Acquiring an eCommerce Business vs. Starting from Scratch

A key decision from the get-go is determining whether you should start your eCommerce brand from scratch or acquire an eCommerce business.

April 27, 2021

A common question I receive from entrepreneurs is whether they should acquire an existing eCommerce company or start their own eCommerce business from scratch.

There are pros and cons to each based on your expertise, the product you do or don’t have on hand plus your current work, life and financial situation.

I will share my experience and expertise in the eCommerce space. I will let you know about the decisions I’ve made pertaining to starting a brand from scratch versus acquisition to provide you with real-life examples.

My Experience in eCommerce

I founded my own eCommerce company with my family, DermWarehouse, and scaled this from $0 to over $5 million in sales [learn more]. Our family also started our own skin care line from scratch, Park Perfection.

I have the experience reselling products from other brands with (DermWarehouse) along with starting a brand from scratch. I’ve also overseen and provided guidance on many eCommerce acquisitions.

I’m the owner of a digital marketing agency, The Media Captain. We work with all sorts of eCommerce brands, like Darby Creek, which acquired a small eCommerce business doing less than $5,000 in revenue per month and turned this into a multi-million dollar business. They utilized BizBuySell to find the right company. I’ve guided many brands in answering their questions on key business metrics to look for when acquiring an eCommerce company. 

The Parks Family Promoting Their DermWarehouse Products

Know Your Strengths & Financial Situation

When it comes to starting your own eCommerce business, know your strengths. If you’re great at digital marketing and feel confident you can acquire customers through Google Shopping and Social Media, starting a brand from scratch could be a viable solution.

If you don’t have a product or are unfamiliar with acquiring customers through digital marketing, purchasing an eCommerce business could be your best bet. You have to have a great product to sell, that’s first and foremost.

It’s also important to know your financial situation. If you have $50,000 saved and are looking for an investment and have a day job, acquiring an eCommerce company is likely the better alternative than putting in the sweat equity to starting your eCommerce brand from scratch.

Real Life Scenario 

For DermWarehouse, we are a reseller of over 100 brands of professional strength skin care. This means we didn’t have to develop any of the products we sell on our site. We deal with skin care brands that want to list their product on our site. Think of Nordstrom selling Nike, Lacoste, Polo amongst other brands. They are resellers (with their own in-house line of products, which we have also).

We didn’t start with over 100 brands. We started small, selling 5-7 brands, generated revenue from our first dozen or so products and scaled in this manner. I recommend starting with less SKU’s, proving your concept and then scaling.

We have great familiarity with skin care and beauty since my dad is a dermatologist. Having a dermatologist as a co-founder allows us to sell many brands that the general public wouldn’t be able to sell thanks to his physician’s license. This is our unique selling proposition. Add into the equation that the digital marketing agency I founded, The Media Captain, has marketing expertise and website development expertise.

My sister runs the day-to-day of DermWarehouse. She started The Media Captain with me but running an eCommerce beauty business was in her DNA as she’s a great operator and extremely knowledgeable on skincare and beauty. All of these aforementioned components made the decision easy to start our own brand from the ground up.

Jason and Stefanie holding their first inventory delivery of Park Perfection.

For Park Perfection, we had no experience or knowledge on how to develop a beauty product from scratch, but we did have a dermatologist (my dad) who was familiar with ingredients and had spent 30 years talking to patients about what they were looking for in their skin care products. That, combined with the fact that we have a great design team with The Media Captain to help us with branding, it was a no brainer. 

Most importantly though was developing an exceptional product. Too many aspiring entrepreneurs overlook how important it is to have a great product. They also underestimate the importance of being an absolute expert on the product they are selling. 

We were fortunate enough through the connections we made at DermWarehouse to forge a relationship with someone familiar with product development, bottle packaging and much more. This person was able to guide us in the right direction, which saved us time, money and ultimately led to a successful first product, our Instant Eye Lift. Don’t just take my word for it. InStyle wrote an article and said, “It’s Almost Scary How Well This Eye Cream Smooths Fine Line.”

Overlooking the Importance of a Great Product

As I already mentioned, too many aspiring entrepreneurs overlook the importance of having a great product and being an absolute expert on that product.

If you are feeling stuck on developing a product yourself, this is where acquisition can be a great play. An eCommerce site we helped, Cookie Bouquets, acquired a great domain name in CookieBouquets.com and scaled this business by investing in digital marketing.

The prior owner of this domain was an older woman who had one storefront with an amazing domain name. They were doing minimal investment into eCommerce and online marketing. The present owner of Cookie Bouquet saw the opportunity to scale the company through investment in key digital channels like SEO and online advertising and scaled the operation. 

Based on my experience on the digital marketing and eCommerce front, I created a list of the pros and cons of starting a brand from scratch and acquiring a pre-existing product or brand.

Pros – Starting a Brand from Scratch

Less Up-Front Financial Commitment (depending on inventory)  

Nobody would turn down acquiring an eCommerce company with 100,000 customers with great retention if they could do this for no cost. This isn’t reality though. It costs money to acquire a business . You can launch your eCommerce store for much less by doing it from scratch. You can build a simple Shopify site for $1,500, set-up your social media channels and start running advertisements on a shoestring budget. The problem? 80-97% of eCommerce businesses fail. Having a great product and marketing knowledge is key.

Understand the business inside out from the onset 

When you start an eCommerce business, you have to learn each and every angle of the company. From the platform of your site, like Shopify or WooCommerce, to third party tools like ShipStation for shipping, Avalara for taxes and QuickBooks for accounting. This isn’t discounting the need to learn all of this if you acquire a brand. Structural items will be in place with the acquisition route, unlike starting from scratch. Some aspiring eCommerce owners may view a steady foundation as a plus. I can’t tell you how fortunate my sister and I are to have learned the ropes with DermWarehouse.  

Related Podcast: Stefanie Says Goodbye to Media Captain and Hello to DermWarehouse

More flexibility and Control 

It’s a pain transitioning to new platforms and technologies. If you acquire a brand and they are on Magento, it can be a big overhaul to move the site over to Shopify. When you start a brand from scratch, you make the decisions from the beginning. This also includes picking the right vendor, employees, warehouse location and much more. 

Pros – Acquiring a Brand 

Proven product 

It’s a great feeling knowing you have a product that people love. Product development is tough and can be costly. If you don’t have a great product, you’re climbing a major uphill battle with boulders coming at you down the hill. When you acquire a brand, this is an absolute huge hurdle you’ve overcome if you acquire a great product. 

Related Podcast: How to Build Your eCommerce Brand from Scratch

Established customer base 

An established customer base is the lifeblood of any eCommerce company. According to YotPo, almost 15% of all eCommerce shoppers are repeat customers. Returning customers actually make up about 1/3 of all online shopping revenue, and they spend 3x more than one-time shoppers on average. Let that soak in for a second folks. It can cost a lot of money to acquire a customer. When your customers become repeat customers is when profitability happens. 

An established customer base is important, which is why you pay a premium when acquiring an eCommerce company. An established customer base also makes it easier to generate revenue from marketing methods like email marketing. For every $1 you spend on email marketing, you can expect an average return of $42 [source]. 

Related Podcast: Importance of Recurring Revenue for eCommerce

Established social media and online reviews 

Similar to acquiring customers, when you buy an eCommerce business, you’re also acquiring the assets, which can include a strong social media following and online reviews posted about the business. 63% of customers are more likely to make a purchase from a site that has user reviews [source], meaning your eCommerce site will have a higher conversion rate percentage with reviews in place. An ODM Group study found that 74% of consumers rely on social networks to help with their purchasing decisions, which shows how an established social media following can help. 

Related Podcast: Top 15 Tools for your eCommerce Business

Technology and processes in place 

If you acquire an eCommerce business that has amazing processes in place, this can be life changing. Automation is key in eCommerce to run an efficient operation. The right tools can make that happen. While we mentioned learning the ropes being a pro, it can also be a con based on the time you have to spend and the bumps and bruises learned along the way. Having the right infrastructure for your eCommerce business will streamline your entire operation. 

In Closing (Checking Out)

Every person is in a different situation in their professional, personal and financial life.

If you’re in college and you are a great artist and want to sell your paintings online, starting your business from scratch is going to be the ideal scenario.

If you have a family with limited time based on your day job, acquiring an eCommerce brand could be up your alley (especially if you have the cash to invest).

This isn’t saying someone who has a 9-5 job can’t start an eCommerce brand from the ground up. We’ve seen this firsthand as well. 

eCommerce continues to grow and is an exciting space to be a part of. Just know the odds are stacked against you to succeed in eCommerce. Making the right decision on starting your own eCommerce store versus acquiring one can make a massive difference in your overall success.