55 Questions I Ask Before I Buy a Business
When evaluating a new acquisition opportunity at Waterglass, I follow a simple process: asking lots of questions.
First, when I check out a listing like the one in the video below, I try to ask myself high-level questions about the business, such as...
- What is the opportunity with this business?
- For how long has it already been neglected, and how quickly can it be turned around?
- Do I have the skills to make this happen?
This is how excited I look every time I do Waterglass Deal Reviews
Once I decide to dig deeper into a potential early stage acquisition opportunity, I go through a list of questions that I have collected over time, and today I want to share it with you.
Keep in mind that the questions below are specifically designed for small, early stage acquisitions. Also, they are not exhaustive. I usually add or rephrase 1-2 questions every other week to get a clearer picture of the opportunity in front of me.
In my experience, asking these questions during a 30-45 minute call is often more important than listening to the answers. It's really about reading between the lines when you are in a conversation with the seller.
A quick guide on how to read the questions below:
- They are designed for a quick temperature check to help decide whether to proceed further with this acquisition opportunity or not.
- They are split into two categories: Questions I ask the seller and Questions I ask myself.
- Not all 55 questions are required to get a first impression, but questions in bold I try to get answered immediately.
- Keep in mind that every topic below should be explored in depth when both parties decide to enter the due diligence process.
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Questions I ask the seller
Founder(s)
- Why did you choose to build this product?
- Why are you selling?
- How long have you been working on this?
- Who else worked on this? Internal/external?
- According to you, how dependent is the business on you?
- Which assets are included in the price? Which aren't?
- If you would not sell now, what would be the most important topic to work on next?
- What is the price, and why?
Business Model & Financials
- Is the business based on one-off or recurring revenues? Are there any other revenue streams, such as services?
- What is the current MRR?
- What is the TTM (trailing twelve months) revenue?
- What is the ratio between monthly and annual subscriptions?
- Have monthly subscriptions been renewed yet?
- What is the churn rate?
- What are the COGS?
- What are the CAC and LTV?
- Can you send me a Stripe export?
Customers
- How many customers does the business have?
- How were they acquired?
- Where are the customers based?
- What acquisition measures have been taken to date? What worked? What didn't?
- Can I speak to 2+ of your customers?
- How many customers are in the pipeline? What is their closing probability?
- Did customers churn? Why did they churn?
- Did your customers sign a contract? If so, can I see it?
Product
- Can we do a demo?
- What are the top 3 customer support requests?
- Who are the competitors? How does your business differentiate?
- What KPIs are you optimizing for? How do you track them?
- Can you send me a website analytics export?
Technology
- What is the tech stack? Why did you decide for this stack?
- Can you send me a software architecture diagram?
- Where is it hosted?
- What is your test coverage?
- What external dependencies exist?
- Can we go through the code in a call?
- Did you check for legal compliance, especially around data privacy and IP?
Questions I ask myself
General
- How dependent is the business on the founder(s)?
- Do we have an understanding of the industry?
- Who can we talk to who is familiar with this industry?
- Is the SOM (serviceable obtainable market) large enough?
- How fierce is coompetition in this space?
- How could the business be expaned within 1-3 months?
Portfolio
- Are there synergies with existing portfolio businesses?
- Are there synergies with existing portfolio customers?
Growth
- Where is the lowest hanging fruit for immediate growth: distribution, business model, user experience, technology?
(more infos in this issue) - What customer acquisition techniques are required to scale the business? DO we have them?
- Does the business scale with outbound sales?
- How many backlinks point to the business's website, and what are their sources?
Technology & Product
- Does the product use generative AI? If not, can it be enhanced or replaced by it?
- Does the tech stack fit our skills?
- Is the code well maintained?
- What is the site speed?
- Who was taking care of product management before, if anyone?
- How can the product be further differentiated from competition?
P.S. I also help other acquirers make the right decision when buying a business to avoid expensive mistakes. Find out how to get support for your due diligence process below:
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