How Much Should You “Trust Your Gut” When Buying an Online Business?

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Intuition.

That’s how some of the most successful people in the world climbed their way to the top, we’re told. Warren Buffet, Oprah Winfrey, Steve Jobs, Jeff Bezos, these successful men, and women made their way to fame with a combination of good instincts and hard work. They simply followed their gut and relied on their colleagues, skills, and expertise to take care of the rest. 

Yet when it comes to whether or not you should trust your own intuition as a business owner, the advice online is…a bit of a mixed bag. On the one hand, we have publications like Inc Magazine pointing to the aforementioned entrepreneurs, claiming that you can’t argue with success. On the other side, we’re told by The Harvard Business Review that we should rely on data and expertise rather than instinct. 

So which side should you listen to when you’re purchasing an online business

As is often the case, the answer doesn’t lie with either extreme but is instead to take a more nuanced approach. Every business owner should trust their gut to a point. At the same time, for how many stories we’ve heard of entrepreneurs who rode to success on their intuition, there are even more tales of failure.

Don’t forget that, per data collected by the Bureau of Labor Statistics, only 30% of businesses survive until their tenth year. And for online-only businesses, that failure rate is even higher. Internet Retailing, for instance, reported that 90% of ecommerce startups fail within the first two months of operation

What are the deciding factors between success and failure in this equation? Why does one prospective buyer’s intuition point them in the right direction while another goes down completely the wrong path? And how can you make sure you’re in the former camp rather than the latter? 

What Is Intuition? 

We’ve all been in situations where we somehow know what course of action we should take. We don’t always have raw data to back up that feeling. Sometimes, we can’t even consciously articulate our thought process. 

We just have a feeling

The truth is that for all that it may sound like pseudoscience, intuition is surprisingly complex. It’s the result of our brain processing a massive amount of information. And beyond the business space, there are countless examples of payoffs from intuitive decision-making. 

Believe it or not, intuition doesn’t have to be complicated, confusing, or unknowable. By understanding its components, you can develop a feel for your thought process. And through knowing your thought process, you can better understand when to trust your gut and when it might be leading you astray. 

According to consulting and training agency Situational Awareness Matters, intuition is drawn from the following sources, which together comprise what founder Dr. Richard Gasaway calls tacit knowledge

  • Conscious knowledge. What we actively know and remember from our studies and experiences. We might, for instance, know a purchase is bad because it displays the same red flags as a bad deal encountered in the past.  
  • Unconscious knowledge. Things we know but never really think about knowing. This includes learned skills like driving a car or pitching a deal. 
  • Subconscious knowledge. Things we know but are unaware we know. This could include memories buried within our subconscious and situational patterns we recognize without realizing it. 

The more experience you have, the more reliable your intuition. Consequently, if you’re a new buyer or someone without much experience in a particular field, your intuition is far less developed — you may not have the tacit knowledge to recognize the same patterns as an industry veteran.

How Data Informs Intuition

Believe it or not, intuition and analytics go hand-in-hand. The latter provides invaluable information for the former while also serving as a means of validating whether or not one’s gut instinct is correct.  In a piece for Harvard Business Review, leading analyst and artificial intelligence expert, Thomas H. Davenport put it best:   

“A hypothesis is an intuition about what’s going on in the data you have about the world,” he writes. “With analytics…you don’t stop with the intuition — you test the hypothesis to learn whether your intuition is correct. Intuition is [also] found in the choice of the business area in which analytical initiatives are undertaken.” 

In terms of how this applies to purchasing decisions, several data points play an essential part: 

  • Profit & loss statements. Do they show financial stability and an upward trend towards profits and growth? 
  • Age. How long has the business been operational? It may be ill-advised to buy a business that’s completely new. 
  • Assets. Includes inventory and equipment. 
  • Market trends. Is there a positive market outlook for the business’s niche, or is there likely hardship in the business’s future? 
  • Reputation. What are people saying about the business online? Is there a strong brand behind it? 
  • Ownership. Who is the previous owner? Why are they selling? What sort of first impression do they give off?

Sharpening Your Intuition to Make Better Purchases

The first step to better intuition is simple introspection. Whenever you get a gut feeling about something, take a step back and try to unpack from where that feeling is coming. Try to consider every single element of the situation.

Focus and try to call to mind anything which might set your instincts off. Do whatever you need in order to focus yourself. Maybe that will involve taking notes, asking yourself a series of questions, or simply sitting in silence for a few minutes. 

At first, you might not be able to come up with much. Give it time. With a bit of practice, you might be surprised at how much you’re capable of noticing.

And how much you’re capable of knowing. 

About the Author

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“Christopher Moore is the Chief Marketing Officer at Quiet Light, specializing in helping clients sell their internet-based businesses. Additionally, he founded Gadabout Media LLC to inspire, educate, and unite others by creating visually stunning content for clients.”

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