He has run the company for a few years and found it difficult to run multiple companies, so he has decided to sell one and focus on running the other.

He approached us for advice on how to sell his company and value his business. To begin, we collected a few facts so we could get a sense of what kind of business we are selling.

1. Operating for five years;
2. Less than $100,000 in revenue per annum;
3. No retail sales. All sales are B2B;
4. Trademark on the name;
5. No patents;
6. No ownership of manufacturing plants or equipment;
7. Three months of inventory on hand.

Despite the slow sales, the owners believe the product has potential. Sales have been slow because the business lacks attention, which when put in place, will yield results. The product is unique, well-packaged and well-received by buyers.

Here are the two type of buyers who may look at their business.

Enter Buyer A

Buyer A buys businesses based on future revenues. Buyer A is prepared to forgo earning now for bigger pay-offs later.

They will want to see patents, trademarks, exclusive licenses and distribution agreements. These kinds of assets provide assurances of future revenue.

However, the business for sale does not offer this kind of protection.

The product has a cutting edge design, but the design offers no barriers to entry. As soon as the product proves successful, it is likely to be copied by competitors.

Enter Buyer B

Buyer B wants a business with healthy profits now. This buyer wants to see a proven track record of sales, and assurances that the success is repeatable in the future.

Buyer B wants three years of sales history and three-year sales projections.

Buyer B bases his valuations on profits made today and in the past, not on the potential of the company. So it is important the business has a healthy profit and loss sheet.

The business for sale however does not have a fat P+L. It is making small profits and less than $100k revenue per year. All the sales are made through a B2B channel, which does not provide a retail buyer proof the product will sell in a B2C channel.

Ready for the truth?

It is important your business clearly addresses one of these buyers. Most buyers in Asia fit the Buyer B profile. They are attracted by companies with valuations above a million dollars, as anything smaller is not worth their time.

Unfortunately this business is attractive to neither investor.

Here’s why.

Neither buyer perceives value. Neither can see what they are buying. The old truth that nobody buys anything which is not valuable holds true.

Buyer A sees no potential and no proof the designs can be protected against copycats. Buyer B sees a part-time business with small profits.

The most the seller can hope to be paid for an exchange of ownership is the sum of its cash in the bank, accounts receivable (assuming these debts can be collected) and stock on hand.

The net gain for the seller is zero, less the cost of selling and marketing the business to the buyers.

In short, if you are in this position, you are best not to sell, but to trade out of your debts and strike the company off. Or you can continue to trade until such point in time when you can demonstrate the business has value.

Demonstrating value — an alternative path

If you believe you have a great product and have already achieved moderate success, here’s an alternative way to attract a buyer.

It’s simple. You need to build a case and prove to a potential buyer that the product has value.

Consider licensing your product to a retail distributor who is already carrying a similar line and is confident they can build market share.

Finding the retail distributor may involve looking internationally to new markets. In the example above, the client’s product will sell better in newsagents throughout Australia.

Step 1 – Pilot

Secure a minimum order from a retail distributor — say 10,000 units. If you are landing the products from abroad, use a letter of credit or similar financial instrument to facilitate payment.

You can also use the purchase order supplied by the retail distributor as collateral to secure a short-term loan from a bank if you need finance to bankroll the cost of goods sold.

Normally retail mark-up on cost of goods sold is 100 percent, and you can expect to be paid seven days after the product has landed. It is a good idea to meet the retail distributor when they take possession and check the goods for quality.

Step 2 – Reorders and licensing

If the pilot is successful, the retail distributor will want to reorder. Repeat orders are important because they demonstrate to a buyer the business has value.

The retail distributor may decide to take on more risk and responsibility by licensing the product from you. Under a license agreement they agree to produce, distribute and sell a number of units per year, and pay you a royalty, calculated as a percentage of sales (one to five percent).

This can be as attractive as selling the company, as you have few operation responsibilities, but retain executive power when it comes to making important business decisions.

An exclusive or non-exclusive license agreement will also attract buyers who see an investment which offers fewer risks and more returns. The company is making sales, and has some guarantee of future revenue.

Step 3 – Sell the business

The buyer could come from different parts of the retail value chain. They might be a manufacturer from a similar industry, looking to diversify their suite of products. Equally the retail distributor who holds the license agreement, may also be a potential buyer.

Drafting a profile of the buyer is important. You have to know who you are selling to and tailor the pitch to that buyer to secure the sale. The buyer profile depends on a few variables including the valuation of the company, industry, complexity of operations.

About the author

Anthony Coundouris is the founder of Futurebooks Pte Ltd. Futurebooks offer affordable incorporation, bookkeeping, business planning and business brokering in Singapore and South East Asia.

Anthony has helped new companies incorporate, conduct industry analysis and develop brand positioning. He was founder of Firestarter, a digital marketing agency — a company acquired by Novus Media in 2010.

Photo: Ian Muttoo

Shen Guyi, co-founder and CEO of LobangClub, certainly belongs to the latter category. ‘Lobang’  roughly means ‘deals’ in Malay, and the LobangClub app has a simple aim — help Singaporeans find a good deal.

But he’s not running another daily deals company. In fact, Guyi is an e-commerce unbeliever, at least for Singapore and Southeast Asia. He believes that good ol’ brick and mortar stores are here to stay for a while.

His app is designed to make physical stores even more attractive by giving users a more efficient, community driven way of comparing prices.

So, how does it work? Suppose I want to purchase a $300 point-and-shoot camera from a department store. Before I do so, I would use the app to scan the barcode on the product packaging.

The app will then bring up a list of different prices from various locations, and perhaps I might find a cheaper price for the same camera model in an adjacent shopping mall.

LobangClub claims to have the prices of over 40,000 products in Singapore, with more added by the community as they discover new ‘lobangs’. Effectively, he’s bridging the online retail and physical world by connecting shoppers with an army of ‘lobang’ hunters.

Such a concept isn’t new. Singapore’s largest telco SingTel has the Price Pal app for Android that does the same thing. In the US, ShopSavvy and RedLaser (which was acquired by eBay) have already achieved millions of downloads.

Since LobangClub’s launch, they have done pretty well, beating Groupon to become the number one free Lifestyle app on iTunes App Store in Singapore. So LobangClub certainly has potential to do well in the Asian market, especially since physical stores are still dominant.

As he sees it, e-commerce in Singapore and Southeast Asia has been relegated to “bitpart status”, and hasn’t been quite as disruptive as in the US.

While online platforms like LiveJournal, The EZ Suite, and TackThis, as well as shops like Household.sg, SingPets, and various blogshops have been making the news, ”The fact that an e-commerce store is newsworthy [in Singapore] suggests the lack of a viable ecosystem at present,” he argues.

There are many reasons for this.

Urban areas in Southeast Asia tend to be densely populated, such that brick and mortar stores become rather convenient options. Rural areas, on the other hand, lack the infrastructure to provide cheap and reliable shipping and also online payment methods.

Further, the retail sector in Southeast Asia has lower overheads than in US and Europe, which means stores have less incentive, in terms of cost savings, to migrate online. And since established e-commerce stores in the US and Europe have a global reach, they’re effectively stunting the growth of e-commerce in Southeast Asia by cannibalizing the market.

Lastly, e-commerce stores in the region lack significant venture capital to disrupt pricing, says Guyi. He cited how Amazon lost plenty of money before they finally turned profitable.

What all these means is that physical stores will continue to dominate the Southeast Asian retail scene for the short to medium term. Anecdotally, it’s hard to disagree with him.

Owning a brick and mortar store continues to be an attractive proposition in Singapore, even though rentals can be costly. While many fashion blogshops start online, some of the more successful ones eventually set up their own stores (there’s the online-only camp, of course).

While the impending closure of the Borders bookstore in Parkway Parade may signal that large chain bookstores have had their heyday; smaller, independent stores are still thriving (read this and this).

The physical store, in other words, is still king, and this gives apps like LobangClub an opportunity to flourish.

The problem though is that brick and mortar distribution channels are inherently inefficient. With no price transparency, customers end up purchasing products from whichever retail store that is most convenient to them.

So, what his app does is to give consumers more information to make the right purchasing decisions. To fulfill his vision, he is currently looking for seed funding to further develop LobangClub.

“We want to index everything in Singapore and Southeast Asia; we want to be the de facto place where you check with before you purchase anything,” he says.

Prior to the proposal submission, IDA will hold two CFC Public Briefing and Networking sessions as following:

Public Briefing
This session is a platform to learn about the scope and expectations of the CFC, requirements for proposal submission and the timeline leading up to the award of the grants.
When: Thursday, 30th June
Time: 3pm-530pm
Where: Auditorium, Mapletree Business City, 10 Pasir Panjang Road (Map)

Industry Networking
This session is a chance to network with vendors, companies, trade associations or educational institutions to identify partners to work together in response to the CFC.
When: Tuesday, 12th July
Time: 2pm-6pm
Where: Seminar Room, Mapletree Business City, 10 Pasir Panjang Road (Map)
ICT vendors can also request for a table booth to show case their company’s products, services or ideas to better solicit for partnerships.

For further information, interested participant can make a call to 6211-3832 or 6211-3865, or can send an email to mobility_cfc@ida.gov.sg

What is Tracyeinny?

Tracyeinny offers women apparel that is inspired by the moment and inspired by our passion. It is a joint partnership between two cousins: Jeannie Pang and Pamela Goi. Both are graduates and doing this full-time.

Are all your items are designed and manufactured by Tracyeinny?

Currently we don’t design or manufacture our products ourselves. In an average month, we churn out about 200-250 designs. We try to update two collections in a week and each collection has about 30-40 designs.

What is the motivation behind building this business?

Initially was mostly about our passion for shopping and clothes. But now our passion has turned into a full time job. Money is always a strong incentive to keep us going.

What are the difficulties that you have faced so far? Technical issues like setting up your own .com, hiring programmers? Business processes like handling money? Legal issues?

Difficulties initially were time constraint. We had to juggle work/school and maintaining the website to our best abilities.

To streamline our business processes is a continuous process. Here and there we try to incorporate new systems to streamline our work to improve efficiency. We do hire someone to take care of our accounts/packages/pettycash etc.

Blogspot, livejournal, wordpress, yourowndomain.com – there are many ways to set up a blogshop or store. What is your own preference? Why? What experiences can you share with us about using some or all of these?

In my opinion, the only reason for you to choose your internet platform is your target audiences.
For us, we started out with LiveJournal. Through mainly word of mouth, we have established ourselves. Recently we migrated to a .com.sg and the reason for this is because our LiveJournal site was not able to efficiently manage our growing customer base. We had gmail account for mailing list and some of our emails constantly went missing (hotmail). However, to allow for a smooth transition for our customers, we made our website similar in look as LiveJournal.

Any figures to share? Eg, no. of people on your mailing list? No. of items sold since opening your business? No. of pageviews? No. of visitors on your website? Feel free to share whatever you are comfortable with.

Number of pple in our mailing list is about 15,000. And our new domain, Tracyeinny.com.sg has been live for about 1.5 weeks and so far we have about 78,513 hits. To date, including our old LiveJournal site, Tracyeinny has attracted more that 1.9 million unique visitors and counting.

Considering the large number of blogshops in Singapore, how do you differentiate yourself from others?

We pride ourselves with a good system. We record every thing step by step. To customer’s order to when customer’s order are out of our house. We file our registered slip and consistently record down every package. Service and a good solid system allows us to be differentiated.

What is your marketing strategy? How do you try to obtain new customers?

The truth is, we never really market ourselves extensively. Everything is done by word-of-mouth.

How do you handle customers who are practically faceless to you? Any good or bad experiences to share?

Faceless or with a face is the same. We have to response to their needs and demands to our best of our ability. In any industry, there are definitely good and bad experiences. It is with such experiences that we learn and move on. It is with these experiences that we improve our system and management.

What is your biggest satisfaction in this business so far?

Biggest joy is to be recognized for our efforts. For one of our jacket designs, we managed to sell over a 1,000 pieces. So whenever we see someone wearing our jacket and we go up and asked, they would say tracyeinny and we would be beaming with pride.

If you have a wish for something to happen in order to help your business, what would you wish for? Eg, Singpost to have a tracking system for items sent? Internet banking to be more effective in some way? Mainstream media to cast blogshops businesses in a better light?

Singpost for now is quite an efficient portal to deliver mails. To have a complete tracking system also means that the postage would definitely increase and pass on to customers. We strongly advise customers to opt for registered mail. But here at Tracyeinny, we have a strong recording system. Customers are reassured that we do help them track their mails. We do call up the post office to enquire and consistently track their lost packages. 99% of our packages do not go missing.

What would you advise entrepreneurs just starting out?

To be patient. Nothing happens overnight.

Thanks, Jeannie and Pamela!

Editor’s Note: Special thanks to Kim Sia of Spree2Shop for helping me out with this interview! Do look out for more interviews with various blogshop owners in the coming weeks. [Disclaimer: Gwen and BL are with Thymos Capital, an investor in Spree2Shop.]

A new web service has just turned up from Shannon Low, one of the co-founders of Shoplette.com. Shoplette is a service you can use to tell your friends what you bought and where you bought it. Check out what your friends have bought and where they’ve been shopping, discover new stuff to buy and new places to shop, and find out what’s hot and where to shop in other countries. Do check it out.