Should I invest in my current company or acquire bigger company?

[foreign]

Hello!

I have been running a small and unregistered hosting company for a few years now. I am very happy with company and I think customers are as well, but I still want to take it one step further. I want to have a registered company = my primary job. Also, from current company I am not earning enough for living - I started this company out of nothing and I am not really investing anything in marketing.

I am planning to invest soon(around 15.000€) in one of the following options:

a ) Register and invest in my current company

b ) Acquire other and bigger hosting company

Which option do you think is better and why?

Is this budget enough to complete my goal?

What are the risks?

If you have invested similar amount, how did it end up for you?

Thanks.

 

[Awmusic12635]

Well you should absolutely register your business

 

[MannDude]

I agree with @Awmusic12635 , I'd do that regardless if you invest it all in your company as it is or if you buy out a new company.

As far as your original question goes: You can buy clients from an existing company and merge them under your existing brand however doing so you can expect to lose a handful of the purchased customers. Ownership changes and mergers usually result in a fair share of customers leaving. There was a good thread on WHT about this, I feel like a couple larger established hosts mentioned something regarding about 20% of the client base of a purchased company may flock elsewhere. Don't quote me on that, I may have remembered it wrong, but that's something you should at least consider or expect.

Alternatively, you can invest in your existing company. How would you like to expand? Are you renting hardware now? Would you prefer to replace it with hardware you own and colocate? How about marketing? That money could be spent carefully and wisely on marketing to spread your brand awareness. What is the current state of your existing branding and website anyhow? We do not know what your website is as you do not have a signature setup, however you could certainly put some of that towards strengthening the presentation of your brand by having a new website developed from the ground up, new/improved logo and content written by a professional. What about credit matching? This seems to be a popular thing nowadays with Cloud startups. Customer deposits $25 as account credit, the company then adds another $25 to it. ($50 worth of service credits for just $25).

There is a lot you can do. We can give you ideas but you'll have to decide by yourself where your funds can be best spent and what it is that you are hoping to accomplish with it.

I'd personally probably not bother with purchasing customers or a host. A host for sale is often a sign of failure to begin with and the customers are going to be finicky in my opinion. It's quick / easy way to add to your numbers but that's not always the best way to proceed. Besides, you said you're doing this solo. If you buy a brand that is for sale you may not have the means to properly support them.

I would probably:

• Evaluate my website and brand image. Make changes or redesign entirely.
• Do credit matching to attract new customers after the above is done. Set aside a specific amount of money used for this promotion and stop the promotion once that limit has been reached.
• Everyone loves a free trial. Setup a node or two specifically for free trial customers. Require that they deposit $1 from a verified PayPal account (or similar) to virtually reduce fraud and abuse that free trials often attract. At the end of the cycle you can refund that $1, thus making it 'free', or the customer can renew at a regular or discounted price with the $1 added back as account credit towards their now active and full priced account with you.

Etc, etc.

 

[drmike]

I am planning to invest soon(around 15.000€) in one of the following options:

a ) Register and invest in my current company

b ) Acquire other and bigger hosting company

So let's say this is $18k US Dollars.  Not a tiny pile of money, but hardly deal money.   Waiting... for every small host to say otherwise.

I'd do a lot with that funding.   Since you state interest in deals and wanting to grow, most of that is best done as a limited liability legal entity to contain risk outcomes.  So incur those costs and determine best location to incorporate in.

Marketing is something most small hosting shops overlook and it's seriously a time and money investment.  The serious part is that it needs to be whole in vision and improving upon all aspects of a shop.  Too many companies rush quickly with marketing and throw a $50 here and there and nothing happens.   It's a long term thing with big vision or stay mostly away from it.

Deals to buy out companies < $15k and under tend to be low performing cheap companies and generic hosting companies with not many customers.   Any buyout will result in client abandonment, with some resulting in quite significant drops.  Depends on the company shape and customers and of course how they view your company as the buyer.

I'd focus on controlled investments in small amounts.  This might include partial buy into bigger shops (somewhat unlikely).  But more than likely buying compatible competitors in your niches or region.

Also if you have liquidity like this look at your gear and if not owned, now is the time to consider that and other investments to realize benefits and cost reductions.

Finally there is the option to invest in a new market or product offering.  Diversity of income is always a good idea.

 

[MartinD]

I am planning to invest soon(around 15.000€) in one of the following options:


a ) Register and invest in my current company


b ) Acquire other and bigger hosting company

In many ways, both options are interlinked. If you go for acquisitions, it's still an investment in your original company. Try not to think of the two as different options but actually one and the same; investment. Regardless, I would, as others have mentioned, use some of the cash to create/register as a company. This gives you risk shielding should things go wrong and offers an amount of protection to you personally.

Which option do you think is better and why?


Is this budget enough to complete my goal?


What are the risks?

This is where I might take a different approach from others' but it's also where I look at things from an alternative angle. There are businesses that spend huge amounts of money on advertising and PR and for them it works well. Largely due to the dedicated budgets set aside for it and staff employed solely for that purpose. It has its place but not with a small business that's trying to build itself. As you've said, you can't pull a decent wage from it so spending all that money on advertising that may or may not work is too much of a risk in my opinion.


In a service related business, your biggest and most valuable asset are the customers, period. You can have fancy control panels, great hardware, excellent locations and brilliant deals everywhere, but if you don't have the customers on board to use them it means nothing. If you have a customer base that is extremely happy then you're 2/3rd's of the way there. It's true that people complain when things go badly but keep quiet when it's going well, but those same people DO tell their colleagues and friends about it when they're asked for advice on XYZ hosting. The more satisfied customers you have, the broader your reach to those looking for services.


What's my point? Spend some of the money on 'advertising', but that advertising should be your customers; buy out smaller businesses to build your customer base. Make wise choices though and avoid the fly-by-night hosts you find on LET. Retention there is going to be poor and the overall quality of the business (how it's been run, organisation, etc) will be sub-par. You'd end up spending more time and money sorting the problems.

Others may do it differently but that would be my choice after spending money on company registration and perhaps hardware & colo. It worked well for me, but not every shoe fits!

 

[Tyler]

Howdy! Make sure you take this (and everything else you read) with a grain of salt. It's free advice from a random guy on a forum
 

I am planning to invest soon(around 15.000€) in one of the following options:

I would recommend investing in yourself because this will allow you to set up the necessary sales channels to ensure that you'll be attracting clients day in and day out.
 

What are the risks?

The risks should be relatively obvious. As with any investment, you should be ready to lose all the money you have while simultaneously being resigned to not letting that happen.

Is this budget enough to complete my goal?

Yes, your budget is enough to complete your goal. You won't be the next Linode or Digital Ocean today and you'll pay for that by waiting longer, but yes, you will be able to make a dent.

If you have invested similar amount, how did it end up for you?

I invested about $10,000 to start my company and it took us around a year to reach profitability. There were many quirks and a lot of things that I would have done differently (if I could have done a few things differently, we would have been profitable by month 6). 

 

[MartinD]

I invested about $10,000 to start my company and it took us around a year to reach profitability. There were many quirks and a lot of things that I would have done differently (if I could have done a few things differently, we would have been profitable by month 6). 

Perhaps you should share those pitfalls and what you'd have done differently.

 

[Tyler]

Perhaps you should share those pitfalls and what you'd have done differently.

They were pretty standard, to be honest. Expanding too quickly, choosing the wrong datacenters, and going with the wrong support personnel. I'll do a full, 500-1000 word write-up of everything I've learned on my personal blog though.

 

[foreign]

Thank you guys for quality responses!

Okay, so from responses I came to conclusion that it is way better to invest in my current unregistered company(www.reliablecore.com) and register it as soon as possible.
I am not looking to get successful over night, I learned a couple of important things: be patient, get customers who will stay with you and learn from other people mistakes(Without this I would fail long time ago).

So I will be probably doing the following:
- Redesign entire website and logo
- Hire temporary multiple people who will help me to improve each part of company
- Marketing and offers which will attract mass of customers(legit ones, I hope) <- This is what I will have to relay on. If this fails, 15k will as well.
- Hire one or more people for technical support

Like I said. If it went wrong somewhere for you when investing similar amount, please share it here with me and others.

Also, does anyone have experience buying clients and/or companies? How did it end up for you?

 

[Tyler]

So I will be probably doing the following:


- Redesign entire website and logo


- Hire temporary multiple people who will help me to improve each part of company


- Marketing and offers which will attract mass of customers(legit ones, I hope) <- This is what I will have to relay on. If this fails, 15k will as well.

- Hire one or more people for technical support

Technical support should be a top concern. Bad support or slow issue resolution is the #1 reason that people will move to other companies. Hiring others might be a good idea, as might outsourcing your support (do your research if this is the path you want to take) if you want to spend more time on growing the business overall.

Also, does anyone have experience buying clients and/or companies? How did it end up for you?

I have purchased hosting companies and clients in the past. I would recommend avoiding it if you do not know what you are doing or if you are not looking to do a lot of research.

If you want to buy a hosting company or client base, I'd recommend paying a consultant to comb through the databases and information to ensure that the customers are worth acquiring. You might spent $250 to $500 to have someone do a little bit of research for you, but I will tell you that it is money well spent, especially if it saves you from a $15,000 loss.

All the best