Question about owning two similar small businesses

[tksheehan]

New to the site and looking for some advice.

I recently purchased a small fishing lure company that is a complement and somewhat competitor to a lure company I currently own. The rationale behind the purchase was to grow my business while acquiring a segment of the business that targeted a similar but different niche in the market.

My question concerns the pros and cons of taking on the name of one of the companies as opposed to keeping two names. Both businesses are well established in the market but have different customers at this point. I plan to locate both businesses in one physical location as they both involve manufacturing.

Any advice on combining or keeping separate would be greatly appreciated.

Thanks

[vangogh]

Welcome to the forum tksheehan.

This is definitely about pros and cons. I don't think either option is automatically better than the other. I think it will depend more on your own goals.

I think the advantages of one name are that one business is easier to manage than two. There's going to be a certain amount of duplication between the two so it'll likely cost more to run under two names than one. Sounds like you're talking care of some of that by using the same physical location. Still there will be added expenses in marketing two business as opposed to one, running two websites (assuming there are sites for both), etc.

At the same time you can be better focused with your marketing by keeping things separate, which is an advantage of going with two names.

I'd ask how different are the customers of the two businesses? If they're completely different markets I might keep everything separate and go with two names. If the customers are different enough the extra focus you can put into marketing each might pay off more. However if the customers aren't so different it might make more sense to consolidate under one name. You can still run focused marketing in different channels, but if customers of one will also buy from the other then the cost benefit of one name are probably the deciding factor.

One other thought is the existing brands of both? Is the story each brand currently tells focused on its market while excluding the other. For example the stores Banana Republic and The Gap are both owned by the same company. However each has very different customers. Banana Republic leans more toward the upscale side while The Gap tends toward the price conscious. Because of that their stores are completely different, carry different product lines, use different marketing, and have different brands. A combined store probably doesn't do as well as the two separate stores because the combined store wouldn't necessarily appeal to either customer base.

You could test things. Maybe temporarily introduce a line of products from one store into the other and see how well they sell? The results may be the best way to answer your question.

[tksheehan]

Vangogh,

Thanks for the welcome and advice.

The two companies sell similar products targeting the same species of fish, so very similar.

I'm contemplating your suggestion of carrying a selection of each other’s products. The issue I have is that since they're both established brands the consumer may think "why is Company A now carrying Company B's products?"

The other issue I have is selling to my distributors. I can see using the advantage of opening new doors that Company A currently sells to which Company B does not and vice versa.

I'm definitely considering the economies of running two companies as one but need a little more insight including the income reporting, as both fall under Sole Proprietor status currently.

[vangogh]

Glad to welcome you and hopefully my advice was worth something. :)


The issue I have is that since they're both established brands the consumer may think "why is Company A now carrying Company B's products?

For me this would be the biggest question. I don't know that customers would necessarily see the joint company as a bad thing. It would make sense for them to wonder what's going on, but unless the customer's of one company dislike the other I'm not sure they'd automatically see anything wrong. Companies buy other companies all the time.

I think I understand now that the products of each are branded with the company name. Is that right? I can see why that might seem odd to customers. If both companies do have existing brands there's a case for keeping them separate. I would think most people would follow their brand over to the single company, but some might not realize. If you do decide to merge the two, maybe the best approach would be to merge them slowly and give the customers of both time to adjust to the change and time to know it's coming so they don't miss it.

Could the products be rebranded before moving some to the other company? Or would that even make sense? It sounds like both companies sell some products that mainly differ in the brand.

Another thought just hit me. Are you able to have conversations with customers of both companies? Is there a way to find out what the customers of company A think of company B and vice versa? That might give you some clues what would happen if the two companies became one.

[tksheehan]

Products are branded with their respective company names so that would be the source of confusion if I started crossing over. The items of Company A are so distinct that the consumer would immediately recognize some merge has occurred if they were now carried by Company B. Not sure that’s a bad thing.

I can certainly talk to customers for both companies but both are established brands with strong followings so they each fare well on their own merits.

Thinking this through after hearing your advice, I'll keep them separate to start and look for advantages as I gain experience operating both companies independently.

Thanks again.

[vangogh]

Glad to help. The more I'm hearing the more it does sound like these are two established brands and maybe keeping them as separate brands is the right thing to do for now. I would definitely look into how much you could save in expenses by merging the two companies and I think it's worth taking the pulse of the customers of each company to see how they feel about the other.

Is there a way you could determine how many customers of each are also customers of the other?

[tksheehan]

I do have the customer list for each business and at least 50% of customers overlap. Looks like the smart thing to do is to keep brands separate to start and merge expenses, etc. to consolidate costs. May be a little tricky from an accounting perspective.

[KristineS]

Just a thought, but why couldn't you create a company name and sell both brands through the same company. It sounds like the problem isn't that the companies are separate, it's that the brands are separate. A lot of hunting and fishing equipment companies sell several different brands, each with their own identity, but there's a parent company that sells all the brands. A parent company would also allow you to add new product lines without having to worry about managing an entire separate company. Each brand keeps it's own identity, but they're all offered by the same company. Say you've got Here Fishie lures and Fish N Catch lures. Both have separate brands and good reputations. Now say you create a company that sells both products - Fish Products Inc. The brands stay separate, but they're both offered by the same company, which means one set of books, one website etc. I've seen that work for a lot of outdoor product companies.

[tksheehan]

KristineS,

That's a great suggestion. A question; in selling both brands through the same company, would I now need to invoice under the parent company name or strictly use parent company as the one set of books and continue to invoice by brand/company? Also, if company A is set up as an LLC and Company B a sole proprietorship, would you suggest making the parent an LLC?

[henryz]

You said 50% of your customers overlap so it might not be a bad idea to combine them, I personally like to fish and with little free time like most small business owners here, I would rather shop at one store and not two. I usually shop at Bass Pro because I'll find everything I need and as a consumer we really don't get into the politics about who owns who and why are they selling what where, If that makes scense. Good luck on whichever choice you make, I'm sure your true customers will stay loyal...

[vangogh]

why couldn't you create a company name and sell both brands through the same company.

That's what I've meant by combining the companies. I was never thinking all the products would fall under the same brand. Just that they would be sold through a single company.

[tksheehan]

henryz-Funny you mention Bass Pro; they're my largest customer for both brands.
vangogh-Thanks for the clarification. At the beginning, I was seriously considering merging the products of both companies under one of the existing companies names but struggled with confusing the consumer and brand strength of both companies.

I've decided to create the parent company and still keep the 2 subordinate companies/brands. If company A is an LLC and company B is a sole proprietorship, I'd like to make the parent an LLC. Would that cover company B or would I need to convert them to an LLC?

[vangogh]

The LLC question might be better places in the legal and HR section here. I can't speak for the others who have responded to this thread, but I'm pretty sure I'd answer your question incorrectly. There are people here who will have a good answer though and they're more likely to look in the other section. Sometimes you have to give them a few days to respond too.

My guess though is you have some options with combining the companies under one LLC and how you go about things will depend on you and what's allowed in your state.

[KristineS]

KristineS,

That's a great suggestion. A question; in selling both brands through the same company, would I now need to invoice under the parent company name or strictly use parent company as the one set of books and continue to invoice by brand/company? Also, if company A is set up as an LLC and Company B a sole proprietorship, would you suggest making the parent an LLC?

There may be legal ramifications to this of which I'm not aware, but from a branding standpoint, I don't see why you couldn't sell by brand but invoice under the parent company name. People might buy more than one brand in the same order, so invoicing by brand would be cumbersome. Invoicing by parent company name keeps things tidy. Plus, most people are used to that sort of thing. It's rare that the name of the entity doing the billing is the same as the name of the thing you're purchasing.