complementary business getting into trouble then keep your eyes peeled as there is a significant financial benefit to being the first person to put in an offer.
By using these techniques you could find that scaling up your business and developing a loyal customer base is actually closer than you think.
