When Acquisition Goes Wrong: The Cautionary Tale of Long Tail Pro

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Acquiring an existing online business can be an excellent way to skip the grind of building a business from scratch. However, it also involves risk. There’s no guarantee that the business will continue to perform well, and any number of things could go wrong.

Today, we’ll cover the story of Long Tail Pro, which includes some incredible successes, followed by a seven-figure failure. There are some very practical takeaways that every online entrepreneur and acquisition entrepreneur should consider.

Creating User-Centered Software

In 2010, Spencer Haws began working on keyword research software for niche website owners and bloggers. Today, Spencer is the well-known owner of Niche Pursuits and Link Whisper, but in 2010, he was still working full-time in banking and building niche websites on the side.

Many of today’s leading keyword research tools didn’t exist yet, and Spencer was frustrated by Market Samurai, the leader at the time. As a niche website builder, he was essentially building software for himself. In an article on the Niche Pursuits blog, Spencer wrote, “I understood the target market on a very deep level because I was one of the users in the target market.”

Spencer isn’t a developer, so he hired a developer to bring his ideas to life, and Long Tail Pro launched in early 2011. Early on, he hustled to make sales any way he could, including promoting to his email list of 1,500 subscribers, launching on the Warrior Forum, and working with affiliates.

Reaching Six Figures and Scaling Up

In 2012, the business grew and surpassed $100,000 in annual revenue. From 2013 to 2015, Long Tail Pro grew significantly to almost $1 million in annual revenue and $600,000 in net profit. (Note: I purchased Long Tail Pro in 2013 during a launch promotion Spencer ran with an affiliate.)

At this time, Long Tail Pro was desktop software sold for a one-time fee. Spencer worked to introduce recurring revenue through some Platinum features, but he knew moving to an online version was necessary to reach its potential.

Turning a software product into a SaaS business is a major undertaking, especially for someone who’s not a developer. Other factors, including dependence on Google for data and increased competition from other new keyword tools, led Spencer to consider selling the business.

A Seven-Figure Exit

Spencer never listed Long Tail Pro with a business broker or marketplace, but he talked to a few people in his network and quickly had three potential buyers showing interest. Ultimately, in 2016, Spencer decided to sell Long Tail Pro to Wired Investors, a small private equity firm that acquired online businesses.

Wired Investors paid Spencer $1.8 million for an 80% ownership stake in Long Tail Pro. Spencer retained 20% ownership with no day-to-day responsibilities. He received about 2/3 of the money upfront and was paid the remaining 1/3 over a two-year period.

According to Spencer, Long Tail Pro continued to grow slightly for the first few years after he sold the business, and he received quarterly payments for his 20% ownership. Wired Investors successfully converted the product from desktop software to a full-fledged SaaS business, increasing recurring revenue.

Sold Again

In 2019, Wired Investors sold Long Tail Pro. According to Spencer, Wired Investors had acquired more than 20 businesses over a two-year period and then sold off all of their assets.

Initially, things looked promising under the new ownership. In a YouTube video from late 2020, Spencer said Long Tail Pro was still a healthy business with six-figure revenue, and he was excited to see what the new owners would do with it. The new owners were in the process of paying Spencer for his 20% ownership, so he would no longer be involved in the business after completely exiting.

However, things took a turn for the worse, and Long Tail Pro slowly declined over the next few years. In a YouTube video titled “They Just Killed My $1.8 Million Startup” published in June 2024, Spencer shared that the Long Tail Pro website was no longer online and the current owner hadn’t been supporting the product.

Spencer didn’t name the owner who had purchased the business from Wired Investors, but based on research, it appears to be Growth Stack Inc (source one, and source two). Growth Stack Inc.’s website is no longer operating and PitchBook lists it as “out of business.”

A 2023 article from Digital First Magazine featuring Growth Stack Inc CEO Kevin Peterson. The article says, “Today Growth Stack has a private market valuation of approximately USD 6.5 million with about 11 million shares outstanding. The Team’s acquisitions in the pipeline will take them beyond USD 100 million pre-market valuations in 2023.”

So, What Went Wrong?

In the June 2024 YouTube video, Spencer says the new owner “seemed to be more excited about the prospect of going public than actually growing the businesses he acquired.”

Apparently, the business was poorly managed, and customers were neglected. It’s very easy to find examples of Long Tail Pro customers who had been left hanging by the new owner.

• One Reddit user said, “Support never answered any of my requests, and after trying to cancel my account multiple times, they keep charging my card.”
• Another Reddit user started a thread asking if Long Tail Pro was still in business after getting no response from customer service. Some users replied and said that they were still being charged even though the product didn’t work.
• Another long-time user who purchased a lifetime license when Spencer owned the company tried using the online version in 2021. Based on his experience, he created a YouTube video titled “Long Tail Pro is Dead” as a result of the product’s poor performance and bad customer service.
• Long Tail Pro has an average 2.3/5 rating from AppSumo customers after leaving many in the dark with a product that didn’t work and no support.

Of course, you can find negative reviews and upset customers from just about any business, but these are just a few examples. There are many more out there. It’s easy to see that Spencer’s claims about the third owner of Long Tail Pro being unresponsive to customers appear to be accurate based on many user reviews and comments.

Key Takeaways

While the story of Long Tail Pro is quite interesting (and sad), the real question is, what can we learn from it?

1. When you sell a business, you lose control

It can be hard to watch a business that you built deteriorate under someone else’s watch. Unfortunately, it’s more common than you might think. If you want to sell your business, you must be able to accept that it could go downhill.

2. Many acquisitions fail

Every acquisition starts with hopes for success, but the truth is, many of them will fail. In this case, it took about 8 years from when Spencer sold Long Tail Pro until it eventually died, but the decline had been obvious for a few years.

3. There are pros and cons (for sellers) to seller financing

According to Spencer, the current owner of Long Tail Pro still owed Wired Investors several hundred thousand dollars as of 2024, and he (Spencer) is still owed around $10,000 to $15,000.

Seller financing involves risk for the seller, who may never see all of the money if the business fails. However, there are also some benefits if the buyer pays interest and the proceeds from the sale are spread out over a few years (which can be beneficial for tax purposes).

Market conditions may dictate whether seller financing is necessary. In 2024, seller financing is common for online business acquisitions because it’s a buyer’s market, and many sellers don’t have much leverage.

4. Small SaaS businesses can be highly profitable

Long Tail Pro generated over about $1 million in revenue and $600,000 in profit during it’s best year while Spencer ran it with a small team. He made another $1.8 million when he sold it, and continued to earn passive income for a few years because of his ownership interest. Overall, it was an extremely profitable project even while it lacked recurring revenue.

While many SaaS founders are coders, Spencer was not. He hired a developer to create the software and still achieved plenty of success. 

5. Networking is an excellent way to find a buyer

Spencer never listed Long Tail Pro with a broker or marketplace. He had three potential buyers just from his own networking efforts. Although brokers and marketplaces are good options, building your own network offers plenty of benefits.

6. Online businesses need hands-on management to succeed

Some people look at online businesses as passive investments. That’s possible if you have a strong team in place who can manage it for you, but that doesn’t always work out as intended, as is the case here.

Long Tail Pro thrived while Spencer owned the business, partly because he was so passionate about the business and his customers. Wired Investors also seemed to manage the business pretty well for a few years.

Then, the current owner took over and dropped the ball. The owner stopped developing the software, and customer service was poor.

Overall, the story of Long Tail Pro shows the importance of capable ownership and operation. The same business that thrived with a knowledgeable, hands-on owner declined and died when it was managed poorly.

Whether you’re working on a business you started from scratch or looking to acquire an existing business, let this story be an example of why an online business needs competent management.