The Health and Beauty Industry is Growing Fast. Here's What Smart Investors Look For.
The health and beauty industry is in the spotlight for rapid growth in the next few years. Whether you're planning to buy or sell a health and beauty business, make the most of your next move by understanding what smart investors are looking for and why.
If you're looking to buy or sell a business, there's no better place to start than in health and beauty right now. In 2021, experts were predicting rapid growth in the health, beauty and personal care industries over the next five years. Nearly half of that growth was expected to come from e-commerce, the fastest-growing segment of health and beauty brands over the past couple of years, which is why major companies are eagerly acquiring up-and-coming online brands that found success during the pandemic.
The spotlight is on health and beauty, but despite the rapid changes in the industry, many buyers and sellers looking to take their next steps are still operating using the old manual. The rapid growth of e-commerce has left several untapped opportunities for expansion that make for a more fun investment and can bring greater success down the line. Whether you're buying or selling your health and beauty business, make the most of your next move by understanding what smart investors are looking for and why.
Set it, forget it and be forgotten
When buying a business, investors following the old playbooks want a passive investment: Everything's already going well, and all they need to do is sit back and rake in an income. They want to put their money into a company that has its act together — beautiful listings, perfectly optimized pages, great keywords and graphics — and imagine it like a printing press, churning out a residual income and a nice return on their investment for many years to come. This "set-it-and-forget-it" mentality has always been the safe bet to earn big while doing very little. An investor might have some synergies, like similar products to combine or new distribution channels to explore and grow the company, but for the most part, they want a business that has already done everything right.
With the rapid changes happening across industries, there are now new e-commerce avenues to consider where a business can make major gains. A safe investment is not all that exciting in an industry that's bubbling with excitement. Especially as e-commerce strategies continue to evolve, companies that think they have everything already figured out will be left in the dust by those who are continuing to innovate and improve. Buying the "perfect" company might get an investor bigger multiples, but they'll end up with very few areas in which to add value and grow it.
A fixer-upper leaves room for improvement
A company that does everything right may look like the perfect investment, but I would rather buy a company doing many things wrong. Why? It has a lot more meat left on the bone.
Its sales might be good, but maybe it did a bad job at maximizing its potential. Maybe its graphics are poor or its listings could be improved with better design. This is an exciting company to buy. As an investor, I see a tremendous amount of value that I can add to this company by taking all those areas where it wasn't doing a good job, and start doing a better one now. By doing this, we are maximizing our investment.
Everything people do wrong in running their company is an opportunity to add value. Let's take a beauty brand selling well on Amazon with four or five stock keeping units (SKUs), but no other major online presence. Already, I know I can come in and set up a Shopify presence to immediately increase that company's value. If its customers can buy a charcoal face mask but have to find another brand for a facial cleanser to wash it off, I can make a charcoal cleanser, thereby adding more value. If the company offers two serums but no moisturizers, I can make that moisturizer. Value, value, value. Maybe the company put in the work to build up a brand name but left some categories missing. By filling up those missing categories, I double, triple or quadruple the sales of that company overnight.
Looking for the right partnerships
If your intention through buying or selling is to find a partner, instead of just looking for companies selling similar products, look for those that have synergy with yours. Synergy in a business can come through exciting differences that add to what your company lacks.
In the same way that investors want companies with room for improvement, partnering with companies who do things differently adds value by filling in your missing categories. Maybe they offer a new distribution method or point of sale. Buy a small company selling in Costco, and even if you haven't been able to get in before, now you're selling in Costco. If your company is in c-commerce, buy a brick-and-mortar company. The perfect marriages are the ones with synergy where you obtain new elements or practices you didn't have before, which leads to more exciting growth.
The road less traveled
Instead of taking the safe bets that you can "set and forget," health and beauty investors should match the excitement of the industry and think outside of that box. Look for more opportunities to add value to a business, because now is the best time to take them on. Not only will you find a much more fulfilling endeavor, but you'll also bring about equally exciting rewards.
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