Should Ben Buy This Shopify App? 📲
Featuring Ben Church's strategy to uncover a potential acquisition
Quick Context 🔥
Who: One of my friends, Ben Church has been acquiring small SaaS apps as a side hustle for the past year. People enjoyed my first post featuring his strategy so I wanted to highlight him again…but for a different business model this time.
What: This post delves into the due diligence that Ben did when considering buying a Shopify Gift App. This is his process with my comments given throughout. Credit goes to him for his thoughtfulness and strategy.
Types of Businesses Ben is after:
Must have one paying customer
Purchase price should be no more that 4x ARR
Cannot be replicate-able by no-code products i.e. Bubble.io
Opportunity for Expansion Revenue and Net Negative Churn
Support Time Per hour / Profit per hour should not be below $50
He evaluates products on a scale of 1-5 in the following areas:
Product Quality i.e How good is it?
Porter's Five Forces of Competition i.e How defendable is it?
Growth Potential i.e. How could we increase it's value?
Time Scale i.e. How reliable are current metrics?
LET’S BEGIN…🕵️♂️🔎
Quick Facts 💨
But first…What is a Shopify App? Developers have created thousands of Shopify apps, helping merchants start businesses, sell more, scale up, and optimize every minute with time management apps. 1
How important are Shopify App’s? Shopify apps are so impactful that 85% of Shopify merchants say they rely on them to run their businesses. 2
What does this specific Shopify App do: Allows merchants to create rules that automatically add free items to a customers cart.
Example use cases:
Add a free gift to a customer's cart when their cart exceeds a certain $ amount
Enforce complementary products to be bundled together
Add on a surcharge for certain products or order quantities
Cost: $9.99/month for 3 "rules" and $15.99/month for unlimited rules and premium support.
Launch Date: November 2019
Paying Customers: 207
App List Price: $25,000 which at approximately $60,000 ARR
Multiple: 2.5x multiple
My initial thoughts
2019 is a recent launch date…Minimal business history —> Eek…higher risk.
Very few paying customers —> Higher risk
Ben’s Initial thoughts 🤔
Right away you can see how this could be a useful app. On the surface it helps Merchants incentivize larger orders. However, if you think about it a little more, you can see how it might play into the Law of Reciprocity. It increases the natural inclination for a customer to spend more because you gave them an unexpected gift.
Let's Dive into the numbers to see if thats the case.
Due Diligence Process 🔎
Data Received from the Seller
We got two screenshots of charts related to their growth. Not ideal but still a good place to start. (If we like what we see we can always push for direct access to their metrics.)
A few things worth noting off the bat:
July is down, you can see thats because the metrics were taken July 16th.
The app was launched September 2019, so it’s not even a year old.
There were no customers for the first 2 months this was live, what changed in November?
We're seeing ~$4.80/user/month. Is no one paying for the more expensive tier? Why?
The growth seems to be flattening, why is that?
It’s an app that shows promise, it has paying customers and they're growing. Now its time to ask more questions and verify.
Basic Search 🔎
We're going to try and find out how easy it is to naturally discover this app on Google
How well does it rank on Google? 🥈
Lets crack open https://moz.com to see how well it ranks for certain keywords.
Not bad! While it has a #1 ranking, that same keyword doesn’t have much traffic. However it still holds a #2 and a #3 position for search phrases with a decent amount of traffic for a niche product.
Let’s see what ranks ahead of it.
Great! These are probably the best two results to loose to. Community help articles on the problem this app solves. A great opportunity to plug the product and a good indication that people do have this problem.
The app already comes with some great SEO, big win here.
How well does this rank on Shopify? 🛒
Its listed under the Sales and Conversion category in the Shopify Marketplace.
However, it's subcategory may be improved. Currently its on the second page of Cart and Checkout (a pretty competitive category). There exists a gifts subcategory this may better fit under with a lot less competition.
Theres a lot of room to improve. Ranking better in the Shopify app store would work leaps and bounds to improve the top of the funnel.
Product Strength 💪
Reviews ⭐⭐⭐
3.2 out of 5 stars may as well be a death sentence.
It looks like the app is suffering from a lack of support as well as some technical issues:
Installation not working
Uninstallation leaving scripts behind
Promo's inconsistently being applied
This is a must improve. Luckily it seems like the issues arise from the app breaking, not from lack of functionality. We could fix this.
Competitors
Currently it appears like there are about 2 competitors
Each have a similar pricing strategy and a low number of reviews. They are reviewed 3.0 & 3.9 respectively.
Currently I think the competitive landscape exists but no one is great.
SWOT Analysis ✍️
At this stage I think we have enough information to do a basic SWOT analysis to set the stage for thinking about whether or not this is a good purchase.
Strengths 👍
Paying customers
It is growing organically
Great SEO for certain keywords
It has a competitive pricing strategy that allows for Expansion Revenue!
Weaknesses 👎
Code Quality
It doesn't work with all Shopify themes
Low volume keywords
3.2 star rating
It doesn't rank well in the Shopify Marketplace
Poor reputation for support
Opportunities 💡
Add a paid marketing channel (Current owner has not done this)
Improve the codebase to remove the bugs that are hurting the reviews
Improve ratings by enhancing the product and reaching back out to customers
Expand into other platforms: Woocomerce, Magento, etc
Answer related questions in the Shopify Community to increase organic discovery
Improve documentation to make it easier to add to your Shopify store
Threats ❌
Shopify changes it's API, policies or product to make this app impossible or irrelevant
Two competitors
This could be a feature added to any large carting tool. Many of which exist.
The Evaluation 📝
1. Product - Rating (1-5): 4
Whats the core of the product like? Is it already solving a need and built in a way we can extend?
It is a nice to have.
2. Hows the tech stack?
Subpar, a lot of bugs, likely some spaghetti code. But it seems like frontend issues. All solvable.
3. How does pricing compare?
The pricing is competitive and tiers allow for expansion revenue.
4. How big of a problem does it solve?
A small but talked about problem.
5. Are people paying for it?
People are paying for it.
2. Time Scale - Rating (1-5): 2
What stage is it in? Does it have at least a year of metrics to back itself up? Is the founder just starting or burnt out.
It has about 9 months of metrics to back it up. Which isn't great and we're already to see a flattening growth curve 😬.
3. Five Forces - Rating (1-5): 2.5
Are there any substitute products out there?
Yes, 2 direct competitors.
Whats the competitive landscape?
Currently there are 2 low quality competitors. However, an unrelated product can easily add this apps functionality as a feature to their product.
Are there any vendor dependencies
Shopify for sure, though we can expand to other niches.
What would it take for someone to replicate the product?
Not a lot. It’s a simple product.
4. Growth Plan - Rating (1-5): 4
What would we do to grow this if we bought it?
First of all we need to resolve the products issues.
This means engaging customers, finding all the pain points that are leading to one star reviews, user churn and eliminating these concerns.
After that we can begin soliciting a higher rating for the app.
Once that's taken care of I believe we’d move into increasing inbound traffic. We know the current feature set converts so let’s increase the top of the funnel. This involves:
Improving our ranking on the Shopify Market place
Adding value to the Shopify Community forums, FB Groups and other niche sites
Writing guest posts for related blogs and newsletters that highlight the benefits of gift incentives for your store
Partnering with related Shopify Apps to cross sell
Giving a discount for bulk sites like AppSumo
Test out paid advertising in related newsletters and instagram
After we know we can increase traffic then it would be time to decrease churn and increase life-time-value of our customers:
Add an annual subscription option
Add new tiers and increase prices
Finally, we can then expand to fill other store niches like Magento and WooCommerce to reduce our dependence on the Shopify Platform.
Overall Score: 3.125 👎
Looking Back at Our Wishlist 📋
✔️ It must have one paying customer
✔️ The purchase price should be no more that 3x ARR
✔️ It cannot be replicate-able by no-code tools like Bubble.io
✔️ Opportunity for Expansion Revenue and Net Negative Churn
🤷 Support Time Per hour / Profit per hour should not be below $20
I think this could be a solid starter purchase for someone. Specifically if they had some technical chops to improve the technical issues this product is facing.
The biggest risk I see is a Shopify Mega App like Sales Rocket adding this as a one off feature. So if you did purchase this you'd always want to have your eye on selling it from your portfolio.
Another big risk (maybe equally as large) is the software.
Why is it buggy?
Why doesn't it work with all themes?
Is it poor programming or is there something more fundamental that will make growing this difficult?
These are all questions I would want to ask in the first call we have with the owner.
Possible Follow Up Questions
Here are some questions I would focus on in my next interaction with the seller.
Why cant this app cover all themes & what makes writing the software difficult?
Walk us through your support process and past requests
Would you be willing to sign a non-compete?
What operational performance metrics are available?
Describe any server crashes, hacks, major bugs and their resolution.
Why do you think the growth is plateauing?
Where did the growth come from?
How has the competitor landscape changed over time?
What are the main reasons a customer would switch to a competitor?
Are there any adjacent or substitute products that you have lost customers to?
Which marketing or ad channels have you tried and can you describe conversion performance for each? What do you think generally works vs doesn't work?
What kind of knowledge base or documentation do you have?
What are your customer churn metrics and what are top reasons a customer would leave?
What are most common customer requests / complaints / issues?
Would your friends benefit from reading this diligence process? If so… why not share it? :)
The New Shopify App Store: Discover the Right Apps to Grow Your Business, Jonathan Zhao
Ibid