There are some real benefits to purchasing an existing business. They have done the initial set up for you. They have an existing (and assuming successful) product/service, clients, processes, etc. But you need to look beyond the balance sheet to see what makes that business tick and why its customers give them their business vs their competitors.
As some of you might have heard Vancouver is a bit of a coffee city. In fact there are 4 independent coffee shops within a 3 block radius of one of my client's offices. And there are 3 Starbucks within an extra block walk. Each of the independent shops has its own unique brand. Something that differentiates them from the rest. The three that I frequent regularly include:
- Coffee culture place - They have the single estate roasts. Their staff compete in the regional barista competitions. Little chit chat here, unless you are talking the merits of coffee. They offer high quality, and really just a bit too highly priced sandwiches and goodies.
- Caterer that could pass for your "local" if it was a pub - they love their food here and their kitchen is just as big as the coffee shop. They know my name, they know my order before I walk through the door, they know that one of my coffee cups has a lid larger than my head. There are regulars sitting there that must have jobs, but how can they because they are always there. I half expect a "Norm" to be called out Cheers style as people enter.
- Funky coffee shop with unique sandwich and soup combos. This is where I go to get my flavour shot coffees, with a tuna melt and some crazy soup. I chat with the owners about vintage jewelry and make sure my coffee card gets stamped. The owners are relatable and friendly.
Now the funky coffee shop was recently sold to a new owner. While she has kept all the products the same, she started putting her stamp on the business right away. The obvious is the new artwork -- and a wall fireplace. These changes are (I'm assuming) supposed to make the place more high class. But what made its customers love this place was its funky, arty, community vibe.
Then there is the staff. The old owners had a great balance between chatty and leaving you to your business. And they really set that funky, art, community vibe of the place. The new owner is not chatty, and while she smiles a lot she isn't really that friendly. Now that in itself is fine, because if she understands the brand of the business she bought she can hire staff that can help make up for her weaknesses. But she hasn't.
There was also an old fashioned neighourhood feel to the place. I forgot my wallet at the office one day. No problem. Catch them tomorrow. I caught up the next day. Apparently a few other people ran a more regular tab (a rare thing in this day and age). They must have been slower to pay than the new owner liked. Because there suddenly appeared a list of outstanding tabs on top of the loyalty card box. Nothing like publicly shaming regular customers to lose customers.
There also appeared a new hand written note on the cash register noting that debit transactions less than $5 would incur a 20 cent charge. The new owner has clearly, and quickly set up her top priority, profit! Not relationships with her existing customers. It is no longer a funky, alternative place to get a great sandwich (at a good price). The sad part is she clearly doesn't understand the brand she has purchased. I know that some of the regulars from my client's office are going there less often. They aren't boycotting the place, but one or two less visits a month by her regular customers is going to eat into her profits.
And she isn't offering anything "new" that sets her apart from her competition. She bought a great niche business and is whittling away at that difference.
Unfortunately I predict that as her traffic counts decline she will start to "adjust" her product mix to make up for it. And once those yummy sandwiches and unique home made soups change her business will eventually be lost.
The other example I have is more extreme. Vancouver is also know for their bubble tea. People are really passionate about their bubble tea. There is a lot of bubble tea in this town. But only a few places doing it really really well. Places where you can get a fresh fruit bubble tea, with perfect pearls These places have line-ups from the moment they open to the moment they close. One of these has clearly been sold to new owners. The signage still indicates a list of fresh and powder bubble teas. But the "fresh" fruit now tastes like syrup. And when asked if it is fresh you get these blank "yes" of course looks. But they clearly are no longer fresh. And the pearls are mushy. The product is so bad and the change so obvious that long time customers are refusing to go EVER again after just one visit.
In the case of the coffee shop you could argue that the new owner understands some of the core pillars to the business (the product quality has not changed) and is trying to elevate her new business to represent her vision for its brand. But if you are going to do that you better be clearly defining a new brand differentiation for your business. And not making yourself more like the rest.
In the bubble tea example the new owners don't even seem to care about the existing business they bought. Neither really understand the brand they have purchased. And that puts both of these businesses at risk.