Buying a Knife Ecommerce Business for $3M: Good or Bad Investment?

I this episode, the hosts take a close look at a knife ecommerce business that's up for sale at $2.9 million. At first glance, it might seem like a sharp investment opportunity, but let's break down some key points that might make you think twice.

The listing

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The Knife Business Overview

This knife business pulls in $3.5 million in revenue and has an EBITDA of $543,000. Included in the price is $1.2 million worth of inventory. They focus on assisted opening knives, a niche product with its own set of challenges.

Why This Knife Business Could Be Risky

1. Legal and Advertising Issues

One big concern is the legal status of these knives. Assisted opening knives are illegal in some states and come with strict regulations in others. Bill D'Alessandro points out that you can't advertise these knives easily, so the business depends heavily on SEO (search engine optimization) to get traffic. This reliance means that any change in search engine algorithms could really hurt the business.

2. Inventory Concerns

Heather Endresen notes that having $1.2 million tied up in inventory is risky. If the knife business can't sell this inventory, it could face big financial losses. This risk is higher because of the legal restrictions and the niche market for these products.

3. Timing of the Purchase

Michael Girdley and Bill talk about how this knife business was bought in 2022, a time when many ecommerce businesses were sold at high prices. Now that the ecommerce bubble has burst, many of those businesses are struggling. This knife business might be one of them.

Personal Insights

Bill shares his experience of watching the ecommerce boom and bust. He saw people buy businesses at crazy prices, only to see the market correct itself. This experience shows the importance of understanding market cycles and not getting caught up in the hype.

Michael reflects on his experiences during economic downturns, emphasizing how quickly the economic environment can change. He recalls moments during the 2008 financial crisis and the early weeks of COVID-19 when the economy seemed on the brink of collapse. These insights remind us that investments that seem safe one moment can become risky the next.

Final Thoughts

They all agree: this knife business is a risky investment. While it might have potential for someone with a solid strategy and the ability to handle the legal and advertising challenges, it’s not for everyone. The high inventory levels, legal restrictions, and timing of the purchase all add to the risk.

If you're considering this knife business investment, proceed with caution. As Michael humorously suggests, investing in a time machine and putting your money into T-bills might have been a better strategy in 2022. For now, potential buyers need to weigh the risks carefully and consider if they're ready for this sharp-edged investment.