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Home  All Categories Working with Competition Buying competitor's company
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Knowledge Base - Are you interested in starting a wireless ISP but don't know where to start? Do you need help writing your business plan and could use some samples?
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Buying competitor's company |
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Written by gmcintire
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Tuesday, 28 November 2006 |
" My only direct competitor approached me a few weeks ago about wanting to sell his company.
A quick background first. I started deploying customers about May/June of this year and am still very small with less than 10 paying customers. There are a few more than that on the service, but they are friends/family. I'm a technical guy and the only business sense I've learned has been "on the job" getting my company rolling, although I know enough to keep myself out of trouble. I've kept my business small up to this point because I just don't have the capital to drop on more than a few CPEs at a time. I've been entirely self-funded without any loans.
My competitor has ~70 clients across 4 towers and has been in business for a few months longer than me. His network has been very poor in the past, using omnis at all towers and having backhauls on 2.4 GHz. I've already gotten a few converts fleeing his service. He's worked to improve it lately, but I have not talked to any of his current customers recently to know if it's improved.
I guess I'm basically just looking for anyone else's input. As I said, I don't have capital lying around, so I'd most likely need to get a small business loan to do the acquisition. This is my first business and the thought of doing anything high-dollar right now makes me very nervous."
superdog:
my question would be How are You going to handle tech support and billing etc?. If this network You want to acquire is in bad shape, keep in mind that You will need to upgrade it, AND deal with all of the support calls until You can get it fixed. Once You figure the time and total cash flow needed to make this venture work, I would sit down and talk with the wife or any other person whose life this will affect and see if they are also ready for the commitment required to make this work?. Something tells me that this will be a pretty big bite to swallow?
gmcintire:
Yes, my wife is a full-time elementary school teachers and I work part-time (5-6 hours a day, I'm off by noon to 1-ish) doing support for an online learning company. Our day jobs are how I've been able to finance my existing business.
My current billing system is totally manual with quickbooks, which isn't bad with less than 10 customers but would kill me with 80. The other business has a PowerNOC automatic billing system for his customers (he had used sputnik in the past.)
I'd handle the tech support myself and have a few contractors to handle new installs. I know how much work it is already, and I'm willing to handle it.
What I'd really hate to have happen is another larger company buying out his company, fixing everything, then totally clobbering me. I've done well so far with offering slightly lower prices and better service (and support) to clients, along with referral incentives.
However, right now I see my survival based on either buying out the other company or working on growing my own very rapidly, both of which require capital I don't have.
PersComp:
There is a big difference between being willing work the hours to put in the effort and being unable to be there for your wife, kids, or other family. My wife got very tired of going to bed alone every night because I was up working until midnight! I was also unable to go to my sons baseball and soccer games either. This was mainly due to my PC shop and had very little to do with wireless (other than me hanging out here until late at night  ) I have made a commitment to her to not expand any more quickly than WE can handle it (not just ME).
JohnGalt:
The proverbial "rock and a hard place"...
Since he approached you it would seem to indicate that he is wanting to escape from his particular situation. Perhaps you could arrange a phased payment to him and a loan to do the most obvious system upgrades (sectorization and such).
A sharp pencil and an eagle eye would be two valuable assets at this point in time.
Chele:
For better or worse, you know what you have when you build it yourself. You have no idea what his network is like. You will have to upgrade the network if his gear is the home-brew variety, and you won't be able to get cash from the customers since they already paid the install fee. You will adapt to your business's needs as you grow, it will be a heck of a shock to your lifestyle if you go from 10 to 80 customers overnight! People tend to over-value what they have(I know I do). There is a good chance he would want way more than the company is worth, unless he is desperate and offers you a great deal.
Make arrangements to accept credit cards, get away from the paper bills.
forward:
Some of the others have already said it in one form or implied it but here it is again:
When you buy his company, you get his problems, obligations and commitments, decision baggage and unhappy customers. Make sure you can handle all of those. Whoever buys him up will have the same issues so it doesn't matter if they are bigger because they will have to put in that much work and money and so on.
His main assets (if you want to call them that) are his customers and tower locations since it sounds like you don't like his equipment. Ask yourself when you think he will fail and how many of his customers you can get as he spirals down should you choose not to him out. That might be a good way of growing under YOUR controlled pace. Your current customers that were converts from his service is your best source of info.
If you do say that you can handle his issues, problems etc, ask to see his cash flow statement and other numbers before you even agree to a price. After all, if he has lousy numbers you'd better offer a lower price and vice versa. Ask to see his contracts with his clients and the tower locations because you need to know how long they are for and how much and what your rights are.
Sketch out a business plan (for after purchase) for the next 6 to 12 months after acquisition and project expenses for your equipment replacement, additional BW costs, retraining etc. Then look at those projections and see if you can handle them based on the revenue etc.
ponline:
I would buy his company only if his clients have good and professionally installed CPEs.
I would give him the price that is worth only for buying those 70 costumers.
Then I would upgrade his 4 pops with my own design, and adapt them to my network. It could cost me around 800-1000$ for a POP with two sectors and I would have 70 new happy costumers in my network for about a weak 
But then again, in your situation as a start up WISP, its dificult decidion to make.
McWizzard:
I've got a couple of my own questions, if you don't mind.
1) The first thing that jumps out at me is why is he/she selling their business? If he doesn't have positive cash flow with 70 accounts, how does that help you?
2) You stated that the competitor started a few months before you, but has 7x the number of accounts you have. What has he/she done to grow their business that much faster than yours?
3) Something to consider. If your competitor is interested in selling, they might not be making any money. If that's the case, it's possible if you do nothing but continue to grow your business and provide better service/support - you may get those 70 accounts for a lot less than buying his business.
Keep us posted
gmcintire:
Thanks for everyone providing input so far, it's helped quite a bit.
PersComp: Thanks for the advice. My wife and I are on great terms and we don't ever do anything without discussing it with each other. I've seen plenty of marriages fail, especially due to money issues, so I avoid conflicts at all costs.
He had used some older Tranzeo and Senao gear in the past and told me the newer stuff is "custom" 250mW w/15 dBi rootenna (he didn't define "custom"). It's not bad gear, but my entire existing network is all on 5.x GHz and his is 2.4 GHz. The CPEs I've seen (mostly from clients switching to my service) were installed fairly well, although not going that extra mile (using home depot "outdoor" wire, etc).
One thing I've thought about is I have two tower sites within 1/2 mile from two of his (unplanned, one is my parents place and the other is my land with my tower). So a migration from the leased tower spaces to my owned towers would save on overhead and avoid lease issues. My existing stuff is all sectorized and done properly (separate backhaul, etc).
I had a credit card merchant account but ended up canceling it a few weeks ago because it wasn't worth it to pay 10-20% of my total income in payment processing.
McWizzard:
He's told me he wants to sell because of increased business in Arlington, which is about an hour and a half from me. He started with an existing business (VoIP, consulting, etc) and expanded into wireless while I started from scratch. I purposely limited my marketing to limit my growth so I can keep my expenses low. As I said, I haven't gotten any outside money, so funds are always limited. I haven't spent every spare cent on my WISP (although it seems like it at times). I'd hate to market like crazy and get a flood of incoming requests I can't service for several weeks. I started my business in the first place because I knew I could provide better service and support than the other local WISPs.
Thanks again for everyone's input so far. I told him I'd call in a few days after I looked over some of my stuff.
Very wise advice John, thanks. I know he wants out and wants to sell to someone local. The neighboring WISP I've worked with in the past would sell if someone offered them the right price, so I know they wouldn't go after it.
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