What You Need To Know Before Buying An E-Commerce Store

Don’t make my $10,000 mistake.

If I gave you $10k right now, what would you do with it?

My answer would most likely be to invest in stocks or save the money for a down payment on a house. If I were to be more “risky,” I might choose to reinvest the money in some of my online blogs. I could maybe hire some content creators or run some paid ads to grow them faster.

Three months ago, I had a different answer. When I got my commission from my first successful auction, I bought a dropshipping store that was making over $1k in sales per month for $10k.

Time to flip the store, scale it up, and become a millionaire in the next three months, right?

It’s January now. I have no excess cash to run ads anymore.

Don’t Put Your Eggs In One Basket

Before I start bashing myself, let’s start with the positives.

I did have a plan for my commission. With the $30k I received, I first paid off my student loans and maxed out my RRSP (a tax-sheltered investment account). That came out to be about $15k total. About $3k was then held as an emergency fund or for tax purposes.

I planned to use the rest on building a business. More specifically, an e-commerce store due to my familiarity with e-commerce.

This is where the positives stop.

Why e-commerce? My head was under the impression that e-commerce was the quickest way to make a lot of money, mainly due to all the gurus talking about how to make $X (usually >$10k) in 30 days.

Initially, I was planning to build my own store, but after seeing some emails about buying pre-built Alidropship stores that were already making profits, I realized that I finally had the cash to actually buy an existing profitable store.

So I did my “due diligence.”

Having operated on seven failed e-commerce stores and taken many dropshipping courses previously, I gained a lot of valuable skills despite losing money most of the time.

One skill that came in handy was figuring out how a website was performing using a few online tools.

The first thing I did was go onto Facebook and pull up the Facebook page of the store that I was trying to buy. There, I reached the Facebook ad library and saw if the page was running any ads.

No ads were currently being run. That’s okay. I guess since Alidropship was selling the store, they didn’t want to reveal all their secrets.

I did take a look at the Facebook page and missed the first red flag. Or, rather, I saw the red flag and completely ignored it.

Based on the Facebook posts, I noticed that the posts were either pictures of random animals or a promotion for a vacuum cleaner.

At this point, I knew that the vacuum cleaner was the product making sales and the posts were the same posts used for the store’s ads.

The red flag was that no other products were being promoted despite the store having hundreds of supposedly “proven-to-sell” products on display.

I told myself, “Whatever. I’ll just turn on the ads for the vacuum cleaner and make instant profit. Then I’ll use that profit to test more products and find more winning products. With so many products already in the store, I have so many items to test, which meant a lot of room for the store to grow without the need to research and add more products.”

I didn’t, however, consider the consequences. With only one winning product in the store, there were a lot of concerns.

What if that winning product was trendy for a little bit and isn’t popular anymore? What if I run into a logistics issue?

I was gambling my money on one product.

I made three sales on the first day of running ads and got very excited. But then the sales stopped. I threw more money on Facebook ads, desperate to make money back, but it just kept pushing me deeper into the red.

How Easily Can The Store Be Reproduced?

The biggest red flag I ignored was the one that popped up after I looked at other stores that were for sale on Alidropship.

As I was browsing through the different stores, wondering which one I should buy, I noticed a common trend.

Nearly all stores were using the same template and selling the same products. The only differences were logos and colors.

In my mind, I was thinking, “I could build one of these stores on my own following a similar design and adding the same products to my store.”

But I managed to convince myself to ignore the red flag by telling myself that there was some secret, magic sauce that I didn’t see, such as Facebook ad targeting and backend marketing campaigns.

Unfortunately, I realize now that no amount of secret sauces could justify buying a store whose products and branding are easily replicated for much more than it cost to build.

I paid $10k for the store. Given my previous experiences building e-commerce stores, I know I could have built the same store for one to two hundred dollars. I could have even hired someone to make it for me, and it would have cost less than $1k.

I learned that if I want to buy businesses, they should be businesses with unique competitive advantages.

You have to pay attention to how much it might cost you to build the same business. You should only buy the business if the cost to make it far exceeds the cost to buy it.

When I say cost, that includes time and risk. Buying a profitable business only makes sense if the risk and time you take to build the same business are way more significant than what you’re paying for the company.

Consistency And Value Of Assets

Going back to how I was throwing money at Facebook ads hoping for a return, something I needed to do was be more critical.

The whole reason I wanted to buy a store in the first place was that I thought I had discovered a new avenue of investing. Just maybe, I could buy these stores and flip them the same way some people flip real estate.

I thought I was onto something. Buying e-commerce stores as an investment could be the next big thing. The numbers on paper looked insane, and no one was talking about flipping e-commerce stores yet.

The store I bought made over $1400 in sales in one month. The profit was over $300. Getting $300 per month on a $10k investment is crazy good.

It’s basically a monthly paying dividend stock that yields 36%.

Now imagine, I reinvested into the store, found more successful products, and scaled the store up. I would be a millionaire by March this year.

By this time, my eyes were gleaming with greed. So, of course, I missed the not-so-fine fine print.

I wasn’t being scammed. The sales rep revealed the profits, the number of sales, the amount spent, when the sales came in, etc. After getting the store and looking at the analytics, everything she provided was accurate.

The sales rep had clearly put in the email that the $1400 in sales was for ten days during the summer of 2021. There were no sales during any other time, so presumably, that was when ads were running.

I’ll commend myself for being positive because instead of wondering why they didn’t run more ads or make sales outside of that 10-day frame, I got excited and thought if I ran the ads longer, I would be making way more than $1400 per month.

In reality, only seeing sales from one ten-day span doesn’t tell me anything. If I’m buying an e-commerce store, I need to see consistent sales over at least a few months or years, even if the sales are low.

Consistent sales give you much more to work with. You can analyze why the sales might be low or high and plan accordingly. Buying a store based on what they did in one ten-day timeframe is gambling.

I must have been way too excited about the potential to make a ton of money. Because while I was subconsciously seeing all of these red flags, I somehow turned them into green flags.

After seeing the 10-day span of sales, I researched the store’s assets.

I saw that the Facebook page had about 2,500 followers. However, what was odd was that there were no Instagram, Twitter, or Pinterest accounts.

Again, I was being too optimistic. I saw the lack of other social media accounts as a huge avenue of growth.

Whether or not if there is a huge avenue of growth, the problem I was dealing with was how much should I really pay for the store?

Was a Facebook page with 2,500 followers and a website really worth $10k?

My mistake was going forward without analyzing how much anything should be worth. Maybe this store could have been a good investment… at $2,000.

Invest In What You Know

I preach a lot about investing in what you know, especially after my e-commerce store incident.

I talked a lot about how I was being positive. I had all these strategies for scaling the store and quickly becoming successful.

Here’s a little background info on me. I’ve built more than seven failed dropshipping stores. I thought I would be way better at scaling a business than starting up one for some reason.

We’re typically bad at anything we haven’t done before. If I never got past that start-up stage, I should not think that I would be any better at scaling a business.

Looking back, I should have spent my money building a store from scratch over buying an existing store. I would have taken the total hit of experiences that come with building a store and be able to identify stronger investment opportunities in the future from those experiences.

Learning And Moving On

Was buying the e-commerce store for $10k a mistake?

Yes.

Do I regret it?

No.

It’s good that I made this mistake. There were plenty of learnings mainly focused on thinking more analytically when investing and being careful with emotions.

I also learned a ton about running successful e-commerce stores, and at the end of the day, I still have a store that’s fleshed out with products.

I can still make the store a success. Undoubtedly, that road still has many failures and lessons waiting. I’m excited to face the obstacles and gain the experiences necessary to achieve my goals.

If I ever decide to buy more e-commerce stores or any business for that matter, I need to make sure that:

• The business is not reliant on one factor to succeed.
• The business has a competitive advantage that differentiates them from others.
• I am more analytical about the business by looking at how consistent the business makes money and what its assets are actually worth.