Podcast Archive | Page 14 of 17

Get Inventory Funding Without Taking on Debt or Giving Up Equity

Sean De Clercq is the CEO of Kickfurther, a successful crowdfunding platform. Throughout his entrepreneurial career, Sean’s driving goal has been to create a solution to one of the most...

Sean De Clercq is the CEO of Kickfurther, a successful crowdfunding platform. Throughout his entrepreneurial career, Sean’s driving goal has been to create a solution to one of the most difficult problems that businesses face: funding the production of their inventory. Fittingly, Sean created Kickfurther to fund inventory for direct-to-consumer and major store brands such as Target, Amazon, Aldi, and more.

In addition to running Kickfurther, Sean also works as an Entrepreneur Mentor at Rutgers Business School.

Here’s a glimpse of what you’ll learn:

[03:15] Sean De Clercq talks about designing an inventory asset marketplace that connects businesses
[07:13] What funding an investment looks like with Kickfurther
[12:33] Why maintaining a healthy ecosystem correlates with a healthy marketplace
[16:51] Sean discusses qualifications and funding options for businesses
[21:18] How an entrepreneurial spirit can help brands grow

In this episode…

As a product business in today’s market, where can you access funding for new inventory to fulfill purchase orders and invoices? If you’re unable to secure funding through traditional sources, how can you build your brand?

Sean De Clercq and his team at Kickfurther created a cash-flow-friendly solution for product entrepreneurs. With inflation creating a ruckus in the marketplace, it can be daunting for entrepreneurs to acquire loans. Sean helps people turn their cash into physical goods, which are then placed on consignment with growing product businesses. If you’re a brand owner and need inventory without taking on debt, this episode is for you.

In this episode of the Quiet Light Podcast, Joe Valley sits down with Sean De Clercq, CEO and Co-founder of Kickfurther, to talk about growing a company by 80% in 2022 through consignment funding. Sean discusses funding and connecting businesses, the ins and outs of co-op financing, and future goals for Kickfurther. Stay tuned!

Resources mentioned in this episode:

Sponsor for this episode

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Episode Transcript

Intro 0:07

Hi folks. It’s the Quiet Light Podcast where we share relentlessly honest insights, actionable tips, and entrepreneurial stories that will help founders identify and reach their goals.

Joe Valley 0:32

Hey folks, Joe Valley here. Thanks for joining me for another episode of the Quiet Light Podcast today. I’ve got a guest on that was on about a year and a half ago was named Sean De Clercq. He’s from a company called Kickfurther, if you are an investor, and you want to invest in a multiple, multiple varieties of e-commerce businesses, take a look at Kickfurther as a funder, if you are a brand owner and need inventory and you want to get access to funding for more inventory without taking on debt or giving up equity. You’ve got to look at Kickfurther. Sean’s success story is really, really impressive. We talked about that, in terms of the arc of the company and what they’re doing, where they are now how they did in 2022. They were up 80% in 2022 of our previous years, and they’re not a young company, relatively speaking there. I think he launched it in 2017. I think when he was said he was a young guy. He’s 36 years old now really, really impressive. That’s a really, really impressive backers as well. Definitely take a listen, both in terms of learning what it’s like to run a company that is growing at this pace, and also as an option for you as an investor or as an option for you to gain funding for your inventory without taking on debt, or giving up some of your equity. Here we go. Sean, welcome back to the Quiet Light Podcast. How are you?

Sean De Clercq 1:50

Very good, Joe. Glad to be back.

Joe Valley 1:52

It’s been a while and you had a busy year in 2022? Did Yeah.

Sean De Clercq 1:56

Yeah, banner year for Kickfurther more growth in 2022 than ever, ever before.

Joe Valley 2:02

Total percentage, top and 50%. So

Sean De Clercq 2:07

what’s really exciting for me, like sitting from the seat of the CEO is what we grew our GMV and our revenue by 80%. But at the same time, we grew our gross profit by 187%. So my life has gotten a lot better and less stressful than the last 12 months.

Joe Valley 2:25

That doesn’t happen often. Congratulations. That’s fantastic. So Kickfurther this got a bit of a different model than most other inventory growth capital lenders type of thing. Can you summarize it for the folks that don’t know about you yet?

Sean De Clercq 2:38

Yeah, absolutely. So, you know, we touched on this last time. But what makes us Kickfurther very unique is we’re not a lender. So we don’t issue loans. We don’t do anything like that. We actually operate as an inventory asset marketplace. So businesses, specifically product businesses that we’re working with today, right, you need stuff to sell, right physical goods, and it’s, in most cases, you have to pay a factory to make the stuff before they’re gonna give it to you and you can start selling it, you know, if you haven’t been able to negotiate terms or something like that. And so what we’ve designed is a pretty, I think, I think, a pretty nifty solution where, you know, you’re connected to an entire marketplace of people who are willing to buy that stuff from the factory, and then we leverage a consignment contract. So that inventory, those assets are placed on consignment with a product business, as they sell through the inventory, it triggers that underlying consignment, and then they pay the people that funded it and actually own the inventory back portion of the proceeds.

Joe Valley 3:37

So even though your investors own the inventory, your client, the brand owner would have possession of it at the three PL or at Amazon or wherever they store their inventory, right.

Sean De Clercq 3:45

Yeah, exactly. Yes. Produced and placed on consignment with them. So

Joe Valley 3:49

this is interesting from from sort of two angles, right. So the audience is full of buyers and sellers and investors as well. You’ve got obviously the brand owners, the buyers that would use your services that grow their business as well, the current owners, but investors too. Am I am I am I right there because the people that are buying this inventory, providing the funding for the inventory, are earning a return on their investment through kicks rather. Yes. Yeah. Yeah. Can you detail that?

Sean De Clercq 4:15

Yeah, absolutely. So essentially, they’re buying the inventory. They take it on their balance sheet. The people that are you know, the funders, we call them inventory funders or buyers. And what they earn in exchange is as a consignment profit. So essentially, the inventory is placed on consignment with a business, the business doesn’t have to pay for it on day one, right. So it’s a very cashflow friendly solution for product entrepreneurs. So $0 cash out of pocket for the product business, they get the stuff when they sell it, it triggers that underlying consignment contract. We monitor Kickfurther monitors the inventory, and then we invoice as the inventory sold, ACH debit and then distribute the inventory proceeds the sales pro rata to to funders, and you can imagine it’s like typically about one and a half percent consignment profit per month is offered to the funders in exchange for buying that inventory and placing it on consignment. So if you think like, takes about four months to sell through inventory, you buy $100 of inventory, you might expect to earn $106. In total, when the inventory sells through.

Joe Valley 5:22

What’s the success rate for the funders? How much of them are losing money?

Sean De Clercq 5:29

That’s a good question. So I can tell you is our platform dollar adjusted loss adjusted IRR. Actually, I should call it annualized consignment profit is 15%. So that’s including the deals, the inventory that gets lost, that gets pulled back put through a liquidation channel and cash returned to the funders. And there are some cases and this is something I’m working to solve right now. Where if you come onto the platform, there’s like a overall of a six and a half percent cancellation rate, but we get a lot of the that money paid back even when it Co Op is canceled. There’s some situations right now, if you only want to put like 5000 bucks to work against inventory, you can only get into like two or three or four coops. And that’s like, not good, right? We really want people to be able to get access to 30 or 50 consignments at the same time. So that’s something I’m actively working to solve for our customers.

Joe Valley 6:29

So as the funders, you want to spread your risk, essentially, not have it in in one or two brands, but in

Sean De Clercq 6:35

30 brands. So that’s another way of asking the question. So a good funders that have the best returns the best earned the most profit have made outsized bets on certain coops, so they find someone they’re like, this guy’s this business is a winner. I like working with I recertify, for instance, right. And when they come up, they have 123 good experiences. And then they start doubling, tripling quadrupling their participations in the groups that they find to be winners. And for us, if a business is ever canceled, and they’re they no longer they essentially return the inventory of the platform. They’re not allowed to fund any future inventory consignments through Kickfurther. So essentially, what the best, like smartest folks, right are people that have some kind of visibility or knowledge or, you know, are bringing something to the table where they’re able to kind of like, identify great brands to work with, or great inventory that is well priced and is going to sell and the markets hot, you know, to be honest, I’m not in the minds of these funders. So I can’t tell you exactly what goes into their decisions. But but there are some folks that have significantly outsized profitability,

Joe Valley 7:49

what kind of access to the, to the brand owners information do they get in order to make a decision to fund that particular investment?

Sean De Clercq 8:00

So there’s a comment section where you can ask any of the businesses, you know, questions when they launch and usually, you know, our funding period is usually around like a week or so. So there’s, there’s times usually there’s time for you to get some comments back. But we’re also happy to facilitate introductions, right? We know, for certain funders that want, like a, like a, that have certain questions that that might not want to be publicly shared on a comment board. Right? We’ve made introductions to the entrepreneurs so they can ask their questions directly. For a period in 2018. We were doing webinars for every single coop, but we stopped doing that because it was kind of a bear to facilitate that all, you know,

Joe Valley 8:47

yeah. Given the volume that you’ve done, man, that that would be nearly impossible. What have you funded about 1000? purchases, or I don’t know what you call them? You’ve done about 1000 investments, or you’ve facilitated them? Yeah. Is it 1000 At this point,

Sean De Clercq 9:02

man, I mean, we’re probably close to 2000. And at this point, like I said, we had an 80%, growth year in 2022. So things really started ripping, how’s

Joe Valley 9:11

How’s I mean, I know, we’re only you know, a few weeks into 2023. But what’s your outlook for 2023? Given the economic conditions and things of that nature?

Sean De Clercq 9:19

So what’s super interesting with the economic conditions is they really affect everybody else more than they affect us. Right? So if you think like a lender that’s like borrowing from a bank, right, in order to like lend against a portfolio, as the interest rates go up, and as the bank charges them more, like there’s probably a business that used to be profitable for them to lend when they could borrow at 2%. Now they have to borrow at six and that business isn’t profitable anymore, right? So something as the pricing of middling interest costs come up, right, like the risk aperture narrows for our competitors, right? Because they they have to adjust for that risk and that additional cost somewhere, and so we see in this market, and it’s also happened in 2022, right after the pandemic, that there’s just a pullback, right? You see, like wave flyers, laying off people clear COEs laying off people just broadly across the market, what you see is a reduction in support for product entrepreneurs as you head into, let’s say, choppy market conditions. Right? And what’s interesting for us is we don’t operate in that way. So we are not borrowing debt, right? The fact that interest rates have gone up, yes, there’s some theory that like, there’s like, the next best alternative has improved, right? For our funders, where before you put your money into a bank account, it earns 0%. Now you put your money into a bank account, it earns What, like 1.85%, or 2%, or something, right? So it’s a little bit better. But it’s still way worse than inflation, right? And so it’s like, if you have cash sitting in a bank account, you definitely don’t want it to sit in that bank account for 2023. Right? Because it’s going to be worth less by the end of this year than it’s worth today. And the funny thing about inflation, what is inflation means it means the value of goods is going up over time, right? Like the socks you buy today are going to cost more tomorrow, right? That’s the theory of an inflationary environment. And so giving people the opportunity to turn their cash into physical goods, which are then placed on consignment, with growing product businesses. That’s like winning market conditions, as far as I can see, for the Kickfurther marketplace.

Joe Valley 11:27

Yeah, I think it is for sure. So from the brand owners perspective, talk to me about the benefits of the Kickfurther model versus other growth capital models that are out there, and you know, people that you some might call your competitors. Yeah.

Sean De Clercq 11:45

So I would say definitely, there’s others that solve the problem, the solve the same problem, we’re solving just with a very different solution, right. So pretty much everyone else out there is doing some type of lending, or loan, right, which means that every single time you take on one of these, like debts, Merchant cash advances, small business loans, whatever it is, it’s this, like equity erosion event right on your balance sheet. So you get $1,000 of cash, you have to pay back $1,200 as a liability, right? You just eroded $200 of owner’s equity, up until the point that you turn that cash into profit, right? Like buy inventory, turn it back into profit, and then you build your equity up on the balance sheet again. So it’s bad for a couple of reasons. One, for physical product businesses, it’s just like cash flow is king. Right? So our solution is the only one in market that I’m aware of where you can have your next production of inventory funded without paying an additional dollar, right, like $0 cash out of pocket, you get that next lot of inventory in your warehouse so that you can start selling it. That’s extremely powerful. And even like good loan to value ratios, or maybe like north of 50%, but there’s nobody that’s funding 100% Cost of Goods, the way that Kickfurther is right, as far as I know. Yeah, that

Joe Valley 13:04

just just a consignment aspect of it is so attractive from a cash flow perspective for brand owners when they want to grow. Yeah, cuz they’re not, they’re not committed, I talked to somebody recently that made an investment bought a company that you know, with a with a 10 year loan and a fixed payment, and you know, things have taken a downturn and making the payments on that investment is a bit of a challenge for them. What happens if, you know, I, as a brand owner, and selling on consignment, and it just takes me seven months to sell through instead of for nothing, or it’s just costing me a little bit more, because I’m holding that note longer or that can do on that consignment longer? Is that the case?

Sean De Clercq 13:47

Well, so what we were there are additional fees. And what we asked our businesses to do, like if we have to provide servicing on a coop for seven months instead of four, that increases our cost. So there are some additional fees for processing a co op that goes beyond the expected selling period. But in most cases, we’re very happy to like my goal is not to run a fee based company, right? So those fees exist to really try and incentivize people to stay within their expected selling timeline, right. But what we normally do is we’ll say, Listen, if you true up your payments to your users, right, they had their assets placed with you for seven months instead of for four months, right? If you true up the users Kickfurther is willing, in 99% of cases to waive almost all of the other fees, right. So our our concern is mostly mostly in maintaining that healthy ecosystem to make sure that the marketplace stays healthy. Now, if you’ve returned inventory, and you’re like, I give up right, I have no idea how I’m gonna sell this. We don’t allow future participations on the marketplace.

Joe Valley 14:49

So what happens in that situation? So that I give up I’ve got, you know, $3,000 worth of inventory $30,000 worth of inventory. Do you sell it off? Do you Do you abandon it? Do you write it off? What happens? The investors or the funding partners, shrug the shoulders and write it off or what happens?

Sean De Clercq 15:09

So they get the cool thing is that they get to decide, right? So we will the first thing we do is we get the inventory back and we count it as Kickfurther. So how much of how much inventory actually exists? Right? Did they return 30 grand, whatever inventory that’s not returned to Kickfurther in sellable deliverable condition is due as if it was sold, right. So if it’s destroyed in a fire, if, you know, they sent it out as a free sample to a buyer, they gave it away as a Christmas gift, right? whatever circumstance, right? If we don’t get the inventory back, it triggers the underlying consignment. Now, let’s say we do get the inventory back, we counted it sellable condition, and we go out to the buyers and we say to them, Hey, you just purchased you own, like 50 T shirts, and we’ve got them here, right. So if you want, and buyers have done this, they’ll take delivery of the inventory that they funded, and all they have to do is pay shipping, and they get the inventory at a cost of goods, right the manufacturers price, which, you know, if you’re buying a few 100 bucks, and you’ve got Christmas or holidays or something coming up, like not a terrible outcome for the people that are buying more inventory there. I haven’t seen anyone take delivery of multiple pallets in one of these situations. So those guys more typically are taking a liquidation option where we put it through a liquidation channel. And that’s where they’re taking a real haircut on the original cost of goods.

Joe Valley 16:29

Okay, so what’s it take from a brand owners perspective to qualify for funding through Kickfurther.

Sean De Clercq 16:36

So our we’re typically looking for businesses that are I think the minimum we have today is $400,000 of trailing 12 months of revenue. So it’s around there, we are looking for businesses that have a bit of a track record. So around $400,000 of revenue, you know, preferably digitally native. So the more access we can get to data through, you know, like digital banking or things like that, the easier and smoother the process will be. And physical goods. So we have to work with physical goods, that’s the way consignment works. We currently are doing pretty much everything with the exception of regulated products. So think anything that requires a license to Sell Alcohol, Tobacco, Firearms, and frozen and refrigerated products, right? Again, like the downside scenarios and liquidation. It’s super expensive to ship and store frozen stuff in comparison to other goods. And then the last category is perishables, right? Like we’re not currently working with stuff that goes bad in a couple of weeks, because, again, it’s just not as strong of a fit for our consignment model.

Joe Valley 17:48

What about geographic limitations? Are you lending to anyone anywhere in the world? Well, and I know you’re not lending, I’ve still got to get my terminology, right. You’re working with people that are you know, if they’re in you know, Tbilisi, Georgia, or Portland, Oregon, lemons, they’ve got a business that’s successful with a track record, you’re comfortable with it.

Sean De Clercq 18:08

So currently, geographically in the US, right? So we absolutely have have global aspirations for the marketplace. As far as we can see, there’s no reason we can’t scale it anywhere. But currently, we operate in the US, but we can fund manufacturing, that happens anywhere in the world. So if your factories in India, China, Haiti, Europe, whatever, we’ve worked with factories all over the world,

Joe Valley 18:30

what’s wrong with our, you know, friends up north, the Canadians? Come on? They’re good people. Why? Like, why can’t my my cousins up there use Kickfurther?

Sean De Clercq 18:40

Ah, Canada and Mexico, because of NAFTA are probably like the first countries will expand to, and you know, no slight to any Canadians, but I think like, Canada’s population is roughly the size of New Jersey. So it’s like, yeah, exactly. It’s like a lot more work than the than the size of market that it adds. So we’ll get there. They’re definitely our friendly neighbors, but probably a 2024 kind of thing.

Joe Valley 19:05

You’re just focused on, you know, 80% growth in the last 12 months and making sure that your gross profit is, you know, higher than that and running the business right to take care of your people that you’re able to serve OSI so that,

Sean De Clercq 19:18

yeah, I mean, like, when you look at it, we funded What $58 million of inventory last year in America, like, what is that 100th of 1% of the inventory that gets like, bought and sold in America in a year, you know, so it’s like, what, we’re not even a grain of sand on the beach. That is the American market today. So we just have so far to go with what we’re doing today, in this one unified, you know, market of America, that we’re we’re very focused on that. And then international expansion, you know, once we can copy and paste the model, it’ll just be copy and paste into all the other countries.

Joe Valley 19:53

a grain of sand. Great analogy. Look, Shawn, you look like a young guy. You’re full of energy. So how did you come up with this concept? And how far do you plan to take it? How big do you think Kickfurther can be?

Sean De Clercq 20:07

So I came up with this concept. So I’m an entrepreneur at heart, I was running my own product business eight, nine years ago, before I started Kickfurther. And I pretty much just slammed my face into this inventory funding wall was like enough that I was like, Wow, this seems terrible. And there’s no good solutions, it was pretty much killing my business. And so I essentially created the inventory funding solution that I wish had existed when I was growing my own product business. And we’re just expanding it from there in terms of, you know, how far do I see this going? I mean, I think I think we’ve got a better solution for product entrepreneurs than anyone else. And typically marketplaces that Win Win really, really big. Right? And so it’s like, if you were to ask me, what do I see chick further doing in? You know, we just did our vision meeting. So in 10 years, I hope that we’re doing about $10 billion of inventory funded through the platform in any given year, I’d like to take this global, I’d like to take it to the public markets, eventually, I’d like to go public, you know, so those are my aspirations as CEO, I think, even if you think about $10 billion of inventory through our marketplace a year, that sounds like a lot from 58 million, it is a lot. It’s still like 1/3 of a percent right of global commerce. It’s insane how big the world is that we’re growing into, right? And so there’s just so much for us to do to make an impact to really affect entrepreneurs all over the world. And for me, like, Yeah, it’s awesome. We have, you know, 300 businesses on the platform today that we’re helping right at somewhere around there. The more the merrier, right? And for me, it’s like it keeps me going every single time you talk to an entrepreneur, and they’re like, I wish that this had existed. Like, I wish I found you guys five years ago. So I could have been using you since I started, right. That’s like, that’s worth all of the other stuff that goes along with entrepreneurship, you know?

Joe Valley 22:12

Yeah, it’s funny thing. You know, you’re helping people. And by doing a great job helping people, your business is growing well. So you’re helping yourself and your investors as well. And I do assume you have investors. Is that Is that correct? You raised money to launch this?

Sean De Clercq 22:26

Yeah, we did. I didn’t come from a VC background. But I got super lucky. So we connected with some really great folks, including John Donovan invested early. He’s been an advisor. He was the CEO of Lending Club up until the point that they IPO. We have built high invested in 2016. He seated Canva. Wish, was a co founder of treasure data. Seated zoom rang the bell on the Zoom IPO. Tim Draper invested in 2017. And most recently, Tom Golisano, who founded paychecks invested in January of 2021. So we’re very fortunate to be supported by really an all star board and and a really great group of interested investors.

Joe Valley 23:11

It’s it’s it’s, it’s an impressive what you’ve done. It’s impressive the number of people that you’re serving, and and the folks that believe in you, and I’ve invested in you as well. So kudos, congratulations. Pretty, pretty damn impressive given. Look. I don’t want to be an ageist here, Shawn, but you’re so much younger than me. I was just scrolling around at your age, right? I’m looking at. I’m looking at your LinkedIn profile. I can’t even tell exactly when you graduated college. But I know that I was just goofing around until I was about 29 years old. I don’t think I had my first real job that lasted more than six months till I was 29. So really, really impressive with what you’ve done. Congratulations. I know you’re quite a bit older than that, but very, very impressive. Congratulations on your success.

Sean De Clercq 23:58

Well, that’s the trick. I didn’t graduate college. So that’s why you can’t find that info.

Joe Valley 24:02

But yes, yes. I see Rutgers University down here. But, you know, I

Sean De Clercq 24:07

spent some time there. And it says, Yeah, spend some time there. But ya know, I, we started Kickfurther when I was 27. And here I am. 36. It seems, you know, crazy. A lot of time has has transpired. But it’s been awesome. I definitely am very different from who I was when I started the business. Right. And like, I think that that’s kind of like, as long as you’re comfortable that things are just always going to be different. They’re going to keep changing, right? And you stay on top of it. Like that’s the trick with entrepreneurship, I think, do you

Joe Valley 24:37

see yourself being the CEO that can take it to 100 million in in revenue

Sean De Clercq 24:45

100 million. So my goal is to kind of Bezos this right. There’s not a lot of people that do it, but it’s like take it to IPO. Make sure it’s on super solid footing, right? Maybe run it as public company CEO for about 10 years, and then find a successor right So that’s kind of what I’d like to do. And I hope I can do it

Joe Valley 25:04

Big games. I would I wouldn’t be surprised if you pull it off congratulations Thanks, Joe. How do we How to folks learn more about Kickfurther? How do they check it out as a funder and as a brand owner that need some money for inventory?

Sean De Clercq 25:17

Yeah, we were pretty active on social now. So please feel free to reach out that’ll definitely find the right person if you contact us on any of our social media. And if you’re ready to dive in, you know, www.Kickfurther.com. And you should be able to find what you need there. Knock on wood. It’s all working.

Joe Valley 25:34

Awesome. Well, thanks for coming on again. Sean. Good to see you.

Sean De Clercq 25:37

Awesome. Thanks very much, Joe.

Outro 25:40

Today’s podcast was produced by Rise25 And the Quiet Light Content Team. If you have a suggestion for a future podcast, subject or guest, email us at [email protected]. Be sure to follow us on YouTube, Facebook, LinkedIn, Twitter and Instagram, and subscribe to the show wherever you get your podcasts. Thanks for listening. We’ll see you next week.

Selling 60% Profit Margin Businesses

Chris Wozniak is a Business Advisor with Quiet Light and the Founder of The George Ryan Group, LLC. He began his career as the Founder, Business Broker, and Mergers...

Chris Wozniak is a Business Advisor with Quiet Light and the Founder of The George Ryan Group, LLC. He began his career as the Founder, Business Broker, and Mergers and Acquisitions Intermediary of Lesdon & Associates Business Brokers LLC.

Through his work representing hundreds of sellers and being a member of the International Business Brokers Association, Chris has earned accreditations of Merger & Acquisition Master Intermediary and Certified Business Intermediary. He also earned the Board Certified Broker designation as a member of the Texas Associations of Business Brokers, the Broker Dealer license issued by the Texas State Securities Board, and the Real Estate Broker license issued by the Texas Real Estate Commission.

Here’s a glimpse of what you’ll learn:

[04:09] Chris Wozniak explains working with agencies that serve specific niches
[08:26] What key ingredients are needed to grow your brand?
[12:36] How can you attract more buyers through the presentation of your brand?
[17:13] Tips for a more profitable exit
[22:23] Chris defines a barrier entry from a buyer and seller’s perspective
[27:52] Chris talks about training and transition periods for buyers
[33:07] Why underserved markets can be a profitable business

In this episode…

When you’re in a specific niche for content agencies, is there a demand to buy your brand? How can you achieve a more profitable exit?

While there are many factors in the exit process, Chris Wozniak recommends you have at least two things: clean financials and tax returns that closely resemble your P&L. When it comes to selling your brand, you don’t want to let anything get in the way. Listen to this episode to hear Chris’ first-hand account of selling a medical writing agency — and why the underserved niche can be extremely valuable.

In this episode of the Quiet Light Podcast, Joe Valley sits down with Chris Wozniak, Business Advisor at Quiet Light, to talk about selling third-party agencies. Chris discusses how to attract more buyers to your brand for a greater exit, the in’s and out’s of a barrier entry, and building a profitable business with an exit strategy. Stay tuned!

Resources mentioned in this episode:

Chris Wozniak on LinkedIn
Chris Wozniak
Chris Wozniak’s email: [email protected]
Partners at Quiet Light
Quiet Light
Quiet Light on YouTube
Joe Valley
Mark Daoust
Quiet Light Podcast email: [email protected]
The EXITpreneur’s Playbook: How to Sell Your Online Business for Top Dollar by Reverse Engineering Your Pathway to Success by Joe Valley
My Amazon Guy

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This episode brought to you by Quiet Light, a brokerage firm that wants to help you successfully sell your online business.

Episode Transcript

Intro 0:07

Hi, folks, it’s the Quiet Light Podcast where we share relentlessly honest insights, actionable tips, and entrepreneurial stories that will help founders identify and reach their goals.

Joe Valley 0:32

Hey, folks, Joe Valley here, welcome back to another episode of the Quiet Light Podcast. Today, we have Chris Wozniak or was at quietlight.com. Co hosting with me, I want to say, right, he’s our guest. But he took over quite a bit here, because we’re talking about the multiples that he’s getting for selling. I don’t want to use the word agency, you’ll hear that we don’t want to use the word agency throughout, but third party platforms, service companies that people would consider agencies, the key point is that they’re not your typical typical digital marketing agency. Right? We’re talking about content writing firms, medical firms, reputation firms. And he sleeves off a bunch at the end that he’s talking to as well and getting valuations for typically people think that agencies are hard to sell and the multiples are low. And if you have an agency where you are the name and face of it, and you eat what you kill, and there’s no recurring revenue to it, then the answer is yes, it’s probably going to be a little harder to sell, you might need to stick around a little bit. But from a buying perspective, the type of companies that Woz selling are really low risk, their strong growth is recurring revenue, too. And it’s highly, highly transferable. All the four pillars that we talked about, that make these businesses worth a lot, and the margins are awesome. So if you’re a business owner, where you provide services to other business owners, yes, and agency of sorts, this is when you absolutely need to listen to it. If you’re a buyer out there listening to this, because you’re learning about this online world and you’re thinking I need to buy a physical product e-commerce business, this might open your eyes to considering an agency of sorts, that the margins are strong if the people are in place as a recurring revenue. It’s it’s a really, really attractive model. So here we go. Chris Wozniak, talking about his experience selling these types of companies at pretty strong multiples. Here we go. Chris Wozniak, welcome back again to the Quiet Light Podcast here. What, three, four times on now? This will be your third time. We just figured that out. Yeah,

Chris Wozniak 2:40

forgot. Yeah, this is the third time but thanks for having me.

Joe Valley 2:44

You told me, You told me you’d been on before Am I done? And I was must have been webinars. Now I don’t I don’t remember when I looked it up. And there it is, which is an indication that I got too much going on in my head or not enough brain cells left, which do you think it is?

Chris Wozniak 2:58

Maybe a little bit of both. I’ve actually done a couple of webinars, I think two but I was with you. I couldn’t quite remember what I’ve done.

Joe Valley 3:05

So I know you were a little confused as well. You believed me when I said it. So yeah, it took me a minute. Yeah, maybe it’s our collective brain cells or what we do for a living because so much stuff going on. Anyway, for those folks that have not heard Chris on the podcast twice before, he’s got a wealth of experience. He’s one of our top advisors here on the team. You’ve been in the m&a world since 2001 Or two,

Chris Wozniak 3:30

how long? Yeah. 2003? Yep. So going on 19, almost 20 years. That’s representing sellers. Yeah.

Joe Valley 3:37

Amazing amount of experience. And you’ve been with a Quiet Light team for going on three years

Chris Wozniak 3:43

now. So right? That’s right. Yep.

Joe Valley 3:47

And this is going to air but this is airing in February. So if we look back January was a hell of a month for you, right?

Chris Wozniak 3:55

Yeah. Yeah. I think. So. I had a couple of deals that, you know, obviously was hoping would close in late December. But I think just with holidays, and attorneys being involved in people out of the office, they kind of are pushing towards January. But yeah, it’s January should be an awesome, awesome month. Yeah.

Joe Valley 4:14

And that’s that’s the way things go. Right. We get ahead. As a company we had so much slated to close in December, we would have had a year where we topped 2021, which is a record year and m&a history. But a bunch of that stuff got bumped over to January. So at a glance, you’ve always got to look at the trailing 12 like we do for all the businesses that we look at as well. So that’s right, yeah, yeah. Now we’re going to touch specifically on your work with agencies, which is something you know, we don’t do a whole lot of, interestingly enough, the call that caused me to be late to our recording the podcast was somebody that was you know, saying how difficult the agencies are to sell and that often there’s, you know, a better one out, which is through limited partnerships with, you know, the senior senior people on the team. In your situation, you’ve had some success in seven selling several agencies at what seemed like pretty healthy multiples so far. Yeah. Talk to us about what you’ve worked on so far. And the three years that you’ve been with regard to agencies?

Chris Wozniak 5:22

Yeah, absolutely. I think that that is a pretty common narrative, I would say, with agencies. And, you know, from I can only speak from my experience, but I think it would, the first thing to, to kind of mentioned is, especially if hopefully, we have agency owners that will eventually listen to this podcast. But I think it’s important to note right off the bat that agencies are, in my opinion, very sellable. And that’s from my own experience having sold them. I think when we think of agencies, we often think of just the typical kind of digital marketing agencies that are sort of the outsourced marketing arms of online businesses. But there’s, there’s all kinds of agencies that exist that serve specific niches.

Joe Valley 6:12

Yeah, that’s exactly what I think of when I say agencies and, you know, Steven, Steven, Pope at my Amazon guy who was, you know, a sponsor of the podcast, if folks if you didn’t hear us, tooting, Stephens horn, is MyAmazonGuy.com helps Amazon sellers really level up their knowledge, but it’s exactly what I think of Chris is an agency that is an ad agency, essentially helping people market their products, when usually, the expert is at the helm, and when they leave the expertise goes away as well. And that’s often what buyers are fearing. That’s right. So, how do you overcome that? Go ahead?

Chris Wozniak 6:54

Well, sorry, I was gonna say, I think that’s a legit fear. It’s a very real one. You know, I, you know, the agencies I’ve sold in the last year or so, they weren’t really digital marketing agencies, which is what I found interesting, because you realize that there’s these kind of niche within niche type agencies that they provide a very specific service to a very specific need in the marketplace. And so like, the first one I’ve sold, in the last year, year and a half was a content writing agency. That’s an agency I represented, we were able to get an SBA pre approved, we sold the company to an SBA buyer, but that’s what they did, they had a team of writers that they were an outsourced agency that companies would hire to write their content for them. So, you know, very specific niche.

Joe Valley 7:46

Remember that I think I talked to the owner of that company at one point. So as a buyer, what I would look at in that situation is, you know, am I going to come in and operate the business and, and the team is going to stay in place? That’s kind of the secret sauce to being able to sell an agency, I would think that end, you know, recurring revenue is also a wonderful thing. What is your key? What are the key things that you see that are necessary in order to successfully sell an agency to an outside? Well?

Chris Wozniak 8:14

Yeah, I mean, I think, one, I always go back to the basics, which is kind of quiet lights, foundations, foundational aspects of valuation, which would be kind of the four pillars, you know, whether your agency or any other online business, I mean, it helps to have growth, which is, you know, has a huge impact on the valuation, obviously, the size of the business, the scale, you know, the larger it is the less perceived risk, you know, documentation, regardless of if you’re an agency or not, you need to have clean financials, SOPs. And if possible, I always stress this, I can’t stress this enough, try to have tax returns that resemble your p&l, because we do want to try to get SP pre qualified, but

Joe Valley 8:54

the more men this world, I don’t understand you have how you would have tax returns that don’t resemble your p&l. It’s I know, it’s calling flying by the seat of your pants not using QuickBooks or Xero, or whatever it might be.

Chris Wozniak 9:06

Yeah, spreadsheet. Okay. Yeah, minimizing your taxable income, but you’re you’re doing that in lieu of potentially a much higher sales price down the road. And it just, there’s no comparison on the return. You know, but, yeah, and then transferability, which is maybe one of the lesser of the foundational aspects, but, you know, pretty self explanatory, how transferable is the business? But to get to your question, I think transferability may be more have more weight and importance with agencies than it may be a typical online business, because like you mentioned, you know, what, how much involvement does the owner have in the business? Are they are they the, the first person face that the new customer sees when they’re onboarding? Is the owner, the salesperson? Are they the brand? I mean, I’ve I’ve actually talked with agencies where the name of the agency is the owner’s name. And the URL is their name. And on the front page of the website is their face. So those are a little bit different discussions when I talk to sellers like that, and they’re usually very open to this. But my suggestion, obviously, is, we can probably sell your business, but it’s going to take a pretty big hit towards evaluation, in my opinion, versus if you have the time to remove yourself slowly from the day to day operation, remove yourself from the website, potentially rebrand or rename the website. So yeah, those are, those are very real things when dealing with agencies and like with this content writing agency, the the seller, it was a husband and wife, but the wife was really the face of it. She did a lot of YouTube videos, a lot of Facebook Lives, that sort of thing. So we’re actually able to work through that the buyers, the husband and wife also felt like they could kind of take the reins on that. But again, she did have a very, very trained team, really good writers that had a pretty good history with the company. So I think that that made the buyers much more comfortable.

Joe Valley 11:06

What about the recurring revenue aspect in that business? Were there clients that had that agency? on retainer, where they’d write a certain amount of articles every month for them? And it was just recurring revenue? Or was it each kill sort of thing?

Chris Wozniak 11:21

Yeah, no, it’s and that’s a good, also a good question. When it comes to valuation. It’s like, Are you a company, an agency that has monthly or quarterly or maybe annual customers? And many of them do this one did as well? Do you do a lot of stuff ala carte, which would be maybe more customized, that can be a little bit more difficult? Because it’s like, what is that customization? And is that is that trainable and transferable? So yeah, but with the three agencies that I’ve sold recently, they they had a ton of repeat customers on a monthly basis, with some variation to quarterly and annual that was a much smaller percentage of the total revenue.

Joe Valley 12:02

What are the term can we come up with besides agency? Because as you said, it’s, we all think of a certain thing in there’s a stigma associated with it that make it less appealing to buyers or less sellable? And, of course, I’m just playing around, but I mean, it is it’s really, I mean, it’s a, you know, when you think about the content writing service, it’s a service, it’s an agency as a service, is it? Is there any any other term that you would apply to it other than the simple agency model? Probably no.

Chris Wozniak 12:34

No, that’s a great question, though. Because it’s it is it is about the presentation, right? I mean, maybe maybe it’s, maybe it’s, it would be more attractive to see content writing third party provider, or content writing third party service, or service provider.

Joe Valley 12:50

I’m asking this because I’m thinking about the title of this podcast already. So folks, if you’re listening to this podcast, it’s because Chris, and I worked out a good title for the podcast to draw you in and listen to this, as opposed to think it was just a digital marketing agency that we were talking about how to sell.

Chris Wozniak 13:04

So yeah, yeah, that’s a tricky one.

Joe Valley 13:07

It is, it is. So talk to me about the buyers. Well, first of all, what kind of what kind of multiple? Did you come out of the gate? With how close to that did you end up selling the business for? And what kind of pushback did you get from buyers in the fact that it was in fact a service agency?

Chris Wozniak 13:25

So on the content writing, third party service provider, we, we came up with, I think we did a 3.2, I took some notes, a 3.2. Multiple. And we basically sold for asking price. And I would say, when it comes to buyers, with, with agencies or third party providers, what I’ve noticed is, and this has been true for all three launches, that we don’t get necessarily the the volume of clicks on the package. But for sure, I would say I get much more buyer intent. So in other words, the buyers that do inquire, they are they understand what they’re inquiring about, and they’re very interested in it. And typically, they have some type of aspect to their background that lends itself to what they’re looking at. which blows me away every time because when I launch something in my head anyway, I’m like, It’s not that it’s a bad visit. So don’t take this wrong, but I’m like, who’s gonna buy this, you know, like, who the buyer be? Because it’s, it’s so nippy, and maybe a niche within a niche. And it’s a quote unquote, agency. And I’ve been blown away because, you know, often like I had a medical writing agency provider, and their, their writers and their medical, so just keep on layering that and I’m like, boy, this is going to be interesting, you know, when we launched this, and I bet you we had 10 12 like hot and heavy, you want to have buyer seller call buyers sets a

Joe Valley 15:04

lot having tended to a buyer seller calls right away?

Chris Wozniak 15:06

Yeah, it’s great. I mean as the week, that’s, that’s double what I would hope is a good launch, you know, and they all had either backgrounds in writing, managing writers, maybe a medical background to some degree and a couple of like both, which I mean, you can predict that, you know, as,

Joe Valley 15:28

as we talked about this, I can’t help but think about, you know, like my own entrepreneurial experience and whether or not I’d want to buy an e-commerce business where somebody’s built up a brand that sells, you know, on Shopify, and Amazon, and how I’m gonna have to innovate and compete and launch new products and learn learn, maybe, maybe it’s because I’m, I’m at the end of my learning curve here, Chris, but I hear Yeah, that doesn’t sound as appealing as this really niche business that has a customer base with some recurring revenue and transferable staff that has less competition. You know, I’m not competing against, you know, 13, you know, sellers in China that are just stealing my images and trying to, you know, reduce the price on Amazon and sell with produce. It’s, it’s, yeah, it’s almost like these are, these are more established real successful businesses that have those four pillars really strong. You know, we’re growth, transferability and documentation and they should sell at higher multiples. And it sounds like, it sounds like the few that you’ve sold, or trading at a pretty strong multiple you said 3.2 for the content, righteous third party platform business. Yeah. And then the medical writing business as well. That was a strong what was that? What kind of multiple are we talking about there?

Chris Wozniak 16:56

We were at a roughly a 4.2, multiple on $800,000 and trailing 12 month Ste. So very, very strong. I mean, I think their gross revenue was like 1.3 or 1.4 million. So that’s another thing. These agents are just so profitable. Yeah, the margins are just crazy. And we got that one, SBA pre qualified as well. So it was one that went under contract at 3.4 million. And we had multiple offers at that. So it was really the sellers kind of deciding who they wanted to go with. Okay,

Joe Valley 17:28

so both of these were SBA eligible, I want to talk about I want to talk about the benefits of running an agency or buying an agency in terms of cash flow, but also just want to focus in on the SBA eligible aspect first, do you think both of these sold quickly with multiple offers because of the SBA aspect?

Chris Wozniak 17:48

Yes, I do. Okay, so

Joe Valley 17:51

quickly cover for the business owners that are out there, the agency owners that are out there, what do you have to do to run the business right to become SBA eligible? Yeah, I

Chris Wozniak 18:03

think, if I was to tell you quickly, like the maybe the two most important things is have have clean financials, meaning your p&l is whether it be QuickBooks or whatever other third party financial software you’re using, excuse me, and then I would say, you have to have tax returns that closely resemble your p&l is and by what I mean closely resemble is you can have, you know, minimize your taxable income if it’s by way of your salary and things that are recognized by underwriters with the lenders, but you don’t want to run a bunch of things that are personal through the tax return. Because at the end of the day, there’s a bunch of items that that underwriters and lenders will disallow when it comes to their calculation of the available income and how that translates to their debt coverage ratios. Because that’s what it boils down to is they have a specific coverage, multiplier. And if you don’t hit that on the tax returns, even if your p&l show you clearly do they default to the tax returns. So there’s, there’s really no getting around it. And then with your financials, you want to be on an accrual basis, you know, recognizing expenses, when the sale has occurred, not when you’ve, you know, not when you’ve had a lump sum purchase of something or any anything like that, because cash basis will typically reduce your income. So you want to be on an accrual basis if possible.

Joe Valley 19:22

Yeah, and there’s a ton of bookkeepers out there folks that do that we’ve got a resource partner page up now quietlight.com/partners. That’s got six or seven bookkeepers that our team has worked with, over the years that just keep presenting really clean, healthy profit loss statements that allow us to sell their clients businesses for higher value. So check that out. quietlight.com/partners. Okay, so if you’re running an agency of any sort, get your financials in order so they fairly closely match your tax returns and keep in mind that an add back schedule is still part of the valuation and the SBA lenders Do the same thing with the schedules. The next part, though, that I wanted to chat about was, I forgot already, Chris. Well, thanks.

Chris Wozniak 20:11

You had a good one that was gonna segue into something I wanted to talk about, which is kind of, you know how attractive these businesses really are?

Joe Valley 20:18

Yes, thank you. You’re the host. Now, we’re going to handle the case you don’t make me the host. Yeah, so So typically, in a in an e-commerce business, we’re looking at anywhere between 10 and 20%. profit on the bottom line, and then you get to the content businesses, and you’re really excited because you’re doing a million in revenue and 850,000 in profit. Here in this situation, you’re at 50, or 60%. profit, which is huge. It’s a beautiful thing. And and, and you would think that the multiples would be even higher because of it. Obviously, they’re pretty strong, what you sold, pretty strong multiples. But you’ve got much, much more margin for error, as you’re running these agencies, because of the profit margin, if you screw up in a year and you you overspend on something, whether it’s people or travel or whatever it might be, it’s it’s not the end of the world because your margins are so much higher. Is that what you’re seeing as well?

Chris Wozniak 21:15

That’s what I’ve seen. Yeah, it’s a huge cushion. I just sold a reputation management and branding agency as well. And I think I’m doing my math, right, their net margin was like, above 60%. That’s, that’s the bottom line compared to their revenue at about 60%. So

Joe Valley 21:32

three agencies of reputation management company, a medical writing company, and was the first one content writing content writing for any kind of business. Is that right? Yep. Yeah, yeah. I wonder why the writer aspect of it, I get the reputation management, right, how, you know, somebody’s going to a bad mentioned on page one, they can suppress that and get at page 10, I guess, by overwhelmingly positive things that the right. But why do you think the agency in the in the writing niche is so prevalent? Or is it just that this is? What happened to be what you you, you sold, and another one fell in line?

Chris Wozniak 22:11

I think they I think it was just they fell in line. But you know, I think between the content writing and the medical writing, this also goes back to something you were saying, it’s like, from a buyer’s perspective, you know, you always you always hear the the term barrier to entry. And, you know, sometimes those barriers are stronger than others, I would say. But like it with this medical writing company, you had about 100 writers. And I would say, I think it was like 15 to 20 of them were kind of their main writers that were always working. And of those, many of them were physicians that had either left their practices or had smaller practices, maybe only open a couple days a week, and then they were kind of augmenting their salary with with this medical writing, because, honestly, there a lot of them are making, you know, 100 to 150,000. Doing this, and they get to do it in the comfort of their home. Or we’re talking about physicians writing, not not content, they’re writing labels on medications. Medical inserts that you maybe you’ve seen some of those, they can be pages, these pages.

Joe Valley 23:16

I can’t do that. Yeah, me too. Yeah. So supplements online before? Does that qualify me?

Chris Wozniak 23:21

Yeah, you just google how to do medical writing, I think you’ll figure it out. But, you know, the real tiny writing on, you know, would probably would be a chapter in a book really, once you blew it up. But that’s the kind of I mean, I think, to me, that’s a barrier to entry to have huge, put this team together of highly educated, trained physicians that can, that what they’re writing is actually extremely important, because it can mean life or death with the people reading it. The end user.

Joe Valley 23:51

Maybe I shouldn’t do

Chris Wozniak 23:52

that, then. Yeah, you shouldn’t

Joe Valley 23:55

stick with what I’m doing here. Yeah. Yeah. The guest podcast. Yeah. Yeah.

Chris Wozniak 24:01

I guess the podcast, not the host anymore. But yeah, so that I mean, I think in the reputation management agency, same thing, we went out at a 4.75 Multiple on roughly 1.61 point 7 million and trailing 12 month Ste. And I think over the course of we relaunched it two months in because their business had kind of grown so we took it down and kind of updated the numbers but from the relaunch, which I would consider the launch, I think we had six or seven offers on it. The individual it was SBA pre qualified in just because by the way, we’re SBA pre qualified doesn’t mean as a seller you need to we have to sell to an SBA buyer. What it does mean is it will put I think upward pressure on on the value because it puts all the buyers on notice that there’s more opportunity for them to get into the mix. Yeah, gig

Joe Valley 24:51

gets the cash buyers off the fence. They don’t have strong opposition because they know when it’s SBA prequalify there’s gonna be other buyers that come in at it. The 10% down and 10 year financing. So that’s right, you jump in quicker of the of the seven or eight offers that you got for the reputation management company did. Did you have any cash buyers? Or were they all SBA bars?

Chris Wozniak 25:11

We did. We had a, I think a couple of cash buyers, but one was a really, really strong cash buyer from Chicago. And you paid 4.5, multiple all cash.

Joe Valley 25:23

You sold it all cash. Okay. Yeah, I know that because there was a referral fee on that as well.

Chris Wozniak 25:28

Yes. Right. Yep. That was one. Yeah, I’m

Joe Valley 25:30

gonna keep plugging things here. Look, I plugged the partner page folks probably quietlight.com/partners, and then [email protected]. The person that referred, this seller to us just got a 10% referral fee, to the tune of what would pay for two years of education at a state school. Yes, least NC State Go ahead, look up the tuition is basically 50,000 bucks. That’s right, for an email introduction. And this is someone that the person that referred these folks over to us, I sold their business, what feels like a decade ago, and I know it wasn’t, but it was an affiliate platform. Business, Chris, I don’t know if you know the story, but they had to go out and have an investment banker sell their affiliate platform for eight plus figures. And it didn’t really work. And then they, you know, they came back down to earth and, and connected with me. And I knew absolutely nothing about affiliate marketing. I remember when I first joined quietly after selling my own business and chatting with Mark about he’s like, Well, what, what what models do you know nothing about I was like, Yeah, affiliate marketing, I know nothing. So three years later, I’m selling an affiliate marketing platform of all things. But we got through it, we did it. And it was one of the toughest buyers have ever dealt with ever. And then the same folks, this is the life of an entrepreneur, the same folks went out and launched another company in the pet niche, basically an agency recurring revenue, and Chuck ended up selling it for just under $5 million to businesses, and then they’re referring clients over to us as well, of this size and caliber, where it’s just literally an email introduction. And then we do our thing, and it takes a while obviously, turns out that you know, they’re gonna get a very healthy check, higher than most people make in a year. Yeah, just by sending an email. So if you’ve got friends or colleagues out there, folks that we don’t already have a relationship that want to get a valuation adventure, sell their business, send an email, Intro to referrals at quiet like a calm, you can put my name, Mark’s name Chris’s name, and the salutation doesn’t matter. We’ll reach out to a section. Deanna that will reach out to you because she runs the referral program now. Okay, that’s my plug on the referral program. Now back to the show, folks. Chris, what are we talking about here?

Chris Wozniak 27:52

We’re talking about third party service providers, often referred to as agencies,

Joe Valley 27:57

third party service providers, that’s what we’re going to talk about that’s, that’s something like that will be in the in the in the in the title. So this last one, you got all cash it was SBA eligible, but it got the cash buyer off the fence, a four and a half multiple, all cash a pretty big number, what kind of what kind of training and transition period is required by the sellers in this situation? Do they stick around for a long time to help this person take over the business with a deep in the day to day operations of it.

Chris Wozniak 28:29

You know, it varies obviously, between businesses, but this one was unique, because it was two owners, there was the founder who owned 100%. And then he brought in a partner about I think two or three years ago for 50% ownership. And the partner the new partner, the 50% owner was kind of the became the and he was brought on for this the day to day person managing his team, they had a physical office kind of near the west coast. But he was also very integral with with sales and bringing new customers in. So it a little bit different because the buyer recognize the importance of the 15% owner and wanted required, but wanted him to retain or give him ownership in the new code purchasing. So I believe he, I believe took some chips off the table, maybe half of what what his 15% was and then reinvested the other half into a percentage of the new company and then got all kinds of perks a really strong salary, some some bonuses that would that would initiate really quickly, you know, insurance, monthly car payment, and then an opportunity to be awarded additional ownership interest if certain thresholds were met over the next one, two to three years.

Joe Valley 29:49

And then a second bite of the apple sundae if you decide to sell it again. It’s much, much larger company. This person is obviously good at what they’re doing. Because you know when I initially first talk To the 85%, owner of the company wasn’t that big. So they’ve grown pretty consistently. So that’s another thing for you, agency owners out there, or buyers that are thinking about buying a business like this is having a really good operator in the business that maybe will earn equity over time and can transition with the sale. And that will again, install even more confidence in buyers to take a chance at buying that company with a strong multiple as well. Yeah, tough to do you got to get to a certain size in order to do that. That’s the challenge for smaller companies, you know, given up 15% It did, did the 85%. Owner just give up 15%? Or did he have him buy it? Or how did that work out? You haven’t had any recollection on that? I do.

Chris Wozniak 30:47

Yeah. Of the 7.25. He essentially the main owner and founder got 85% of that cash boom, done?

Joe Valley 30:56

I mean, when the original owner gave the 15% to the new partner, was it? Was there a buy in? Or was it just you’re going to earn this 15% Over the next 24 months or something?

Chris Wozniak 31:07

Yeah, more of a sweat equity? Yeah, but of course, no. Yeah. No buy in? Yeah.

Joe Valley 31:11

Yeah, that not that. Yeah. Again, you gotta be a certain size to do that. I know, the original owner wasn’t wasn’t working full time in the business even when I don’t think. Yeah,

Chris Wozniak 31:19

yeah, the original owner. I mean, he created a awesome business. And then I think, I think he made the right move with with the partner he brought in. Both awesome guys actually think we’re gonna be doing a podcast with them. In a few weeks, actually, I think so

Joe Valley 31:34

indeed, we are in excellent. Chris, the selling of third party service companies called agencies, I’m still working on the title here. It’s, it’s a great, it’s a great subject, simply because there’s not been that many of them over the years that we’ve done here at quietly. But there are really talented people out there building businesses like this, especially when they come from, you know, a non entrepreneurial background, right. So these medical writer, content writer, I bet they were just writers in their field at one point and started this as a side hustle and built a business up. So I think as you know, the entrepreneurial world in the online space continues to grow, we’re gonna see more and more of these. And it just helps people that are taking the risk to build these companies to have an exit path and helps us understand as a company, the value that buyers are willing to pay for these. So keep an eye on this. Yeah,

Chris Wozniak 32:37

that’s cool. I have had in the last quarter, I was looking at it a couple days ago, I think I’ve had eight to 10 valuation calls with other agencies. And I’ve got some, I’ve got some lead sources, where I’m kind of getting those more and more now, as people are kind of realizing that, Hey, maybe I can actually sell mine. And what’s interesting is, it’s not, it’s not the typical digital marketing agencies, as we kind of talked about, it’s continues to be these, you know, I’ve got to like a resume writing, provider, brand development, I’ve got a real estate kind of, for lack of a better term, a real estate kind of content. Agency, that’s not the best way to describe it, but it’s very demographic specific. So that kind of opens up the world of potential buyers, on those kinds of things, maybe synergistic strategic, but, you know, at the end of the day, it never ceases to amaze me how people can find an underserved market and provide a service that’s extremely profitable business and run it and, and grow it. And that’s what I’m seeing with a lot of these agencies, they’re, you know, even in this strange economic time, they’re doing really well. They’re making a lot of money. They’re increasing, they’re profitable. They’re, I mean, I mean, just a repeat business being 50 to 70 to 80%. recurring revenue is it does it goes back to what you said, like these are these are really attractive businesses, we just need to kind of change the, the narrative or the perspective on them, because they do sell. I mean, I know from personal experience that they do sell, and they’re selling for multiples, often very competitive with some of the more sought after SaaS and content site businesses. And that’s been interesting to me to realize that,

Joe Valley 34:28

yeah, it almost sounds as if you could write all the right pieces in place that it’ll be less risk than content site where you might sometimes be at the whim of Google. Folks was his email is [email protected]. You can reach out to him directly. If you want to chat about an agency third party platform selling services that you might have an interest in getting evaluation on, you can always fill out the form at quietlight.com Click evaluation forum. You can specify quickly put in there that you want to chat with Woz as well. Or, or again, hit him up with an email [email protected]. Woz? You’re awesome, man. Thanks for Thanks for hosting this Quiet Light Podcast. Appreciate it.

Chris Wozniak 35:10

Okay, Joe, thank you for having me. It was awesome to talk to you.

Outro 35:16

Today’s podcast was produced by Rise25 And the Quiet Light content team. If you have a suggestion for a future podcast, subject or guest, email us at [email protected] Be sure to follow us on YouTube, Facebook, LinkedIn, Twitter and Instagram, and subscribe to the show wherever you get your podcasts. Thanks for listening. We’ll see you next week.

2022 Year in Review and a Look Ahead to 2023

Mark Daoust is the Founder, President, and CEO of Quiet Light, a business advisory firm that helps online entrepreneurs achieve amazing exits. Since starting the firm in 2007, Mark has...

Mark Daoust is the Founder, President, and CEO of Quiet Light, a business advisory firm that helps online entrepreneurs achieve amazing exits. Since starting the firm in 2007, Mark has guided dozens of entrepreneurs and small business owners through their exits. Before his work at Quiet Light, Mark founded Site-Reference.com, an online publication with a subscriber base that he expanded to more than 220,000 members. Now, Mark is a well-known presenter and guest author, as well as the co-host of the Quiet Light Podcast.

Joe Valley is a Co-owner of Quiet Light. Joe joined the firm after selling his own e-commerce business through Quiet Light in 2010. He has advisor expertise in all web-based niches, including SaaS, e-commerce, and content businesses. In addition to this, Joe is the co-host of the Quiet Light Podcast and the author of The EXITpreneur’s Playbook: How to Sell Your Online Business for Top Dollar by Reverse Engineering Your Pathway to Success.

Here’s a glimpse of what you’ll learn:

[03:07] Mark Daoust talks about the pullback of the mergers and acquisitions marketplace in 2022
[07:34] How does the fear of a recession prohibit growth?
[13:06] Joe Valley explains why there is a shift to individual buyers
[17:10] Why bargain shopping for brands didn’t stick
[23:19] Mark shares how experienced advisors at Quiet Light can better guide entrepreneurs
[27:49] Some of the unique challenges of running a remote company
[33:41] Mark and Joe discuss cultivating an enduring team at Quiet Light

In this episode…

The aggregator appetite for quality brands is strong, so, how can your brand meet their needs? If you’re concerned about an unpredictable market, what steps can you take to help strengthen your brand?

When it comes to having traction in the aggregator market, Joe Valley and Mark Daoust recommend you educate yourself on the marketplace. The year 2022 caused fear-mongering and confusion in the market, but to help your brand strengthen and grow during the upcoming years, it’s best to keep a level head. This is how Joe and Mark plan to build out their upcoming year so they can continue the Quiet Light mission: helping people achieve their goals.

Join Joe Valley and Mark Daoust in this episode of the Quiet Light Podcast as they review the year 2022. Together, they discuss the rollercoaster of marketplace fears, why individual buyers are taking the scene, and how the Quiet Light team has grown over time.

Resources mentioned in this episode:

Sponsor for this episode

This episode brought to you by Quiet Light, a brokerage firm that wants to help you successfully sell your online business.

Episode Transcript

Intro 0:07

Hi, folks. It’s the Quiet Light Podcast where we share relentlessly honest insights, actionable tips, and entrepreneurial stories that will help founders identify and reach their goals.

Joe Valley 0:30

Hey folks, Joe Valley here, welcome to the Quiet Light Podcast. Thank you for joining us, we are doing a little look back of what 2022 was like, and a look ahead for 2023. And I’m doing it with this guy that he might have founded Quiet Light back in 27 2007. And I think did one podcast last year and Hakka it might have been the most popular podcast, I’m not really sure I don’t look at the stats anymore. Because when he when he when he comes in does a podcast, it’s usually better than mine. So welcome back to the Quiet Light Podcast, my partner, Mr. Mark Daoust.

Mark Daoust 1:07

That’s right. My name is at the beginning of the podcast, but I make my once per year showing. So that was good, good to be able to do this. We did this last year. And it was it was a fun hour to be able to look back on 2021. Obviously 2021 was such an incredible year. And it’s always fun to look ahead and try and predict. Did you listen back by any chance to last year’s I didn’t? I probably should have

Joe Valley 1:31

I was that we’re supposed to do as professional podcasters we’re supposed to listen to the previous year’s episode and try to repeat it. Because I’m just a total screw up if that’s the case.

Mark Daoust 1:39

Yeah, if we were professionals, we would probably do that. But you know, this is not our day job. So that’s a good thing.

Joe Valley 1:46

No, my aspiration is to be more like the guys on what’s the podcast Smartless podcast, Will Ferrell Jason Bateman and their buddy Sean from Will and grace, those guys just throw on their PJs, flip the microphone on and just start talking and having fun and telling stories and then have the guests on. There’s no preparation whatsoever. And honestly, that’s kind of what I’ve always done. I cannot remember the last time I’ve edited anything out of a podcast unless it was completely, you know, complete. It is idiocy on my park. I think you’re the same right? You don’t edit anything when you record date.

Mark Daoust 2:28

Yeah, but the race is so high. I only have room to do one podcast per year otherwise, you know, just it’d be

Joe Valley 2:34

so much editing. It would be like the intro and then thank you for joining us have pretty much Yeah, absolutely. All right. 2021, as we all know, was a record year in the history of m&a. How was 2022 In your view,

Mark Daoust 2:49

Mark. I know it was better than I anticipated it to be. I think we started off 2022. We started off rocky, January was a bad month. And it was the first bad month we had experienced in quite a long time. And so it was a little arresting. When we got into that we had all this momentum leading up to the end of 2021. And you know, when you’re riding a roller coaster, I don’t know how long it’s been Joe, since you’ve been on a roller coaster. It’s been a while for me. But you’re right on roller coaster, and you’re still going fast. But then you come into the end. And they always apply those brakes so hard right at the end, right and everyone jerks forward and then jerks back as they’re pumping the brakes. January was that that moment where we were coming into the station to reset and see where we were we had just written the roller coaster of 2021. It was a blast. It was a thrill. There was a lot of new things people were screaming, and I’m pretty sure somebody vomited along the way. But

Joe Valley 3:51

I didn’t. It was exhausting. It was nauseous the entire year.

Mark Daoust 3:57

2022 was a time for us to really take a step back. We saw aggregator markets pull back really, really heavily compared to where they were the year before. And can I can I just make an unpopular take here? Yes. I’m so glad. I’m so happy that they did. It was it there was all this money raised. When you raise money like that there’s a pressure to spend it right people don’t invest in a company. So it just sits in there in the actual operators accounts. It needs to be deployed. And that was setting up kind of a crazy market. And I saw this setting up an insurer, right, we’re gonna ride that wave. But you’ve looked at it you think, how is this going to end? Is it going to end? Well, you know, it’s a little bit scary. I think some sanity has taken over in the marketplace in 2022. And with that transition came a little bit of pain, a little bit of a pullback, but not as much as I thought it would be. To be honest, our numbers still ended up very, very strong from where they were the year before and the end of the year. With an election elections for just context here, I’ve been through a lot of elections. Since I’ve owned Quiet Light. There are always periods of pullback in the m&a market people are. No one likes uncertainty. And so elections introduce uncertainty. And so fully anticipated, as a bit of a pause and there was leading up to the midterm elections. But then the end of December, why things picked up just where they they were, at more of a normal level and seen some pretty healthy activity, signs of health and market which is encouraging. Well, look, from your perspective, Joe.

Joe Valley 5:40

Two words, confusion, and fear. Right. That’s my look back at 2022. There was a lot of confusion in the marketplace with you know, what was going to happen in the recession with, you know, thrash to semi imploding, the aggregators, all pulling back, right? People thought, oh, no, there’s never going to be an FBA business sold again, which, by the way, folks, is only a small fraction of our overall transactions. So there’s a lot of confusion there. But really, what happened was that it opened up like this crack in the window where the light could come through. And that light was all from individual buyers. They’re like, thank goodness, get out of the way aggregators, because we can finally buy these businesses. Again, they’ve always been there. We sold lots of businesses before aggregators ever showed up, and we continue to after they’ve pulled back on their purchasing frenzy. They’re still there, but a lot of confusion because of interest rates going up, right? The inflation, you know, the Fed wants 2% year over year inflation, we hit 9% interest rates going up buying power coming down, a lot of confusion there. And then the fear the fear of a recession, we had if we, if we didn’t have the fear aspect of it, Mark, we would have grown by 25 or 30%, over 2021, which was a record year. And the reason we didn’t was because these transactions were under letter of intent. And then fear took hold from the buyers perspective, or the lender’s perspective behind the buyers. Or some of the folks like, you know, in Brad’s deal where Brad had to deal with it was close to $60 million, and everything was approved. And so you got deep, deep deep into the, you know, the money aspect of it on the board of directors, and they pulled back because of recession fears. If we didn’t have the fear aspect of it, I truly think that we would have grown 25 30% over 2022. And as I look back, you know, you talked about January of 2022, I would have gone over 21. I mean, January 2022, and I, again, you and I and our lack of preparation for these things, we talk off the cuff. If we looked at QuickBooks, I would imagine that December of 2022 had a ton of transactions close just to get it in before the end of the year. And things were closing quickly and 2021. Right. In 2022, the time from Letter of Intent to close transactions grew, I don’t have the exact number but it took a longer period of time for things to close. And then in December of 2022, as you and I know, we had a record month slated to close, but because of fear and that longer period of time, buyers didn’t pull back and cancel the transactions, but they’re trickling over to January of 2023. So we’re going to start off with a killer month in January of 2023. Whereas January of 2022 was kind of ugly, as you said. Yeah, yeah, absolutely. And

Mark Daoust 8:43

some of the more surprising stats, and I bring these up because people throughout the year have asked, Hey, what does the market look like? What does it look like over the course of the year? What are you seeing, right and we take a look at Centrica puts out some nice reports right now they have shown a decline in in some of the activity being done. And you can see this, across the board. There has been a general pullback as far as the number of transactions. When we started to look at the actual metrics of the transactions, what we see is that deals that are being closed, are closing for higher multiples. And with more offers per transaction that are closing, it’s counterintuitive because we’re hearing pullback, pullback pullback. But you know what’s going on there. My theory and again, this is a theory and we all are trying to do some introspection and understand what’s going on is that there’s still a lot of money in the marketplace. And people are still looking for good quality businesses to buy where we’ve seen the slowdown is 2021 There was a voracious appetite for businesses. Facts be damned, right. We could have businesses that probably shouldn’t have been acquired, get acquired, or probably shouldn’t have been acquired at the prices that they were being acquired. or that can get acquired because there’s so much appetite for these businesses. And now even 2022 saw those businesses not do as well take a longer time to find a buyer and definitely lower multiples on those businesses. But the high quality businesses, there’s still a great appetite. There’s another trend that’s been happening, especially towards the end of this year, which I found, very encouraging. As we head into 2023 2021, so the end of 2020, and the beginning of 2021, my inbox was flooded with new aggregator requests for conference calls, we want to introduce ourselves to you, we’re looking for businesses, here’s our grand plan for what we’re going to do over the next year, we’re going to acquire a gazillion businesses right

Joe Valley 10:47

now to sarcasm folks.

Mark Daoust 10:50

It was, it was literally multiple calls per week. And it was it was actually exhausting at the time to the point where we brought on Deanna just to be able to handle those. And as soon as we hired her, those actually pulled back really significantly. Well, those calls are picked up again, not to the same level that we saw before. But we’re seeing more and more of those calls with funds, or aggregators, or groups that are looking to get into the acquisition game, or they have plans for more acquisitions in 2023. Let’s call it picking up again, that’s a really nice leading indicator of a better appetite in 2023 than we saw in 2022. I’ve told you, I’ve told the team, this time and time again, in this space of m&a. The transition periods are where we see the pullbacks bear markets, bull markets, I don’t know what it’s going to be I’m not going to sit here and say it’s going to be a bull market or a bear market. I feel a little more bullish than I have in a while. But it’s the transitions that are difficult certainty is where acquisitions happen. Yeah,

Joe Valley 11:48

I agree. We’re going there. And part of the problem here is that, you know, the history of recessions in our lifetime, as an adult and in this industry as professionals, it’s it’s only the one that we had in 2008. Right? It was horrible. It was the with great, the Great Recession, it was just really traumatic for a lot of people and hurt a lot of people financially. And that’s our experience with recession. So we think going into a potential recession that the sky is falling, it’s going to be awful. And I think the fact of the matter is, it’s not going to me I just read this morning, Jamie, Dimon diamond, whatever, you know, I don’t know how to pronounce his last name. I read it, but I never hear it. So it’s a diamond Do you know? You don’t know either? No. He’s the head of Bank of America, I think, for Morgan Stanley, one or the other. And I’m sure I’m getting that wrong, folks. Just send me an email and correct me and tell me what a moron I am. I’m gonna read facts. I’m gonna quote things. I need to get it right. Anyway, he is the one that said there’s a hurricane coming in the economy, right, a year ago. And I read something that’s very close. Yeah, maybe I shouldn’t have said that. It’s going to be cloudy. It’s not really to be a hurricane. It’s going to be cloudy that Yeah. So why do we listen to these people at all? You know, I oftentimes amused myself, if I’m watching the news, I’ll watch, you know, 10 minutes of CNN, and then I’ll flip over to Fox and get a completely opposite view of what’s going to happen. And it’s the same thing when you read one article after another what’s going to happen in the economy. So I don’t think you know, like you said, No predictions to be made all we can tell us what’s happening in our world and in our business. And the aggregator pullback did cause a lot of confusion, the inflation, it causes a lot of fear. But that opening for the individual buyers is there, it’s there in a strong way. And I think it’s going to continue to grow. And that’s part of the outlook for 2023. I got an email the other day from somebody in the in the area that I live in, that runs a credible company. He’s got a friend of his from college that lives up in Michigan that is tired of the winters. He’s in his 50s. And he’s going to exit his company that he works for he’s an employee at his company, and he wants to buy an online business so he can live anywhere in the world. So he reached out, as we mature, there’s going to be more and more people that are individual buyers that are wanting to step into this world in which we live in where we can work remotely from anywhere in the world. So I don’t think there’s going to be a big slowdown in the marketplace. There are more online businesses that are maturing and wanting to sell and the more people that are understanding that it’s not as big of a risk as it was when you first started back in oh seven and I joined this race back in 2010. When what the average deal size was like $125,000. Very different today than it

Mark Daoust 14:41

was back then. It is very different today. And again, I just emphasize, I mean, I’m not I’m not going to make an economic prediction. I can see a case for both growth in the economy or decline. And I really don’t know well listen to Jamie see what he has to say and then realize that even the guys that are paid millions of dollars in their position shins are wrong. So I’m not gonna sit here and make my prediction, I’m sure the listeners here have their own opinions as to what’s coming, the things that do affect our market would be the interest rates, obviously, because the borrowing cost of money becomes higher. And so you have to take that into consideration. And then the actual books of of our clients, right. So if they’re seeing a decline in their revenues, because consumer demand is going down, that would be something to pay attention to. It doesn’t get rid of the the appeal of acquisitions, especially in the space, though, where the desire to sell or the desire to sell Absolutely. And so there’s, there’s going to be good supply and demand, I believe, throughout this year, for these acquisitions. And there, we’ll see. I mean, maybe next year, Joe, you know, will become slightly more professional, we’ll listen back to this and hear just how incredibly wrong we were on things or how much we understated things as well. I mean, it’d be one or the other.

Joe Valley 15:57

Yeah, it’s, it’s, it’s an interesting time. I think, Mark, because, you know, if we’re even within 23, with 22, or down slightly, that’s okay. Because I truly believe that when we get through this fear and confusion, that there’s only upside on the other side, you know, unless as an m&a company, you were just pulling back and tightening things up and sort of like in your shell waiting for things to get better, which we’re not doing. We’re out there, we’re going to events where, you know, Chris, our CMO, folks, Chris Moore, is doing a great job, you know, educating people all over the world, about the m&a space in the online world. And I think that we’re positioning ourselves for great upside. Once we’re out of this fear and confusion phase, we’ve got a great team. And I think that we’re helping as many people as we can understand the value their business where they want to sell today or in the future, as far as what it means for buyers and for sellers. I think that for buyers, for the great businesses, you’re not going to get a deal, folks, you’re not there’s no super bargain hunting. That was part of the confusion in q1 of 2022. Because there was, you know, challenges in the marketplace challenges in the economy, buyers thought, hey, I can get a deal I’m gonna go in really low, didn’t last very long, they found out that, you know, good businesses are still selling at high value with multiple offers, I think the multiples are up slightly on solid businesses. It’s those businesses that you mentioned, where margins are tightening, where sales have gone down, where the trends are not as positive as they once were. That is exhausting the seller, where they’re saying, okay, luck out, I’m ready to move on to my next adventure, I’m willing to take less, that might be the only opportunity for buyers to get a bit more of a bargain. The brand isn’t in trouble. It’s it’s just that the economy heard things and the seller is tired, and they’re ready to move on to their next adventure. For sellers, you guys got to do what you got to do, right? Sometimes you can hold on until the market is perfect, and your business is growing near that maximum value. And sometimes you just add a point in your life, when you’re ready to move on to your next adventure and you sell if your business is still solid, you’re gonna get a strong multiple, or if you can hang on another year. Mark’s not predicting I’m not predicting, but you know, maybe you hang on and you’ll have a stronger multiple or you come back and say, Hey, man, things are getting better now. But if we look at your trailing 12 months, and this is a year from now, you probably ought to wait another nine months to get rid of the last, you know, nine off your trailing 12 so that your business is worth what you want it to be worth. It’s it’s a crapshoot either way. It’s a gamble either way. But I think that it comes down to for sellers, and that people always say what is the best time to sell? And the answer is when it’s right for you. More than anything else. I think you actually said in a podcast you just did recently. The answer was never right the first time. So it’s really when it’s when it’s right for you, personally and professionally what’s going on in your life. So I think 2023 is going to be could be much of the same as 2022 with a little bit less of the fear and confusion. With a caveat, right, as Janet Yellen says there’s there’s a there’s a path, this is what you need to do. Mark when you talk about predicting there’s a path to a soft landing. There’s a there’s a pathway to a soft landing. But if things are outside of our control, look we haven’t even mentioned right the war in Ukraine that is part of that fear and confusion that affected 2022 It affected gas prices going up and all of that affected inflation in the economy and people spendable money and it’s all part of it. And if more of that happens in 2023 If China decides to invade Taiwan If the UK, Ukraine war, you know, gets exacerbated, to all of these things. If those things blow up, there’s going to be even more fear and confusion. And that may, you know, keep things at the same level as they were in 2022. If not, like you said, you’ve got a little bit of positive hope, right, a little bit more positive outlook than you did at this time last year. I’ve always been more positive and a bit more rosy picture than you are a little bit more optimistic. And sometimes that bites me in the essence, and it doesn’t. But But I kind of feel the same way. It’s, it’s a little confusing still, but I feel very positive about 2023 and beyond for this marketplace. Yeah, I think

Mark Daoust 20:42

I think the reason I feel a little bit more positive about the future in 2022, the conversations I had with so many people over the course of that year was we know what’s coming. Right. And it was we know what’s coming. We just don’t know, when we know, we know what’s in. Look, we saw at least the opening the opening ceremonies for potential recession, there could still be a recession this year, and official recession, because last year was not an official recession wasn’t declared one, at least. And so we could still see that this year. But I think that we have a much better feel for what does that actually look like? And that’s where I see some certainty, which is good, right. And I think people are people need to be comfortable with the the conditions that they’re going into. And I think that’s what we’re seeing here. So I don’t think you know, 2021 was an outlier, it’d be a rarity to see a repeat of 2021. And personally, as great as it was for Quiet Light, and for every m&a firm out there. And we grew our revenues by almost 100% that year. I don’t want to see that for the market. I think it’s not healthy necessarily for the market to have that level of growth. But I do think that we’re going to see some some solid growth. I do want to pivot though, Joe, to internally with Quiet Light, and talk a little bit about 2022. And the changes that we made internally, with Quiet Light, we brought

Joe Valley 22:05

a lot of our business, you’re going to share our business, so she was good. All right. sleeve, no Leave, leave all my F bombs out of it. Okay.

Mark Daoust 22:15

We do have a rating system guys internally for our strategic meetings weekly strategics. And we rated at the end of every meeting, and we have a very, very strong correlation between the number of F bombs Joe drops in the middle of those meetings and the quality of the meeting. So it’s like our version of a swear jar with who aren’t good meetings, he has some they have the F bombs, although sometimes they’re well placed and very much needed. Anyway, back.

Joe Valley 22:41

I’m sorry, just yesterday, as I dropped an F bomb, not only did I drop it, but I pushed my chair back and I stood up and I had my desk rising all at the same time.

Mark Daoust 22:51

It was a very dramatic shot, it was it cinematically, it was beautiful. 2022, we brought on a lot of people 2021 2022, we brought on a lot of new staff with Quiet Light. For years, we’ve we’ve built this company, on the backs of the advisors, and the quality of advisors that we have successful entrepreneurs have been there, done that they’ve gone through an exit personally, they’ve gone through an acquisition personally, and fairly significant in that realm. And that’s given them an incredible advantage when trying to guide other entrepreneurs through their own exits, because they’ve been there and they know exactly what it feels like. They also know some of the pitfalls that they ran into. It’s a very, very useful background for them to have. And it was so we built this company largely on their reputations largely on their abilities and their skills. But over the past year and a half, two years, we’ve really started to focus on building the back office for Quiet Light, the support staff, for them, the marketing team, our DevOps team, and a new advisor success team. And last year, you know, as we saw a minor pullback in our numbers, we of course, had all of this new staff going through, frankly, a learning curve. And you and I Joe, trying to grow up and be real managers of a company and figure out how can we manage this group in an effective way, and create a really good working environment. So I’m going to now put you on the spot to say how, what grade would you give us over the past year when it comes to that side of the business which we’ve been actively trying to build out?

Joe Valley 24:26

I think emotionally probably like a D minus right. I think it was a very emotional year for us. Because, you know, we built this company and for years, we were so proud of the fact that we built it based upon what we’re really good at, which is leaving people alone to do their jobs really well, which meant we didn’t have staff for the most part, right. The advisors are all very successful driven entrepreneurs. They’re protected, quite lights brand and reputation by helping people first and foremost. And then all of a sudden we’ve got people that we have to hire which mean we have HR stuff we have payroll stuff we have people that it turns out, are, you know, double dipping, and they kept their full time job and then took a full time job with us. And only for us to to discover it six months later and us wondering, why did they say they didn’t need benefits, even though they’re a single mom, I mean, it’s just all sorts of confusing stuff that you and I have never ever wanted to deal with. Because we have no interest in it yet. Here we are. Because we’ve grown. And we need to have the support staff to help the advisors do more of what they’re good at, and less of the detail stuff. And we need more people like Deanna and Sam, and Lauren, to help with people that are trying to reach the advisors and tell us about what their buying criteria are. It was a challenge emotionally for us. But in terms of business wise, I think we did pretty damn well, anytime I tell somebody, Hey, look, yeah, we were down a little bit, we were down about 15%. Year over year, if things had closed in December, we would have been even if things had closed at the same rate. They closed that in 2021. We’ve grown by 25 to 30%. There was like, really? Wow, that’s it? Oh, that’s amazing. It’s incredible. So I give us a pretty good grades business wise in terms of what we’ve what we’ve done. We’ve taken, again, personal stuff here, we have tripled the amount of money that we cash reserves that we can keep in place, even though I think we’re going to be okay. And 2023 I think it’s gonna be strong year, I think it’s important that as business owners, we solidified the business, with more cash reserves, with more high quality support staff that are going to support the advisors that then can then support the entrepreneur community out there. So I think we did pretty well, from growing up business standpoint, we’ve got the right people in the right seats. I think emotionally, we screwed up a few times. I remember we had a conversation with some folks back in July. And we talked about the outlook for 2022. And we were dead wrong. Right? We were very pessimistic back in July, or actually, it was August. I know because I just came back from vacation two weeks in Maine, on a lake in Maine, folks, it’s just magic. And then you come back and you know you back in the swing of things and you forget you were there for for two weeks. And we were very pessimistic at that time. And we turned out to be dead wrong. So emotionally, the minus maturity business was I think we did pretty damn well, I don’t know if I have a grade for it. And I’m exaggerating on the D minus though, of course, what’s your take? How do you think we did?

Mark Daoust 27:30

Yeah, like you. I mean, it was a year of learning, we learned quite a bit. And I’m fascinated by the the processes that you have to put in place to be able to run a remote company. Now, for the people listening, a lot of you do run remote companies. And you’re familiar with some of the challenges. But there’s there’s different grades when you’re running a remote company, if you have mainly contractors, it’s fairly easy, right? The expectations are very, here’s the project, I need the result back, right, or here’s the standard, I need that standard maintained. Pretty simple. When you get to w two employees, things go haywire. And without getting too political, I will just say our government does not make it easy to have w two employees at all. Especially when you’re looking at multi state employees. We have employees in multiple states throughout the country, which means we have to comply with state requirements throughout the country. And each of these states have different requirements as well. And then there’s tax implications for that. And there’s insurance implicate it’s it’s complex, it gets complex very quickly. In addition to that, as you said, you know, we built this company with the advisors in mind, initially, they’re successful entrepreneurs, they’re driven, they have an idea of how to take ownership. I think that that is something that is more rare to find among salaried employees. Not impossible to find, I think the people that we have right now with Quiet Light, are extremely driven, they have a great sense of taking ownership over their domain and their responsibilities, and they’ve really excelled in that area. But we’re learning how to how to be good leaders for that side of the business. And that’s taken some time and we’ve we’ve taken our lumps over the past year with some some of those decisions that we’ve made. But I think we’re also learning this I know that my one podcast will air this year outside of this one Joe with Amir from todoist.com. We talked a lot about running a remote company, and some of the the unique challenges that come up with running a remote company. I personally, it helps me get up in the morning. I enjoy the challenge of running a remote company and how can we leverage the strengths and the benefits of being remote, which a lot of people want to be remote coming out of the pandemic? So how can we leverage some of the strengths that we’re able to offer there, along with the expectations that we do have and the needs that we do have from our employees? Tip, which is to probably be more responsible, and more trustworthy than the average worker that goes into the office. Because guess what, we’re not babysitting them. We’re not watching them over their shoulders in the office and requiring them to be there every day. So grade wise, as far as that side of the business, I would, I would give us a see, right middle of the road, primarily been lifted up by some of the Rockstar people that we do have, in some positions in the great work that they’ve been doing, and just so excited about them. And I think that we ended the year very, very strong. With starting to identify, how do we do this in a way that makes sense in a way that that’s, that’s good. So I feel good, I feel like we are much more, we have a really solid foundation with the company right now to be able to grow, we’ll add a few more people this year, not a lot, just a few more people. And I think we have a solid foundation for, frankly, years of growth without needing to add a lot of people that that’s exciting. That’s exciting.

Joe Valley 31:00

That’s exciting. I think one of the things we’ve just done it, folks, if you if you’re growing like we have and you’re you’re needing more and more employees remote, or in house, we just hired a fractional HR company called fully HR. And I’m so excited about it. Because you know, Mark, it’s always been on your plate to do you know, a lot of that detail work. And it’s difficult and challenging when you’re not excited about it. And so having, you know, understanding what our own personal strengths and weaknesses are, and not doing the work, where we have great weaknesses, and then finding companies like fully HR to do the fractional HR stuff for us and manage payroll, and hiring and firing and policies and things of this nature now that we’re having to grow up because the industry is growing up. Were growing up, I think it’s a I think it’s an important thing to do. Again, I agree with you, in terms of the foundation that we’ve built in terms of the growth in the future, because like you said, I the explosive growth in terms of the staff and overhead that we’ve had in 2022 is not going to repeat itself in 23 and 24 and 25. We’ve built up a great support staff that’s going to allow the company to grow even further without adding much overhead whatsoever, which is what it always was right from when I joined in 2012 all the way through, you know, 2020, you know, there was hardly any overhead at all, yet we continue to grow every year 55% from I think what 2018 to 2021 or 20. Not actually if 85% in 2021. So 55% on average with them four or five years before that, without having much overhead at all. And I think now we’re in that position. Again, it’s just been an interesting transition for both you and I as people that always have worked remotely in our professional careers in Quiet Light, our team’s always been remote. It’s have actual employees and having to manage them and incentivize them and keep them happy and give them benefits, right health benefits. That’s us growing up. So good on us. And I think overall in the marketplace, I think 2023 is going to be a good year, I think 2024 unless, again, as Janet Yellen says there’s those outside factors that you can’t control. Unless some crazy stuff happens in the world. I think we’re I think we’re going to be looking good in the future and the end the present in 2023 as well.

Mark Daoust 33:35

Absolutely. Well, I will just round out the episode with with this. I mean, we owe a huge thanks to our team, first and foremost, sent out an email to the entire team yesterday about just an example of somebody internally living up to one of our core values, which is fostering a culture of generosity. And we’ve had a number of number of instances where we can look towards our team members, fostering this culture of generosity, it’s made this company an absolute joy to be a part of, you know, to found and to grow and to be a part of and to work with these people every single day, we’ve managed to avoid somehow those toxic politics that can enter into companies and make it just a bare an awful place to be able to work. And that’s a testament to the people and also the value that they have brought to the industry as well, from the marketing team that is going out and producing pieces that are truly educational, something that we value very highly being education oriented, as a company, to the advisors who oftentimes are giving freely of their time without necessarily getting the client out of it knowing that they’re not going to get a client out of it but still wanting to do the right thing to help somebody. So firstly, thanks to the team that is behind Quiet Light that has really grown this company. I may have founded it one day, but I certainly have not been the person who has been the reason for the growth that is entirely the team. Then secondly to All

Joe Valley 35:00

of them are gonna say me for a second there. You’re part of that just for a moment, you know? Yeah, I owe it entirely to Joe. No,

Mark Daoust 35:07

you ever give a slice of a pie? Okay, how big but it’s their slice. Yeah, it’s a slice. We also have to think some of the Friends of Quiet Light as well, other people from various communities who have influenced in their communities who have been just good people, our whole approach to business is, is incredibly simplistic. We just want to work with really good people. And I think we’ve been very fortunate that there’s been some incredible people in our immediate network, that that we could look to and just say, thank you for being good human beings, first and foremost, and wanting to do good business. And then finally, to the people here listening to the podcast to those who have worked with us that have trusted us, with our businesses, to the buyers who bought through us and inquired the rest of you have given us feedback, again, all all sorts of appreciation for every one of you. It’s a blast to be able to work with you and to see the incredible things I’m always blown away and from day one of this business tell today, blown away by just how many incredibly intelligent people there are, and talented, talented people there are doing things that I never would have been able to imagine.

Joe Valley 36:15

Well, I mean, it’s us. So that’s, that’s hard to scale for you. I want to give a shout out to you know, as you mentioned, our clients, right, and I want to call out one individually, and I want to ask everybody listening to consider giving him a shout out on Twitter as well. or Facebook or Instagram, wherever you can find him. It’s Ramon van Meer. He is the quintessential client at Quiet Light. Not only is he a great client, a great entrepreneur, he’s become a good friend, and he’s a damn good human. And on top of it all, he just became a US citizen. That’s awesome. So everybody, if you can track him down, Ramon van near give him a big shout out and congratulations. If you’re in the US. Ramon is now an American citizen, and then we’re better off because of it. So congratulations, Ramon. And thank you everybody for listening in 2022 and in 2023. In the future, we’ll be here for you. Looking forward to some great stuff down the road ahead.

Outro 37:21

Today’s podcast was produced by Rise25 and the Quiet Light content team. If you have a suggestion for a future podcast, subject or guest, email us at [email protected] Be sure to follow us on YouTube, Facebook, LinkedIn, Twitter and Instagram and subscribe to the show wherever you get your podcasts. Thanks for listening. We’ll see you next week.

Use Spacegoat’s Amazon Account to Sell in the EU

Anton Hermann is the Co-founder and CMO of SPACEGOATS, a German software company helping you simplify and scale your Amazon business, transporting it into the galactic fast lane. Anton is...

Anton Hermann is the Co-founder and CMO of SPACEGOATS, a German software company helping you simplify and scale your Amazon business, transporting it into the galactic fast lane. Anton is skilled in e-commerce optimization, self-management, and technical design. He pulls his strong business development drive from his background in mechanical engineering, earning his Master of Science from the University of Stuttgart.

Here’s a glimpse of what you’ll learn:

[03:30] Anton Hermann explains why building cars was not the right career track for him — and his beginnings with Amazon
[07:07] How to distribute products across the globe through a single marketplace
[11:43] The effects of cultural differences and its impact on product purchases
[17:17] Anton talks about the importance of product branding to target specific audiences
[22:26] Anton discusses an inconvenient truth about working with compliance and competition
[27:26] An introduction into the VAT laws and guidelines of online selling
[34:15] Anton shares how he solves problems for global clients

In this episode…

How can you scale your brand on Amazon when listings, PPC automation, and thousands of tiny tasks take up all your time? Do you want solutions to the challenges of meeting Amazon compliance so you can stay focused on selling? If you’re looking for a better way to grow, Anton Hermann is here to share how SPACEGOATS can help.

Keeping up the pace in an international market is exhausting — and it might slow your growth within your home borders. Expanding internationally doesn’t need to come with headaches and hassles. Anton has experience working with different market palates. That’s why he helped create a software and service tool to help solve the complexity of branching into new marketplaces. Now you can streamline day-to-day operations without aggravation.

In this episode of the Quiet Light Podcast, Joe Valley sits down with Anton Hermann, Co-founder and CMO of SPACEGOATS, to discuss taking away 90% of the headaches and hassle with compliance. Anton talks about the cultural differences between international marketplaces, branding your products, and overcoming compliance challenges. Stay tuned!

Resources mentioned in this episode:

Sponsor for this episode

This episode brought to you by Quiet Light, a brokerage firm that wants to help you successfully sell your online business.

Episode Transcript

Intro 0:07

Hi, folks. It’s the Quiet Light Podcast where we share relentlessly honest insights, actionable tips, and entrepreneurial stories that will help founders identify and reach their goals.

Joe Valley 0:18

Hey folks, Joe Valley here, welcome to another episode of the Quiet Light Podcast. Today’s guest is Anton Hermann. And I’m pronouncing it wrong because he is German. And he told me how to pronounce it with a German accent and I failed miserably. So I’m just going to be a good old American and say, Anton Hermann, great guy, engineer by trade. Right? Right, he had the goal of working, you know, Mercedes and BMW factories and helping create great luxury cars. And then realized after school, it really wasn’t for him, he went ahead and sold some products on Etsy and then sold some products on Amazon, Germany and just took off. And he’s created an agency from that. That’s been around for about four years now, that is slightly different than your typical agency. Most agencies that when you think of an agency, they are helping you sell your products and market products and do these different types of things. Over in the EU, what Anton is doing through his company called SPACEGOATS spacegoats.io Is that instead of you setting up your Amazon account in Germany, in Italy, in France, so on and so forth, they’re taking away all of the compliance issues. And you’re working with SPACEGOATS and selling on their accounts. It’s your brand, your product, you’re running your PPC account, or you can let them do it, but you’re running the PPC account, but it’s all through their account. So you’re shipping to the Threepio where they will kit products for you package it and send it out to Amazon in the right European country without having to deal with any of the compliance issues, which takes away 90% of the headaches and hassle. When you’re expanding from the US over to the EU it’s a fascinating concept. He’s a great guy. Got some good stories. Definitely, definitely worth listening to and considering if you’re even if you’re currently selling it over in EU and you’re having some challenges, or if you’re considering expanding so here we go. Anton Hermann from spacegoats.io Anton Welcome to the Quiet Light Podcast. How are you?

Anton Hermann 2:49

Thanks for having me. It’s always good to very excited.

Joe Valley 2:52

Oh, you’re so chill. So low energy. It’s it’s the baby keeping you up at night that’s making you so chill,

Anton Hermann 2:54

right? So yeah, I’m chilled but a good mood. So no worries about me. That will be a good one. Okay.

Joe Valley 3:01

So for the folks in the audience, can you give a little bit of background on yourself? You know, what you’ve what you’ve done at this point in your career and what you’re doing now?

Anton Hermann 3:11

Yeah, thank you very much for the opportunity. So my name is Anton Hermann, almost perfectly pronounced. I’m originally a mechanical engineer studying here or studying here in Germany in Stuttgart, as Snoop Dogg would call it Ben stone. So here’s the headquarters of Porsche and Mercedes Benz, I thought I will be building great cars. But then I realized maybe it’s not the right track for me and the rest of my life, but I still finished my studies. But during that I already started my e-commerce businesses, so to speak, because in 2013, I had my first Yeah, it was not more than a try all that products or all the T shirts from Thailand and try to sell them on eBay without any clue and anything long time ago, but in 2016, I actually started with Amazon. And it worked out much better because I had some kind of instruction like you’re listening to that kind of podcasts and stuff like that. It was not on the market in 2013. So

Joe Valley 4:10

remember, do you remember which course or program or podcast you were listening to

Anton Hermann 4:14

to help Only Germans during these days? It’s just began with the German content for Amazon FBA and I was like, seeing it randomly because I wanted to do something entrepreneurial. And then I saw this video and I was super excited about the business model and said, okay, yeah, I don’t care I will try it and then I ordered some bamboo toothbrushes from China and so then when Amazon and it was right before the Christmas business, and it worked out so good that there was obviously as most of you guys out of stock the first time and then I did it for a couple of months alone or with my girlfriend, wife, whatever. You want to call it.

Joe Valley 4:56

She your wife now she was your girlfriend then. Yes.

Anton Hermann 5:00

Yes, yes, exactly. And then I realized that this is a business model, I want to focus on the next years. And I met my friends or not met my friends, I told this idea to my friends. And so we raised some money from friends and fools. So, so to speak, but I already knew that this will work out because I already tried it once. And it worked out once. So the friends

Joe Valley 5:28

and foes get their money back. They did they did they the

Anton Hermann 5:30

did, of course with with interest. So with interest, and we bought a five, five brands on Amazon together, and then we had to make a decision to make a decision. Either we go to build up a real brand for me, Justin on Amazon alone. It’s not a real brand. It’s an Amazon brand, maybe, but it’s not a real brand. So the opposite.

Joe Valley 5:55

People would argue with that. People. Yeah, I know. I tend Jordan on here. Yeah, I’ve had him on the podcast. And man, he argues that differently. It’s a brand, you just happen to be selling on Amazon, it’s not an Amazon brand. It’s a brand that you’re selling on Amazon. That’s his argument. Other people argue the other way,

Anton Hermann 6:10

I’m happy for to talk to him. So in my opinion, it’s not a brand if it’s only on Amazon alone. And so we had to make the decision. Either we go for a real brand and offline, retail, different, your own online shop, stuff like that. Or we build some tool or solution for others, where we share our piece of knowledge and do a service or two. And what we what we decided on obviously, is a tool and a service. We call it software with a service and the software with a service software with a service because it’s not only a software, but it’s also not only a service. So it’s a combination of both. So what would what do we do we

Joe Valley 6:56

were we as we as Speights? Go spacegoats.io?

Anton Hermann 7:00

Yes, exactly. Me and my co founders, we had the idea to sell products for other companies, through Amazon, all over Europe. The now you have to say in UK as well, back then it was the part of the European Union. And also since now in since a couple of weeks in the USA. And that was like the vision that we bring your product all over the world, on Amazon, and then the future also to other marketplaces to your own online shop to the offline retail, whatever. So basically a one stop shop for your distribution. That was the idea. That’s what we’re doing now. Okay,

Joe Valley 7:40

so the original brands and curious you sold? I’m assuming you sold in Amazon, Germany? is where you started? Probably right. Exactly. Yes, we

Anton Hermann 7:50

sold them in Germany.

Joe Valley 7:51

Am I remembering correctly that you know, sold a number of brands that primarily sold on Amazon in Germany? Is that the strongest Amazon Marketplace? In the EU? Is it Germany? Or would it be

Anton Hermann 8:06

It’s the second in the world after user after USA? Yeah, thoughts?

Joe Valley 8:09

So that would mean that if someone in the US wants to expand over to the EU, should they focus? Go? Alright, let’s go to every country or should they focus in on Germany? First, in your opinion?

Anton Hermann 8:22

Great question. So before that, I would say like before the Brexit I would say, start in the UK, because you know, the language are easier to get and then spread to the other marketplace. But now I would not to recommend this because you can steal part of the European Union anymore. So you basically are in a separated market. So if you want to get the full potential of the Amazon Europe market, I will start in Germany because it’s by far the biggest of the leftover once the UK is out there, and then expand to the other marketplace. In the second step. That would be my recommendation, because you need to focus, you need to take care of the marketplace, you need to invest money, you need to invest money for marketing, you need to invest money for stock, you need to bring your compliance in shape, you need translations, and so on and so forth. So just for the focus, I would start in Germany and expand afterwards to the other marketplaces.

Joe Valley 9:20

What’s the size of the Germany market compared to the US market in specifically talking about Amazon?

Anton Hermann 9:27

So the German market is around 35 billion revenue, like Cloud Plus minus a couple of billions and I guess, USS 150 or something like that. Okay, am I am I correct? So, one 1/5 Or one six,

Joe Valley 9:43

okay, I know that when people say you know, they expand the first place from the US Canada because it’s easy, right? It’s easier

Anton Hermann 9:50

because it’s easy of course if we when we expand from Germany we also go to France first although USA is insanely huge. It’s easier because similar legislation, similar culture.

Joe Valley 10:03

Yeah. Okay. Yeah, that makes a whole lot of sense. I’m just, I’m just thinking from a standpoint of someone selling in the US, it seems like Canada is an easy enough thing. But sometimes people say it’s, there’s just not enough bang for the buck, right? Because it’s such a small population. And then going over to Germany is the time and effort energy worth it. And it sounds like you may get a 20% bump in total revenues by going to Germany, assuming assuming that the sell through rate is the same, and your product would be interesting and valuable to the German population, as opposed to the US population, because they’re different people with different mindsets

Anton Hermann 10:45

100% As we go vice versa right now. So bringing Germans to USA, we know that there is a huge difference.

Joe Valley 10:52

So what is what are the differences between, you know, the German tastes and population versus the US? And don’t Don’t? Don’t Don’t tell us? We’re all obese and like potato chips and french fries? Because, because that’s just true. But what’s the difference?

Anton Hermann 11:11

Why that’s not the main difference. So. So once before, you have a smaller market, but you have also less competition, like much less competition, if someone or the Germany or other Europe or the USA want to start selling on Amazon, which market would you pick? Would you pick obviously, the biggest one because it’s yeah, it’s the same, it’s that same complexity for non european non American entity to do it. So that’s why the competition in the USA is much stronger. And already, the market is more saturated. So that’s, I would say that’s like the biggest the biggest difference. But now, a bit more in detail about the cultural differences. Germans are also different to Italians, or to French people, or to Spanish people. They are super critical. They’re super critical. And they’re their reviews. Yeah, generating reviews here. It’s much harder from our experience than in the USA. Because if you generate reviews, mostly you get if your product is not perfect, you get bad reviews, because we have like a German saying here. If you’re not shout shouting, then you then you how you can translate translated properly. If you’re not shouting in someone that’s already some, then it’s already good enough. Something like that. Did you get it? Not at all? Not shouting at someone is appreciation enough. Okay. So if you if you don’t say anything, then it’s a good product. But if you say anything, then it’s a bad product.

Joe Valley 12:57

Okay. Anything it’s gonna say it’s gonna be negative? Yeah, exactly. That

Anton Hermann 13:01

that’s kind of in credit card, of course, is super critical. Of course, you cannot say it off about all the German people. But I would, I would say there is a taste into this direction. So there’s also some when you’re talking about Texas strategies, one strategy I develop, we develop this, that you launch, first, in Italy, if you want to sell in Europe, and afterwards in Germany, because Italian people are super kind and super nice. And everything is always bueno, and good and blah, blah, blah, and then you get good reviews and then expand to Germany, because they are more critical. And then you go into the with a better conversion rate into the market. It’s, it’s, it’s a product, which launched from scratch. If you take an us product, you can transfer the reverse anyhow to Europe, which is nice. And then you go into the market with the high quantity of reviews, and hopefully a good average

Joe Valley 13:52

ID or the US reviews that transfer over. Are they translated to Germany? German? Yeah, they’re

Anton Hermann 13:58

automatically translated as I know. And then the people can read but you have to click a small Flack, American amazon.com review, but it’s okay. If the people see the average reviews and the quality of the reviews, not many go down to the ribs and really dig deep into it.

Joe Valley 14:18

It’s interesting what you’re saying about the culture. You know, my last transaction I did with a German citizen, the gentleman named Max incredibly smart, sharp, and he was an engineer as well. But man, he was tough. He was tough. I you know, if we were having a conversation he was he was he was yelling at me most of the time. Not literally like in the top your voice but it was always so strong and so direct. Especially if we got to the contract aspect of it. I’m not his attorney yet. The details in the asset purchase agreement, that little minutia, and the language and the punctuation, all of it all of it was just crazy detail. No. And, of course his attorney was German as well, which it was. It was tough, but we got through it and we sold his business and he ended up working. I think he ended up working for an aggregator. Afterwards, he ended up going to an aggregator grab one out of Miami, of all places. So, okay, so the cultural differences is very interesting. I have

Anton Hermann 15:21

a nice metaphor. What is what does it tell here in Germany, difference between Americans and Germans. There are 100 Americans and 100 Germans, which will not climb up a mountain 99 Germans will do that. When can we’ll make it 99 Germans will make it somehow they will make it. But the first one will always be the American. Because we are here, we planned the trip for months and years and whatever, we get all the equipment and blah, blah, blah, Americans, they just, they just run they just run and try to be the first and that’s where they get first, but half of them will die on the way but the first one will be American. That’s the type of wheel wheel telling you about the difference.

Joe Valley 16:00

I’m gonna have to check with my mark marks. Sounds like he’s got some German in him. He plans and you know, gets every detail oriented before he even starts. Yep. And that jackass, it’s just kind of okay, let’s go.

Anton Hermann 16:13

Yeah, but you need both. You need both? To be honest. To be fair, you need both. That’s one who’s who’s running and one who’s taking care of a slowdown. And we need to figure this

Joe Valley 16:23

out. That’s why we’re good business partners. That works. Exactly. Exactly. Yeah. All right. So lots of different cultural differences. What What kind of American products that are sold here in the States? Just would you say please don’t even attempt to sell them in Germany? Because the people of Germany just don’t want it. Get through about one or two.

Anton Hermann 16:47

Yeah, so first of all, you need to think about the luck situation as you have a different plaque here in Europe, in Germany, than in the USA for electronical products. So they’re like, general barriers, I would say, which you need to overcome, but not now back to back to a question, I guess, technical devices, which we have as big brands here in Europe as well, for example, you know, probably Siemens, you know, Mila that are like huge brands for household products, like movements and stuff like that. If so we don’t have a good meaning about American household products here in Europe. So made in the USA is not a selling point, because we are in all this mechanical engineer thing here super strong, and really trust in our brands with Okay, need to pick something.

Joe Valley 17:42

Alright, so no made in the USA proudly made in the USA is not going to fly in Germany.

Anton Hermann 17:47

stock products, probably yes, like candies and stuff like that. But not I mean, not electrical, or engineering, mechanical engineering product, iPhone or something else. But it’s not.

Joe Valley 18:00

That’s not even made here in the US. It’s, at least for now. We’ll see if it gets over to India and Mexico to that nature. Well, over the years, you’ve had hundreds and hundreds of clients that you’ve helped sell all over the EU and now in the US as well. What are some of the biggest pitfalls, mistakes, obstacles that you see people encounter that you help them overcome? Yeah,

Anton Hermann 18:24

the number one by far number one is compliance. It’s like compliance, compliance, product compliance, that takes compliance, all that extended product responsibility, you might have heard about it, it’s a special thing here in Europe, everything related to compliance is a huge pain for if you don’t have to comply with the European compliance mindset, we can we can split it up into labeling, for example, we can go into certifications, where you need all the VAT numbers upfront before you can actually start selling in America, it’s at the other way around, you can just start selling trickier thresholds. And as soon as you reach the thresholds, you just get there and your VAT numbers you need to have everything in place right before and Amazon, not Amazon, the European Union made made it even stricter, there is something called the Digital markets Act, which is implemented over the time, so not everything at the same time, but over the time. And what it says is that the marketplace the products are sold on the it’s like split into different tiers. But Amazon has, obviously the biggest, the highest tier for sure. And the marketplace is responsible for the products which are sold on the marketplace. What means Amazon is super careful. And as soon as a claim comes in, they pursue it and then ask basically they take off your product and then they asked for documents and all that stuff. And I guess that is something people don’t like to think about because it’s not really interesting or exciting to think about rules, and some of them are really stupid laws and blah, blah, blah. But if you don’t do that, you might lose a couple of weeks or months of revenue. And this is something you should definitely consider before you go into.

Joe Valley 20:15

How quickly does Amazon Germany respond to? You know, if if the listing has been taken down, and you have all the proper compliance paperwork? How quickly are you able to reach them communicate and get your listing back up? On average?

Anton Hermann 20:30

Best case? I’d say three to seven days worst case, never. Something something in between. Yeah, but getting a listing block, that’s super fast. And people asking me, Hey, but who else who will know that? Who will? Who will find it out? And not Amazon? Not the government will find it out the competition, the competition will just order their businesses services, just just do that they all org competitive products, and they check the products is the right. hazard warning is the hazard the right size has the right color, is the right information is the information translated and then they just go to Amazon and tell them this guy’s not compliant this guy, this guy, this guy, this guy, and then Amazon takes them off immediately. And that’s why you should be careful that everything is compliant upfront. And people are telling me yeah, I’ve been selling since two years, and never anything happened. And I just can say, then you’re still too small. Because when you read some some dangerous size for your competition, they will go for it. They will go for it.

Joe Valley 21:40

And you said did you say there are companies that actually people hired to just order all the competitive products and then complain on Amazon, that they’re not in compliance?

Anton Hermann 21:49

That’s the inconvenient truth. Unfortunately, I don’t like that kind of business model at all. And I will not drop a name because I don’t support that. But I know people which do only that. So you go to them and say like, Hey, I want to get rid of this for Chinese guys in my, in my list here. Oh, my competition. And you. Maybe, even if you’re if you are compliant, you can find some little detail and at least you will be off for a couple of days or something like that. Or you can make things up and Amazon will still block you and then you have to prove that you’re that you are correct. It’s like when you when they were killing the witches. She’s a witch. No, I’m not proof that you’re not a witch. And that’s at least not here. You have some kind of

Joe Valley 22:38

the only way to prove you’re not a witch is actually to die at the steak. Burning.

Anton Hermann 22:44

Exactly. Exactly.

Joe Valley 22:46

Yeah. Okay. So compliance is one of the biggest things, any other things that come to mind in terms of people that might be moving in selling over in Germany where they totally screw up?

Anton Hermann 22:57

Yeah. So lots of product compliance. And then we see compliance maybe is the second part already. already

Joe Valley 23:06

covered. Yeah, you mentioned that but just just covered here in the US, we pay VAT as a tax folks. And here in the US, we pay it as a percentage of the total sale over in the EU. It’s built into the listing price.

Anton Hermann 23:19

Exact that’s so huge that that difference. If you get here, the surprise is negative. And we go when we go to the US and it’s a positive surprise, because the prices you see there are the net price in Europe, it’s like that in any supermarket anywhere you go. Except like b2b supermarkets, like b2b like Metro, maybe you’d have it as well, where the grocery stores go and buy things. You have Gross, gross prices everywhere. And the gross price is also displayed on the listing, it’s mandatory. You’re not allowed to show an ad price. And in every country, in Europe, where you actually store the products, you need a VAT number upfront, and you need to do your fillings, pilings, fillings, by monthly basis filings on a monthly basis.

Joe Valley 24:09

Filling a filling is something we put in our teeth. If you have a cavity file you don’t want to filings and filings.

Anton Hermann 24:17

And this costs money. It does cost time and if you but Amazon makes it super easy for you to just spread your products everywhere. And they don’t care if you get like problems that the local tax entities so it’s not a problem. So problem and but the button is super highlighted, go to all the European marketplace and if you just click the button Amazon, they will do that. And then you need to prove that you have the VAT numbers.

Joe Valley 24:46

The EU is for part of your services and SPACEGOATS. Is VAT compliance, something you guys help with or do you recommend folks

Anton Hermann 24:57

not not at all We basically take the competitive VAT compliance part out of the equation, that’s what we do. Because we are the actual seller. On the marketplace, we write the invoice the invoice to the end customer, we are responsible for the local VAT payments to the local

Joe Valley 25:18

authorities. So, if I’m an A seller here in the US and I want to sell over in Germany and the EU, or you are setting up everything for me and running the campaigns for me, or am I setting up then you are doing the marketing and the management of it?

Anton Hermann 25:37

Okay, that once that once that before, we have to kind of services,

Joe Valley 25:43

I just want to point out that the audience understands that I keep jumping way ahead. And you and your German engineering precision want to pull me back a step and do it right. It’s kind of funny.

Anton Hermann 25:54

Okay. So normally, it’s a modular system, you get access to a PPC tool, so you can run your own ads. But we run the account, it’s our account, we are registered area tax wise, we are also registered everywhere for the extended product responsibility like packaging, trace, registration, electronic address, registration, all that stuff,

Joe Valley 26:13

your it’s your Amazon account.

Anton Hermann 26:16

Exactly. That’s our Amazon account. That’s a huge difference. And because it’s our animals account, you’re not responsible for VAT issues in the different countries at all. The only thing what you would need to work with us at the current moment is at one VAT number in any European country, just one and only for the important purpose. And because we buy your products and European ground, we need to be at number otherwise, you would pay the VAT to some local entity and they will not pay it back to you because you don’t have the ID number, you’re not allowed to receive the money back.

Joe Valley 26:46

So if I’ve got, you know, 10,000 units that I want to ship over and sell. And we’re selling them through your Amazon account all over Europe. are you earning a percentage of the transaction? Are you paying me for the inventory, how’s it work,

Anton Hermann 27:05

we earn a percentage of the transaction, but illegally we buy the products with the payment goal as soon as we sold it. So basically, it’s kind of a commission. But it’s technically not a commission, because otherwise wouldn’t be allowed to sell internationally. It’s from the European VAT law not possible to make an international coalition setup. So we buy the products, there isn’t the invoice, and then we sell the products through our Amazon account, and then we pay out for everything we generated on Amazon minus our cut. That’s an easy word. So both both works.

Joe Valley 27:41

And as far as paying for PPC and things of that nature, is it set up with my credit card or your credit card that’s coming out of the data.

Anton Hermann 27:55

It’s with all credit card, but you can run it, but you can control it. That’s the good part two, we will pay it and then we’ll charge it afterwards.

Joe Valley 28:03

You have an incredible amount of points or cashback money coming from the credit cards.

Anton Hermann 28:08

We go for cashback Whoo, I used to have the MX but we found the cashback solution 0.5 for one person, so it’s nice. It’s cool. We injured? But no. Because it’s our account, we are charged

Joe Valley 28:25

that’s okay. That’s just such a different model. How did you determine that that’s the model you wanted to come up with as opposed to a good friend of mine here in the States, Steven Pope runs My Amazon Guy. And really it’s a it’s a It’s your typical agency with lots of services versus what you’re doing, which is it’s just your Amazon accounts.

Anton Hermann 28:51

How many agencies do you know which do PPC and content and

Joe Valley 28:56

I couldn’t count and there’s probably so many how

Anton Hermann 29:00

many companies which do what we do do you know?

Joe Valley 29:04

None one

Anton Hermann 29:05

So that was 111 thing we didn’t want to be a me too thing or didn’t do didn’t want to make me two things. So we wanted to make something unique, which we didn’t see on the market at that point. That was in 2018. And so we we tried it the business model out the response was great. And the problem we were solving these days was not that you run your PPC campaigns that we run your PPC campaigns or your content in the beginning we had only customers which were ever able to do that themselves. But they wanted to get rid of all this compliance VAT compliance product compliance nonsense here in Europe and just basically leased our account but run rent the business themselves. Okay, that’s the it’s like a remote on our Amazon account. And you don’t need this bureaucracy stuff. That’s that’s where we actually come from. And that’s also how we came up with this idea because we set up the European Union network or VAT registration stuff for us on business. And we said, like, not everybody should go to the cell. And that’s why we said like, we will do it for others, and then they don’t need to go through the cell. So there are like services, which automate, for example, Texas, and we automate distribution, that’s kind of marketing. Blah, blah.

Joe Valley 30:27

Yeah, marketing, blah, blah. Yes, that’s German speak for marketing. Technique. Fascinating, really, truly fascinating. So, again, going back to if I’m shipping over 10,000 units of my brand, is it going to a three PL that lease or is it going to, you know, Amazon’s fulfillment centers,

Anton Hermann 30:51

we put the three first because if you’re shipping 10,000 units, and most likely they will not be sold in two months or so. So what we always want to have on our account, also, because of the inventory performance index, like our KPI, Amazon account KPIs, we want an inventory of two to three months mix. And that’s why we store the rest in some GPL, which we cannot, we can arrange everything we ship from the three PL then to Amazon as soon as the sockets low. But in general, we import the products on your name, then we get them because your name because it’s part of the business model, as I explained, we have to buy the products in the European ground. And then we ship them to our Amazon warehouse. And as soon as they are sold, or soon the stock reaches some threshold, we restock the product. And then with the three PR stock reach some threshold, we tell you to send us more stuff to them. 3pm

Joe Valley 31:48

are you doing any kidding? packaging? So if I’ve got seven different components to my product coming from seven different countries, can I ship it to three PL and your packaging

Anton Hermann 31:57

will represent? Yeah, yeah, we have different repeals, which for different customer types, and we will pick the right one for you. Yeah, that’s no problem at all.

Joe Valley 32:08

You’re just taking all the light like that mark here. My my business partner, he’s the CEO of Quiet Light. And I say often that he gets all the shit work, any, any any work that is just very detail oriented. It’s just, it’s to me, it’s awful, right? He’s really good at it. And that’s all on his plate. It sounds like that’s what you’re doing exactly what Amazon seller.

Anton Hermann 32:37

If you’re employed one for one person as one person, then it’s horrible if you do it for so one person for 10,000 people, then it’s scalable. It’s fun again, you know, so yeah, we have this problem with the VAT, but we haven’t once, we don’t have it for every customer at once. And every it’s horrible, maybe, but just once and we can sell it for more money to our customers. So they don’t need to go through the same thing as we did.

Joe Valley 33:07

But the amount of experience you must have dealing with so many different customers and so many different compliance issues and challenges and obstacles. It’s just your learning curve is not steep at all. You know this stuff?

Anton Hermann 33:19

Fortunately, or unfortunately, who knows? Yeah, well,

Joe Valley 33:23

fortunately for your clients, unfortunately for you. But that’s that’s what you chose. Sorry.

Anton Hermann 33:30

I never complained. I never complain. Yeah, and never regret everything is called.

Joe Valley 33:34

This is fascinating eco hack, you’re gonna say some,

Anton Hermann 33:37

if I would roll everything back if I if I would know, the unknown before, maybe we would do something else. But we just said like, Okay, we sell for us. Okay, let’s try. And I moved my first business. That’s our first customer basically, to our main business, and then we just started and then we excuse Oh, my God, you need this. You need to cover that and, and everyday, can some something you today.

Joe Valley 33:59

Yeah. The majority of your clients today, are they European sellers, or they

Anton Hermann 34:06

do Germans, the Germans actually, most of our customers are Germans, because we come from Germany. And we have here a nice brand already. So if you’re in the Amazon field, I’m very frustrated if you did not hear our name before. So here we have a good brand. That’s where we have many customers from Germany. And right now we are trying to get our foot into the door and the USA. Yeah, yeah.

Joe Valley 34:31

Yeah, it’s not because German, you know, German clients, because that’s your target market client base. It’s just that you’re well known there. Exactly. Yeah. But it sounds like really, your ideal client, your service is going to be great for us people because of all the challenges of selling overseas. Because the worst thing is, is is like when I’m talking to somebody that’s doing let’s say 5 million a year in revenue and they want to expand Nobody Europe, the last thing I want them to do is expand over to Europe at the expense of not continuing the same growth here in the States, right? They take their eye off the ball, because they only got so much time. And they try to grow that 20% over in Europe, but then their growth slows in the US. So if they can keep the pace up in the US and expand to Europe, exactly, without all the headaches and hassles. And it’s not just all the compliance issues and headaches and hassles, it’s the people, right? When this is one of the challenges we’ve had here a quiet light. As you know, 2021 was just a record year in m&a. And we grew as well. We grew 85% in 2021 55%, on average for the last five years. And with that wonderful, right, it’s awesome, it’s great, but you get headaches and hassles, because you got you’ve got to have support staff to then grow further and have to have that support staff over that understands the European marketplace. Very challenging. I guess what I’m saying is good on you, man. This sounds like a great concept, a great idea and a great service for people that are trying to stay focused on the beast of Amazon US and doing really well. But they want to capture that other 20% Actually, it’s more than 20% if you count all of Europe, right? If you count all of Europe and all the countries that you will sell in how what percentage? Is it of the US? Is it 30 40 50% of the US capacity,

Anton Hermann 36:30

something like that, I guess 40 or something like that volume 3040 yet more more like 4010 30. But the numbers are changing quite quite often. Yeah, something but but thank thanks for the feedback and the problem you experienced you notice it perfectly. The problem we are solving for non European customers, it’s much bigger than the problem we are solving for European customers. Because when you’re already in Europe, you know the drawl, more or less. But if you’re not from Europe, this to get this mindset, it’s insanely difficult. And I guess you’re you’re, you’re right.

Joe Valley 37:09

I like it. I like it. All right, we’re just about out of time here and how to folks, learn about your company. How do they reach out to you how to get started and just you know, communicate with you folks to see if it’s a good fit.

Anton Hermann 37:20

Thanks. Yeah, you already said that. spacegoats.io is our main website. You can also drop me an email [email protected] We have a link. I’m pretty active on LinkedIn, Anton Herrmann or you can also find us on YouTube. Facebook, we reduced a bit Instagram also, but

Joe Valley 37:43

there’s plenty spacegoats.io. Check it out, folks. I think if you want to expand to Europe and you want to do it with a lot less hassle and headaches, it sounds like a great way to go. Anton, thanks for your time today. Appreciate you joining the live podcast. We’ll talk to you again soon.

Anton Hermann 37:56

Thank you very much. Have a good one, everyone. Bye.

Outro 37:58

Today’s podcast was produced by Rise25 And the Quiet Light content team. If you have a suggestion for a future podcast, subject or guest, email us at [email protected] Be sure to follow us on YouTube, Facebook, LinkedIn, Twitter and Instagram and subscribe to the show wherever you get your podcasts. Thanks for listening. We’ll see you next week.

How To Use AI To Predict the Perfect Amazon Price for Every Product at Each Precise Moment

Chad Rubin is the CEO and Founder of Profasee, a dynamic pricing platform that enables Amazon brands to predict the perfect price for every product at each precise moment. He...

Chad Rubin is the CEO and Founder of Profasee, a dynamic pricing platform that enables Amazon brands to predict the perfect price for every product at each precise moment. He has worked in the e-commerce space since 2008 and is the author of Cheaper, Easier, Direct. Chad is the Founder of Deep and Saasy, Founder and Board Member of Think Crucial, and an Advisor for PickFu. He was the Co-founder and CEO of Skubana, which was acquired by 3PL Central, and was a Founding Board Member of the Prosper Show.

Here’s a glimpse of what you’ll learn:

[04:12] Chad Rubin talks about his background in e-commerce and scaling one of the first private-label brands on Amazon
[07:18] How networking and partnership can lead to a greater exit
[12:30] Chad explains how he recognized the opportunity to move forward
[18:27] The ways AI can generate pricing for maximum profit
[22:08] Why aggregators buy growing businesses — and how AI can help grow yours
[27:43] Chad shares how brands can set profit boundaries with Profasee
[31:50] Chad discusses competing with copycat brands and how to optimize different channels
[36:23] How AI can optimize the product price outcome
[42:50] Ways the AI model learns based on your brand’s activity to produce greater outcomes

In this episode…

Pricing products for optimal profits can be confusing and frustrating. How can you program AI to charge prices to maximize profit for Amazon sellers? Chad Rubin used his own experience and knowledge of growing an Amazon brand to create an AI model that does just that.

Leveraging AI to price products can help keep your brand current in the market and work smarter, not harder. By using this method, your brand could have a 30% increase in profit and decrease the number of mistakes typical pricing makes. Chad used his knowledge and insight of SKU pricing to produce a technology that helps Amazon brands increase profits — and can lead to a great exit! Stop deploying and start harvesting with this episode.

In this episode of the Quiet Light Podcast, Joe Valley sits down with Chad Rubin, CEO and Founder of Profasee, to discuss how AI can predict the perfect price to win on Amazon by maximizing your profitability. Chad talks about the importance of networking, setting price boundaries for growth, and the competitive advantage of AI. Stay tuned!

Resources mentioned in this episode:

Chad Rubin on LinkedIn
Chad Rubin on Twitter
Chad Rubin’s email: [email protected]
Profasee
Quiet Light
Quiet Light on YouTube
Joe Valley
Mark Daoust
Quiet Light Podcast email: [email protected]
The EXITpreneur’s Playbook: How to Sell Your Online Business for Top Dollar by Reverse Engineering Your Pathway to Success by Joe Valley
Brian Lee on LinkedIn
“How High Level Amazon Sellers Automate and Delegate With Chad Rubin”

Sponsor for this episode

This episode is brought to you by Quiet Light, a brokerage firm that wants to help you successfully sell your online business.

Episode Transcript

Intro 0:07

Hi folks. It’s the Quiet Light Podcast where we share relentlessly honest insights, actionable tips, and entrepreneurial stories that will help founders identify and reach their goals.

Joe Valley 0:32

Hey folks, Joe Valley here, welcome back to another episode of the Quiet Light Podcast. Today’s guest is Chad Rubin, founder of Skubana, founder of a brand on Amazon that’s 15 years old, one of the original partners in the Prosper Show, and has a new company called Profasee, Profasee.ai. Or I’m sorry .com. It’s an AI company that helps with pricing on Amazon. But in a much, much more detailed and effective way, then you might be thinking when you hear about companies like this, they essentially help you predict or actually Profasee and I’m gonna get this wrong Chad. If you’re listening, I’m doing the best I can. Because as I said, during the podcast, I’m not an Amazon seller. I just help Amazon sellers sell their business for maximum value, a prophecy. It’s really impressive first, Chad’s history and background is really impressive, but it’s going to help you, you know, discover and help you predict the perfect price to win the sale every time on Amazon. And you know, maximizing your profitability, looking at minimum prices, maximum prices, your landed cost of goods sold, and predicting pricing to make sure you’re you’re maximizing your pricing, whether you’ve got two SKUs or 2000 SKUs. And that’s the key thing here. It’s it’s AI based and it’s learning and Chad’s team is learning and they’re launching new cohorts. And it’s, it’s going to be I think, you know, very much the future of Amazon. So, jump in, take a listen. It’s Chad Rubin from Skubana. And now Profasee.com Here we go. Chad Rubin. Welcome back to the Quiet Light Podcast. How are you?

Chad Rubin 2:20

I’m good. It’s been a journey.

Joe Valley 2:24

Before we hit record, you said it’s been a long day. And I say it’s been a long decade. I’m looking at your LinkedIn profile. It’s just crazy. What you have done over the last I don’t know decade or more. Not sure how you’re keeping it all up. Doing good.

Chad Rubin 2:37

Yeah, I think it’s a lot of Wim Hof. breathwork a lot of personal work and enjoying the highs and during the lows simultaneously,

Joe Valley 2:46

we should have Mark recording this for you. Then he loves Wim Hof and he’s gone in depth. He doesn’t have the ice bath, but he’s taking cold showers every day and all that stuff too.

Chad Rubin 2:58

Awesome. Yeah, I started doing that after the ads of Cubana, I hired a breathwork coach. And he got me into like this, this Holotropic breathing exercise. And so I do that I try to do that once a week, twice a week from feeling strange or my body or coming out the cold. I’ll whip it out. And it’s just an amazing tool to use. And you don’t really need anybody else. Right? You just go to the go to the app, hit the play button and you work on your breath.

Joe Valley 3:27

You know, we could make this all about that and get getting into it. I’m meditating for 30 minutes a day now trying to do more. In fact, I just did a little bit before we recorded but mine is mostly sleep oriented or lack of sleep oriented. And that’s why I’m doing it going through some CBT AI programs. But let’s not talk about that. Let’s talk about you and your background, your history. For those that don’t know you haven’t seen you speak or know about schemata or the other companies that you’ve partnered in or operated. Can you give the folks a little bit of background on yourself? Yeah,

Chad Rubin 3:56

quick, quick sentence or two. I’ve been in the e-commerce space now for 15 years. So probably one of the first private label sellers on Amazon in the vacuum filter category, scale that business. At its height we’re about 11 or $12 million in revenue. My Account Manager at Amazon became an investor of the software idea I had called Skubana and that was James Thompson, who started the Prosper show. And I started that with him as well along with two other gentlemen. So we got Skubana who to prosper show. We have e-commerce business and then I just launched Profasee, which is a Uber surge pricing software for Amazon brands.

Joe Valley 4:39

Yeah, again, I’m not sure how you do it. I didn’t know that you and James started the Prosper Show together. We’ve had James on the podcast many times and obviously you guys sold that and it’s still going well. Are either of you still owners in the Prosper Show.

Chad Rubin 4:55

Now James did a brief stint afterwards and I want to say briefly I think he was on on for another two years, but with the sale, I was completely out sampling, Skubana was completely done and I didn’t have an urn out or anything after the process was over.

Joe Valley 5:12

Let’s let’s talk about Skubana first. Because if I’m reading this right, that leading up to the exit and exiting and going through it was wonderful and painful all at the same time. You’re not doing the type of breath work and focus on yourself and CEO on yourself and talking to coaches and things of that nature. Unless you’re trying to get some stick, some shoot straight and your life or just sort of tame it down a little bit. Can you talk to us about Skubana and the process of exiting and what were some of the highs and lows of that

Chad Rubin 5:46

of the process of the exits? Yeah, well, so I think I mean, there’s a lot. So Skubana, we were around for seven years. And with COVID, there was an uptick of, obviously DTC sales. And we were a beneficiary of that because we supported FBA or FBM. Right, meaning FBA sellers that are prime eligible or people that are picking and packing out of a warehouse. So we were a beneficiary of that process. The business started to grow tremendously during the pandemic. And we weren’t, we were unsure what was going to happen, right, operationally, but we started to do extremely well. And an amazing offer came through that seemed like a great fit. And of course, the first question is like, Well, is it a real offer?

Joe Valley 6:32

Was it unsolicited?

Chad Rubin 6:35

It was unsolicited. So I had to bring that to the board. And I was ready to take it right away. And perhaps not everybody was so willing to do that. So just in that, in that conversation, right, there’s hair on the process already. Because we had Brian Lee from Honest Company on our board, I had my business partner on the board, and we had our lead investor on the board. And so everybody had to be in agreement. And we had to align mentally on where our heads were because not everybody was on the same page.

Joe Valley 7:05

Where your board members also shareholders. Yes. And what was the function of the board?

Chad Rubin 7:15

Well, it’s it was to keep us in check as founders. Also to get a lot of experience from Brian Lee like Brian Lee started. Honest Company shoedazzle Art of sport with Kobe Bryant, and, and LegalZoom How can I forget that. And so it was like he was supposed to guide us. He believed in us when nobody believed in us. So he was a seed investor, when we first when I first raised money, and I had no notches on the belt, so to speak, which was amazing support from him.

Joe Valley 7:45

Curious how often you met with a board.

Chad Rubin 7:49

Quarterly quarterly meetings, but like, if anything was, say, out of balance or out of something, there was an anomaly that came up or something that was a deviation from the norm. I would call on them and they were ready to hop on a call immediately, which is what you want and aboard.

Joe Valley 8:03

So you are in what position at this point when you get this unsolicited offer that you wanted to accept? Are you CEO of Skubana?

Chad Rubin 8:11

Yep, EFC Bana, and really how it all happened. And this is so serendipitous, is when things are going well, right? You’re coming up with new ideas on how to grow businesses instead of constantly putting out fires. Skubana was just shy of 50 people. I reached out to a three PL Central and the CEO and we’ve had a nice conversation and I presented this idea of hey, your customers customer is our customer. So you support the three PLS, the three pls customer are the brands. It sounds like there’s a great partnership here. Like what if you can get a spiff and sell our software into the three pls for those brands, and like he can make those three PL smart three peels, which is kind of like shipbob or shipmonk. Have you seen that? seen those companies, but they have to be all centralized? Like a lot of customers are using their software as the operating system or through pls. So I thought was a great partnership, I thought was a great idea. And they had a different idea. And which eventually they acquired us in April of 21.

Joe Valley 9:16

So why did the members of the board initially say no to an offer that you wanted to accept?

Chad Rubin 9:24

It was actually they said no, there was just a very heavy conversation, right? You run a SaaS company for seven years. And you know, just before we started the conversation offline, we’re talking about like, it’s been a long decade. And in SaaS, it’s, I think in SaaS is probably one of the most challenging businesses you can run. And I was I was I was ready, I was ready to move on. Right? I was like, Okay, this is a deal of a lifetime. And I have a lot of friends and family that are invested that have been waiting a very long time to to have this outcome. And like let’s go

Joe Valley 10:00

Okay, so from the timeline you closed in April, right, April 2021. When did that initial offer come in?

Chad Rubin 10:09

I want to say like we started dialoguing around November. Okay. It’s fairly quick. It was a quick process. I mean, you know, there was a lot of other interested parties at the time. And so we had to make sure that at least I had a fiduciary, fiduciary responsibility to our investors to maximize the outcome. And that’s certainly what we did.

Joe Valley 10:32

Good. And after closing, did you stick around? Were you stuck in the CEO role for a while help them transition to a new CEO was situation?

Chad Rubin 10:43

Yeah, I think I had an interesting situation. So we, we found a company, the plane landed very safely. And April 21, rolls around, and the company did an amazing job at, I would say, filling in any gaps that I had. And I eventually resigned October of 21. So

Joe Valley 11:08

was that the plan originally, that you’d stick around for a while? Or were you going to be CEO and they were going to,

Chad Rubin 11:13

there was no plan, there really was no plan. It was literally it was, I was CFC Skubana, I knew I wasn’t going to be CEO forever. And essentially, a lot of my roles are getting divvied up, right? Like someone on the revenue, side got the revenue side on the customer support sides or customer stuff. And so I was transitioned fairly quickly, and got to the point where I was like, Hey, I’m ready to move on in my life. And close this chapter. And I was the first I was probably the first person to leave Skubana after the acquisition. So I left in October of 21, we had a great zoom celebration to move forward with. And then I actually started Profasee in December of 21.

Joe Valley 11:58

Yeah, see that? I want to talk about that. Tell me a little bit more, though, of the, the lack of a plan? Is this something you’d recommend to someone that’s in your shoes, a CEO that selling their company, to, you know, a fairly large investor, that there’s nothing outlined or detailed about you, the owner? And how long you’re going to stick around? Or do you? Would you in hindsight, want to have that a little bit more detailed out? So you’re not wondering what the hell you’re gonna be doing at this company? And how long you’re going to be there for?

Chad Rubin 12:27

Yeah, so I think if you go back, you think to yourself, Okay, if there is no outline, there is no plan. And even the way agreements are structured, when you’re processing a deal, you kind of have an understanding the intent of what the other company want, like where their heart is, in the matter, right. And you can say this about a lot of things acquisition, dating life, professional relationships, actions speak louder than words, or a lot of times words speak on the actions that are coming right into the future. And so the fact that perhaps there wasn’t a lot of clarity, and that I was an at will employee, right. I’m trying to speak gingerly about this can show sort of like, maybe they were able to run, run stuff without me. Right? And move on from the relationship. And so I knew going in, I kind of knew that that was there was some intent there going into this like, hey, it’s not very clear. And seems like there’s a good opportunity here to, to move on quickly. And that was a deal of a lifetime. And so why not just take in and move forward? I did try working at the company rolling up my sleeves. It’s just, I haven’t worked for a company in a really long time. And it it wasn’t what I was, what I would let meet me up wasn’t like a hell yes. And either hell yes. Or hell no. And I wasn’t at all. Yes. Yeah.

Joe Valley 13:56

It’s very difficult, I would imagine to step into a structured work environment when you’ve been self employed for 20 plus years. I can’t imagine doing it myself.

Chad Rubin 14:06

Who was who was crazy. I gave it a shot.

Joe Valley 14:10

Well, I’m glad it worked out. I’m glad it worked out. And I’m trying to understand, Chad, how the hell and maybe this is focusing on my lack of energy, how the hell you’ve got the energy to then, you know, seven months later jump into developing Profasee.

Chad Rubin 14:27

Like, I’m asking myself that same

Joe Valley 14:31

day, you know, I always have conversations with founders like yourself, many that have helped with their exit. And we talked about what to do afterwards. And what they did right what they did wrong, and I’m talking about within the first six to 12 months and most of them look back and say, you know, I wish I just taken a year off just to figure out what I wanted to do. Ramon van Mears, one of the great guy, a lot of folks know who Ramon is, we sold SOPA He’s all over Instagram and Twitter right now for dammit, Ramon, I’m not gonna remember the name of the kitty kitty litter company. It’s the number two kitty litter company in the country now. And he just got into retail, through Costco nationwide. He burned himself out, right? Blood pressure, all sorts of all sorts of health issues come into play physically and mentally when you don’t take proper time off. Do you? Now looking back saying I wish I had a little bit more time off to just focus on me, or did you do a lot of that? You talked about doing some of that yourself anyway. Right?

Chad Rubin 15:36

Yeah. So the transition process from lows of April to October, it was technically my part, the great reset. Where I was like, Okay, how am I going to spend this time? Right? I can spend this time going on to something else. I can spend it maybe drinking pina coladas, which got old really soon here in Miami. And our I can spend this time deploying dollars towards self help and self improvement by becoming the CEO of me. And

Joe Valley 16:08

why did you feel you needed to do that? You’re obviously very successful doing very well. How do you feel you needed to do that?

Chad Rubin 16:15

First of all, I love self help. I like read self help books. I love learning. I love growing I have just like this. unquenchable thirst for improving. And I also had found that during the days of running Skubana, which was I think over like 2000 days that I was deploying, but I wasn’t harvesting. And so I needed to like harvest my own natural resources and to become just like a software, right, a version if I’m version 2.0 become version 2.1 of myself. And I wanted to get coaches to do that kind of like Michael Jordan. Right. Michael Jordan wouldn’t be Michael Jordan without Phil Jackson as the coach for those that are understand, like 90s basketball. So

Joe Valley 17:06

some of the audience I’m sure weren’t even born until the 2000s.

Chad Rubin 17:12

All right. Well, I just knew that I wanted to achieve excellence and I wanted to leverage coaches to do that and I want to use any there is no cap towards the dollar amount towards this improvement in myself. So hired spiritual coaches. I hired nutrition coach boxing coach, which I’m going to have later today still have that boxing coach on everything stuck, but a DJ coach. I think I DJ like like a DJ like DJ spinning on a chess coach. And just like going into like parts of myself that I wasn’t exploring during Cubana. And I did that for quite a long time. And then I came across I was like keeping a running list of all the mistakes I made it’s Cubana and I was also keeping a running list of all these ideas that I had. And I was just putting them in a notepad and somebody had told me when I had to do it just like keep a running list, right? Like things come across your brain. Just keep a running list, I had this list. And like I presented it to our old investor, I had a list of about seven ideas. And he was like, Dude, this one about dynamic pricing and Uber surge pricing for Amazon brands like this is not exist, I’m willing to put in money right now. And I was like, Dude, I’m not. I’m not ready yet. I’m not there. And then he planted that seed. And I processed it. And then I became impatient which in hindsight, by the way, I would probably have taken a little bit more time. But I felt that AI, there was something happening in the AI world. And this is before now chat GPT is really become prevalent and alive in the business community. And I was like there’s something about AI here, that’s just a once in a lifetime opportunity to build proprietary AI and I wanted in on it. And we started building an AI model in December. So we raise money, I raised 2.3 million, and started building up the team coming up with the brand. And really start working on programmatically changing pricing to maximize profit for Amazon sellers and the aggregators. without sacrificing your ranking position on Amazon.

Joe Valley 19:21

You get to know some shit and be able to do that. For sure. That’s impressive both in the fact that you’ve come up with a concept based on your experience, you’ve been able to pull it off, develop it and make it work. And then just another animal altogether, going out and raising capital. Out of all those things, which was the most exciting and most challenging thing for you.

Chad Rubin 19:42

I think we missed one piece is that one of the reasons why property came to be was because I have an e-commerce business which we’ve chatted about historically. And this business has been just decimated and I was looking at the palm trees out inside. And I was like, we are trying to figure out how do I turn this business around. And the one thing that nobody was no lever that not a lot of sellers pull, everyone pulls spend. But nobody pulls pricing. And pricing is the best lever, right? Small levers swing big doors that generate flow to the bottom line and nobody’s changing price, I started asking the question of why. So in terms of like, what was the best part for me, like, I enjoy all the product parts, right? Like I love coming up with a brand name, like if you think about the word Profasee means to, to predict that something’s going to happen with a level of certainty. And so there’s a lot of thought around the name of promising predicting price, what’s the optimal price to maximize profit, with a level of certainty, and just all flow together? I love building. I love creating, I think our website is best in class for a SaaS company. And I don’t love turning businesses around, that’s for sure. And I’ve been kind of stuck doing that, even while I’m building a new startup,

Joe Valley 21:01

spell Profasee for me, for the audience to P

Chad Rubin 21:04

profit, you could see Profasee.com.

Joe Valley 21:09

So you applied Profasee to your own business that’s been struggling? And what’s the what’s the outcome?

Chad Rubin 21:15

I mean, we’ve turned it around. I mean, all of our prices were off, we have 550 SKUs. And 1000 listings on Amazon. And so it’s not just one thing, right, pricing is dramatically off. And I do believe in changing pricing based on not only signals that happen in your own listing, but signals that are your competitors have as well, and how AI can learn that quicker and more efficiently than a human can. So it’s a combination of pricing products that were completely off the mark, along with SKU rationalization, along with making sure everything’s prime eligible, figuring out metrics and criteria, what to liquidate based on turns based on velocity. So I mean, it’s it’s a whole lot of things to turn around this company. And that’s why aggregators don’t really turn around businesses. They try to buy businesses that are growing. But it’s a real market. Excellent. When you can turn something around and catch that falling short, which I’ve been doing, which is I’m surprised about,

Joe Valley 22:16

like you mentioned, you’re working with aggregators, and they’re using some of them are using one of them using at least Profasee. So yeah, is that because some of the businesses that bought are not growing, that are shrinking and prophecies helping them turn that around?

Chad Rubin 22:31

So I think it’s a lot of things that are happening with this transformation into AI, in general to me, is going to change Amazon in a very big way. And I want to be at the forefront of it. And so if you look at even, like THRASS you, right? A lot of these aggregators, by the way, are distressed and making layoffs. But the one thing that they’re not making layoffs around is AI. And these companies need to use data and turn them into decisions, to take them to new heights. So leveraging AI, whether it’s pricing, whether it’s forecasting and demand planning, whether it’s spending, right, all of these things they’re gonna need to leverage, they can actually be better than whatever exists today, which to me is the Rise Rise of the algorithmic brand on Amazon. And so we’re working with those companies to be smarter. Now, if you look at brass to say, for example, they’re hiring, like they didn’t lay anybody off on the AI side of their business or the data science side. And they’re working on this simultaneously, right? So they understand that AI is going to be their edge, they can get to sniff out any penny of profit that they can.

Joe Valley 23:40

I gotta tell you it with the aggregators that I’ve worked with, and I’ve worked with just about all of them over the last five years, originally started with one on one commerce and through SEO was, I think, when they got their first $780 million dollar valuation, we’d sold them 40% of their transactions. The one big mistake that most of them made was, you know, not not understanding that you Chad Rubin is a founder of a company 15 years ago, have everything invested in it, and you’re going to give it everything that you’ve got that you the founder of the company, they’re buying your company, but they lose you. And they hire somebody to, you know, do that job who’s on payroll that might have some sort of incentive, and there’s no comparison in terms of the passion and the focus and the energy. I’ve seen them run out of inventory, when they’ve got so much money available to buy the inventory yet somebody doesn’t pull that lever to order inventory on a timely basis. And that impacts, you know, the stability payment of the earnout that they’re, you know, guaranteeing or almost guaranteeing if they hit certain numbers to the sellers. How is Profasee going to change that for them when they’re able to minimize or get rid of or act more intelligently in this low to middle level management Of the companies.

Chad Rubin 25:00

Yeah, so the sheer size of aggregators, right? They can’t. Nobody knows what the app even brands, even founders, like made don’t know what the optimal prices. So like Amazon shoppers leave behind tons of cues, behaviors, preferences, searches. And it’s very manual, arduous to process that manual. And by the time you actually process with the optimal prices, the market shifted everything on Amazon spires within days, sometimes weeks. And so we will do that automatically for you using machine learning. And that learning compounds and gets better over time. So the more data that you feed it, the more you can learn, the more it gets better. And so right now, a lot of aggregators are leaving money. And so there’s two parts of it. One is they’re operating businesses, they’re leaving money on the table. How do they make how do they drive more dollars? So the bottom line, that’s where we help them. The the other part of it is before they’re making an acquisition, we can back test. If we put the plug in their Seller Central model, we can back test how much money is being left on the table? Before the acquisition? Yeah, exactly. To justify the multiple,

Joe Valley 26:12

exactly. I saw something on I think it might have been Twitter recently. or Facebook, I’m not sure. But somebody had posted it was an Amazon seller that posted and you might have seen it that they their competitor, you know, just repriced right below them and kept going down and down and down. And they reached out to that competitor. And the competitor said I can do this all day long. And I’m going to and that that individual that founder, waited until about three o’clock in the morning, found out where the competitor was made sure they were asleep and repriced. And then they automatically it was an automatic thing. They reprice right below them. So literally, they took their main SKU from you know, let’s say $25, down to $5. And then the competitors algorithm, repriced it to $4.99 and then that seller bought them all.

Chad Rubin 27:08

Right, are you are you referring to by the way, is this on a reseller page? Or is this a two separate listings, because they were focused on Profasee is focused on Amazon native brands, these are two by box, two separate

Joe Valley 27:25

two separate brands, I believe, that were just competing against each other. And the one that had the repricer automated was the one that was, let’s say, the seller felt like he was playing dirty. And he quote unquote, taught them a lesson by repricing right below super, super low. And then via Android.

Chad Rubin 27:43

Yeah, I’d love to see that post. But I’ll tell you what Profasee you put in your boundaries. So you put in your min, your floor price and your ceiling price. So there’s boundaries that we’re operating within of how comfortable you’re willing to go and how low or high you’re willing to go.

Joe Valley 27:58

So take into account ad spend and cost per acquisition. And all you have to

Chad Rubin 28:02

do for sure. And I think ad spend is another big part of this, that I think we can go down this rabbit hole. But we take into account all the fees on Amazon along with adspend. So if you think about like, the equation of a costs, which is what you spend to what you make, most sellers are only focusing on what you spend side of the equation, right there kind of everyone’s managing to in a prosper, nobody’s ever changing price. And if they are, it’s very rare, sometimes maybe once a month. And so we’re flipping the equation around where we believe pricing dictates what ad spend is. And over time, you’re gonna see a lot more functionality features from us around ad spend. But to me, it’s like having peanut butter without the jelly, the two are much better together. And right now everyone’s managing to these, I call them gospel metrics, where it’s just they’re managing to an irrelevant vanity metric, which is row as Ray costs. And at the end of the day, it doesn’t, it doesn’t matter should and so I’m encouraging people to shift towards which is my mentality is what is your profit on adspend.

Joe Valley 29:08

And it’s where it’s why we’re in business, you can break even doing nothing. So you do need to focus on profit, and most people brag about their revenue numbers, but not the profit numbers or percentages. So I agree with

Chad Rubin 29:20

that. 100%. And I think a lot of sellers though, don’t like when you’re working with an agency or you’re working any of these add software’s there is no contribution margin, there’s no cost of goods sold. So and this is a is a massive fallacy. And so I grow as to me and to prophesy and our thesis is that row as is only an efficiency metric.

Joe Valley 29:44

You don’t want landed cost of goods sold when you’re working with folks. Oh, yeah. Good. Other folks. Skip that landed part. Sounds good. So you know, you mentioned something you know, on your own company, we’ve got 500 skews aggregators. they historically have never wanted to buy a company with 500, SKUs. They just want to look at 345 SKUs, because it’s manageable. You know, and you know, we sold a billion dollars in transactions over the last 15 years. And we’re finding that to be a consistent message, that the more SKUs there are, the more complicated there are, it is, it’s hard to have an inventory aging report, it’s hard to make all the adjustments so you can be as profitable as possible is Profasee going to take care of this and change the number of SKUs people are going to be willing to carry?

Chad Rubin 30:29

Now I really think less is more. I’m going through my own SKU rationalization process with my e-commerce business. And so like we can help people manage pricing at scale, whether you have 10, to use, whether you have 100 SKUs, whether you have 1000 SKUs. We’re not going to tell people whether they need to see rationalize or not. But I do think that narrowing in on the 8020. If 80% of your profits come from 20% of the skews. That’s where I’m focusing my energy. And that’s certainly where property like to focus is its energy, because we are we’re not in the business of trying to revive us, you right, we’re in the business of how do we harvest more money from that stew without affecting the discoverability? on Amazon?

Joe Valley 31:11

So you post something recently on LinkedIn about? It seemed like you were offloading SKUs? Was it? Because you’re understanding now that there are a certain number of skews that you’re not profitable on or not profitable enough, and you’re trying to narrow your focus on those that are more profitable? Yeah, totally. I

Chad Rubin 31:30

mean, there’s carrying costs. And you just my next call coming up is my fulfillment center, who I’ve been with for 12 years was acquired about, I think, about seven months ago. And they are to acting their fees on me. So there’s no free lunch. And so I need to focus on like, what is what is going to maximize this business and the opportunity for us. And so the other challenge in my business, which we didn’t talk about is the fact that we are we have been copied throughout the years, right. And so we’ve got Chinese sellers coming in factories, they’re going factory direct from China direct onto Amazon, and we can’t compete, it’s uncertain prices. And we haven’t innovated enough in the past seven years to move into new product categories and new new products that haven’t been commoditized over time. So it’s a lot of factors that allowed that have allowed me and by the way, it turns out that LinkedIn post that you’re referencing, I have found so many liquidators, it was like, LinkedIn is a better selling channel than eBay is.

Joe Valley 32:33

Where you’re finding the right people, for sure. The fulfillment center to x in your fees after seven years, it’s just been purchased, as you said, Do you think they’re doing that to everyone or they’re just doing it to Chad Rubin, because you’ve got 500 SKUs. And a lot of it just takes up space in the warehouse.

Chad Rubin 32:51

I do think that they are optimizing. So I think if you look at what’s happening across e-commerce in general, why everyone’s in such a struggle is that there’s inflation across the board, raw materials, services, in PPC, inflation, warehouse inflation. And I do think that there’s probably adjustments of pricing, it’s happening to other people simultaneously. And I think that they’re looking at my SKU count, and the long tail of the series that I have and saying, Hey, this guy hasn’t received a proper increase in a very long time, I’ve had a sweetheart deal, because I’ve sent this company a lot of business. And with the acquisition, there’s no more personal relationship. It’s just a transactional approach. And so they want to calibrate the pricing.

Joe Valley 33:37

Okay, I can’t fault them for that. I’m looking at your site now. Profasee.com. Good looking site. As you said, Thank you. You’ve got sort of like a ticker tape going across the bottom. Very cool. Tell us about that. What it shows

Chad Rubin 33:51

about the brands?

Joe Valley 33:53

Yeah, I’m seeing ASINs. And I’m seeing competitor number two, and

Chad Rubin 33:56

oh, I think you’re on how it works. Maybe you’re on how it works page. I am exactly. Okay, so, so, the deal, the reason why pricing is so hard is that most of the software’s that exist today aren’t for private label, or if they are trying to do private label, they’re based on velocity. And they don’t account for all the other things that are happening in the marketplace, right. So when you make a decision on Amazon, it’s not just a decision that affects you, but it affects your competitors, and it affects Amazon as well. So this makes it very challenging. And instead we actually pull in signals from Amazon. So not just your own your BSR your price, your reviews, the quantity of reviews, the recency of reviews, inventory position, but we also pull in your competitors signals and all this flows into a model. And in our model, we process this information and the model creates its own if then statements and and nodes of if then statements to maximize the outcome that we’re trying to achieve, which in this case is maximizing profit without hurting your position on Amazon, your organic rank. So the reason why there’s a ticker tape across is showing like, Hey, we’re accounting for other ASINs and your competitors price and making adjustments in real time to maximize your profit. What if

Joe Valley 35:19

I use Profasee for my brand, and my biggest competitor uses as well.

Chad Rubin 35:25

So that would be a champagne problem. Now, I can’t tell you how the AI would react. But there’s something to be said around to people having us having information as a third party fiduciary responsibility to help raise profit of the two businesses that were working for. You fight you follow where I’m going with that?

Joe Valley 35:47

I do I do. So we’re probably gonna see your muted Joe. Sorry, I leaned on to my keyboard, folks. And I muted myself, I just said the most intelligent thing I’ve ever said, I’ll just say something else. For now, though. We’re gonna see profits go up, and prices are gonna go up the profits gonna skyrocket on both, instead of fighting each other. They’re positioning themselves to be more profitable, both more profitable, I would imagine. Yeah. Totally. So that price fixing

Chad Rubin 36:17

high? Well, essentially, it’s a AI is making decisions to optimize the outcome. Now, I’m going to refrain from using that terminology. But, but essentially, you know, the other thing is that when you come on to privacy, you put in your minion your max price, or it could be the two of you sellers have different min and max prices. And what we’ve seen time and time, again, is that it’s not always at the lowest price wins on Amazon. And it’s not always at the highest price wins either. There is a magic and there is a secret sauce, right? There’s conversion rate, there’s sessions. There’s a lot that’s happening on your listing, that’ll dictate what the apple price should be.

Joe Valley 36:56

And it’s all above my head, because I’m not an Amazon seller, I’ve just helped hundreds of Amazon sellers exit over the years. So what, what is going to be the first step for an Amazon seller that, you know, goes to Profasee and wants to sort of get started, it says request to access here on the site. But what’s the process? What’s the onboarding process? Like? How much work and time is involved? And how quickly do you generally see people get some positive results?

Chad Rubin 37:23

Sure. So I like that there’s a lot of learnings that have happened because we went live with our first clients in July. And then we learned from them, and then improved our tech. And now we’re actually into our second cohort right now. So this isn’t like an off the shelf model that we’re using. Right? This is a real model that we’ve built that’s proprietary. And so the first thing that we’ve noticed from Cohort One, Cohort Two, is that a lot of brands don’t change pricing. So what does that mean? It’s kind of like going on Facebook. And Facebook doesn’t know what ad to give you. Because there’s no lights, there’s no Pope’s there’s no dwell time, you have no connections to the algorithm has nothing to bite on. So power algorithm, similar to that doesn’t have anything to bite on. If there’s no price changes, right? It doesn’t know how the market reacts, how your competition reacts, how Amazon reacts. So now, our AI for the first month, we call it the hyper learning phase. We’ve trademarked that. And the first month is just hyper learning where we oscillate and change pricing for you dynamically on a net neutral profit impact basis, where it’s learning, and that learning is then injected into the model in the following months. So that’s like, that’s a big, that’s a big improvement that we’ve made. Another improvement is that our AI isn’t isn’t hands off the wheel, meaning we are supervising our AI. So our data science team every day is looking at every single SKU that you have to make sure that there’s nothing funny going on, there’s no Allamani anomalies that exist, to make sure that we’re ensuring that we’re going to be delivering the profits that we expect. And so on average, you’re looking at 10 to 12% increase in profits. But like if you look at a case study that’s on our page, right now, we have a 30% increase in profit. So the beautiful thing about AI, right? It’s faster than us. It’s cheaper than us. It works harder than we do, and it makes fewer mistakes. And over time, that’s become a mode and a sustained competitive advantage that compounds for the salaries that come on processor.

Joe Valley 39:25

It sounds pretty positive, right? I don’t know any other way to slice it, except that it seems like people should be looking at it and paying attention to it. And you know, then looking at AI and the metaverse and all this stuff as well. And I do believe it is the future in terms of day to day management of somebody that let’s say they’ve got somebody that manages the brands for them somebody in house. How’s this going to change that role? And how active will they be in Profasee? After the first 30 to 60 days.

Chad Rubin 40:01

So 30 in the 31st 30 days, we are the model is learning, right? It’s observing, experimenting. And it’s learning independently of us. Right?

Joe Valley 40:13

So then but but the human at the brand, let’s call it thrush to the human death rasio, that is managing the brands, are they doing something different than they normally do once they’ve subscribed,

Chad Rubin 40:25

the only thing that they’re doing is they give us their min and max, they give us their landed cost. We are giving them monthly business performance calls, to share our learnings and to share insights and to share how much money we’ve made them. If there’s a prime deal, or some sort of Lightning Deal that they want to run, right, we need to know that in advance. So there is a tight conversation that’s happening with us in the brand to make sure that we know what our deals that are being run in advance or promotions that they want to run. But outside of that our focus is helping them maximize profits and get insights that they never had before. What are they going to do?

Joe Valley 41:00

If Profasee doing all of this? What are they going to do as a brand owner?

Chad Rubin 41:04

Well, we’re doing price, they might change listings, they might be doing listing research. But like over time, right? I mean, you can see it with Chad GBT AI is going to be a massive supplement, and in some cases, replacement of specific functions of jobs. But you can say that about SaaS in general, right, like Steve, Ivana, we did inventory management order management. Now imagine if somebody was like counting how many you had in the warehouse, and then counting how many was in the bin, and then putting that into Amazon Seller Central, and then having to put that then into other channels as well. So that all the inventory levels are synchronized. Like that probably was somebody’s role, which it was when we first started Skubana, which made it much more efficient. So I just, I think that this has been happening in SaaS, but I think AI is taking it to a whole nother level, because AI is now thinking for you. It’s not just doing the efficiency work, it’s actually doing the thinking and the decisioning, based on insights. And I think that’s the big difference in this new world.

Joe Valley 42:09

Will it take into account, you know, the new ad copy, the split testing things of that nature, when things change outside of pricing? Will it take into account these changes as well.

Chad Rubin 42:23

So, yes, and it’ll come with my next capital raise, but I can assure you that I believe that the future is going to be pricing and PPC together. So longer the days of just managing to spend, and software’s taking a percentage of ad spend, and managing to a target a cos, or a goal a cost, which is irrelevant, because if your a cost goes up, 5% and you’re making more profit dollars, let’s just say, your price goes up 20% And your a cost goes up 20% And you double your EBITDA by 50% or increase your up to about 30%. Like it doesn’t matter what your classes. So I think you’re gonna start seeing more of that for me if, if we deliver if and when we deliver on our cohort to results, which I’m very optimistic about, and we raise capital. This is this is really where we’re focusing our time and energy.

Joe Valley 43:18

What’s the benefit to somebody jumping in with Profasee now as a client, versus waiting 369 12 months, any?

Chad Rubin 43:31

First of all, like the knowledge and information that the model learns, is learning now versus a month from now. Two is we’re ready showing results from our first cohort. Three is you’re getting legacy pricing. And I think there also is something to be said about Amazon when you’re a first adopter, right? Like when you are too late to the party, then you have no edge. So like when when the market when the market Zeds and we’re zagging you’re missing out on the zagging piece?

Joe Valley 44:10

I agree with all of them. I think the basic fact that you’re going to be more profitable along the way is more worth it as well. It’s all good. Chad, I know that you have a call coming up with your with your fulfillment center and trying to get them not to to extra fee. So wrapping it up, how do folks learn about Profasee? How do they get in touch with you and so on and so forth.

Chad Rubin 44:34

So yeah, my email, my personal email is [email protected]. Feel free to follow me on LinkedIn. I’m trying to post insightful thoughts there, Twitter, as well. And just really happy to support the community. I really want to leave the Amazon ecosystem and the e-commerce ecosystem better than how I found it. And I think I’m doing just that. So thank you for for having me on.

Joe Valley 44:57

My pleasure, folks. It’s p r o F is in Frank a s e e.com profasee.com. We’ll put that in the show links as well. Chad, appreciate your time. Thanks for coming back on the Quiet Light Podcast. I look forward to having you on again someday in the future. Thank you Joe.

Outro 45:15

Today’s podcast was produced by Rise25 And the Quiet Light content team. If you have a suggestion for a future podcast, subject or guest, email us at podcast at quietlightbrokerage.com Be sure to follow us on YouTube, Facebook, LinkedIn, Twitter and Instagram and subscribe to the show wherever you get your podcasts. Thanks for listening. We’ll see you next week.

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What’s a Legitimate Add Back

This week we are talking about add backs, what is a legitimate add back, and how they affect your business valuation. The value of a business is dependent on earnings...

This week we are talking about add backs, what is a legitimate add back, and how they affect your business valuation. The value of a business is dependent on earnings but it is also dependent on the company’s discretionary earnings such as the add backs of owner salary and benefits. Then there are those one-offs – those non-recurring expenses which are also known as add backs. Those are the add backs what we are dissecting on today’s episode. A seller’s due diligence when it comes to discretionary earnings can help buyers see their potential ROI without any grey area.

Episode Highlights:

Why we work off the seller’s discretionary earnings and what that is.
How discretionary earnings are a case by case calculation for each business.
The three levels of add backs.
Why it’s important to take a scalpel to those third level add backs.
Questionable add backs – what can fly what cannot.
How math and logic are the key tools to determine legitimate add backs.

Transcription:

Mark: Alright, welcome back Joe. I know you just came back from Blue Ribbon Mastermind; Ezra’s event. It was up in Seattle, is that right?

Joe: Yeah, a beautiful city and a great event. On a personal level, I had a great time. I took my 17-year-old with me and just explored the city in off-hours. Business-wise I’m telling you Ezra Firestone is sort of the Tony Robbins of the e-commerce world in my view. He gets up there, he’s real, he says it like it is, he shares his own information to the Blue Ribbon Mastermind members and it’s such actionable, transferable information. And the level of entrepreneurs and intelligence at the Blue Ribbon Mastermind I think is nearly unmatched; it goes very politically correct I think, right, nearly unmatched?

Mark: Yes. I think every conference that we come back from is our latest favorite conference. But Blue Ribbon and Ezra’s events have been fantastic since we started going to them. And you’re right he’s just a fantastic guy. He gives a ton of information and has a ton of insight to share. So one of these days I’m going to get to go to the event instead of you because I want to get in on some of these. Awesome, glad to have you back, we do have a couple of conferences coming up. We will be sending these out in our email; our newsletters that go out every Thursday or Friday depending on when we get our stuff together so pay attention to those. Alright, this week Joe you and I are going to do the podcast.

Joe: That’s right we have two very special guests.

Mark: Two very special guests; that’s right. We’re not bringing anybody else in on this one because we want to talk about add backs; what is a valid add back or what is a legitimate add back? And I know for a buying perspective this can be a little jarring the first time. If you’re just coming into the acquisitions industry; if you’re looking for your first acquisition and you look at a profit and loss statement that we provide you might be wondering well why are these guys throwing all these expenses back at me, these were on the tax returns shouldn’t they be included? So Joe why don’t we start with that? Why do we work off to this number of seller’s discretionary earnings and what is seller’s discretionary earnings?

Joe: That’s a good question and a great place to start. Just defining it simply is the best way to go. So when you’re running a profit loss statement as a business owner; hopefully in Quick Books or Xero or something like that, you’re going to get a net income line at the bottom. So let’s say you do it for the trailing 12 months you get a net income. But there are certain owner benefits that you get as the owner of the business. You have an Internet-based business; you may write your car off in that business. You may pay yourself $200,000 salary in the business. All sorts of things like that they’re generally owner benefits and then there are some one-time non-recurring expenses; these are things that do not carry forward to the new owner so they’re classified as add backs. So net income plus add backs equals seller’s discretionary earnings or SDE. It is what business is in this general category are multiplied by; they’re valued at a multiple of the trailing 12 months seller’s discretionary earnings. So that’s the critical nature of an add back; it can make a tremendous difference in the value of the business when using a proper formula. If you don’t do that the add backs properly you’re either going to under inflate or in some cases, unfortunately, some inexperienced brokers might over-inflate the value of your business. So it’s critical for both buyers and sellers to know how to calculate seller’s discretionary earnings and what is a valid or legitimate add back.

Mark: Yeah and I think on that the thing I would like to just add here and emphasize is that there are rules to seller’s discretionary earnings. I know I’ve talked to some sellers, I’ve talked to some other brokers frankly outside of Quiet Light Brokerage and they feel as if well if you can make an argument for it then we can add it back and they approach this almost as if it’s just a free for all as to who can make the best argument. The fact of the matter is there is an actual definition for seller’s discretionary earnings and there are rules to follow. Now that doesn’t mean that there aren’t some situations that require interpretation. And we’re going to go into some of those scenarios in this podcast today where you have to try and figure out is this a legitimate add back or not? But at the heart of seller’s discretionary earnings when we are showing seller’s discretionary earnings what we want to do is we want to show a baseline number for buyers to understand what is my potential return on investment? When you think about all the different buyers that are going to look at a potential opportunity, every buyer comes with their own set of assumptions, right? Some buyers might already have infrastructures set up to run a business; maybe they already have a marketing team in place or maybe they’ already have a warehouse if it’s an e-commerce business or if it’s a SaaS business maybe they already have a development team in place. Those assumptions need to be worked into their own evaluation of the business. What we want to show is a baseline number so that you as a buyer can figure out what your potential return on investment is for you. And that’s going to vary from one buyer to the next. So seller’s discretionary earnings that’s all it is; it’s a baseline number, we want to be consistent from one business to the next that’s why there are rules as to how we calculate this number.

Joe: Right and even though combined we’ve got 20 years of experience doing this and have sold well over a hundred million in transactions just the 2 of us combined it’s still a case by case basis and you got to dig into each particular business and get an understanding of the nuances of it to determine whether or not it’s worth doing an add back based upon the size of the business and the total number of add backs and if it should be done. Generally speaking, there are 3 different levels of add backs; the first 2 are pretty standard, it’s the third one that we want to spend the most time on today because of the nuances of them. But let’s run through that first and second level. Mark, if you want to start off with that first level why don’t you address the owner’s salaries in add back.

Mark: Yeah, absolutely. Joe, I like the format you put together here. You created these 3 levels of add backs; the obvious, the one time expenses, and then the ones that require a bit more interpretation. So the very top of the list here are these a level one obvious add backs. We have things like charitable donations; obviously, that’s purely discretionary nature. We have accounting expenses such as amortization and depreciation. And then we have one owner salary. And I know there are buyers out there that look at this and say well why are you adding back somebody’s salary; like you need to pay yourself some money? But this is a standard add back that we always include and it’s part of the standard definition for seller’s discretionary earnings. The reason for this is how you pay yourself as an owner, how much you pay yourself, and the format you pay yourself is completely discretionary. You could in theory not pay yourself any salary and just take distributions from the company from the profits. Or you can pay yourself a very large salary and run all your payroll tax through that which will show up on the profit and loss statement. What we do for the owner’s discretionary earnings we do add back one owner salary. But there is an exception to this and that’s if there’s multiple owners that are working full time on the business. Because we know that if there’s multiple owners working on a business you can’t add back all of their salary. You can only add back one. Did I explain that well Joe or does that need more?

Joe: Let’s go a little bit more. What happens; what do you do Mark if you have 2 owners that are working a combined 25 hours a week, one is doing customer service and logistics, and the other is doing sales and marketing. Do you add them both back?

Mark: I would add both those back.

Joe: Okay. Let’s flip it up; let’s say that one is doing sales, marketing, logistics, and the other is a developer. And the level of work that that developer does still only takes 15, 20 hours a week but it takes a different skill set than the average person has. Do you add them both back?

Mark: No, I would not add both those back. Although we will discuss this in Level 3 add back. I might adjust that second owner salary depending on what they’re getting. But the reason I wouldn’t do it is because of the specialized nature of it. So what we’re assuming here is that the buyer is a single person who is coming in and needs to run this business. I wouldn’t expect most buyers to have developer skills to run a business. So maybe you do; if you do, that’s great you’re going to do really, really well. But most people can’t be that sales and marketing plus developer role. I’ve done this for over a dozen years now. I’ve run across that skill set a handful of times. It’s not very, very common.

Joe: That’s right. So those are the; even though these are just Level 1 add backs there are some complexities to it that require some attention to detail on the nuances of one business to the next. The only other things that are pretty obvious in there are personal meals and entertainment, travel, mobile home…mobile phones; everybody’s got their own mobile phone that expense doesn’t charge for. You’ve already got that expense. Things of that nature are pretty much Level 1 add backs. Jumping on the Level 2 add backs it’s really focused on those one-time expenses; things like a trademark or a copyright, patents, things of that nature. And then there are some that are a little bit deeper like legal expenses and lawsuits and enforcement letters and things of that nature even the thing that we have to do often Mark which is referring potential clients; people that we do valuations for that are not using a kind of software. We’ll refer them out to a bookkeeper. So in this situation Mark, tell me if we’re on the same page. We will get a call somebody has got a great business but they’ve got 3 years of data in an Excel spreadsheet that is not using any accounting software. Or they might be using Fetcher and piecing different pieces together. I would refer them out to a bookkeeper like CapForge, MuseMinded, Stellar Accounting, Catching Clouds; one of those and get them on Quick Books or Xero. And generally, that’s a one time expense for them to build that, put that data in the software in arrears maybe $1,500, $2,000. To me, that is without a doubt a one-time expense and an add back; would you agree with that?

Mark: Yeah I would and I’m glad that we agreed because if we don’t it’s just going to be an absolute brawl on the podcast, right? Inaudible[00:11:27.2] here is fighting with the microphones. No, absolutely that would be a one time expense. It’s something that does not carry forward. But we have a great example of that with somebody who’s been a friend of Quiet Light Brokerage for a while; Scott Deetz from Northbound Group. He’s a strategic advisor who helps clients in a lot of ways. He does a fantastic job with his clients. Specifically a lot of Amazon stores but he also works with other companies as well. He does forecasting and a lot of preparation for an exit. And his fees are all one time expenses. Even though that you can see a monthly fee during that preparation, the goal is to prepare for an exit. So those are fees that get added back in the bottom line. So recasting books going back and trying to recast those books either in accrual format or just cleaning them up I would totally consider that to be a one time expense. As with the other things that you mentioned; the trademarks and the logo design, you shouldn’t be punished for the expenses that are really necessary to be able to run the business or only occur once or will occur in the future.

Joe: Yeah. And there is again always nuances; sometimes an owner is going to buy a new computer. But it’s their new laptop that they use and they’re going to keep that and it’s not going to carry for you then that’s a one time expense; things of that nature, a case by case basis from business. So again nuances, deep-diving into the business, no 2 are alike.

Mark: I have been hearing you say this for a long time our own kind of sliding into this Level 3. But in Level 3 you always say math and logic Mark; it’s for math and logic. What makes sense? How does the math work out? And look this actually works out for Level1 and Level 2 as well. You have to use math and logic. But Level 3 is where we start getting into the interpretation of different expenses, right? Because these are the grey area ones where maybe it’s not as straightforward as saying amortization and depreciation; that’s a pretty obvious add back. Charitable donations; pretty obvious add back. So let’s go into this Level 3 and get some examples on a case by case basis. Here are things that we’ve seen in the past which; look at Quiet Light we’ve actually had some pretty big discussions with all of the advisors of Quiet Light that we have this large group chats and sometimes we’ve disagreed in trying to work out how we should actually treat these expenses. And I want to start out with one that Joe you and I have talked about a lot and that would be events, trade shows, and Mastermind fees; how do you handle those?

Joe: I almost moved this to the bottom of the list so we didn’t start off with one that is pretty tough and it was talked about a lot. This is a case by case basis. If somebody joins a Mastermind group in the trailing 12 months prior to selling their business and they pay $20,000 to join that group, it’s a one time expense; absolutely an add back, it kind of moves up to Level 2. But let’s say they also choose to go to an annual event that that Mastermind group has. And they do that at their own expense; let’s say they go to Seattle, I was just at Blue Ribbon, those people that were in Blue Ribbon; I’m sorry at the Seattle event not all of them were at the Miami event just 6 months prior and so it’s definitely a choice to go to the event or not. Some people never go. There are lots of people that are in eCommerceFuel that we’ve never met because they never go to any of the events. So the choice to go to an event, it’s an expense that doesn’t carry forward. It’s one that I see as an add back. Our team has talked about it quite a bit; that’s an add back. But there are other types of Masterminds and events; we’ll call them events in this situation that are not add backs that you and I have talked about. So if you are an advertising agency or any kind of company that’s going to these events to build your company brand and reputation even amongst the people that are part of the Mastermind it’s integral to your business. Like us, we go and we sponsor. That’s integral to our business; our business models. We are sponsoring, we’re getting our own brand and our own name out there; that’s not an add back. An ad agency does the same but might just be a member of the Mastermind or events and is doing training courses in free valuations or free testing things of that nature we would have to really dig down into that one and determine if it’s an add back or not. And it’s probably not an add back. But for the rest of the folks most likely an add back; the only adjustment you and I have talked about that is we’d have to look at and say logically does it make sense to add this back? Do we have 2 lines of add backs? Is it a business that’s valued at 250,000 or 2.5 million? Sometimes you say you know what at this level it’s not worth adding it back; let’s just leave it alone it’s only going to add you another $300 per month back to it and you can play with a multiple in that situation. Would you agree?

Mark: Yeah I absolutely agree. You have to pick your battles on this and if you have to really fight to be able to justify an add back you should look at it and say is it really worth it? Like is it is a big enough expense where I’m going to gain enough potential value out of adding it back and making that argument. I want to throw a little wrinkle at you, Joe. We have not discussed this before and it’s a question that I’d like to get your opinion on. The difference I see between these Mastermind fees, events, travel-related expenses would fall under this idea of is it a personal development or business development, right? I don’t add back the business books I buy. The business books I buy are personal development and I consider that to be just for myself. Obviously, there’s a business application for that. I want to become better at what I’m doing but I think that’s more personal related. So the line I see is again this idea between is it development for business or is it personal development? So if I go to Pubcon without really putting Quiet Light name on it I’m just an attendee I would consider that to be a valid add back. Let’s go into a scenario where you have an employee; let’s say that you have somebody who works specifically as a content writer for you and is possibly doing SEO and you send them to MASCON because you want them to become better at SEO for the purpose of your business. How would you handle something like that?

Joe: It’s off the top my head not an add back. But then you’ve got to look at the history of the business because that’s business development, right? You got to look at the history of it; is that something that they’re going to do every year, are they’re going to get new information every year and develop their skills, are they going to send different employees, have they done it for the last 2 or 3 years? You got to look at all those nuances again and determine whether or not it’s an add back. But because it falls in that business development versus personal development I think you and I know everybody on the team would lean towards no that’s not an add back.

Mark: I would agree. So again this is where you have to kind of take a fine scalpel here and kind of slice this up and really understand what’s going on behind this add back. And again as you went out with this Joe math and logic and I think reason as well. You have to be sort of reasonable with some of these so that it’s not just you’re going through; sometimes I see sellers come back with their own add back schedules and they’re super aggressive and every last dime is trying to be added back. And it’s a question at some point where you have to ask them what can we really say is a reasonable add back versus just being as aggressive as possible?

Joe: Right. So let’s take that scalpel and dig down into a P & L for instance; of course we’re not doing it live here, but one of the things that that when you peel back the different layers that we always ask the question okay you’re spending a lot of money on advertising here; what type of credit card are you using for that advertising? And then are you getting points back on that, what are you doing with those points? 9 times out of 10 people are doing cashback credit cards or converting them over to travel but they’re pushing all that over on the personal side of that’s an owner benefit. It’s income, right? You’re getting cash back, you spend $10,000 you get $400 back. If you spend $10,000 a month on advertising and you get that $400 back and you slide it over to your personal side and it never shows up on your profit and loss statement we need to look at it closely. It’s an add back. You can multiply that times whatever number you want and then make the decision, right Mark whether it’s worth it to add that back or not. Jason and I had a listing that we worked on last fall where there were about $24,000 in cashback points added up over the course of 12 months and it was very, very measurable; clear and distinct because that person spent a lot of money on advertising plus he bought used inventory that was going to be refurbished. And he bought them from different places on the web. And all of that was done with a credit card. All of that was converted to cashback points that moved over to his personal side; amounted to about $25,000 on an annual basis. It’s a significant number. The business was listed at a 4 time multiple. It was cash in his pocket so we did add that back and it bumped the valuation by $100,000. If we’re talking about a business that’s $4M but that amounts to $3,000 then maybe you don’t add it back. You just got to play around with those numbers a little bit and again use more math and logic there.

Mark: Yeah and I think here that the key that I would look at would be the consistency of it. If you’re advertising budget is over $100,000 a month for example and you’re putting that on your Amex gold card and part of your strategy is look I’m getting some margin from the points I’m getting back; that’s pretty obvious in that category of its part of your existing business model. But like you said if you have just kind of a small amount of points, it’s probably not worth the effort to put that in there and try and justify that. So I think that’s pretty reasonable. Joe one question that we hear a decent amount would be website redesigns and we can also throw in here product development or even in the SaaS world development on a SaaS product. Why don’t we start to unpack some of these and we’ll start with the website redesigns. Obviously, most people who have a web-based business unless you’re purely Amazon have a website and part of that is you’re going to have to redesign the website every now and then. I mean there are some sites out there that have look exactly the same since 2000 but most businesses do update that and those can be expensive. You can easily drop 10, 20, 30, $40,000 on that if not more. So how would you approach website redesigns or website redevelopments?

Joe: I would look at the history in the P & L to get a clue of the way the business has been run because that’s the way it’s going to be operated in the future. And if there’s never been a website redesign and it’s on a good current up to date platform like Shopify and the business is trending in all the right directions then; obviously there’s been a website redesign because that’s the point of this add back so let’s say that it’s been done in the last 12 months but had never been done before and the business is 7 or 8 years old and it’s just been put on a new platform and they spent $20,000 on it I would say that; and I have in the past done 100% add-back on that website redesign. But again it varies from business to business. If I’m looking at a business that’s operated like Quiet Light Brokerage just by example you have a tendency to redesign the website often. I think there’s been 3 or 4 versions of it in the last 7 years that I’ve been with Quiet Light. So, in that case, it’s either simply not an add back or you do some math and let’s say you’re going to redesign a website every 3 years you might take that cost; $10,000 website redesign and add back 50% of it or a third of it and things of that nature. Because if it happened in the last 12 months it’s not an expense that’s going to happen in the next 12 months so there has to be some mathematical adjustment there. And again math and logic; look how often it’s been redesigned, do the math on when in the future would you redesign again, and just do partial adjustment more often than not.

Mark: Yeah, I would agree 100%. And the thing to look for here obviously if it’s on the last 12 months it probably isn’t going to get looked at too closely. But I think you have to look at why. Like the Quiet Light website gets redesigned a decent amount and that’s simply because I get anxious about stuff like that. That’s just kind of what I do. I’m always tweaking; always thinking that I should dust scraps and start it over again. And so I actually do think with Quiet Light it’s mostly discretionary in nature but again this reasonableness needs to come in.

Joe: Not always discretionary but it takes 12 months every time that you start.

Mark: It’s absolutely ridiculous.

Joe: Why don’t you touch on product development? It’s interesting you bring that up. I’ve got a physical products e-commerce business and I’m developing new products; do I get to add that cost back?

Mark: Yeah I think again we need to use math and logic here, a little bit of reasonableness, take a look at what type of business you are in. Here’s the thing about e-commerce; Chad Reuben when he was on the podcast about a year ago mentioned this, product development is the lifeblood of most e-commerce businesses; you rarely, rarely run across a business that is truly evergreen with its product or you never have to iterate. Apple comes out with an iPhone every year. Android products are constantly coming out with a new phone every year. Car companies constantly come out with a new car every single year. Product development is the lifeblood of businesses. So on that note no I don’t think that you can add back product development costs. I do think maybe if you’re coming out with like a large truly one time sort of burst maybe I would look at it.

Joe: Maybe if there’s a mold, right? If you paid $5,000 for a mold of that product that mold is going to last 10, 20 years perhaps. That mold maybe partial add back but yeah I’m 100% on the same page; product development is the lifeblood of a business. The molds thing is so rare; 105 businesses I think I’ve sold in the last 7 years and I think maybe only Sean van der Wilt’s business has actual molds that are part of it and that he owned. In other cases, it’s generally the manufacturer that has the mold anyway. So yeah adding back product development expenses can’t really do it. What about the SaaS development? We’re not all e-commerce here; we’re selling content and SaaS and things of that nature as well. You’ve got a developer that’s been doing some certain projects within the last 12 months; are you adding that back? Is that black and white?

Mark: It is not black and white but I do think that if you are looking at for example your initial build of the software that’s going to be very intense, very cost-intensive. That I think could be added back. Regular maintenance, regular feature updates; absolutely not because a SaaS business needs to have updates, needs to have new features added. If you’re going to redevelop the entire SaaS product from the ground up; maybe you’re switching technology stacks, that’s something where I would take a look at that and again reason and logic need to really…math and logic really need to reign with this. But generally speaking no; just as product development is the lifeblood of an e-commerce business, software development is the lifeblood of a SaaS business.

Joe: We are 100% on the same page. There is no question about it.

Mark: No fights here, thank goodness.

Joe: Yeah. We’ve got 3 points left and really the last 2 points I think are ones that get missed most often and can add a tremendous amount of value to the business. But the first one of the 3 here is pretty obvious and maybe we could have we actually talked about moving this up into Level 1 but it’s a repaid relative. I sold a business a couple of years ago where the owner of the business paid his brother to do customer service. They paid him $20 an hour for 20 hours a week worth of work. I talked to the brother. I talked about his job and what he did. He said yeah I really only put in about 5 hours a week. Most of what I do is automated; it’s canned responses with customer service. And so we talked about the work and the level of detail there and just added some logic there and some math and said look you are grossly overpaid. Your brother loves you. I’m going to suggest that he fires you; and again this is just before Christmas, of course, he didn’t.

Mark: Oh my you told him to fire his brother. We’ve talked about this before.

Joe: I know. It was a $10,000 add back or whatever the number was. So we just did some math, right? We said alright how much does it cost to get a really good high-quality virtual assistant; $4 or $5 an hour. Okay, let’s double that. We know you’re only working 5 hours a week but we’re going to go with you 20 hours a week times whatever the number is and we’re going to add it back. So instead of the $20 an hour times 20 hours we took $10 an hour on those 20 hours a week and we added back the adjustment there. It’s in black in white in the add back section with an explanation of why. So math and logic applied to a situation like that; that overpaid relative and it absolutely works and is am add back. And it has to be a big enough number to be an add back. In this case, the total add back was a pretty sizable number. So pretty clear there in my view would you agree with that on Mark?

Mark: Yeah I had a guy who had a really cool business. His mom was doing his bookkeeping and he was paying her $250,000 a year for her bookkeeping services.

Joe: What?

Mark: That’s a pretty expensive bookkeeper. That’s a pretty obvious case of look it’s a relative; he’s paying his mom good for him, what a great son; better son than I am to my mom, and pretty obvious add back. And look I’m going to tie in something that we had from Level 1 here and that is where you have 2 owners and you brought up the example one owner is business development and marketing, sales and marketing and the other one is a developer. And I said well we should take a look at that developer side probably and probably not add back his salary but you’ve got to take a look at how much is he getting paid. I’m dealing with a client who has that sort of set up and the developer side; they’re both getting paid the same amount of money and it’s basically the profits of the business. We’re going to add back in a reasonable and a pretty generous salary for a replacement development. And that’s kind of the way that we would look at that is what is a replacement cost? You don’t want to be super aggressive on that. It’s got to be reasonable. It might be a little bit generous to say here’s what the replacement of this person would cost. So you can do that with relatives. It can get a little bit tricky. I had one company that I dealt with where literally the company was basically run by this guy’s family which brought up some issues with the transferability of the business. Because there were so many people involved that were family related but they were all getting these big fat paychecks. And so if we had gone to market; we didn’t go to market with that one but we would have had to go in and try to find reasonable replacement costs for most of these people which will be then a little tricky.

Joe: Yeah. Look, I can assure all sellers out there; all business owners that are smart enough to do some thinking and planning in advance of a sale, your buyers are going to be intelligent people that are going to be thorough and diligent. And doing that logical adjustment that Mark just talked about for that developer who’s your business partner that is a non-transferable skill you’ve got to hire that out. You’re just going to have to do that and it’s going to help build trust and help you achieve your goals in getting your business sold. If we have to push the multiple if it makes sense because there’s other amazing trends in the business then we can push the multiple a little higher as long as it’s still within a reasonable area. The next add back is one that I just did this year as an example with Mike Jackness when we sold Color It. And I’m going to go ahead and mention the podcast series that Mike and I did because I think it’s invaluable for both buyers and sellers to listen to and Mark I’m going to just tell you right now I think that you and I did a decent job in doing the intro for the podcast and then me doing an interview with Mike on our podcast. Mike did a much better job on his podcast. So I’m going to point people…

Mark: They’re actually pros at this. They’re very good at it. We’re just kind of fly by the seat of their pants.

Joe: Yeah. He did an amazing job. And he actually did a series of 4 in total; 2 of them were with me and the one at the beginning one at the end was with his staff, his staff down in the Philippines before and after the sale. So he went through the whole arc. But it’s episode 247 of the EcomCrew Podcast and the first one was Preparing Your Business For Sale and the second one was What It Was Like Going Through Due Diligence And Actually Getting It Sold. Now one of the things that we focused on in Mike’s add back schedule was cost of goods sold. Let me give some just general numbers here; broad examples, these aren’t actually from his business but let’s say that what he did do was he renegotiated the cost of goods sold on one particular ASIN. He could have done it on more if he had planned in advance of selling his business instead of deciding to sell his business because he was emotionally ready to move on. We could have waited another year and he would have had a much more valuable business. But we didn’t do that because he was ready. So in this situation again it’s magic and loss; math and logic; oh my goodness, see this is why Mike’s podcast is better…math and logic.

Mark: Well I’m sure a lot of buyers out there look at sleaze and say this doesn’t look like magic; it doesn’t make sense.

Joe: I said magic and loss; oh man, oh man. We’re not editing that out. Chris, don’t touch that. Alright, so Mike renegotiated the cost of goods sold on 1 ASIN. The reduction in cost was it came down $1.60. It was already on the books. He already had product in Amazon FBA and it was shipping and it’s been in FBA already for 2 months. What we did; it was a $1.60, so what we did was we looked at the sales per month of that ASIN for the other 10 months going back in the P & L took that dollar amount and multiplied it times $1.60. Let’s just say for simple math it was 1,000 units a month, right? I say simple math but here I am looking to the other calculator. If you got 1,000 units a month times $1.60 we’re looking at 1,600 dollars a month times 10 months it’s a $16,000 mathematical and absolutely legitimate add back; math and logic there. That times the multiple applied to the business; let’s just say if it’s 3 times that’s a sizable add back, it’s $54,000, no, $48,000. How’s my math?

Mark: We’ll 48,000. On this I want to go back to where we started this conversation; why do we do these add backs at all? Again it’s the idea that we want to show a buyer they’re expected return on investment and we want to show a set number standardized approach so that you can interject your own assumptions. And the reason that this is completely valid to do even though you can take a look and say well the actual expenses were not this is because this is the forward-looking numbers that we know are going; the way that the business is going to be run in the future.

Joe: That 10 months of expenses there will not carry forward so we needed to make an adjustment for that.

Mark: Exactly the only thing we would need to verify would be in due diligence the supplier is going to give the same or similar terms to the new buyer. That would be the only thing that we really need to confirm there. So I think this makes complete sense.

Joe: 100%.

Mark: Did you get any pushback from buyers on that?

Joe: Not an ounce and the buyer that bought the business is; I mean he went to Harvard, he’s a very smart guy, he’s bought 4 other businesses from Quiet Light Brokerage, and he understands all of this. And he’s got investors that review everything so no pushback at all.

Mark: Yeah. Alright, next one on your list you have here reduced fees times units sold.

Joe: Look, everyone listening that’s considering a sale of their business this last one is why you cannot have one conversation with a business broker for 30 minutes and decide that that’s the one you’ve got to go with because if they’re incredibly good at sales they’re going to talk you into something in 30 minutes. Now I shouldn’t say that because; well, look you’ve done research on Quiet Light, you’ve listened to the podcast, you’ve listened to different examples so maybe you can but you got to dig deep. This happened to me recently in like the third conversation on having in a review of the profit and loss statement. This is why we review profit and loss statements. We learned that the owner of this particular business that I’m talking about repackaged; worked on repackaging all of his product SKUs and in doing so it changed the level of pick pack and ship at Amazon. So he was at let’s say Level 5 and he came down at Level 4; now these are costs. They’re not called that but his fees at Amazon went down. Let’s call it a dollar. So instead of $5 pick pack and ship fee, it was $4 because it was a smaller package, lighter package, things of that nature. So he did that. Again let’s go to the same thing we did here with Jackness’s business. He did it in the last 2 months, it’s on the books for the last 2 months, so we’re going to the prior 12 months and went okay how many units did you sell during those prior 12 months or 10 months times a dollar per unit and we’re doing an add back for that because that adjusted expense in the past went away and it does not carry forward; same thing, different scenario.

Mark: Yup, absolutely. So I think there’s 2 ways when we’re looking at some of these kind of I don’t want to creative add backs but the ones that require a little bit more explanation. The one thing that I would just encourage people to keep in mind is that when we see some of these add backs which go back and recast numbers there are some situations where it makes sense to rather than going back and doing that add back bake in some of the value into the multiple as opposed to the trailing 12 months. If we keep in mind that the basic approach to estimate in value in a basic valuation approach would be your trailing 12 months discretionary earnings times some multiple, it doesn’t matter if you increase your discretionary earnings by 10% or increase your multiple by 10%; the result on your valuation is going to be the same. And so I think there is a little bit of discretion and strategy that needs be taken into account by both the broker and the seller when it comes to determining where do we want to get this value in. The thing you need to always keep in mind is are you actually offering real value to a potential buyer? Is this really going to be valuable for the forward-looking future for that; I don’t know if there’s a backward-looking future, for the future of the new owner of the business and where are they going to get that value? So you might be hearing this and thinking this is pretty complex I don’t know if these things would be really a legitimate add back or not. Look if you find this difficult that’s because some of it is and some of it does require discussion. And as I said at the beginning we have these discussions at Quiet Light all the time. We will share something with the entire team and say what do you guys think this? Here’s what I’m thinking, I should have it added back. And sometimes we disagree but we always are able to figure out where that line should be. So I’m going to just throw this invite out; if you have a question on whether or not something would be an add back ask us. Hound us and say what do you think of this; do you think this would be a legitimate add back or not? And that would be on the buy-side or on the sell-side. If you’re look at an opportunity and maybe with another broker or directly with the seller and they’re adding something back and want to know what our thoughts are let us know. We’d love to weigh in on it.

Joe: Let’s route another invite there and let’s find a way to do an actual valuation; we’ll do video as well as audio. We’ll remove the client’s names. We’ll just use first name and we won’t use the business name. And we’ll do it sort of Mike Jackness, Ecom Crew Under The Hood Valuation and record it so everybody can hear the process we go through. Man that being in a 2 or 3 part series because it’s such a long in-depth, detailed process. The only thing I want to throw is that we are developing webinars here at Quiet Light that will be up on the new 48-month long redesign that Mark’s been working on. Yes that’s a little wise-ass comment there but the webinars will be up, they will be available in detail for you folks to dig deeper and see us go through some of this add back schedule in the process of doing one that is titled “What’s a Legitimate Add Back?” and all of this will be in webinar format where you can see actual profit and loss statements and whatnot.

Mark: Sounds great. I look forward to doing those. I don’t have anything else on add backs. I think we’ve just covered the entire topic as deeply as you possibly could actually no we could probably talk for another couple of episodes in some of these things but I don’t have anything else to add for this one. Do you have anything Joe?

Joe: No, we’re good. It was great having 2 very special guests on the podcast; one much more special. According to Andrew Youderian, you’re special.

Mark: I like that guy. He’s such a good guy, isn’t he?

Joe: Andy Youderian. Has anybody reached out to him with my little Easter egg stuff that I did on the video? But we’re not showing the video yet, right?

Mark: I had and actually we are showing the video and that’s something for you guys to know. Subscribe to us on YouTube at Quiet Light Academy. These podcasts are now up in video form so you can look at our pretty faces while you listen to us argue about add backs. I don’t think anyone has reached out to him about the little Easter egg we had in that podcast episode. Because I talked to him recently and he didn’t bring it up.

Joe: So for those that have no idea what we’re talking about and have stuck with us at the end of this podcast here’s the deal. I was driving down the road listening to the Quiet Light Podcast where Mark had Andrew on with state of the e-commerce.

Mark: One of the best episodes I think we ever did.

Joe: Whatever you say Mark. I think this is the best episode we’ve ever done. Alright, so Andrew says yeah you guys have been doing a really good job. I got to tell you Mark I think you have a bit of an edge over Joe. Because Mark and I always competing with who’s got the best episodes and the most downloads. And I swear I almost; I had to pull over I was laughing so out. It was so, so funny. He’s a bit of a prankster. So I figured I’d get him back. And so I had an Incredible Exit Series on, we had somebody; actually it was an Incredible Acquisition, right? Karl Selle bought Smart And Fresh and so we had Karl on a podcast about that and during the podcast I pretended that our producer Chris interrupted us and handed me a sheet that it was kind of an emergency, he was looking to get in touch with somebody named Andy Youderian. I could not pronounce Andrew’s name properly. But for those that go to the YouTube channel you’ll see that I have an EcommerceFuel t- shirt on and that the EcommerceFuel podcast is in the background; a mouse pad is in the background. So clearly I know Andrew Youderian. I want to call him Youderainan from now on. Clearly I know Andrew. My kind would call those Easter eggs. I think that’s what they’re officially called in Marvel movies. So I just threw in a few Easter eggs there. It was kind of fun. We did get one person that sent an e-mail to me and he goes I think the person that your producer is looking for is Andrew Youderian for EcommerceFuel. And I said well that was kind of a joke. I had to send a note back. But it was kind of fun.

Mark: Well he was right though. It is the person we’re looking for. We have an Easter egg coming up in one of the movie quotes so you guys have to dig deep on these movie quotes. And I don’t know which episode it’s going to be live on. Listen to the different intros. There’s going to be one that you’re going to have a really hard time finding but I’ll tell you what I want you to find this one whenever it airs. That’s really, really difficult and I will get with our producer next week’s podcast and make sure that we give you a little hint as to which podcast to listen to for this movie quote because it’s just an absolute gem.

Joe: Awesome. Let’s wrap it up with that.

Links and Resources:

ECom Crew Episode

Quiet Light Academy YouTube

Using SBA Loans To Buy & Sell Ecommerce Businesses With Stephen Speer

Many larger deals are SBA-oriented. This is a better method for buyers because they get a 10 year repayment period, and it is better for sellers because they can get...

Many larger deals are SBA-oriented. This is a better method for buyers because they get a 10 year repayment period, and it is better for sellers because they can get more money. In 2018, SBA lending limits are changing and they will be bringing 90% of the funds to the deals. It is really good for buyers and sellers.

Today, we are talking with Stephen Speer who is the VP and Business Development Officer at BankUnited Small Business Finance. Stephen is a lender, not a banker. Bankers have a tendency to over-promise and underdeliver. We had a bank deal that took over 90 days to close. Both the buyer and the seller were beside themselves with frustration. With a transaction we recently did with Stephen, we got a commitment letter in 34 days which put us two weeks away from closing.

This is an SBA transaction that will close in 30 to 45 days which puts us on the same playing field as cash buyers. Today, we are going to cover benefits of the new SBA guidelines and how they benefit both the buyers and the sellers.

[Download Our SBA Starter Kit PDF]

Episode Highlights:

How the SBA aspect of buying and selling online businesses is becoming more prevalent.
Stephan has been lending for 25 years and is now located in Tampa, Florida.
He works in the ecommerce business acquisition space.
He has been with BankUnited for the last two years.
The SBA allows lenders to take a greater risk by guaranteeing 75% of that loan.
The purpose is to encourage small business lending.
Stephen has formed an ecommerce lending team around him.
BankUnited is a preferred lender and everything is underwritten and funded in house, but the loan has the SBA default guarantee.
Buyer qualifications include income, assets, assets after closing, credit, and collateral. Does the actual business cash flow based on the structure of the deal.
Asking the right questions to make sure the buyer is the right fit for the ecommerce space and business that they are purchasing.
Getting financials up front and looking at a solid year of tax returns and a ramp up year.
How most sellers in ecommerce sell within three years because the trajectory is going up in large multiples.
Profit and loss statement plus addbacks equal total earnings. Interest and one time expenses area add backs. Most people want to minimize their tax exposure.
Do not commingle two businesses together when you are trying to sell one.
Getting off of schedule cs and doing business tax returns.
Having an independent third party do a business valuation.
Have someone do ecommerce due diligence to poke holes in the financials.
25% injection or down payment with 10 or 15 from the buyer and 10 or 15 from the seller in a seller note.
In 2018, the buyer will only have to come up with a 10% injection, and the seller won’t have to come up with anything.
This will have more sellers open to financing.
BankUnited feels comfortable up to a $5 million loan. There are different variables, but with the right buyer they can go high.
They will work with buyers on the SBA process.
What does an SBA loan cost? There is a deposit for third party fees like business valuation, appraisal, titles, and attorneys. It’s usually about $12,000 that is financed into the loan. Plus a 3.5% SBA fee.
It the deal falls apart the money can be used on the next deal.

Resources:

A Step-by-Step Approach to Transferring an Amazon Seller Account

Rochelle Friedman was a corporate lawyer representing some of the top products and brands in the world. A few years ago she jumped ship and started the Walk Law Firm....

Rochelle Friedman was a corporate lawyer representing some of the top products and brands in the world. A few years ago she jumped ship and started the Walk Law Firm. Now more than 50% of her business is representing both buyers and sellers in transactions that involved the transfer of an Amazon Seller Account.

Because of her specialty and expertise, I wanted to have her on the Podcast to share her approach, and what she sees other brokerage firms in the industry doing. In today’s Podcast she covers the risks and pitfalls of transferring an account through an asset sale, and talks about the different types of transactions she sees occur.

Rochell also delves into the two big “stomach ache” clauses in a typical asset purchase agreement, and how to address them up front so the due diligence and negotiation process is successful.

As you’ve heard us often say…”don’t decide to sell, plan to sell”. The same holds true with legal matters. Make sure you are properly incorporated, that your trademarks and copyrights are up to date and transferrable. All of these are part of the assets of your business, and hiring a firm like Walk Law Firm to review them in advance of a sale is advisable.

Episode Highlights:

Learn Rochell’s approach to transferring an Amazon account. Hint…it is the same as ours.
Transferring non-US accounts is the same process.
Both buyers and sellers need to be happy at closing, or a deal falls apart.
Having a qualified contract attorney truly matters.
The same attorney will fight differently if their client is the seller vs. the buyer.
There are TWO MAJOR stomach clauses in every APA. Address them early on in negotiations.

Transcription:

Mark: Joe how are you?

Joe: I’m doing good Mark. How are you doing today?

Mark: You know ever since you got back from Italy you are kicking my butt again when it comes to the number of interviews you’re doing for the podcast. I think like three to one, four to one as far as the ratio is concerned and I’m sure our listeners are ecstatic.

Joe: I don’t know. I actually have the easy part. I just do the interviews you do all of the stuff in the background so thank you and I appreciate it. I just do the interview. And this time for this show I don’t … falsely, folks, I talked to an attorney and it was actually a really good call and here’s why I had; her name is Rochelle Friedman, she’s from Walk Law Firm and you know look with physical products businesses and the transfer of an Amazon Seller Account everybody has questions about how to go about doing it, whether it’s a US based account or one that’s international. And I came across Rochelle through some other folks that I worked with and I had a call with her. And I just picked up the phone and I called her and chatted with her. Look she does close transactions for Quiet Light Brokerage, for Empire Flippers, for Website Closers and you guys know who they are so it’s okay to mention them right? And I know she does that so I wanted to confirm with her what processes, what she does and shockingly Mark it’s the same way that we do it believe it or not. And she goes into detail about it, and she goes into great detail about it. Not only that she talks about contracts in general, she represents both buyers and sellers. She’s a contract attorney that came from the corporate world representing businesses, every day household businesses, she was their attorney a very good one in the corporate world last went out on her own and now represents both buyers and sellers in transactions. And I think it’s worth listening to. I think it’s really really important as you and I have talked about how important planning is. Don’t wake up and decide to sell but plan to sell, same thing should be said for an attorney; talk to one. Get your ducks in a row and make sure that you’re doing the right thing as you go into your transactions you can do it with confidence.

Mark: I’m gonna put you on the spot because you said we’re going to address in this podcast episode how do you transfer an Amazon business and how are people doing it pretty much across the board. But for anyone that already knows how to do that or has done that what else do we cover in this episode?

Joe: She covers the two big stomach ache clauses in contract negotiations. That being the non-compete and the indemnification clause. I think the indemnification clause is the bigger of the two because we do a pretty good job up front addressing the non-compete. And so if you do that work up front in the client interview and work with the seller on that to make sure they understand what a non-compete is and make sure there aren’t going to be any issue is never really a problem. The hard one to wrap your brain around, your hands around is the indemnification clause and what that is from a seller’s standpoint. You sell your business you think you’re done, you get 100,000 200,000 a million dollars in your bank account and you move on about your merry way. You sleep really well at night because you got a bunch of money in your account. Well, your buyer’s attorney is going to have something in there that is going to have them reach back into your bank account and take some money out if you lied or cheated or stole or did anything fraudulent in anyway. Now you should sleep well if everything was done right but if there’s anything that wasn’t they’re going to put that in there. And they’re gonna put that in there anyway and the big question is how long is that grace period for? Is it six months or 12 months or 18, and then how much is it for? And Rochelle you know towards the end of the podcast she laughs and she chuckles and she talks about how … well she has one standard when she’s representing the buyer and she has a completely other standard when she’s representing the seller so it’s good to hear from both sides for sure. But the stomach ache clauses are really important in there as well.

Mark: That’s fantastic. And those are easily interest almost guaranteed at it every time we send out a purchase agreement on those two clauses.

Joe: Guaranteed.

Mark: You always see stuff. All right let’s get in to see what she has to say about all of this including in the indemnification stuff. Let’s get to it.

Joe: Hey folks it’s Joe from Quiet Light Brokerage and today I’ve got Rochelle Walk from Walk Law Firm on the line with me today. How are you doing Rochelle?

Rochelle: I’m doing great Joe, how are you today?

Joe: I’m doing well. I have a sister in law name Richelle so if I mispronounce your name during the podcast at all today that’s the reason why. I’m apologizing in advance.

Rochelle: Not a problem at all.

Joe: As we talked about a little bit before recording we don’t do fancy introductions so if you could just give the audience a little bit of background on yourself. Tell them about who you are and the work you do that’d be great.

Rochelle: Sure. Thanks, Joe. First off all thanks for having me on, I appreciate the opportunity. My background is actually a little bit complicated because I have been practicing law for 33 years but unlike a lot of other lawyers, most of my practice has been as a general counsel or as the chief administrative officer of very large public companies. So most of my time spent as a lawyer has actually been as a business person. And I like to explain myself as a business person who happens to also be a good lawyer.

Joe: Excellent.

Rochelle: And when I started this firm I was at the point where I was leaving a major public company, decided I wanted to do something different, and decided I wanted to use the same skills I garnered as a business person and lawyer for really large public companies and turn it into something that would work well for small to mid-size companies. So during my years in my big company world, I worked heavily in consumer products. I was head of license brands for Sherwin-Williams, brands like Martha Stewart, Ralph Lauren, I worked with Dutch Boy, I worked with Thompson-Minwax, Krylon, very famous brands. And then I left there and I was at a company called Oglebay Norton it was mining and minerals. We had clients and customers like Home Depot but we also had heavy industry as clients and lots of engineers. And then ultimately I went to a company called Anchor Glass and it was consumer glass, some of your favorite beverages, as a matter of fact, would be bottled in the glass containers whether you know beer, wine, Maker’s Mark you know some famous brands. So my career has always been around famous brands and lots of retail. So when I looked at what I could do seven years ago when I started this practice, I thought about it and said I can really understand consumer brands. I really understand branding. I really understand intellectual property but it’s a new world and we need to be able to do it online. And I dove into e-commerce understanding how Amazon works, how eBay works, how Jet works, of course, some of those came later, how Walmart.com as a marketplace work … Walmart used to be my customer at Sherwin-Williams and now here at Walmart.com it’s a completely different animal and I dove into that. My practice has always been heavily mergers and acquisitions so about 50% of our practice is the mergers and acquisitions of businesses. And seven years later that has become a huge footprint of Amazon sellers, online sellers, e-commerce businesses that are seeking to flip. Entrepreneurs who have created … you know they have created great brands but in order to take them, to exploit them to the next level they need a lot more bandwidth. And it’s, therefore, their time to move out of that business. Having spent a lot of years buying and selling Mom & Pop tank stores for Sherwin-Williams and Mom & Pop paint brands and Sundry brands it’s no different, it’s just now we’re doing it through e-commerce instead of bricks and mortar.

Joe: Okay. So about 50% of your business is the M & A side, the other side is what; working with people on intellectual property, branding, things of that nature?

Rochelle: We’re like their outsourced general counsel. It can be everything from intellectual property and branding to possibly contracts, employee issues, independent contractor issues, tax issues-

Joe: Okay.

Rochelle: Really almost anything they need. Leases, fire agreements, everything you might imagine a general counsel doing.

Joe: I got you. So for folks listening, the reason I have Rochelle on the line today is because a lot of you have asked during the buy or sell process if Quiet Light can recommend an attorney. We have several that we work with; Shawn Hussain at the Ecom Law Group is terrific. We work with him often and Rochelle knows him and came across Rochelle and we were talking about the transfer process of an Amazon business. And I know now that you’ve worked with all of the website business broker firms that are at a high level like Quiet Light and you’ve been on both sides of the transaction.

Rochelle: Right.

Joe: Do you prefer or do you most often work with the buyer of a business, representing the buyer in contract negotiations or do you find yourself on the seller’s side more often?

Rochelle: It’s really about equal and we don’t really have a preference. We’re perfectly prepared to work with both buyers and sellers. Buyers and sellers have different needs and one of the things that I think we’re pretty good at and just so you know we’re a firm of three full time lawyers. We are about to affiliate with a bigger national firm who also does quite a bit in e-commerce and emerging business and we can … I’m not prepared to tell you who and the details of that but that’s coming down the pike so we’ll have a lot more bandwidth. But what’s important about us as we understand the difference between what a buyer needs, what a seller needs, financing it; if both you’re a buyer and a seller how it’s being financed matters, and understanding how this Amazon accounts transfer. Sometimes transferring the account actually isn’t in your best interest or the buyer, sometimes it’s the only solution for the buyer and-

Joe: Let’s talk about that-

Rochelle: You have to assess that.

Joe: You know that the listener’s ears just perked up because we’re talking about the transfer of an Amazon account.

Rochelle: Yeah.

Joe: You and I both know as does everyone who has an Amazon account that the Terms of Service says that the Amazon account is not transferrable and that-

Rochelle: Generally.

Joe: Right there’s a bracket in there that says generally. To me logically it never made sense that you could build an amazing brand on Amazon and never be able to sell that. And I’ve had experience direct with Amazon and they’ve proven that they do in fact allow the transfer of accounts but-

Rochelle: Of course.

Joe: Tell us, tell the audience, tell me how have you seen an Amazon account most often transferred with the different transactions that you’ve done with the top websites and business brokerage firms.

Rochelle: Sure you know a lot of times it’s very much behind the scenes. If you are actually selling the ownership interest in the business you’re not really transferring the Amazon account. Although Amazon may disagree with that but you’re really not transferring the Amazon account, you’re transferring the ownership interest in your business. And the only thing you’re doing with the Amazon account is actually maybe changing an EIN if … depending on what you’re buying and if you’re getting the EIN of the new business and probably changing where you want the banking to go. I’ve even had situations where we haven’t had to change the banking at all. If you’re buying the assets however and you’re leaving the ownership interest of the business behind by getting all of the assets of the business you’re going to need to go in and possibly change the name of the owner of the account, change the … certainly, the EIN or the Employer ID Number, change the bank account number, and there may be some other things you’re going to change as well. But there are some things that we recommend sellers do and frankly, it’s better for buyers to help ease the pain of that process. First of all, we’ve never had Amazon stand in the way. As a matter of fact, if you text Amazon they’ll even tell you how to go on and do it. So as much as they say it’s generally not transferrable they actually don’t get in the way as long as what you’re doing is not disruptive. So where will they get in the way? If the IP address of the person making the change is different than the IP address of the person who has been running the account Amazon is going to have a big flag for fraud and they will get in the way and they may shut down the account. What they usually will do is let the sales continue. However, you can’t access your account until somebody verifies that it was an intentional change. And they use to give you a couple of weeks to do that verification although my clients are typically through that verification process within a couple of hours. It may take Amazon a few hours to flag you but watch for the flag it’s usually going to come to the seller. One of the great ways to avoid any of those issues, if you’re using a VPN to access your account in the first place then you transfer the account with the VPN it has all locked in. You’re not changing the IP address and that way when you do this transition there is no issue of the buyer or the seller plugging in the information as long as they’re all going through the same VPN. Similarly, let the seller make the changes. Generally, the seller makes the changes. If it’s a big enough account Amazon may flag it for fraud anyway but within a couple of hours the seller will get that email or will get contact from his or her account rep and that pain will be immediately fixed. We do it all the time and we haven’t had an issue.

Joe: So do you end up having to have a contact yourself with Amazon if there’s an issue or is it just something that the seller contacts them and it’s resolved eventually?

Rochelle: So my rule of thumb, leave your lawyers out of Amazon at all times. We may be in the background helping draft the e-mails, helping respond to the emails, they always come from our client who has the most contact with their Amazon rep.

Joe: That’s the sellers.

Rochelle: We want-

Joe: That’s the owner of the seller account.

Rochelle: Exactly. We want the least amount of disruption in the communications. Amazon really doesn’t need to hear from your lawyers. You just need to work directly with Amazon and frankly, it’s a fraud detection problem. Amazon doesn’t want to be caught where somebody somehow hacked into your system changed your accounts and you later come back and accuse Amazon of having changed your accounts or having diverted your money. So you can’t blame Amazon for what they’re doing. You just have to be able to work with them and be prepared for maybe a day or two of disruption. But typically we haven’t seen it disrupt sales.

Joe: Okay.

Rochelle: We’ve seen product takedowns disrupt sales but we have not seen that transfer of the account disrupt sales.

Joe: Excellent. Okay. Well let’s take a few things, we talked about you’re seeing the most method text and then we talked about the VPN and then you talked about … well, I want to talk about different Amazon countries so-

Rochelle: Okay.

Joe: What I’ve seen in the transfer process is the same. You know we wrote the 10 steps to transfer an Amazon account in 2016 I think and the process that we see is actual phone calls to seller central saying “Hey look I’m transferring the business, one of the assets of my business to the Amazon Seller Account. How do I transfer control to the new owner?” and they do the same thing you just talked about in Texas-

Rochelle: Right.

Joe: They give you written instructions and they’d sent it via email.

Rochelle: Exactly.

Joe: Our clients tell us that sometimes they get lucky; in the 1^st call it works and sometimes it takes 10 calls.

Rochelle: Right.

Joe: At 1^st hold on you can’t do that and then on 10^th oh yeah exactly I know what you’re talking about, they do it. I’ve had some chats with Amazon chats do the same thing but you said text. Now do you mean email, do you mean the chats, what do you mean by text?

Rochelle: I mean the chats.

Joe: You mean the chats, okay.

Rochelle: And it’s usually the Seller Central chat system and we even have videos and screenshots of the chats that some of our clients have had.

Joe: Okay.

Rochelle: Remember with Amazon Seller Central you are dealing with … I’ll describe this way my husband describes pizza. It’s only as good as the 16 year old making it; when you order a pizza from a pizza parlor the quality control is a little bit lax. Well with Amazon it’s not a quality control problem but the experience of a customer service rep is only what that person has had as experience. And depending on how specific you are, on how clear you are on what you’re trying to ask them will depend on how good they are at getting it to the Amazon separate instructions and pulling back and telling you what to do. The more experienced reps are very good at telling you exactly how to go into Seller Central and make the changes.

Joe: I like that. I wonder if on the chats that the more experienced reps answer the chats versus the phone calls. DO you know if there’s any data behind that or is that just an assumption?

Rochelle: No, I have no idea.

Joe: Okay.

Rochelle: I have not seen that and I really don’t know and remember the chats are being answered by people all over the world.

Joe: Okay same as phone call side too.

Rochelle: Exactly.

Joe: Okay, good. So just to back up a little bit of what you are saying I’ve had many many Amazon … Quiet Light Brokerage has many Amazon transactions transfer just that very same way. I personally have a situation for folks listening who or had an Amazon account that had a gold status, I don’t know if that exists anymore but it was called a gold status and that meant that. It was old enough and large enough where they had an Amazon representative assigned to their account. So they had somebody they could always reach out to and during that process, they reached out to that person and said “Hey look transfer selling the business one of the assets of the business is my account how do we take care of this?” And that individual went to Amazon legal and said hey look this is what we’re doing and Amazon Legal provided a form-

Rochelle: Right.

Joe: And all they wanted to know was the name of the buyer. And it’s always been a theory that Amazon wants to make sure that those that have been banned are permanently banned so they wanted to know the name of the buyer so to do that search to see if they’ve been banned. That’s all they did was check the name of the buyer and the transfer went through with no problem at all. So just backing up what you said there. The VPN, I had Norman Farrar on the podcast, Norm is an expert in SOP’s and marketing Amazon. He guested on many many podcasts. Norm recommended the same thing and for those that are listening that do a lot of traveling to different events and whatnot, you’re all at mastermind groups and you’re getting advice if everyone is using the local VPN and there’s a hundred people that get it sitting in listen to an expert and they get a great idea they’ll all log on to their Amazon account using that IP address in the local wireless, local hotel, or whatever it might be-

Rochelle: Right.

Joe: The Amazon bots are gonna go crazy and you’re all going to get shut down.

Rochelle: Exactly.

Joe: So Norm does that. Norm recommends VPNs. Rob Green who does the same thing, high level seller, a lot of podcasts, a lot of speaking all that events. He’s got three or four different seller accounts, different VPN for each one so he goes even to a further level.

Rochelle: All of my biggest clients are using VPNs. It is the smoothest, simplest way … as you said it’s not just a matter of selling your business and having the VPN set up, it’s actually an operational benefit. Because what it also means as you get bigger it’s not just one person who needs to get into that account. You may have a team of people who have to go in and do different things at different times. They could be all over the world. But everybody coming in through the same VPN there’s no confusion to Amazon bot. And frankly, it’s a lot more secure.

Joe: I agree. And it’s you $10, $15 a month.

Rochelle: Right.

Joe: You should be doing-

Rochelle: Absolutely.

Joe: Okay. Let’s talk countries, you haven’t talked about countries yet.

Rochelle: Right.

Joe: You haven’t said Amazon.com eu whatever it might be.

Rochelle: Right.

Joe: Are you finding the same transfer process to be successful for Amazon.com, UK, Germany, France, Italy, etcetera or are you doing something a little different depending upon the country?

Rochelle: So generally we are using the same transfer process. Now one thing that I have to pull out when you are dealing with other countries you may have a V-A-T or VAT or Ad Valorem tax issue and generally that is not transferable. So you are going to need … the new company is going to need to set up their own tax ID in those countries. And there may be a change that has to be made and it may lag a little bit. Typically we use the same process. Most of our clients are driving their business through Amazon.com in the United States. It’s a much smaller amount of traffic and a much smaller amount of sales going through the other countries. Although it’s starting to pick up, it’s starting to get a lot bigger. But we haven’t focused as much on those international accounts but we haven’t any trouble transferring them either. We just use the same process. There’s been no disruption except for making sure that we have the Ad Valorem tax information necessary for those businesses.

Joe: Got you.

Rochelle: And it’s been pretty seamless.

Joe: Got you. Okay, we’ve experienced the same thing. In regards to the value added taxes for people listening we did a podcast with Alex Lyon-

Rochelle: Excellent.

Joe: From AVASK Tax Advisors three weeks ago depending from when this is launched is it.

Rochelle: Right.

Joe: Let’s put it this way, it launched 1^st of June or so. Great detail on how to set it up, what the pitfalls are in trying to do it on your own and the cost associated with it. And we also addressed the transfer of a seller account when to set that up and what comes first.

Rochelle: Right.

Joe: And she sort of detangled everything and it’s not all that complicated.

Rochelle: Perfect.

Joe: Have you had a situation where the seller wanted to keep their seller account but transfer the brand out to a new owner and if yes tell us about it, please?

Rochelle: We have. Actually, we’ve had it both ways where the seller wanted to keep their account because maybe their seller account had multiple brands, multiple A Sense and they were only selling one set of their product lines, maybe one brand. And if that happens it has to be up front at the beginning of the deal. Everyone needs to understand at the beginning of the deal whether or not the account is going to transfer. And the buyer needs to appreciate that they may not be getting the seller account and frankly sometimes it’s not the worst thing. For instance if the buyer is already an active Amazon Seller, the buyer may be very happy to have its current Amazon account just take over the A sense and that is a very smooth transition and it’s literally a relisting of the A sense moved over and then the seller account just delist those; takes them off their registry.

Joe: The only challenge with it, you know it just piped it’s … is the inventory. The inventory in the FBA account, Amazon will not transfer it from one FBA account to another. So you’ve got to time it so that new inventory is coming into that new seller account. You might leave the older account open, it still sells through that inventory but the new owner gets the revenue or the profit.

Rochelle: And the seller, if they sell through the existing inventory, may do it for the benefit of the buyer.

Joe: Yeah.

Rochelle: So that the money still transfers and all of that inventory and we just do an accounting.

Joe: Exactly.

Rochelle: You’re exactly right Joe that is what happens. Let me give you another scenario and I actually have this scenario right now. I have a seller I represent who has multiple seller accounts and he … they have multiple brands in their seller account and they’re about to sell that business. That particular seller account is poorly rated. It has had lots of negatives for a whole variety of reasons part of it’s because it’s very old and part of it is because of mistakes that were made early on. But the nature of that particular business, the products they sell makes a lot of money but the seller account itself is not great. And the buyer is actually going through the process right now and determining if they would be better off just starting a brand new seller account and not taking that history because again, you’re picking up the history of something that isn’t really great.

Joe: Yeah I guess it’s better to have no history if the old history is very poor. But the challenge is let’s back up and start with for those listening buyers or sellers if you have multiple brands in one seller account think about that transfer process. Someday you may wake up and say you know what I’m tired. I want to just unload something and put some money in the bank, set something aside so I can see something for the worth that I’ve done. The best way to do that is to have a clean transaction; you know separate LLC, clean documents, clean financials, and a separate seller account.

Rochelle: Separate VPN.

Joe: Separate VPN, exactly. You can have multiple seller accounts, I’ve talked to people that have six seven different seller accounts. You just have to get permission from Amazon and they will grant it again like Rochelle said at the beginning you just have to talk to the right person at Amazon.

Rochelle: Or … and you have to do it right, you have to keep those businesses as separate businesses with separate seller accounts. They’re not going to let one business have multiple seller accounts.

Joe: Okay that’s good information and it’s hard for people when they bootstrap things and they test and certain things take off and they think this is great. Selling a business is more of a challenge and you got to have those things as separate as possible. I can tell you right now if you’re going to spend a thousand dollars setting up a separate LLC and an extra thousand a year doing the accounting for it; you know $600 a year for separate Quick Books account you will get that money back tenfold in the sale [inaudible 00:28:26.9] your account so it’s absolutely worth it to do it. So in terms of transferring the brand out of an account here’s the drawbacks is that your buyer has to have another Amazon account with good or better ratings than the one that you have. Otherwise, your buyer pull is going to shrink and when your buyer pull shrinks the potential value for business shrinks as well.

Rochelle: That’s right.

Joe: I’ve talked to many experts and I’ve named a few whom here that I have talked to about the transfer of a brand into a brand new Seller Account and they all think that’s crazy. If it’s got … if a good brand is in a good Seller Account you’re transferring that to a brand new Seller Account they don’t know anything about it-

Rochelle: It makes no sense.

Joe: And it’s just risky.

Rochelle: Exactly.

Joe: I have a transaction that’s going on now where the buyer had just purchased an Amazon Seller Account, it happens to be in a different country than the US and has got a great seller rating and they’re going to buy another brand and move it into that same seller account into that same country versus taking over their Seller Account. Because the seller feels that there’s a risk there that he doesn’t want to take on.

Rochelle: Right.

Joe: So there’s a lot of different ways to do these transactions and I hope that people can hear Rochelle through your communications that you’re an attorney that actually thinks a little bit outside the box and understands that there’s always two parties that are coming to the table and both have to be happy and satisfied in order to close a transaction. And you agree?

Rochelle: I absolutely agree and you know Joe one of the things that I’d like to talk to people about is, remember it is the Seller Account you’re selling and very often that’s what’s driving the value. But also keep in mind there may be other things you’re selling such as techniques or technology that you’ve invented to support your Seller Account that helps to drive the business to that account. Or possibly even your own know how and they may need you as part of the transition team. There may be issues with a non-compete especially if you’re running multiple brands and you’re selling one channel or one brand. So as you’re getting ready to sell your business you really have to think about what it is you’re selling. It’s the Seller Account, it’s the brand, what else is being sold and can you really sell the things that the buyer wants?

Joe: Yeah all of that should be done up front. What … the worst thing to do folks is to wake up and go okay I’m tired I want to sell my business so I’m going to call a broker.

Rochelle: Right.

Joe: That’s the worst thing that … the best thing to do is to do what Rochelle is talking about and plan it in advance. Think … okay, maybe someday I’m going to sell my business let me just sort of get my ducks in a row.

Rochelle: Right.

Joe: Maybe I never will and maybe I’ll pass it on to my kids but in the event, I get tired and want to move on I want to be prepared. And you want to think about all those things in advance and have those sort of all those ducks in a row.

Rochelle: Right.

Joe: In any contract negotiation let’s touch on this briefly, both buyers and sellers you see both sides of the transactions all the time. What other stomach ache clauses that you see in an asset purchase agreement and how do you rectify them? Give me a couple of examples.

Rochelle: So I can tell you the top two are always the non-compete and the indemnification provisions. Those are always numbers one and two sometimes you know in whichever order you want to put them in. But those are the two things that are almost always the most concerning. So the non-compete; the non-compete sounds easy. I agree I’m going to sell my business that sells paint brushes and I promise not to compete in paint brushes. Well, the buyer may be looking at it a little differently. The buyer may say, I don’t want you to compete in anything that has anything to do with paint or anything that has anything to do with art or possibly anything that has anything to do with home or other kinds of activities. Very often they’re going to look at Amazon categories and they’re going to say I don’t want you to compete in the category in which the product you sold is in. I’ve even had a buyer say I don’t want you to be a … will compete in any category on Amazon or in any category in which I, the buyer may be in now or in the future.

Joe: Definitely nuts because I would tell them they’re nuts.

Rochelle: Well, of course, we say as politely as we can. We don’t like to queer deals but those are always fight issues. And my suggestion although I know people don’t like to deal with difficult issues up front when you’re in the dating period but my suggestion is that you understand the non-compete from the start of the transaction and the LOI point.

Joe: Absolutely. We put all of that in our client interviews in depth, we ask about the non-compete, we talk to our sellers in detail about it because that is an important part of it from the seller’s side. Look if this … the person selling the business is selling class fishing poles and they want to sell that business but still sell fishing poles it’s too close and I’ll tell them right up front as will any broker at Quiet Light Brokerage it’s not going to work. Buyers are going to have a problem with that. I’ve never had a situation though I got to tell you, Rochelle, where a buyer has made an offer and said that we don’t want you to sell anything on Amazon. That’s simply too [inaudible 00:34:05.0]. I’ve never had anybody narrow it down to the category either because if you think about Home and Garden it’s just too broad. It’s usually been specific to the product and sometimes you know a little bit around that product. Let’s say that if it’s pick one that is not an actual-

Rochelle: We can talk about your fishing poles.

Joe: Sure.

Rochelle: Some people will say nothing in marine so does that mean I can’t sell a boat? A boat is really different than a fishing pole. Does that mean we can’t sell a [inaudible 00:34:38.9]?

Joe: Fishing tackle or things of that nature. I would say that it’s … you can you can dance beyond that specific product a little bit but you can’t go okay fishing pole and maybe lures but you can’t go to boats, right?

Rochelle: Right. And the reason I bring it up is I have had and I will tell you where it is the … a lot of the buyers today are private equity firms.

Joe: True.

Rochelle: And they’re doing roll ups, and those private equity firms feel like they’re buying the expertise of the person, not just the product and they are all over the idea that the expertise of the person could be used to teach or develop somebody else to sell against them. And as these private equity firms are rolling up multiple brands, multiple areas and their diversifying they have gotten very aggressive on this non-compete language. So we actually have seen … this may affect, I saw a language that was so broad that I said we absolutely can’t have our client sign it because she couldn’t even work at the makeup counter in Macy’s. Because Macy’s has an online site and even though she’d be working at the store it would be technically a violation.

Joe: Right.

Rochelle: And the private equity guy said to me well we didn’t mean that. I said well that’s your language says though. And he said I see where you’re coming from. We were able to bring it back and this is really where the skills of your lawyer and your broker come in. Because the combination of the two helps bring people back to reality but it’s important that conversation happens up front.

Joe: I couldn’t agree more. I find the vast majority of deals go off the rails at some point and the difference between a good lawyer and a good broker and a great lawyer and a great broker is pulling that back on the rails. I think the ability to have open communications and occasionally you know maybe I’m wrong I don’t mean to throw you in a category here but-

Rochelle: Yeah.

Joe: You know I think attorneys when they respond to an asset purchase agreement and do edits and send it directly via email and make comments. It’s vastly different than if they actually get-

Rochelle: Get on a phone.

Joe: When they get on a phone and speak to the other attorney, it’s-

Rochelle: Absolutely.

Joe: You guys are brutal in emails and comments but then when you get on the phone you can generally work things out.

Rochelle: So one of the challenges Joe is that really it’s more than there was but today there are very few lawyers who have experience in this kind of business.

Joe: Yup.

Rochelle: And the typical document we’re seeing has all sorts of stuff in it that makes no sense for an Amazon business. It’s got loads of employee representations on employee benefit plans, it has loads of pages on environmental reps and warranties because they’ve taken the standard ABA form or the standard form they always use and they send it and say this is our asset purchase agreement.

Joe: Right.

Rochelle: And people like … and I’ll use Shawn Hussain as a great example I do a lot of deals with them, people like us look at that and we just simply white out all those pages. So we start off with 75 pages when we’re done it’s about 35 and 40 of them were just garbage.

Joe: Let’s jump to the indemnification clause.

Rochelle: Yes.

Joe: Stomach ache clause number two, tell us about that one.

Rochelle: So indemnification, for people who don’t understand what it is, it’s the clause that says if something goes wrong after the sale here’s when and how I might be able not I the buyer may be entitled to get some money back. Or get some protection get some defense. So understood anything that happened in your business prior to the sale of the business is certainly the seller’s responsibility. Anything that happens in the business after the sale of the business is the buyer’s responsibility. But then there’s the foggy world; what about product that was produced by the seller but not sold until the buyer owns that inventory? What about claims made on the websites, claims made in the marketing materials, claims of natural or organic that the buyer is relying on that the seller created, or what about simple … the business didn’t do very well? You told me this business is a million dollar a month business but when the buyer takes it over the think tanks, the lightning deals go away. There’s all sorts of speculation, the supplier doesn’t supply quite as well to the buyer as the seller, and then the buyer comes in and says how do I get money back for this it’s not what I expected. It’s really really important that going into the deal you understand what the caps and limits are, what’s the maximum amount of money a buyer can get back and under what circumstances, and is there a deductible. So for instance fraud; okay everyone understands that if the seller committed fraud, the buyer is going to expect their money back and probably all of their money. At the same time let’s just assume that what really happened is that the seller had representation, some warranties and in it it said that the financial statements that are attached are true and correct and it turns out one line has one number transposed, it doesn’t change the business, it doesn’t change the quality of the business, it is an immaterial mistake, should the buyer get money back? Should they get all their money back for that? Should they get any money back for that? And so that’s what I would call a typical representation warranty. Let’s assume there was as a result of that mistake there really was a little bit of a material implication. Well, it will … let’s say turned into a $10,000 problem, so what should the buyer get for that $10,000 problem? The language and the representation warranties are very important. What we recommend is that going into the deal there be a very clear conversation about the difference between fraud which might mean you get your purchase price back or maybe even the right to unwind the transaction versus an unintentional misrepresentation or mistake or something hiccups that you didn’t anticipate. And we recommend that you have a clear cap, what’s the maximum amount that the buyer can get back in the event of those issues and it might be we … generally, we see somewhere between ten on the low side and 30% on the high side as the range; that’s today’s market, as the range for those kinds of indemnifications. We might see a basket, so we might see something that says but if it’s all under $25,000 or under $50,000 depending on the size of the deal the buyer gets nothing back. It’s just a small de minimus issue whereas if it’s hundreds of thousands of dollars of issue there might be a cap on it. There are fundamental representations such as title to the assets and if it turns out the seller sells you something it didn’t have title to it, of course, the buyer is going to expect to be completely reimbursed for that. There are questions about whether or not you’ll pay for the attorneys. These are provisions that both your broker understands and your attorneys understand. I strongly recommend that you line up an attorney at the beginning of the deal at the LOI for the base of this and you also line up an accountant who and as a seller.

Joe: Well in advance.

Rochelle: Well in advance.

Joe: Yeah for sure. I hope you have one already for those listening that are sellers you know the four pillars that Mark and I talked about; the risk, the growth, the transferability, and the documentation are all critical. And you can’t have that documentation in place without having a good a. bookkeeper and b. CPA to figure out what’s going to be and left with after the sale. That’s why I don’t want you to wake up and go okay I’m ready to sell, list my business, please.

Rochelle: Right.

Joe: You want to think about those things in advance. I did a podcast with Dave Bryant from EcomCrew way back on importing from China and Dave talks about how he planned in advance selling his business and renegotiated the cost of goods sold on certain skews over a 12 month period. Saved himself about $40,000 and got that back in a multiple of three when he sold the business so all of these things are really important. As you talk about the indemnification, and as you talk about the non-compete for those listening you know I’m sure some of you nodded off right? Just like you did when I talked about the doing the valuation in cash versus accrual accounting. You can make so much more money in the sale of your business someday if you ever decide to sell or your heirs do when you take care of these things in advance when you plan when you have proper documentation. Now all of that will make these stomach ache clauses like the indemnification, not an issue. Proper documentation in advance of the sale you’ll know that you did the right thing with your customers, you know that you don’t have any cash and potential liabilities; you know that your financials are correct. That transposing of the number you know is it material, is it immaterial?

Rochelle: Right.

Joe: I’ve never had it happen pretty small if it’s immaterial to material. I always go back to things can be worked out for the most part with math and logic. Emotion is the wild card, a good attorney a good a broker will help keep those emotions in check and on track to closing. And I think one of the reasons why I wanted you on the podcast Rochelle is because you seem to apply that math and logic into the conversations that we’ve had and you realize really really strongly that both buyers and sellers need to be happy.

Rochelle: Right.

Joe: Otherwise that transaction is not gonna close. There’s no point. A one sided deal is never going to close folks. So if you have an attorney that is fighting tooth and nail for indemnification clause it’s going to have the seller not cover anything, not cover any risk for the buyer, it’s not going to close. It has to be comfortable for both parties. I always tell a story, I’m not going to tell the full story but it boils down to I will not take on a clients that is married to an attorney that has an attorney’s her mother father sister brother that’s going to do their contract negotiations because they fight like rabid dogs for things that you know there’s one tenth of 1% of it happening but they fight like crazy to make sure that their client, their relative is fully protected. Because they’re gonna have to have drinks to that relative at the next 4^th of July barbecue. Deals fall apart for those clauses that we’ve talked about more the indemnification in my experience than the non-compete because again a good broker will handle that upfront and take care of it upfront and it should be both buyer and seller free LOI. Now one last thing on the LOI face in terms of when to hire the attorney Rochelle, our experience is the letter of intent is non-binding and fully contingent on the asset purchase agreements on due diligence and the further detail of asset purchase agreement so we don’t recommend that clients hire an attorney for the language in the letter of intent. Because it says right in there is non-binding and contingent on those things. I think as long as some of these points or all of these points are worked out in advance you know particularly the non-compete that it’s in there that 9.5 times out of 10 it’s not an issue. Occasionally we have a little further negotiation in the asset purchase agreement, would you agree though that you should be hired once the LOI is signed and for the asset purchase agreement negotiations?

Rochelle: Let me frame this a little differently.

Joe: Okay.

Rochelle: If you’re getting ready to sell your business you should have a lawyer lined up who’s taking a look at your business to make sure your ducks are in a row. Make sure if you have supply agreements that they are written signed enforceable supply agreements because if you’re planning on selling those supply agreements then they have to have assignable supply agreements. So what I always suggest is just like you have your accountant in your back pocket you ought to have an attorney that you work with that’s helped you think through your business. So I actually believe that you need to have a good business attorney lined up early on. Now having said that, 90% of my clients don’t even though that is my advice and I wish we would be there. Joe is exactly right we are very often hired after LOI or right as the LOI is being prepared. And the only catch we have with LOI is if you have an LOI that doesn’t address indemnification, it doesn’t have a cap in it, when we go to do the asset purchase agreement the attorney on the other side will say the letter of intent didn’t have a cap, the letter of intent said purchase price because it didn’t say anything else. So when you’re silent on those terms in the LOI you might have uphill battle. What you could do to protect yourself is to say a … indemnification with cap and basket to be agreed upon in the definitive document. So then you’ve at least left open the possibility that there’s a negotiation to still be had on that topic whereas if you simply leave it silent the buyer is going to say that … I know I’d say when I’m a buyer I’m going to say no no no no no there were it said indemnification there were no caps, there were no baskets.

Joe: Yeah, you’re going to say different things as the attorney for the buyer than you are for the seller.

Rochelle: Absolutely I’m very good at switching hat, as a matter of fact, I have represented clients who have been both buyers and sellers and they laugh about the fact that my tone changes and the way I look at the document changes. But we do what we have to do for our clients.

Joe: Yeah for those listening look like many of you had … you don’t want to contact a broker to talk about the valuation of the business or what it might be worth and I’ve had people tell me that because they don’t want to feel like they’re committing. You’ve got to do the same thing with the attorney, I think you should have a call with a broker a year two years in advance just to understand the valuation process and how to gauge what your discretionary earnings are on a monthly basis, quarterly basis, so you get an idea for the value instead of just listening to podcast, instead of just listening to people in mastermind groups and their experiences because the full story is never told. Instead of just looking at listings and oh that’s a 2.5 multiple, that’s a three multiple, it’s a four multiple, you don’t get the full story. You can’t do it that way. You should have a conversation and have it directly applied to your business and your business only because every business has its own unique qualities. The same applies I think as you’re saying Rochelle to having a conversation with an attorney in advance because if there’s a problem with the way that you set up your LLC or the trademark or a design or anything like that-

Rochelle: Right.

Joe: You should have those things addressed in advance. Well worth it. Do you do any … do you have an hourly charge for that first call? Do you have a free consultation? Do you just talk about business what it … how does it work if somebody wants to reach out to you and have that conversation?

Rochelle: Well we offer a 20 minute free consultation to all new clients. So we do it telephonically, most of our clients are not located. We’re based in Tampa Florida which is a lovely place to live and do business. Most of our clients are all over the world. So we do it telephonically or through Skype or some other online method and we offer … we say 20 minutes and sometimes it goes a little longer depending on how in-depth we get. And in that call, we can then talk to you about what you need and how to price what you need. So sometimes what you need immediately is really just a few hours of our time and consultation and we’ll bill it that way. Sometimes what you need is for us to dive in … as a firm we will do flat fees, we will do structured fees meaning that a certain price to cover the LOI and other price to cover due diligence a 3^rd price to cover the asset purchase agreement and actually do it in phases. We will do capped fees, it all depends on the nature of your transaction and on how well we can get our arms around what you’re asking us to do. So for instance, if we’re doing it capped fee or a flat fee we’re going to be very specific about the services you’re getting from us and things that are outside those services might be in addition. If we’re doing an hourly rate, of course, we’ll have some sort of retainer up front and we will be specific about what’s included in those services but you’ll be billed by the hour. We try very hard to be transparent and easy for our clients to understand what they’re being billed for and how they’re being billed.

Joe: Excellent. Rochelle listen we’re going to wrap it up here, appreciate your time today. Can you tell those listening how to reach you, how do they find you either online or via phone call?

Rochelle: Absolutely so by phone, our number is 813 999 0199 and I am in extension 115 if you press 0 when you call that number ask for Layla and she will set you up with me or one of our attorneys for an additional counsel. And by e-mail I am [email protected] And we have a policy of responding to people within 24 at the most 48 eight hours but we’re usually pretty good about popping right back to you and getting something set up.

Joe: Terrific we’ll make sure that that phone number the e-mail address and the website address are in the show notes as well.

Rochelle: Thank you.

Joe: Rochelle any last thoughts for those listening that may be either buyers or sellers that you want to share?

Rochelle: I just think in closing that when you think about buying or selling a business due diligence is the most important thing you can do. So even if you’re an experienced Amazon seller whether you’re a buyer or a seller you need to know who you’re doing business with. Get some … if you’re the buyer certainly understand the brand you’re buying and understand what you’re trying to accomplish by buying those brands, what services you need and frankly if you’re the seller and you might be taking back seller paper which is a promissory note a seller promissory note you’re going to want to know who the buyer is. Make sure you understand are they equipped to run a business like this and if they’re not what kind of transition services do you need to provide them so they can hit the ground running. Know what kind of people there are, check them out. If you’re dealing with people who are squirrelly get out of the deal in the … before you even sign the LOI. But if you’re dealing with good people try and figure out how to make them successful because your success as a seller especially if you’re taking back a seller’s promissory note or consulting agreement your success is going to be very much related to their success.

Joe: I love your approach you know if you’re … if you ever decide to leave the law business give us a call. You may be a very very very successful advisor here at Quiet Light Brokerage.

Rochelle: Thank you, Joe, I appreciate that and look forward to working with you again on some transactions.

Joe: All right. Well, thanks for being a guest I appreciate it. We’ll talk to you soon.

Rochelle: Thanks, Joe.

Links:

www.walklawfirm.com

Walk Law Firm, PA

The Wells Fargo Building

100 S. Ashley Dr., Ste. 620

Tamp. FL 33602

Phone: 813-999-0199

Fax: 813-839-4896

Is Buying an Amazon FBA Businesses a Good Investment?

A lot of buyers come to us and ask about the risk of buying an Amazon business. Likewise, when setting an Amazon business up to sell, what are some things...

A lot of buyers come to us and ask about the risk of buying an Amazon business. Likewise, when setting an Amazon business up to sell, what are some things to consider? Buying up businesses and creating a profitable portfolio is something that some very savvy buyers are going all-in on. Today we are talking about Amazon FBA with someone who has been doing just that. If Amazon is the past, present, and future of e-commerce and all the others are just playing catch where do YOU want to put your money as an online business owner?

Carlos Cashman, CEO and entrepreneur, has started over a dozen companies as well purchased, sold, and taken public many others. He is now CEO of Thrasio, an FBA business acquisition company. Thrasio has a wealth of experience purchasing businesses from all over the world. At Thrasio, the team guides the seller to a deal in record time backed by expert law, due diligence, and financial teams.

Episode Highlights:

Carlos’ take on the Amazon consolidation model.
The importance of sku concentration, consolidation, and product stability.
How many Amazon deals Carlos has made.
Whether he places weight on secondary metrics such as email marketing.
Where the efficiencies are in Thrasio’s portfolio.
Navigating a bad purchase and when to cut losses.
Cross-collateral investing and how Thrasio sets that up.
Why Amazon?
Some statistics that cannot bely the retail ecosystem that is Amazon.
If and how any business can compete, in the long term, with Amazon.
Product creation and innovation best practices to follow.
The importance of having representation when selling your business.

Transcription:

Joe: Mark, I have a lot of people that come to me and talk to me as either buyers and they say, Joe, what’s the risk of buying an Amazon business? And I talk—5, 6 years ago everyone thought the risk was really high but today there are people that are a lot smarter than you and me and you and me combined and maybe all of our team that have raised 10, 20, 30 million dollars to buy up Amazon businesses and build a portfolio. And I understand you had Carlos from Thras on the podcast talking about just that.

Mark: Thras.io; he’s very careful to approach to actually correct me on that at the beginning of the podcast and he tells me the meaning behind their name which is really cool. I’m going to save it for the podcast so people can listen to that. But yeah what I wanted to know so many buyers look at Amazon only businesses and they discount them for channel risk because they’re like do you really want to be on this one platform or competition and products could be sort of ubiquitous, competition can be really tough and your subject in mercy to the whims of Amazon. And so here we have Carlos putting together a fund and buying up a lot of these Amazon Asense and the question is you’re a smart guy, you’ve done a lot of business in the past and we’ve talked about how he had grown multiple businesses and sold them, so why is he going all-in on this platform and also why are people giving him money to go all-in on this platform; what’s the reasoning here to say this is where the future of e-commerce is. And so we talked a lot of statistics on this. We talked a lot about what is the future of Amazon. And here’s a spoiler alert Amazon’s going all-in on FBA. It’s one of their 3 biggest platforms, it’s one of the 3 legs to their stool that they have with their aid of US being one and their sellers—their 3rd party services being one of the largest profit centers that they have. In addition, when you take a look at where do they stand in the marketplace, it’s staggering. Everybody knows that they’re huge. They’re 49% of online e-commerce sales. When you look at this in terms of total retail sales; total retail sales make up about roughly 10% of all—e-commerce makes up about 10% of all retail sales. Amazon makes up about half of that. So what do we do here? What are we going to do? Okay, online sales is only 10% which means it’s going to grow. Amazon is already half of that online marketplace. What’s the future here? Well, the future is Amazon is trying to become the e-commerce internet. They’re trying to become the de facto way of ordering products online and everybody else is playing catch up right now. And so they are betting and saying we get it. We know that Amazon growth is going to continue. We know it’s going to continue at a rapid pace for a long time; there’s lots of room to grow, and yeah there are competitors and we talked about this. We talked about; Shopify just announced recently that they’re investing one billion dollars in their Shopify fulfillment network which is great news and he was ecstatic to hear that. He’s like competition like this is good. But the fact is Shopify is playing catch up, Target is playing catch up, Walmart is playing catch up, and they’re not there yet at all. They’re more difficult to work with than Amazon. They don’t have the same draw. And so it made me rethink this if we’re looking at where do you want to put your money as a business owner.

Joe: That’s it right there the multiples are going up on Amazon businesses tomorrow guys; that’s it.

Mark: It’s more sure of investment than maybe we’ve thought about in the past. It was; you know what? We talked to some of these guys that are doing this professionally that are on the Amazon space only; fascinating conversation. I enjoyed it thoroughly to talk to somebody who’s doing this and sees things from maybe a different angle than what most buyers think about.

Joe: Well I think it’s great because probably half the audience here is made up of buyers as well and they ask that question all the time; should I buy an Amazon business? And we know that I say we’re going to raise the multiple on Amazon businesses, we actually don’t as we always say determine the multiple. The buyers do because we do our best based upon historic numbers and then we get the feedback from the buyers. If we’re wrong they let us know by driving the multiple down or driving it up in some cases. Year to date; this is end of June that we’re recording this year to date I’ve seen the multiples on Amazon businesses at levels that I had never seen it in the past. So I think that the buyer pool is getting much more confidence in the Amazon channel. I think that that one channel risk is if you’re focused on adding new Asense in growing the business worldwide on other Amazon platforms in countries the risk is diminished a little bit. Historically we’ve seen multichannel businesses sell for 10 to 20% more than single-channel Amazon businesses but I do think that’s creeping up a little bit and catching up a little bit. So it will be really interesting to hear what Carlos has to say. He’s a super nice guy. One quick aside I had Amazon businesses that I had for sale and Carlos had to call them, the guy loved him and they both happened to be traveling to Singapore at separate times. They actually got together and had coffee and dinner with their families just because they had met on a phone call. So Carlos is a super nice guy, very, very good at what he does, and obviously an expert on the Amazon site. So I’m looking forward to listening to this one myself.

Carlos: Oh that was all good stuff.

Mark: Yeah it was all the good stuff you see that’s the thing, we always record the good stuff before I hit record. And I’m actually going to enter with that. Carlos, thank you for coming on the show.

Carlos: Cool. I’m glad to be here man.

Mark: Yeah so tell us who you are. I know who you are but tell everybody else who you are.

Carlos: Yeah everybody come look at LinkedIn, they usually do. But I’m a serial entrepreneur. I’ve started—it depends on how you count them size or whatever but you know over a dozen companies. I was thinking about this in a way because people are like wow, tell us about that. I started I think it’s about 6 to 8 I got to figure out better multi-million dollar companies. I’ve taken company public, I sold them, I bought them, I’ve sold several for 9 figures, dealt with some amazing people along the way and it’s always been tech-related. So software, advertising, some services related to that stuff and e-commerce stuff. So I’ve got a lot of miles on the road that way.

Mark: Yeah no it sounds like the profile for any of our brokers. So if this whole Thras.io thing doesn’t work out for you let me know. So you’re the CEO of Thras.io.

Carlos: I know we have the worst name in the world but let’s just make it clear for everybody; Thras.io.

Mark: Thras.io, I’m sorry. It’s good that I know that now because I’ve been saying Thras.io; so Thras.io, okay.

Carlos: So it’s based on the review of your site, it’s based on the greek word thrasos which means boldness or confidence but it was actually an Amazon warrior queen hence the kind of Amazon connection.

Mark: That’s pretty cool. See I learned something. This is awesome. I love this. I love the name now.

Carlos: Josh came up with the name in just a second and I’m co-CEO and co-founder with my partner Josh Silberstein. And yeah he just came up with it and yeah I don’t like to spend too much time naming companies even though I’ve done that professionally before so we just went with it.

Mark: So it was an Amazon goddess, is that what you said?

Carlos: It was an Amazon queen. So we actually had a whole lot of sub-companies for our Amazon warrior queen. I mean like things that do different parts of what we do in the ecosystem. It’s got to stay with that theme or words.

Mark: I got to ask now I mean is Josh like some Amazon queen ruler aficionado and connoisseur?

Carlos: We’re both aficionados of mythology and things like that but it just made sense getting into Amazon that we would do something like that.

Mark: I like it. I mean I like names of businesses that have secondary and deeper meanings and now I’ve got something if I’m really bored I’m going to go out and procrastinate by researching Amazon queens.

Carlos: There are a lot of them and their names can be very difficult to spell which is kind of a mess when we’re trying to do with legal documentation and stuff but it’s fun.

Mark: That’s really cool. Alright, so I had a few companies that I would say is in a similar vein to what Thras.io does and that is this idea of consolidating multiple Amazon businesses under one roof. That said everybody’s got a little bit of a different twist on it. So I would love to get your twist on this Amazon consolidation that you guys are doing in trying to acquire companies and anything that you’re able to share as well. Like I mean how many acquisitions have you done and how long have you guys been in business so far doing this would be really interesting and if there’s something that—alright I’m not going to tell everybody this then don’t worry we’ll just say it and only the 3 people that listen to the podcast will know.

Carlos: Alright so I hope you’re calculating right—I’ve been listening to this for a while now. So I hope you’re keeping track of these questions because I’m not taking notes. You just asked me about four questions right there so let me try to take them in any order that I kind of remember them. In terms of do, we have a particular twist on the market; now I don’t think we do necessarily. I mean I heard Richard when you had him on here with 101 Commerce I mean that’s—the idea is fairly simple. I think people get it. In terms of—I think what they see in this Mark is you know when you mention other people like there’s someone who has built a great home goods business and now they want to expand and so looking for other home goods products to roll into that, right? We are really kind of vertical agnostics. So we’re only looking on that from that point of view. We would just believe in the ecosystem overall, we believe in the fundamental transformation that Amazon has brought on the way we do commerce and particularly e-commerce, and we just see an overall appearance. We’re looking for just great business. I mean look we want great products and now some people have top ranking, great ratings, and good number of reviews; all that stuff. That’s really what we’re looking for but as far as what it is, it could be all over the board really. Again the most important thing is that they’ve built a quality product. And it really comes down to the Asense; the Amazon listing itself; the product, the SKU, whatever you want to call that. So that’s really what we’re most focused on is we look at our business as a portfolio of those. So any business may have a handful of them and I know a lot of people in this marketplace some of the acquires in this place market space or tend to be still I mean you’ve probably seen a lot, you know, people looking for a single business, right? So yeah with the executive leaving some big company taking an SBA loan whatever we could talk through all that stuff later but for that person they’re concerned with customs to concentration and rightfully so. It’s going to be their one business wonders and they take out a big loan for it. It’s actually kind of the opposite for us. So as far as our interest we are interested in the more concentrated your SKU’s are the better because it’s less for us to take on and manage the whole thing. And we’re not concerned about the individual performance of that one because we’ve got hundreds and hundreds and hundreds of others. But I mean we are concerned about in terms of how it does but it’s not going to sink us or make us by the performance of anyone SKU we acquired in one time. So that’s kind of how we—that kind of answers how we look at the business and again we’re not looking for fad products either just something clear to say. So if you got fidget spinners we’re not interested in that. Those are hot for a year. My son has a dozen of them sitting all over his room and he’s never going to spin them again. So we don’t want things like that. And so we want stuff that is really stable in terms of its demand.

Mark: Yeah, I’m just going to put a note to everybody that’s given up fidget spinners for swag, thank you for making my room, my kid’s rooms just filled with stuff that’s lying around because you’re absolutely right and you know I will disagree with you on something here. You said that you guys really—you’re not sure if you really having any expend but this idea that you guys have of looking at Amazon businesses not so much in terms of the business side of it but you’re looking more at the Asense and trying to evaluate individual Asense and the strengths of those relative to everything else that’s really what you’re looking at. That is a unique way of approaching the marketplace and it allows you to look at something that has SKU concentration or a unicorn product and we do see that from a lot of buyers with a business that has a unicorn product kind of thinking I don’t know if I want to bet 2 million dollars on this is unicorn product here and you guys are saying well no we’ve got a lot of products like that so that’s a twist.

Carlos: Oh that’s good to know. I mean alright so we do have a slight twist on it.

Mark: So how many deals if you’re able to share even broadly how many deals do you think you guys have done so far?

Carlos: I’m going to be a little cooler here about some of these things. But we’ve done dozens of deals so not high but we’re moving quickly and that number is increasing over time.

Mark: Yeah.

Carlos: So it’s been exciting for us and then going back to the ego of the SKU concentration question, I just wanted to add something. You guys are talking about like because there’s a lot of interesting; Amazon sellers [inaudible 00:13:56.7] you get this real business straight where they’ve used these products out there, viral launch or fellows got a [inaudible 00:14:02.6] and they found four different holes in the market so they’re selling pot holders and humidifiers and some sort of potted plant for the fruit product you know great different [inaudible 00:14:13.5] and I got 4 of them. And you know to somebody external coming in looking at that would go sheesh they’re all over the place. They’re not just sporting goods and that’s crazy. But we get it. We get that that’s how Amazon works and what matters is the listing and it’s position relative to its competitors in the keyword space, right? And that’s what we look at and we care about. So it’s usually like in that sense also that business is attractive to us because it’s again concentrated even if it’s in strange different products. We don’t have to have like this suite of products around like I said one vertical where you’re building a brand into it. Again that’s an interesting point to discuss is the position of brand in the Amazon marketplace because let’s face it were all talking about FBA businesses here and frankly most people who buy these things; I see a product in the wild all the time and I love it. You go to a friend’s house and they’ve got one of your products sitting there. Like oh, it’s great but where did you get it? Well, do they say the little brand that we happen to buy? No, they say Amazon, right? They got it on Amazon. They got it from Amazon, if they had a problem they would drive it to Amazon. We’re at a place right now where we’re still; we’re all sitting on the coattails of Amazon; the brand halo that Amazon provides. So we recognize that and we’re going to be very clear about that and how we look at the products and the ecosystem.

Mark: So do guys place much weight at all on a business building a brand or even building customers outside of Amazon such as email list and being able to drive that to products and new products or is that kind of a secondary metric that you look at?

Carlos: It’s a secondary metric. I won’t say we don’t look at it, we certainly do and there is some value there but it is dwarfed by the value presented by the Amazon ecosystem. And so we care 1st and foremost about how you are positioned on Amazon. But of course it’s nice to have someone that you know the e-mails and people that love your product or you know if you do because what happens now is oftentimes we will have or we’ll acquire a product that is in the same space but we have 5 more. And so that becomes what we start to now as a business uniquely perhaps accrue some value from things like that. Because if you have that email list of 40,000 chefs or something; people who love cooking and I have 4 other cooking products now I can cross-promote our stuff right through there. So it does start to have some value the longer we go out there. I think that value will increase the more we do this but right now we’re still pulling stuff in all sorts of different spaces. They don’t always overlap and it’s something we look at but it certainly is a secondary metric.

Mark: When I look at companies like yours not just specifically within the Amazon space and I want to talk about that in little bit here but when I look at companies like yours that are consolidating businesses and millions of them the portfolio the approach is typically to find efficiencies in combining things together. So if you’re looking at a content network of websites so completely divorced from the Amazon world what you have usually is a staple of writers, editors, and an editorial process that can turn out new content to be able to build up a network that way. So bringing a new content site isn’t as labor-intensive you have this natural efficiency. E-commerce stores in the past what I’ve seen have been logistic efficiencies. You’re able to have maybe the same warehouse staff fulfill more products. When you guys are doing what you’re doing and again I think it blends itself maybe to this Asense approach I think from my evaluation; I’d love to get your comments on this, it seems like you’re doing this for 2 reasons. One I would imagine efficiencies which I’d love to know where those are but also a portfolio sort of approach to things and that you’re spreading out over lots of different Asense niche vertical agnostic as you say but it’s more of let’s not bid on one winner let’s bet on a lot of winners potentially. But I’d love to get into 1st of all have you confirm that and then get into are you doing this also for efficiencies within your company that you can run these businesses may be more efficiently and if so where are those?

Carlos: So that’s a great point and something worth to think about. So I’ve done your traditional rollups before. We sold the company in the late ‘90s to a company called US Web; a lot of people may—you probably remember a national brand of webshops doing person websites and stuff. But you know the traditional kind of rollup looks more for the—like those efficiencies are more important there because it’s all about pulling costs down, right? If you go acquire a 100 30 person companies and each one of those 30 person companies has inside person finance team or a 3 person finance team whatever and 3 salespeople I am sure you don’t need all those, right? You need 3 finance people for all 100 of them or maybe 6 but still not a linear scale. So that kind of efficiency is certainly more important in a traditional rollup. Like you said rolling up content on websites that would be important there also because you have editors and writers and HTML people and designers and that can be where there can be leverage across more stuff certainly if you template size that. It’s less of a big deal in this Amazon ecosystem. And what some reasoning about what Amazon has down here in creating all these millions of solopreneurs is they’ve taken not just Amazon also it’s all the supply chain companies, it’s the manufacturers. They’ve simplified this interaction so much that you can get a single person running a 5 million dollar business which is unheard of in history. It’s incredible. So it’s taken out a lot of the complexity. Now, most of the time when you get to that scale you’ve got a couple of assistants; part-time assistants, VA’s, someone like that so it could be drive efficiencies there. Yeah, we certainly can if they’re good but it’s more about being able to improve the performance than it is a simple efficiency. So [inaudible 00:19:54.9] a lot of these, we meet a lot of great sellers who I just love them. Like classic entrepreneurs that dropped out of college or I just got out of college and started selling on Amazon and I travel the world and living the life and they built great products and they just hustle. And they’re smart. That’s great but when it comes to global sourcing and your supply chain I mean from all over the world and getting into different places in Amazon you’re not going to be as good at it as the team that I have here. I’ve got a leader here who ran a 2 billion dollar supply chain in 140 countries for one of the largest shipping companies in the world. And we have a whole team of people under this on the side doing this work. And so we can do it better and more efficiently. We can negotiate better. We can do both on the shipping side and the manufacturing side with volume discounts. So we can do that better and we, therefore, carve out more profit from these products. I mean I’d look at it from creative; we’re doing stuff across hundreds of products in all sorts of different areas. We know things that are working that are very likely work what the impact is and what is it and we are—I can afford to have photographers on staff if I want to because I don’t have to try a different outsource for all this stuff all the time. Let’s say advertising and marketing that’s another key place where it’s not necessarily about the efficiency of having less people doing it for more things. It’s really about the knowledge. I’ve come from a performance marketing background. I sold 2 companies with our Google performance marketing company and a Facebook performance marketing company that were top of the line but we did. I’ve got a team here that is 2nd to none in understanding performance marketing and driving traffic from all these various sources. And Amazon is just another PPC marketplace so should we be able to do better than the individual seller who did a good job with their business? Yeah, we should. So I see it as efficiency in deploying new resources for new revenue; resources to improve the performance of the products where they are. It’s not like a cost efficiency, right?

Mark: Sure. Now that makes complete sense. I want to ask; you know one of the problems I have seen companies run into when they’re consolidating either businesses or in your case Asense but I would still consider them businesses to some extent but be the consummate of Peter robbing Paul. You buy a dog and it starts draining the resources of the companies. What have you guys done to protect yourself against that? When you do multiple acquisitions you’re going to buy a bad one at some point. It’s just going to happen. So what have you guys done to help protect yourself against draining the resources of the company? When do you pull the plug?

Carlos: You know it’s not even so that you buy a bad one in this ecosystem; it’s that you bought one that has bad competitors; but screw with that, right? I mean Amazon sellers know what I’m talking about very well. I mean the wrong complaint even if it’s fake even if it’s not correct put into Amazon can shut you down or slow you down or cause problems. So yeah look I mean we have to know the difference between a problem like that that we’re going to fix versus someone like you said just a bad egg or we’re going to pull the plug. I think we’ve done this a lot. My partner Josh and I both started a bit part of a number of startups, started companies ourselves. He’s one of the most creative and experienced financial dealmakers I’ve ever seen. He’s done more debt deals and equity deals than anybody. I think we look at those dispassionately with—I mean I think that’s the key, think about capital allocation which is really what we’re doing and you can go listen to a podcast about that all day, there’s some great ones. You’ve got to know when to cut your losses and do it fast. That’s the key. And we don’t get emotional about it. That’s hard to the seller who builds their family of 20 products and each one is kind of—this business is their baby and each one of those is another baby of theirs and they may be getting chilled on the [inaudible 00:23:47.8] or something or letter openers but they love it and they think they can get back to it and they’re going to hold on to it longer than they should. We don’t have that. We have no baggage on it. If the letter opener just sucks then we’ll cut it off. So quite often if we buy a business that has a lot of SKU without the SKU concentration we like, we’ll look at it and we’ll cut the losers day one. I mean we’re not even going to pay for them if we’re not making money on it. In some cases we will actually—sometimes it’s underperforming ones and the seller may want to keep them and keep working at them. We have actually—we’ll buy individuals SKUs or separate SKUs from somebody so our Asense—I think everybody knows [inaudible 00:24:21.5] Asense it but more people have SKUs and SKUs are so. I think it’s just a question. You just have to be dispassionate about it and have a financial mindset towards it. And you know look sometimes it’s worth setting because you know you can get back but sometimes you cant.

Mark: I mean you may not have emotions related to some of these products but you do have investors within your company, right? I mean how much has that play into it as far as not wanting to pick that losing SKU or an SKU with bad competitors as you put it?

Carlos: It doesn’t. I mean we have great investors but they’re not that involved in the business for the looking at individual deals we’re doing. We cross call there early on a decision we made that was really—I think really important. And that was the only way we’re going to do it was we cross collateralize investors across everything we do. So there are some people who look to this market by saying hey I’m going to do an SPV and acquire this—

Mark: What is SPV?

Carlos: Social Partners Vehicle. So you can raise money in a single; it’s almost like separate companies and then they’re all related in some point in the future [inaudible 00:25:22.7] together and rationalize based on revenue and EBIDTA or whatever it is. But then we have a different set of investors and that ends up; that’s a really bad idea because then you have your intent and what you want to do can be across purposes, right? At this group of investors over here their product is going down and I shouldn’t focus on it anymore but this group over here the product is doing great and if I put more effort there I’m going to make a lot more money. The right thing for me and for the business is the focus where I need to and approve there but if you’ve done your financing that way then you’re kind of shackled. That’s what we did not do. We were not going to do that. It just doesn’t make any sense. So it was important to talk about cross collateralizing across everything and say look everyone we buy that was into this and you all are part of this. So that allows us to have that broader focus.

Mark: Why Amazon? I mean there’s a lot of different rollup place within the online space and you’ve got a really remarkable resume with tech companies. You could have gone for ad networks, you could have gone for content sites, you could’ve done any number of things as in the video—

Carlos: The advertising space.

Mark: Alright so maybe not that; bad example. But why choose Amazon?

Carlos: It’s funny. This started actually as an e-commerce rollup. So you go back to it because maybe I [inaudible 00:26:39.0] why Amazon is probably one of the reasons you said why we were kind of coy about talking about what we’re doing for a while and now we are talking about it. We discovered this and it looks super easy. It’s not as easy as we thought but it never is. So we originally were going to do e-commerce like my Facebook Advertising company Orion CKB, we were all performance marketing which is not [inaudible 00:26:59.0] you know change names again but a fantastic group but we were very, very good at performance marketing on Facebook and so all of our customers were either e-commerce or lead gen but people who made money from what we did. And so we started looking at that and saying hey e-commerce companies are getting smaller and smaller and they’re able to produce more value and this whole supply chain kind of thing is figured out maybe there’s an opportunity to go out and rollup the small ones and take what we know how to do which is all the performance marketing which ultimately was adding value to these businesses more so than the other piece of it and we could create additional value by putting them together. So we were doing and looking at e-commerce and when you do that you start to look at Amazon as a channel obviously. So we thought Amazon would be a channel for our e-commerce play. I just started looking into it and started meeting people in the ecosystem and at the same time my e-commerce customers at my Facebook advertising agency were asking us like you guys are good at Facebook can you run our Amazon ads for us because we’re not doing well there. So we started really looking into that. Once we looked into the Amazon ecosystem it was really—it was amazing. I mean to me to see the leverage that you’ve got. We all pay for it certainly to Amazon but like it’s the green traffic; that’s a sure thing. You’re paying for it but anyone who is looking for product that you’ve got to build [inaudible 00:28:13.6] you’ll get it. Or you can have great product and you don’t have the right team driving traffic to you on Facebook and Google and no one is going to know about it. You’re not going to get it. You’re not going to get it to [inaudible 00:28:22.8]. So we just started to see that the Amazon ecosystem was really, really much more powerful and we think the deals were better and the opportunity to move here was quicker and to find these companies and then I think we—I would rather be lucky than good any day Mark but I think we just hit the right time when we sort of started looking at this and there were more and more businesses. We really just kind of went out to sites like yours and looked around to see what was on the internet available and we started to see these Amazon businesses and we said let’s give it a try. Let’s nab a couple of these. Then we really all started to gel from that.

Mark: So many Amazon sellers look at Amazon obviously with big eyes of opportunity but also wary eyes of distrust for what Amazon is going to do. And frankly for some people that have been selling on Amazon; let’s talk about Amazon vendor central you know maybe that’s been justified. Amazon as of the time we’re recording this podcast well it was about a month ago they sent basically non-renewal just to so many vendors that saying we’re not going to be buying any more products from you and poof those businesses are basically gone; not entirely but very, very damaged. How do you get over the suspicion of Amazon bad or evil I don’t trust them but I’ll make money from them?

Carlos: We get asked this a lot and I’ve dealt with these behemoths. That’s all I’ve done for the last like 10 plus years 12 years. So Google I thought; I have an SEO company I’ve been doing SEO for a long time there we did Google PPC the company we grew here before we sold to the post companies like Facebook and Facebook Advertising company. I’ve dealt with these you know the fangs whatever these giant companies that seem kind of harmless in a move without caring and you can try to read the [inaudible 00:30:07.7] in what they’re doing but I think the most important thing—I have longevity in all those places by doing a couple of simple things. Like by following the rules, being a good actor in the ecosystem, and understanding what they’re looking for. And frankly this vendor central change; it’s tough for a lot of those guys and you can go back to 2002 and start reading Jeff Bezos’ shareholder letters and these telegraph—not telegraph I mean just really writing down in words this is what we’re going to do, this is where we are. People asked if he was a competitor of Barnes and Noble back in ‘99 and 2000 and he said no. He’s always had a vision for building a platform and a marketplace. He said they sell books. We’re a marketplace. They needed to be the 1^st party seller to be the whole vendor central platform to get it to the scale and size that they want to be. He’s been writing about the marketplace since then and there are some great quotes about—he talks about the businesses they get married to that are great. They try a lot of stuff. And third party seller marketplace is one of them. It’s that, AWS, and product. Those are the 3 pillars of their business. So think if you think about that, they’re not going to destroy one of the pillars of their business. And then if you get into their numbers outsized portion of their profits is driven by—actually all of their profit is driven by these 3 businesses. And we all know that AWS provides an enormous part of profit for them and the marketplace they don’t want it all breaking out independently. You can kind of read between the lines there and see its producing profit; a lot. And that’s where these decisions are gotten from. And again profit is not always his goal that’s why he’s moved so much inventory and product over the years. But again I think it’s been telegraphed there. So I really think that Amazon’s positioning in this space is to be the marketplace to do what they’ve done. They say they have 500 million things or items for sale on Amazon. They didn’t get there by having a sourcing team like Walmart does you know going out and sourcing individual products. You got to have a 20 million person sourcing team. They have 6 million person—there’s 6 million accounts on seller central. We all know that a lot of people have double ones whatever the Chinese companies do different things but there was probably a couple of million sellers there for real make any kind of money. And they are doing all of that for them. So I just think if you look at the business it’s clear what Amazon is all about and where they’re going and from that standpoint [inaudible 00:32:28.5] after the ecosystem and you’d be in good shape.

Mark: Yeah I’ve quoted the actual number here and I don’t do show prep but I actually prepped a little bit for this here and looked at some Amazon statistics 229 billion dollars in 3rd party services and then in 2018, 1 million new sellers joined their reseller services. About 3,000 people per day. Now again probably some duplicate accounts and there’s probably some even 3rd or 4th accounts in there.

Carlos: 6 accounts yeah. There’s a lot of real; I mean they’ve released the numbers. There’s 200,000 sellers that make 6 figures and up, 100,000 a year and up US dollars. I mean there’s 2 million who have made any money I think as the states or you know the 50,000 might be a lot of money to somebody I’m just saying in a year, right? So I think there are 50,000 sellers that do half a million a year and up someone like that. So that’s a city man.

Mark: Yeah, I know absolutely, in fact, one of these statistics was if Amazon was a country they would be 140th largest country in the world something like that in terms of gross domestic product; absolutely amazing statistics. I tend to agree with you in the past I’ve been pretty publicly bearish on Amazon because I felt like it was a gold rush. However, seeing where they’re going and you are ahead of the curve on this reading what Bezos was saying that they wanted to be a marketplace and they want to be that de facto ecosystem of the internet where people buy stuff. Alright, they want—when you think I’m going to buy something online, they don’t want to think about any other solution other than I’m going to buy it through Alexa or through the Internet or through my app or whatever because that just works and that’s where all the products are. So I agree I think they’re going all-in on that. I don’t think it’s much of a mystery and so because of that, I think 3rd party sellers are actually really well positioned especially right now because it’s still relatively immature but I have to ask you about competitors. Shopify recently announced that they are going to spend over a billion dollars on the Shopify fulfillment network which is going to be able to power all of their sellers with customized packaging and full-on fulfillment services. Obviously, Target and Walmart are offering free today shipping without having the Amazon Prime subscription. You said you don’t want to read the tea leaves but I’m going to ask you to read the tea leaves. Let’s talk a little bit about the future here with some of these competitors. Do they even stand a chance and are we going to see a consolidation of the marketplace or do companies like Thas.io—I’m going to get this right, need to have more of a multi-channel approach?

Carlos: I think that Shopify announcement was awesome. I love that. I think it’s a brilliant idea and I hope it works. I mean we would love to have more channels. And we sell in other channels I mean in small amounts. It’s really for us it’s a question of focus; I’ve started a lot of companies and you know the platitudes and stuff about it you’ve got to focus strategy and saying no. If we have lived through that a bunch of times you don’t really get it. It’s like you don’t always have to feel if the oven is hot to understand that we can have someone tell us. But it really is about having that—the focus is about saying hey look this is what we do, we do really well right now, let’s perfect this and then let’s worry about other things. If that thing is big enough and takes enough of your time that’s worth doing so there’s a lot of complexity in the Amazon ecosystem alone with some of it like I expected it’s been more than I thought I expected it’s been crazier and surprising but there’s just some stuff in there that’s even surprised me. The competition is quite [inaudible 00:36:11.1] stuff on there. But we fully intend to look at other channels and well I mean we are exploring. As I said we have some small alternate channel sales already. We’re looking at retail. I mean let’s face it as large as Amazon gets that I think retail is over 10 trillion [inaudible 00:36:26.7] or something like that and 90% of it is still transacted offline. I mean people are still buying a lot of stuff in stores so you’d be crazy not to be looking at that as a channel. So it’s really a question time for us of when. So where we’ve been at this less than a year really, around a year, so that’s a lot to do in a year where we’re both acquiring all these products but then having to operate them and having to worry about improving them at the same time we’re building the company. We’re building the teams and the systems that allow us to do this and the processes and procedures. So it’s really just a question of looking at that way and that’s kind of just traditional kind of start-up thinking and how you go about this stuff. But I do think that whether they succeed enormously or not; Shopify, they have a good chance of succeeding with this. It’s always just a question of what portion of revenue it accounts for. I mean we looked at a lot of these businesses that say they’re going to start to sell on Walmart and stuff. We’ve seen people that are selling on Walmart and have been doing it for a while and it’s 5% of their sales on Amazon, 10% of their sales and I’m like Amazon is so dominant when you talk about sort of pruning like how do we deal—what do we do the bad product. Well to an extent like if I can focus on that 90% of revenue that’s on Amazon and do better with it I’m going to make more than my trying this hack out a little bit more on Walmart which is a more difficult to work with ecosystem right now. So I think those guys are going to have to up their game. I mean for everything I hear they’re not as easy to work with and let’s forget all the other channels beyond that. Shopify I imagine will do a good job of that. I mean they understand user interface. They understand simplicity as well better than anybody. So I’m excited to see what they do. But let’s face it so I’ve been throwing around the statistics, some like 50%, 56% of product searches start on Amazon now. From all the products ranks and more than all the search engines combined including Google. But I just saw a new figure that among millennials and below it’s like 76% chronic searches are starting on Amazon. Come on it is [inaudible 00:38:26.8] great when you’re looking for something and you want to toothbrush you just pull up Amazon now and you go and you get it. It shows up at your door anywhere from 2 hours depending on where you are to 2 days, right? Or even 3 whatever but you don’t have to think about it anymore. So I think that dynamic is just going to continue to play itself out. I don’t think of Amazon as this company so to speak anymore really. It’s a commerce internet. And so you’re telling me you have channel risk, it’s like telling me I have channel risk because I’m on the internet. People told me that and you probably too like 15 years ago [inaudible 00:38:58.1] problem that you’re only selling yourself on the internet. I was like, okay, next [inaudible 00:39:02.6] person, right? And so from that perspective, I hope these other things are successful. I hope Shopify makes a go of it. We will certainly be in all these channels over time but right now Amazon is a great place to focus your efforts to drive value.

Mark: Yeah to your point about 90% of all retail sales are still happening offline and validated by the statistical research I was doing before this that Amazon accounts for 5% of all retail sales. So what does that mean? That means that the 5% of this highly fragmented online sales happening and that’s been fragmented by Walmart, Target, and other big box stores that have gone online but then also the millions of onesie twosie sort of sellers online that are playing in 100 to $500,000 of revenue per year and there’s a lot of those little businesses out there doing just that. So I think your point is right. Right now in the marketplace where we’re at Amazon is dominant. Amazon is the new Google as for just e-commerce transactions online. So then that leads us to the question of how do you compete on Amazon? What are the most and this is going to round out our conversation, we’re almost coming to the time here but how do you compete in the long term? The one criticism I hear about Amazon is look it’s a marketplace so products tend to be somewhat ubiquitous and you kind of get into a race on the bottom because the only way to differentiate yourself in many ways is on price. You don’t have better customer service because that’s been equalized by Amazon. So you can differentiate on product or on price and where do you see the best way to set up a defensible long term position?

Carlos: So 1st I would say that I slightly disagree in a way customer service is handled by the companies themselves. Like how quickly you respond to queries, what you do if something has a problem, grand Amazon is kind of front line there but there’s a lot you can do in that space. Yeah I mean look overall people don’t always buy the cheapest product. Heck I know I don’t. Maybe it’s dumb but I’m the guy who goes to the page and I’m looking for a 2 grand [inaudible 00:41:15.4]. I don’t just buy the cheapest one on the page. Some people do but I got to look for someone and someone I got to go researching, I look for quality. I mean it really comes back to what I was saying earlier like about playing with these giants these ecosystems is being a good actor in the ecosystem. Now people used to ask me about Google SEO like how do you guys do this? I’ve been running SEO properties for 10 plus years now through every Google change with penguin, panda, whatever animal name you want to bring up. They change multiple times a month and people will say what’s your secret, how do you keep doing that? And my secret was I said those pages on Google, those site where they explain to you what to do for SEO. And that’s what we do. We follow their rules. There’s a lot of rules and we follow them all and we do a good job of that. Amazon says here’s how to play, here’s what to do, have a great product and make sure you’re treating customers well and you’re responding well. If your ratings are going down is it a problem with your product or how you deal with that right. So I mean I may sound silly hear [inaudible 00:42:18.2] but like the reality is make a great product, service the customer—where you can do customer service do a good job of it and be a good actor in this ecosystem. With that being said there is an element of Amazon that is cheap [inaudible 00:42:33.2] race to the bottom and you’ve got to think about how you differentiate yourself. I mean look if your supply chain is more efficient and you’re better off than going to the bottom you’ll win that battle and you’ll sell a lot. I think you’re going to start to see some branding differentiation over time. Right now as I said earlier we kind of discount that because everyone feels like they’re buying from Amazon and this is just the evolution of marketplace as I think a little bit. But if you’re in a category where you know tennis shoes or something someone is going to buy a Nike or Adidas or whatever they like. You got to think about some categories that will matter some it won’t. I mean if you’re buying a letter opener you don’t really care if it’s a Nike letter opener. Not really, right? So you have to be able to play by the other things I’m saying. Just be a good actor, have a great product, and make sure your supply chain is tight. I think for individual sellers looking at this marketplace, certainly new ones, I mean it’s just tough to get into now. I mean that certainly is an issue because it’s really just blown up in the last 5 years; 4, 5 years. And so there’s people in almost every space crowding it out. But I don’t want to—again it’s a price differentiation already. We’ve actually seen products, deals, and you may have heard some of these said once or kind of funny like where they raised the price every week for like 6 months and kept selling more. There’s counterintuitive examples of all these stuff and there’s reasons people do things when they’re buying and shopping and you don’t necessarily know all of them but it’s not necessarily just one [inaudible 00:44:13.2] press.

Mark: Yeah, I agree I mean I obviously look at a lot of Amazon businesses and more and more I’m seeing the ones that are consistently growing over the years are the ones that never really actually compete on price, to begin with. They’ve looked at a product or maybe even in a crowded category and said how can we innovate on this and create something just different enough that nobody else is really going to want to compete against us but we’re going to create something that’s super useful and then magically; of course it’s not really magical like you said it’s being a good actor and doing what Amazon wants and creating a good product that people like. It works for the long term and it’s more sustainable. So I’m happy to hear you say that because of the broad experience with different Asense that you guys at your group have just kind of validates that. Now the last question I’m going to ask you it revolves around this idea of product creation. I am going to ask you for more of a general rule maybe it’s not the right way to go because I do think that there are multiple ways to compete on Amazon but I want to see if we can get to a generic sort of here is maybe the best practice and how to be a good actor in the community. Where would you recommend sellers put most of their effort or break up their efforts and I’ll put it into product creation and innovation and quality versus the Amazon-specific metrics of making sure that you have high ratings and maybe even going out and gaining those if you have to or being aggressive of as ways get those versus the PPC side I’m going to try and get as much sales velocity as possible whether that be on Amazon or setting off Amazon traffic as well to Amazon to get that most sales velocity. So kind of 3 groups here, right? You have the sales metrics that kind of influence things, the customer service and ratings, and then the product quality. Where do you think people need to really be giving up their time and again you might come back to say Mark you’re thinking about this completely wrong. That’s cool if that’s what you think.

Carlos: No, but I would just say you just kind of summed up how do I be good Amazon business. It’s all of these things. Like I don’t think there’s anyone magic bullet. PPC works for some parts, it works great. It doesn’t work for all of them. I mean it’s like—the thing I love about Amazon, to begin with, it is that there are certain products you can sell stuff on there you could never sell directly in another channel unless you somehow had magical viral take off or something. But like when we were on Facebook for instance; Facebook advertising, it’s going to cost you 30 bucks an hour give or take something to acquire customer leads for a consumer kind of drive by product. Which means [inaudible 00:46:49.8] for 70, 75 bucks at least to make any money back after your COGS and all these kind of stuff in advertising cost. It’s expensive so you can’t sell a $10 item. Can you sell $10 items on Amazon? All-day, right? Because they’re bringing to the people they are taking so much stuff out of the equation. But then you just have to play in the Amazon ecosystem well whether that product may not make sense to advertise to be paying to acquire customers on that one. It’s tricky. I mean I think for individual sellers a product launch and new products are important. That’s not something we sort focus on and particularly care about again because now you’re talking about having more Asense and we’re interested in having less. Lots of sellers that we’ve talked to it’s actually they have—now you’ve learned all this and they know how they can launch something and they know how to do the quality of the stuff and how to get the initial purchases, they need capital. Again we don’t focus on that [inaudible 00:47:48.4] one capital to do and so we will buy in like the top-performing Asense from them and they take that cash and put it back into these things they want to do and test out advertising and purchasing new product and stuff like that. I think the most important thing is just that there’s more stuff now there, it’s the quality question. It’s the number of reviews and quality reviews. I would not—going back to what I said earlier, I would not suggest being aggressive with that or—being aggressive with following Amazon’s rule is great and so whatever they say you could do. You can’t ask for 4-star reviews or good reviews hence I wouldn’t break in [inaudible 00:48:24.8] because my experience going back to 10 years with Google is you get away with it for a while but they catch you. They ultimately catch you and they’ll burn you for it. I mean Amazon is coding reviews every month and their system is going through that probably every day but I mean they’re going through it doing cleanups. And if you’re doing something that’s a bad actor thing in that space you’re going to get busted for it. So I say do that but there are things you can do that are legit. Now if you’ve seen your ratings are going down because you’ve got some product quality issue then go fix that and send out free versions to all those customers whatever it is. Be a good actor in the system, have a voice, respond to queries, the question, and FAQs as quickly as you can and let people know you’re on top of it and if that takes an external site that’s informational where you talk to people about where you are who you are what your product is then do that too. I think that’s an important to focus but it’s hard for people to get a tall hold here now if you’re not already in the ecosystem and with a product.

Mark: This has been fantastic. Carlos thank you so much for coming on. Do you have any last thing that you would want to share with the audience here or maybe a question I didn’t ask that you think would be useful? Just something general Amazon or what you guys are doing over at Thras.io.

Carlos: No not really. I mean it’s an exciting time to be in the space and it’s a good time too for people to be selling their business and we’re happy to do that help them—I’ll buy them. I think you guys are an excellent brokerage. I’ve really enjoyed working with you guys. And I’d put a little plug there for you would. Getting someone on your side that understands what they’re doing and how to represent your business and how to talk about it and help you understand what you should get and what you shouldn’t; that’s very important. And not all brokers are created equal, not all business people help you sell your business or equal and you guys have all done it and I’ve really appreciated that work with you guys.

Mark: Yeah, we’ve always appreciated working with your group as well. You guys have been fantastic to work with. I really appreciate you coming on here and sharing as much as you have. I mean I know what you guys are doing is pretty innovative. Not a lot of people are doing it. There are some doing it but it’s great to get the insights from a company that is working with so many diverse different Asense because it just brings a different perspective to everything. I’ve greatly enjoyed this conversation so thank you so much. I know that the Amazon queens of the past are smiling down on your company and will continue to do so. So thank you for sharing that with me as well. And there you go. One moment do you sell that on Amazon; just curious?

Carlos: We don’t sell those. [inaudible 00:51:03.8] I bought them on Amazon. It’s great.

Mark: [inaudible 00:51:08.1] on Amazon. Alright, awesome. Carlos thank you so much for joining me.

Carlos: Cool. It was great talking to you, Mark.

Links and Resources:

Thrasio

Company Profile

Incredible Exits: Ramon Shares Story of his High 9-Figure Sale

Today’s guest is truly the epitome of what an entrepreneur looks like. As an immigrant to the United States, Ramon Van Meer spent many years self-employed, just making ends meet....

Today’s guest is truly the epitome of what an entrepreneur looks like. As an immigrant to the United States, Ramon Van Meer spent many years self-employed, just making ends meet. So while a rags to riches story it is not, considering that he has been out of school and working for over 20 years, it’s still somewhat of a surprise when you learn that someone in his position just signed a nearly 8 figure deal.

Ramon is sharing his backstory today. A few years ago people wouldn’t have invested a few thousand with Ramon, but today they are lining up to work with him. A high school dropout who came up with an idea for a niche business that has grown exponentially in just a few short years? The growth and subsequent sale of his company, SoapHub, is an incredible story, not just for the size of the transaction, but also because of what Ramon accomplished to get there.

Episode Highlights:

Ramon shares his difficult upbringing in Holland.
How that time shaped his life and made him who he is today.
The lesson here is not to quit school! Why a network and connections are so important.
How this sale is 20 years of work in the making, even though on paper Ramon looks like overnight success.
You’ll hear the full roller coaster story of the sale from not one, but multiple buyers and offers that resulted in the final sale price being nearly double of what was originally set.
What made the difference for the end buyer, both the buyer himself as well as the money behind the buyer.
What Ramon has learned from his mistakes.
Ramon shares his number one recommendation when preparing to sell a business.
How essential the right lawyer is in these types of transactions.

Transcription:

Mark: At Brand Builders Summit back in August … that was August, right? Yes, it was August. Joe you brought somebody to me. You introduced me to somebody. We had dinner with him a couple of nights and he’s a client of ours, we worked with him on multiple deals but he’s just a quiet guy, very very nice kind of understated and didn’t stand out to me too much; other than the fact that he was a client of course and I wanted to get to know him better. But it wasn’t until lunch on I think the third day that we were there and you told me a little bit about his back story which was a heart wrenching, moving, inspiring, all those things in one and you have him now on the podcast sharing a bit of that story.

Joe: I do. He’s really the American dream. He moved to this country nine years ago I think. He had a really really tough upbringing. He could have gone down many different paths. He could have wound up in jail very easily. He dropped out of high school at the age of 15. He started becoming an entrepreneur, working construction, doing whatever he could, has been self-employed more or less for the last 20 years and even up to three or four years ago was living month to month as an entrepreneur. Overnight success? Absolutely not. A long long road but we just closed a transaction that was nearly eight figures and you would never know it. Unless you have an eye for picking out the guy that … I think you told me just pick out the worst dressed guy in the room and he’s probably the best well off or they at least get the most money. This particular gentleman Ramon he was very chill, very relaxed, people just talked to him, got along with him and then heard his back story and just blown away with what he’s achieved. A few years ago people wouldn’t give him $5,000 now they’re just throwing money at him. Of course, he’s not taking it because he’s going to do this all on his own but it’s an incredible story not just for the size of the transaction and what he’s accomplished but what he’s overcome in life to get there.

Mark: Yeah now well let’s get to it. That’s a really good story.

Joe: Hey folks, its Joe Valley here from Quiet Light Brokerage. And today our guest is my friend and my client, Ramon van Meer. Ramon, welcome to the Quiet Light Podcast.

Ramon: Thank you so much Joe for having me.

Joe: It’s good to have you here man. You and I have been working together now for … gosh almost eight months right? We started in January.

Ramon: Yeah.

Joe: I got a call from our mutual friend and former broker here at Quiet Light, Darren Harden. He sold a smaller business of yours a couple of years ago and he called and said hey look you’re looking to sell your business and he gave me a number that you wanted and I thought okay well let’s see what happens. I took a look at your numbers. I knew you had a good history from Darren about you. And we kind of overshot that number a little bit. It took a while but we did it and I want to talk about that process here today. I want to talk about your background, your history, the type of person you are, the things that you have achieved in spite of your upbringing, and the challenges that you’ve overcome. And I’m going to dig a little deep and I hope you don’t mind because I think it’s a great lesson.

Ramon: Uh-oh, all right.

Joe: So with that why don’t you tell the people listening a little bit about yourself, where you’re from; all that big story there.

Ramon: All right very brief story. I’m originally from Holland, the Netherlands. I have a big accent so … but I came to the United States nine years ago. I now live in the Bay area close to San Francisco. I always have been an entrepreneur before I would say before entrepreneurship was a trend; even back home from construction companies, to promoting parties, to selling piñatas online, to running a … bootstrapping a site about soap operas of all topics.

Joe: You seem like a big soap opera guy. You’re really into them right? I mean just a passion that you followed.

Ramon: Yeah because you know I have zero to do between 12 and four o’clock afternoon … no, and you know I know we go on that delay there down the line but I think it’s really cool. A lot of people would say you have to really be passionate about the stuff that you sell or do. I have zero passion for soap operas and it turned out to be probably the biggest exit I have so far.

Joe: Yeah and clearly folks I’m being sarcastic about that because it’s an ongoing joke that Ramon has never watched a single full soap opera in his entire life. Are you going to go to your grave someday never watching a soap opera or do you think you might sit down one afternoon and just watch an episode of Days of Our Lives or General Hospital or whatever is airing these days; just one?

Ramon: The problem is its … okay, so the show is one hour long. Of that one hour its 30 minutes commercials and all that 30 minutes is just very painful to watch. I’m sorry soap opera lovers it’s just not really my cup of tea. I never spoke … said it out loud because of anyone, friends … you know my audience but it’s … yeah.

Joe: These are words from a guy that had millions and millions of people visiting his website and YouTube channel every single day and he never watched a single full soap opera. All right we’re going to get into that a little bit. So as I said for those listening he would not go deep enough so we’re going to go a little deeper. You moved here from Holland nine years ago. Let’s talk a little bit about your upbringing so that people that I think have had some challenges in life and are hoping to do what you’ve done can hear your story. You at one point in your life were homeless correct?

Ramon: Well.

Joe: Briefly.

Ramon: I think … well yeah. Well, it was more the fact that my age was very young but yeah I had to … I have slept on the streets. Not really on the street like I don’t want to make it sound too dramatic and more-

Joe: I did that for you. I started off with that question. So at the age of 12 you had to spend a few nights on the street at the age of 12. And then friends’ couches and then eventually worked it out and did you move back in with your dad or did you stay with friends from 12 to 15?

Ramon: Well yeah not to make it too long of a story my parents were separated. My mom eventually … I was living with my mom, eventually, she was not able to take care of me anymore so I had to move to my father’s house. And he basically just kicked me out on the street when I was 12. He had a lot of issues with alcoholism and a lot of other issues. So I was … the first couple of days on the street then at some friends’ houses and then one of the parents of one of the friends I was staying at tracked down my mom and my mom took me back in. But she was actually not in a state of mind to raise a child but there was no other way around it so … yeah.

Joe: And I’ve made you very uncomfortable in the first five minutes of this interview.

Ramon: Yeah thank you, Joe.

Joe: I do it because honestly every time I talk to you and I hear your story, I’m blown away with what you’ve achieved. I think there must be something just ingrained in your DNA that made you believe that you were going to be a success in life. Is that sort of … you always kind of knew you were going to go off and on your own and overcome these challenges that so many would just give up on and go down a terrible different path? Did you have a belief in yourself that you were going to be a successful entrepreneur even at a young age?

Ramon: Yeah and not every day but in the big picture I always believed that one day somehow I would be successful. I always had that entrepreneurial spirit in me. I was not good at school in that same phase of the stuff that happened at home. I got kicked out of some high schools and eventually just stopped going to school when I was 15 because … yeah and I started doing stuff for myself like as a business owner. So I always knew that with hard work and just being … keep on going. I think the stuff that happened to me in the past actually helped me. I almost now have a mentality that I survived all that stuff back then so the things that I’m dealing right now is actually nothing compared to back then if that makes sense.

Joe: No it’s certainly made you who you are today and a better person for it. For those listening just to get the full picture, we just sold Ramon’s business for just shy of nine million dollars. It’s the second business that we’ve sold for Ramon through Quiet Light Brokerage and he’s a serial entrepreneur. And I think you said to me a couple of weeks ago Ramon that just two or three years ago you could not get someone to give you or invest $8,000 in you and now there are people coming out of the woodworks to give you money to invest and buy businesses on their behalf; which you’re not doing, you using your own for the most part. But when you have such a big success like this you’re looked at very very differently. And you’ve done some incredible things and on top of that all you’re a good person which makes a big difference. And the buyer saw that and I talked to him yesterday and he repeated that several times during my interview with him. Now first off for the children listening if there are any young entrepreneurs don’t quit school just because Ramon did and he sold his business for nearly eight figures. Don’t quit school, stay there, please.

Ramon: Stay there because look I’m 37 now right? So this is 20 years in the making. It’s not that yeah I started this soap opera website three years ago so someone will say yeah you became … you went from zero to hundred in three years. But honestly, it actually took me 20 plus years to get this. So it’s not the smart … it’s not the easiest, it’s not the smartest way to go about. The more and more now that I’m … especially the last year and I got to know a lot of other super successful entrepreneurs it’s that networking and connections are so important. So if you are in school you will get all these connections and relationships with really key people that are going to be key people in your life and I had to do it the other way around.

Joe: Yeah and I think something that you and I saw at the Brand Builders Summit and the other events that you and I both go to is the connections with the people that are attending those events and the relationships that you build in the masterminds that you join, sharing ideas. Everybody has a different experience. Everybody has a different level of expertise on different things and for the most part, they’re willing to share. Unless you’re a direct competitor which is really … it’s such a vast marketplace, selling … doing content sites like you do which is your niche and your level of expertise versus even a physical product site like Moyes, he … great success; huge story … willing to talk to you about tax liabilities and things of that nature that you have to deal with now; a very good problem that you have to focus on. So let’s back up a little bit. Let’s focus in on your niche and your specialty. I think you’ve looked at now a number of different niches now that you’ve sold your largest business content advertising site in a soap opera niche. You had considered building a portfolio in either physical products or SaaS or content sites and advertising sites, have you narrowed down where you’re going to focus on now for the future?

Ramon: No, I have still not. So my dream is so to speak building a small … you know I call it like a private equity model where we have a small team, an in-house team where we can start or acquire or buy a stake into an existing company. Because our background is content and driving traffic, sales or viewers, eyeballs through content. And so using that strategy to either push sells for a SaaS product or for an e-commerce or for content. But yeah you and I have been going back and forth, I do think I need to specialize in one niche and every … e-commerce has its pros and cons and so is SaaS and so is content. And like you’ve mentioned to me many times before like the grass is always greener you hear stories, the success stories of people selling their e-commerce business for a hundred million dollars but it’s not easy to do and there’s a lot of … there are downsides of running an e-commerce and the same goes for content and also with SaaS. So I’m now taking the time to talk with as many people as possible and do research and then go from there.

Joe: So let’s talk about SoapHub and the site that you sold.

Ramon: Okay.

Joe: We don’t have to get into too much in terms of specifics but I want to talk about the path so that business owner sellers out there understand what an emotional roller coaster it can be.

Ramon: Yeah.

Joe: We listed the business for sale in … I think it was February of this year. We had multiple offers. We listed it I believe at five million dollars and came pretty close to asking price and put it under a lot of intent. I was driving home from Georgia probably I don’t know 20, 30 days into due diligence moving along very well. The buyer was very happy. He flew out there to see you. And things are going extremely really well and you called me on a Saturday afternoon. Can you recount that conversation for the people that are listening?

Ramon: Yeah and I feel still … I still feel bad about that. So … but picture it as SoapHub was doing really well already, not just revenue wise but profit wise. And between the time that you sit down with Quiet Light and come up with a valuation and an asking price until that time you know, there’s … time goes by right? Like I think we spoke first in December. It was the first initial and now we were at three months past and literally the revenue and profit of SoapHub was skyrocketing. And it took me a while to okay what should I do here? Should I keep going with this process and with this buyer that was under LOI with me or should I just say you know what let’s hold off for a couple of months and increase the 12 month trailing? Because most businesses or all businesses that go through brokers their valuation is based on a multiple of the last 12 months of profit. So the more months of higher profit you can show, the higher the valuation. But yeah on that Saturday I also remember I was nervous. I didn’t want to call you but I thought that’s … when you’re dealing with such a big event, this is a life changing event for me. Not just for me but also my family; my mom, my dad, my son, everybody involved, and the employees. I thought I had to do it. So I had to call you up and say “Joe, I’m really sorry but I think it’s best for us to take the listing down for now and then and relist it again in four, five, six months.”

Joe: You’re having as much trouble telling … say we’re just recounting the story as you did the day you called me on that Saturday. It’s kind of-

Ramon: I know.

Joe: You still feel bad about it. I knew when that call came through on a Saturday I thought okay this can’t be good. Ramon’s calling me on a Saturday afternoon and that’s really odd. And I knew it was going to be a tough phone call. So you had recounted that basically we went through the numbers on the call and you had said look just I got to think about my family. This could be … this is a lifetime event sale and the business is growing so much that this initial … I think we’re at a four time multiple now is dropping so low that you feel like you’re giving the business away. And I think you and I went through the numbers and we said all right look if we wait another six months even if we just held the same multiple we’d be at a valuation at around seven and a half eight million dollars. The goal at the end of the phone call was just to step back, run the numbers, talk on Monday, and then break the bad news to the buyer if we needed to. And we did that and it was hard and he felt bad. He felt … he was very upset because it’s great opportunity. So we pulled it back and we were going to just wait right? We’re going to take the listing down and wait another six months more to pass. We updated the financials just as a recounting of the story. The numbers jumped tremendously and we reached out to the backup buyers based on the conversations you and I had. At the very least we’ve got to tell the current buyer of the situation and what we’re going to do in six months or so. And then of course two other backup buyers were constantly reaching out to me and said if anything changes please reach out. So we pulled out of that LOI, it was a non-binding letter of intent and we backed out of that and ended up having multiple offers. It pushed the value of the business up well in advance of that six month period because we ended up closing well before that time ended. Was that an easy process? You know a lot of sellers think oh I want multiple offers. Oh, I want to be in a situation where it’s getting bid up over asking price. Was that an easy process for you? Was it comfortable? No stress, really easy to go through or was it emotional?

Ramon: It was super emotional because you have multiple offers that most of the times are not identical. They’re a little bit different and you also have to think who is this buyer? Of course, you’re talking on the phone a couple of times but you have to think about “Okay who is most likely to close?” Because it’s one thing to make an offer and sign an LOI but not everyone will be able to close. And then if the buyer at the last minute is not able to close then you lose two months of work. Due diligence periods and also lose that momentum where there are several buyers trying to outbid them. You know you have that momentum going that you are getting more over your asking price but if you have to go back after two months then you kind of lost that momentum. So yeah it was a very tough decision because especially the two top offers were from two buyers that I was … would like to work with them … both of them.

Joe: Right.

Ramon: So it was a difficult decision.

Joe: All three buyers were highly qualified and heck of a lot smarter than I am and brought a really good offer to the table. The difference for those buyers out there that are listening when you’re in a multiple offer situation, the difference for the one buyer that ended up eventually buying the business was that he had some investors behind him and he brought them to the conference call, Ramon, right?

Ramon: Yeah.

Joe: So we got to not only speak to the buyer itself but the money behind the buyer. We got to have conversations with as well. Did that make a big difference for you?

Ramon: Yeah, definitely. Because that gave me confidence that this buyer is most likely to close and also close faster. People that are more experienced is more easier to work with. And so as a sellers point of view … because I’ve been sitting on both sides of the table, as a seller’s point of view yes, of course, you look at the money, at the offer, the money … you know a mug money first but you also look at okay who is the buyer because you’re going to have to work with this person for quite some time. How is he financing? Is this person being able to close this kind of transaction? So if you are in the race to buy something try to also make sure that the seller knows that yeah the seller goes with you that you’re ready to close and you’re able to close and you have experience and it will be a smooth transaction.

Joe: So we were going to close in … I think it was going to be 30 to 45 days. It was investor money behind it and we were marching along doing very well and then it fell apart again right? You pulled out of one LOI and then the money behind our buyer disappeared. They’re … it was a family fund for those listening. It was a family fund and the two people that came forward and were on the call with Ramon and the buyers were fantastic … are still fantastic and I would still work with them if they came forward to buy a business from Quiet Light with either this buyer or another but the general manager of the Family Fund made a decision that he never makes and he said soap operas no I don’t think so kill that deal. Just like that, it was gone. And did you call me and let’s say vent … did you vent to me on the phone shortly thereafter? Out of stress and emotion, you said that you’ve yelled at me a few times but I call it venting. How were you feeling when that fell apart quickly and we put it back together obviously because we’re having this conversation today but I mean what was going through your mind when you were literally … I think probably what two weeks away from closing this transaction and having an enormous amount of money deposited to your account and life changing life for you and your family. How were you feeling that day?

Ramon: Well it was two ways like of course I was disappointed because we put a lot of our work in to it. We were literally two weeks out right? So not only me but the whole team, everybody involved. We moved all our lives around that magic closing date of … in my case it was June 30 I believe or something like that right? It was the end of that month, we were two weeks out and then the deal fell through. So it was just more like man we worked so hard, we were so close and it now falls through. And it shows that there are so many moving parts and in my case or in this case everybody involved wanted to get this deal done but still, something small happened and out of everybody’s control and that made the deal fall through. So there are so many moving parts in order to close a deal like this that yeah everything has to fall in place.

Joe: It was tough for sure.

Ramon: But it was tough and more also that a lot of the employees they got proper chance to sell and they were already in their mind shopping around. And I felt really bad to break the news to them because all this time leading up to it was like okay guys we’re almost there, a couple more weeks let’s keep the hard work going and stuff like that and then I had to break the news like oh sorry guys we have to move it up again. But I did … I did was you know … I knew that eventually, we’ll be able to sell because it’s a great website and it’s you know … so.

Joe: Yeah that’s the thing it fell apart for the strangest reason. One, because it was growing so fast you made a very tough but obviously financially intelligent decision and you took a little bit of a risk but you pulled back and said this is growing so so fast. And we’re not talking about 10% month over month growth here folks. We’re talking 200, 300, 400% month over month growth. So it was an easy decision yet tough on your part because you were disappointing the buyer and making a tough call to me. And then it fell apart but we go back to the value of having multiple calls with buyers in advance of signing a letter of intent. Because this particular buyer he really wanted the business and he had other sources of revenue or investors and he pulled it off. He convinced you and I that he had another path that he’d been working on the whole time. He hadn’t gone down to that out of respect for the other buyers but as soon as the other investors as soon as they were out he opened up that other path and went down it very quickly. You and I did the same thing again. We needed to jump on calls with other people to have them instill confidence in us that they could get the job done. And you’re right it was June 30 was the initial close date with that buyer and then I think it was near the third week of August where we ended up closing so another six or seven weeks does that sound all right? Okay, so the downside-

Ramon: Those were the longest weeks of my life.

Joe: I know. But the downside is that they are the absolute longest weeks, days, hours of your lives. Boy that does sound like a soap opera; days of our lives.

Ramon: Exactly.

Joe: But looking back in the blink of an eye it’s gone. The time passed. And you benefited financially from that because you got to hold the business for another let’s call it 60 days and got the profit from that business for another 60 days.

Ramon: Yeah.

Joe: It’s almost like a bonus because you closed anyway. Was it worth the extra 45 days, 60 days that it took or do you wish that you went back instead June 30^th I would have taken it all day long even today knowing what the end result is closing 45, 60 days later? Would you do it all over again and close on June 30^th?

Ramon: That’s a good question. Probably now, no I would have taken the extra because it’s … we’re talking about a lot of money. Two months extra of profit plus the buyer increased his offer a little bit as well when the deal fell through. He said I’m working on other things just give me some more time I will be able to close up if you give more time and then he increased his offer also a little bit. Now that everything fell exactly how it was supposed to be yeah I would have taken the money but it was a really good learning experience for me going into this. I’ve sold a bunch of websites; I bought and sold a bunch of websites but way smaller all in the … not even close to this one. I think the most was like around 200,000 I sold. And then dealing with an asset purchase agreement you don’t really deal with attorneys, you don’t really deal with a lot of things that now came on my plate. And it was dealing not just with my own attorney but then the other side’s attorney and it’s just so many people are involved and it was an emotional roller coaster. So I think now looking back its good because now it made me better for the next transactions if that makes sense.

Joe: You know most people would hang up their shoes and say I’m done with your kind of transaction sale but you’re already focused on growing other businesses, buying other businesses and building up portfolios so kudos to you. You’re a young guy you can do that.

Ramon: Yeah.

Joe: What would you recommend to people that are listening that are in a position to sell their business for a lifetime event sale for them, whether that’s 100,000 a half a million, a million, five, ten million dollars; what are the most important things to consider as they begin that process and go down that road, things that you’ve learned?

Ramon: So the thing that I’ve learned and I did wrong … and you hammer on this on many podcasts is clean books. Clean books people, I made a mistake of having … it was not on purpose it was just out of laziness I think that I co-mingled different websites in what … so I had one LOC, one bank account, one account with Google. The issue is that Google does not allow you to have multiple AdSense accounts. So even if you have 100 websites with AdSense tags on it and all comes down in one Google account. But yeah I had … I bought different content sites in that last three years. I sold content sites. I invested in things all from that one bank account. So thankfully we were able to make it work but it was a lot of work from my end to really … I had to go back literally three years and every transaction I had to … oh this was for SoapHub, no this was not for SoapHub. And then whatever was not for SoapHub I also had to be able to back it up with proof or listing this was for this and here’s the proof. And so it was a very tedious, long, stressful work including my CPA and my bookkeeper and thankfully it was able to … we were able to work it out. But I know for a fact in other cases that where people co-mingled and then they had real issues with their valuation. They were not able to get the top dollar because the buyers were not able to really dissect what is the real profit of that company. So that’s … learn it from me, I did it. I learned it the hard way. So now I’ve set up different companies, different LOC’s and run everything as clean as possible.

Joe: Okay.

Ramon: So that’s one, the second is read on asset purchase agreements. The first time when an asset purchase agreement got sent to me it was so complicated for me, I didn’t know what to look for, what did we have to be in it and then whatever my attorney advised me I basically say yeah well it makes sense why not you know. So the notes of my attorney I just blatantly copied and then send that to the buyer and said this is what we … I want to change in the asset purchase agreement. And then the buyer’s attorney they came back with their notes and then went back and forth back and forth. I think now looking backwards now I kind of know what is important. I think attorneys try to … and I understand the reason but they try to overprotect their clients. So my attorney tried to overprotect me, the buyer’s attorney tried to over protect them and somehow we have to find a middle. There are tons of examples where attorneys ruined the deal. You probably will have a lot of stories of that. So I think it’s good if you kind of get advice from people, learn, read up on it online and see what is really needed and what not. So now I’m working on the deal right now with a great attorney but now I’m more experienced and I can say well this is what I don’t want in attorney. I don’t … I understand why you advised me that but it’s not needed. I’ve done it before this is not needed and let’s just keep it as simple as possible. Because … yeah, attorneys can ruin deals. Those are the two biggest advises.

Joe: Well I can agree with you on the attorney part wholeheartedly. I’ve been in situations where a relative of the seller completely killed the deal. I had a deal where the young guy just out of graduate school and he had a great business that he started in his undergrad and literally graduating from graduate school about to start his professional career and we’ve got a business that was under contract with three quarters of a million dollars … way way over the standard valuation but there was a problem. The problem was that his mother and father were both attorneys and his wife was a law student and they took that asset purchase agreement, shredded it, and fought tooth and nail for the tiniest tiniest little thing and were completely unreasonable to the point where the buyer who honestly was very reasonable walked away, threw their hands up in frustration. At the Brand Builders Summit you and I attended in Austin a few weeks ago Richard Jalichandra from 101 Commerce got up and he’s bought three businesses from Quiet Light in the last six months, eight in all. And their goal is to buy 101 hence 101 Commerce. They’ve got enough experience where they are going to say look you can only work with this group of attorneys, there’s no conflicts … [inaudible 00:36:00.5] have conflicts with us and our legal team. But these attorneys understand e-commerce and contract negotiations you got to work with one of those. It’s almost you’ve got to have a contract attorney that understands fairness and balance and that it has to be a good deal and a good transaction for both sides. So I agree 110% on both of those points.

Ramon: Well just to piggyback up that also when you look for an attorney make sure this attorney not only has experience in internet space but also the niche where you are. Because an e-commerce deal is totally different than an asset … a content site where you’re just buying an asset or a SaaS, so also try … if you find a … if you go out there and try to find an attorney that can assist you with an asset purchase agreement is see if they have experience in not just internet marketing but also the niche.

Joe: Okay. So overall the moral theory is that when you’re selling your business it can happen very quickly. We put it under contract very quickly and we could have been through the entire process from listing it to closing inside of 60 days, 75 days tops the first time around. But you made the tough decision to pull back because the growth was astronomical. You made a good decision and you ended up almost doubling your value and that’s a pretty huge number when it comes down to it. And not only that you made a lot more money along the way because you still held on to a great business that was doing great numbers and growing. There were times where it was tough and we collectively said look there are multiple options here and one of them is to stop this process, hold your business, take care of your family, take care of your staff, hold the business and keep running it. It got that frustrating at times and that emotional at times because it is a big deal if you sell a business of this size. And again it’s actually a big deal to sell a business whether it’s 100,000, 500,000, a million, or 10million, it doesn’t matter. It does get emotional. I think the number one thing that people need to look for in an advisor is one that will set realistic expectations and that can manage emotions. And not just their own but those of the buyer and those of the seller and sometimes the third parties that are involved with their investors involved as well because no matter what most of these deals go slightly off the rails and it’s our job to get them back on. But I couldn’t have done it without you, Ramon. You’ve been fantastic. You’ve set some new goals in life though so I want to kind of wrap up with this. You and I had a conversation so people understand a little bit more about who you are and what you’ve accomplished and what you’re gonna do in the future. You have a goal to help a certain number of people be successful in life based on the goodness that you’ve received I think. Is that … am I somewhere along the ballpark? Can you touch on that just briefly if you are comfortable enough sharing that?

Ramon: Yes.

Joe: Am I embarrassing you by the way?

Ramon: Everything I told you you’re using against me, Joe. No, I’m just kidding.

Joe: Not quite everything.

Ramon: I just … as you might know, like I don’t really like to be in the spotlight. I never really do podcasts or I had … I made one exception for a news outlet to do it but yes. So because I’m very entrepreneurial I think it’s almost … it’s your duty so to speak that when you quote unquote get to a level that you have to give back and help other people and which you can help … you know there are millions of ways of how you can help other people. I think for me is that I want to help people … like I see that I was blessed to achieve the American dream so to speak and I want to help achieve other people to to do that as well. And I have a number in my mind, I want to help 500 people not just by helping a … you can pay a year for school or something; no, helping to change really their lives how my life has changed. Like three, four years ago I was really literally going from paycheck to paycheck and not knowing where … how next month is going to look like. And three years ago and now three years later I’m in this position. So change can really happen and I want to help 500 people by … if they have a business idea by funding their ideas and helping them in starting their businesses or maybe I am able to acquire a business and then have somebody run that for me stuff like that. So it’s more or less helping 500 people in achieving the American dream by starting their business or helping them grow their business.

Joe: Do you write down these goals? I think in talking with Ben the other day when he said he came to visit you in your office that you had some stuff on a whiteboard and he looked up and he said man just incredible goals that you’ve set and he said it’d be foolish for anybody to bet against you. Do you write these down on a white board? Do you just think about them in your head? Do you hear about a goal setting? How do you … what’s your process?

Ramon: Yes so I write them down … actually, because I’m about to move today I’m at a house office and because I’m packing, I’m moving next week but I have notes almost everywhere of my goals. So for some weird reason I believe in re-civilization and so when I wanted to buy a specific house that was my dream I would print out pictures of my quote unquote dream house and I will just pin them everywhere. But I have a list of life goals so to speak and yeah I have printed that and that’s in my office at the house.

Joe: Amazing. Ramon it has been a complete real pleasure working with you for the last eight months. For those listening, we’ve got somebody that overcame some pretty serious challenges in life. He has been an entrepreneur for 20 years even up for the three or four years ago as he said living paycheck to paycheck, buckled down, worked hard. As my baseball coach used to say … and I was not very good, he always used to say the harder you work the luckier you’ll get. And I think Ramon worked very hard, visualized those goals, wrote them down, put them up on the board, and has achieved them. He made some tough decisions along the way. It was not easy. I can tell you that now. Some of it was quite emotional but it worked out in the end. Ramon, it’s been a pleasure. Thank you for sharing your story with me and with the audience of Quiet Light Podcast. You’re a good man; I look forward to doing business with you for years to come.

Ramon: Same here Joe, thanks a lot.

Joe: Talk to you soon.

Links and Resources:

Ramon’s Email

How To Buy Multiple Businesses Without Going Insane

Since 2013, Shakil Prasla has bought 8 internet based businesses ranging from smaller 5-figure businesses up to 7-figure enterprises. Obviously, acquiring and running 8 companies in just 4 years is...

Since 2013, Shakil Prasla has bought 8 internet based businesses ranging from smaller 5-figure businesses up to 7-figure enterprises.

Obviously, acquiring and running 8 companies in just 4 years is both time consuming and requires significant capital. In this conversation, we talk to Shakil about both managing 8 companies as well as the capital resources he uses to continue acquiring online businesses.

Rather than try and do all of the work himself, Shakil developed a system in which he hires a business manager before he even closes an acquisition. By doing this, the manager is able to work with the seller and learn, first-hand, how to operate the nuances of the business. Business managers are compensated on a salary and bonus structure with goals oriented towards business and revenue growth.

Shakil has used a variety of funding sources to close deals. While he has done a few deals using SBA loans, he has also managed to secure friendly bank financing on Internet acquisitions outside of an SBA loan. He believes strongly in the power of carrying debt to leverage your overall value.

Episode Highlights:

Shakil has been in ecommerce for 6 years. It took him a lot of time to build his first site.
He saw a Quiet Light ad and looked into buying a business. He bought his first business for $60,000.
He was able to make his money back in about 6 months.
He has now acquired 8 companies from 6 figures to 7 figures in various niches.
That is buying roughly 2 companies per year.
Buy smaller and audit. Take less risk, learn, and grow intelligently.
Save your cash flow for larger acquisitions.
There is more competition when buying small, but there are more opportunities to grow.
Larger companies have more complex strategies including having employees and SOPs. The bottom line will be higher.
When Shakil acquires a company he keeps the previous owner on for 3 months to transfer their knowledge to the business manager.
He uses a hiring company to find someone with a marketing and business background. They are paid on salary and incentives on next year’s growth.
Shakil uses agencies for marketing and email campaigns.
The business manager comes up with high level goals and then they work backwards. They use software and weekly calls to track things.
Shakil’s time is valuable, so he delegates so he can focus on growing the business.
Shakil takes on debt and does paid advertising, so he tests strategies and grows the company. He looks at growing the overall value of the business. He is ok with sacrificing short term cash flow. He does want to see an ROI on the new manager.
He has done SBA, owner financing, owner holdback, and unsecured short-term five year loans.
The bank asks for tax returns and balance sheets. The seller needs to provide the information.
Making true money through financing.
You have to have a stable income and high credit score to get the bank financing. Shakil reached out to multiple banks. With smaller banks it is easier to move the process along.
Shakil looks at about 80 deals a month. He has a set of initial questions. He places one or two offers every quarter.
Patience is key, don’t rush into buying a business unless it is the right fit.
Put yourself in the seller’s shoes and build trust with them.

Resources:

Transcript of Interview

Joe Valley: Hey, good morning Mark. How are you?

Mark: I’m doing really good. How are you, Joe.

Joe Valley: I’m doing fantastic. I understand you had a multiple Quiet Light buyer on the podcast.

Mark: Yeah, get this. This guy, Shakil. He’s bought eight businesses since I think it was 2013 or 14. It worked out to about two per year. Anywhere from high five figures to low seven figures for acquisitions. That’s absolutely bonkers to be able to do that many acquisitions.

Joe Valley: He must’ve learned a process that’s worked very well. Did he talk about that in the podcast?

Mark: We talked about really focused on two things really, really heavily in this. First, we listened to his story of buying businesses and the very first businesses that he bought. Right? The first one he bought was about $60,000. It was something we sold him back when we were doing more in the five figure range. He talks about the questions that he asked then, were not really good questions. Then we went into the process that he has to buy these businesses and how he manages it. Anytime he buys a business, he puts a manager in place before the business even closes. He’s got somebody in place for that transition. Doing that, he’s been able to again, buy eight different businesses. Unlike a lot of the advice that I’ve given people in the past, there is no real connecting thread between these. Right? They’re anything from e-commerce and Amazon to software. He’s able to manage all eight businesses really well. We talk about his story, we talk about how does he manage to run eight businesses concurrently, and then finally we talk about financing. He gets bank financing outside of SBA, which shocked me. The terms he gets on these loans, five year notes with like 4.5% interest. They’re covering about 70, 75% of the loan, of the purchase price.

Joe Valley: I’m going to have to listen to that one myself because buyers are always asking about financing outside of a, outside of seller notes. Let’s get to it. I’m looking forward to hearing what he has to say.

The Interview with Shakil Prasla

All right. Good morning, Shakil. How are you?

Shakil: Good morning, Mark. Good, good. How are you doing?

Mark: I’m doing really, really well. Thanks so much for joining me on this podcast. I’m excited to have you on.

Shakil: Oh, thanks. I’m excited to be here this bright and early morning.

Mark: That’s right. Down in Austin, I’m up here in Minnesota. We were just talking about the differences in weather, much warmer down there although you guys are a bit cold. It’s really cold up here. Again, appreciate you coming on. For those that don’t know who you are, and I would imagine that a lot of our guests may not of heard you unless they listen to the e-commerce [via 00:03:09] live or capitalism.com, and freedom [inaudible 00:03:14] podcast, and other ones. Could you just give a little quick background on your experience in buying online businesses and why you approached me about coming on the show? I’m excited to have you on. Why we’re having the conversation.

Shakil: Yeah. I’ve been in e-commerce for about six years now, started my first website in 2011, built it to a nice sizeable business but to get to that size it took so much time, energy, stress, strategies. In 2013, I started looking at other ways to grow my business and so I came across an add, it was a Quiet Light Brokerage ad and it said, “Buy online business.” I was intrigued by it. I clicked it, I subscribed to the newsletter so I could start getting emails about, and the summer of 2013, I received a prospectus from Mr. Cold, a .com, it was making around $36 thousand a year, and asking price was about $60 thousand. About a 2X multiple, little less than 2X multiple. I didn’t know anything about businesses so I just wanted to due diligence, placed an offer, and asked a bunch of questions that I thought were good questions.
Looking back now, they were not good questions. I was able to buy that business, that business particularly was getting all their sales on their website, all organically. I think they were spending like 50 bucks a month on Google ads, not much. All I did was take that business, listed those products on Amazon, turned on Google ad words to about $500 a month, and I was able to make my money back in about six months. I was able to grow the bottom line from $36 thousand a year to about $60 thousand a year. I was able to make my money back pretty quickly.
After that experience, I was like, maybe there other opportunities like that. I just listed, I subscribed to every single broker there is. Fast forward now, I’ve acquired eight companies through Quiet Light Brokerage I’ve had a great experience with your firm [inaudible 00:05:34]. Yeah, so I’ve bought eight companies ranging from six figures to seven figures in purchase price, all various products, no sort of niche. You know, I’m here to keep acquiring online companies. I think we’re all very lucky to be making money online. I could be on my bed still making money so I think we’re all just very lucky to be in this era and I definitely want to take advantage of that opportunity of buying websites that are selling at 2 to 3X net multiple of the profit.

Mark: Yeah. I’ve got a ton of questions for you. I mean, eight companies since 2013, that’s roughly two per year if my math is correct there, which is break neck speed to be acquiring companies. Pretty awesome. I’m going to start with a question that I hear all the time and I want to get your feedback on it. Since you started with Mr. Cold, $60 thousand acquisition, which we would classify as a pretty small acquisition, but obviously for somebody first time coming in, you know $60 thousand is probably not something that is play money for everyone. I get this question a lot, and that’s, should I buy big or should I buy small? You’ve done both. You’ve bought the big companies, you’ve bought the small companies. I’ve addressed this on the blog as well as far as the benefits and drawbacks of each. What are your thoughts for somebody who is coming in new, or maybe lets say that they have some experience like you did and are looking to do their first acquisition. Do you think they should start small with something like a $60 thousand acquisition? Should they be looking for something that’s going to give them on a larger payback and spend a little bit higher?

Shakil: Yeah, so looking back, and I get this asked by my friends and family too is, I would definitely recommend to buy smaller business. When you, you know with every business I’ve bought it’s the same experience. You have to place an offer, you have to put on your detective hat. Where you audit the financials, you audit the operations, you see if everything that’s said in the prospectus is correct. Buying small means your risk is lower, you learn from that experience, and you’re able to grow more intelligently. You know, the type of questions I was asking in 2013 is different but I was only able to get there today because of the experience of buying online businesses. I think I would definitely recommend just buying something small, learning from that experience, and then growing from that. When you buy small, you’re able to invest those cash flows, save those cash flows for larger acquisitions in the future as well.

Mark: Yeah. That’s what I’ve often recommended for people that are new. Well for today though, you’ve got eight companies under your belt. What would you say for somebody who has experience? Buying big versus buying small. Is there an advantage to buying larger versus smaller?

Shakil: If you’re buying smaller, you’re going to have more competition in terms of other buyers trying to buy the company. I think that’s the only drawback. When it’s a larger company, I’ve been able to … Let me back up. If it’s a smaller company, I’m able to look for more opportunities to grow the company. A lot of the smaller companies may be a mom-and-pop store that aren’t utilizing technology, that are not utilizing paid marketing, that are just getting sales from one channel. When you buy a little smaller company, you’re able to exponentially grow it by adding it to other channels, by adding different types of advertising. When you get to larger companies, and it’s doing over seven figures in sales, profiting over 400 thousand, 500 thousand a year in profit, there’s more complex strategies. In order to sustain that, you need to be doing different types of strategies. You have employees, so you’ll need SOP’s for this. There’s a lot more strategies that are involved, yes there’s more headache, yes there’s more stress, but the bottom line is higher with the larger companies as well.

Mark: Right. Okay, well that actually leads really nicely into the next thing I want to talk about. I recently, as a lot of the listeners know, I recently bought my second business. I’ve bought more of my own businesses in the past, but I’ve only had Quiet Light for the past several years until this last April I bought a second business. You have eight. Now, with two I’m going kind of crazy because of the amount of work that both companies take to run. How do you manage eight companies?

Shakil: Yeah. Well, it’s not easy. I have to file eight different tax returns, that means I have eight different PNL’s. I have eight accounts, Google ads, you know. It is hard. The way I’ve structured it is with each company, it’s me at the top. I do have a couple other business partners as well, but underneath me I have a business manager. When I’m acquiring a company, I keep the previous owner on at least three months whether it’s a consulting agreement or whatnot. During those three months, the goal of that is to transfer the knowledge to the business manager. Right? It’s hard to learn everything about the business if you’re buying a business that’s been in business for five years, it’s hard to learn everything within 30 days so I keep the seller on for at least 90 days.
During that time, I transfer that knowledge to a business manager. I usually find a business manager off Indeed, I’ll use a hiring service to find someone. This business manager has some type of management, leadership, marketing background. They’re paid on salary, plus incentives. Those incentives are based on the growth of next year. If the company’s doing a million dollars and this business manager’s able to grow it to $1.3 million, they get an incentive on the $300 thousand growth. There’s a business manager underneath me, underneath the manager is customer service staff, and as far as marketing goes, I use agencies to do all the marketing for me, to do the email campaigns for me. It’s kind of outsourced to another agency.
The business manager’s goal is to come up with high level growth goals with me. What we’ll do is come up with yearly goals. The way I do it is I try to keep very minimal, specific goals. I’ll say, “For the next year, I want to get to X amount of revenue, I want to have X amount of customers.” Then we’ll work backwards. How do we get to X amount of revenue? Okay, we need to do this type of marketing, we need to start ranking for this type of keyword. Then we work even more backwards. How do we rank for that keyword? I break these down into monthly actionable goals. We use a bunch of softwares where the business managers are able to, or I’m able to track how we’re doing on this on a weekly basis. We get on a call every week, business manager updates me, we’ll tweak a little bit, and we’ll go from there. That’s how it is, is the manager is in charge of the business. I empower them, I let them make the decisions, and that’s how we run the business.

Mark: That idea of working backwards from a goal is something I read recently from I believe it was, Noah Kagan, talked about that with mint.com when he came on with them. He had a goal, he was told we want, I think it was like half a million users by the end of the year. At first that sounds extremely overwhelming but what he did is he worked backwards and said, “Okay, I know if I go to these places I should be able to get X or Y number of users.” By working backwards was able to fill in. It’s a fascinating way to look at a problem like that. When it comes to working with these managers, I think a fear that a lot of people have, especially even if you’re not looking, even if you’re looking to buy a business and still run the day to day operations, you still have to empower people at some point. I think the fear a lot of entrepreneurs have is letting go of that control and being disconnected from the nuances that you really need to have intelligent decision making. How do you attack that in your businesses? How do you stay close enough to the businesses where you can advise properly versus staying so disconnected that the business manager’s coming to you and you don’t really know what’s going on in the business? Is there a balance that you’ve found there that works?

Shakil: Well, it’s incredibly hard. As entrepreneurs, we want to be involved in everything, in all parts of the business. As you mentioned, I’m part of the e-commerce field. There’s a lot of owners there that are able to, are wanting to just run the complete show, they’re wanting to just grow the business, they want to provide all the customer service, they want to be on the front end and listen to what the customers are saying. It’s hard to delegate tasks, it is as entrepreneurs. What I’ve learned is at the end of the day, my times very valuable as well. I want to be able to focus on high level growth goals. Right? Me being on the customer service level is not really helping me on growing the business. What I’m trying to do is delegate the tasks so the low skill tasks onto my staff, and I try to just grow the business.
In terms of staying connected to the business, I use Help Scout for email services and you’re able to see all the emails coming in, going out. You’re able to see the feedback customers are giving for your products as well. You’re able to see if the customer staff is giving good answers to the customers as well. What I do is, I still check in on the business, I look at the reporting, I look at how much the revenue has grown, I look at how many orders have came in. I’ve become more I guess, a numbers person. I’m looking for results. That’s how I’ve kind of shifted myself is, okay if I want to get to A, to B, how do I get there and what do I have to do. I guess in a way, I’ve been able to delegate these tasks because I’m looking at the high level growth goals.

Mark: Yeah. That’s fascinating and a good way to approach that. Let me ask you about hiring a manager.

Shakil: Sure.

Mark: The expense that bringing a manager brings onto your business when you’re just recently acquiring it. We haven’t talked about financing yet so maybe you can touch on this a little bit as well. Let’s say that you’re buying a business with an SBA loan, or with some sort of external finance so you have that monthly debt to be able to pay to wherever you have the financing. You add in a business manager, and I imagine if you’re hiring from Indeed.com or a place like this, they’re not coming at low prices. You have their salary on top of that. How does that leave any room for you to make any money off this? Are you banking entirely off the growth of the business? Do you work that in from the start to say, “I still want to be able to take a little money off the top here with these additional people in place.”

Shakil: Yeah. Just like you said it, from a lot of my acquisitions I do take on debt. I do bring on a business manager. I do a lot of paid advertising initially and some of them don’t work out. Yeah, during the first six months I’m barely even making money but that’s the whole idea of it, is to test out different strategies and overall grow the value of the company. Right? Even if I’m taking on debt, financing, and it’s making $100 thousand a year, my debt loan is $50 thousand in payment, I’m left with $50 thousand at the end of the year. However, if the company starts to make more money, lets just say it makes $150 thousand a year, I still have the $50 thousand in debt but when I sell the company it’s valued at the $150 thousand. Overall, I’m looking at growing the value of the business because I do have cash flows coming in from the other businesses, I’m not really tied to the cash flow of my new acquisition. Yes, it’s nice to receive a payment from the business every month but I’m okay in the short term sacrificing that cash flow for the longterm value of the business.
When I do hire a business manager, remember I’m a big numbers guy so I like to an ROI on the new hire. If I’m paying them $70 thousand a year and they’re incentivized to grow the business, I’m expecting to at least receive that $70 thousand worth of value to the bottom line. I’m expecting them to grow the business. I’m expecting them to free up my time. I’m expecting them to run the whole business and reduce the stress on me. You know, those intangible, there’s value on the intangible things as well too but at the end of the day, they have to produce the ROI on what I’m paying them.

Mark: Sure. Okay, well lets talk financing real quick here with eight companies. You’ve probably explored different types of financing. Have you done chiefly SBA or have you looked at other sources of funding?

Shakil: Yes, I’ve done an SBA. I’ve done owner financing. I’ve done owner holdback, and I’ve done what is called is non-collateralized loan, which is kind of a non-secured loan. Those have worked out the best for me because they’re short term, they’re five year loans and I’m able to get 60 to 70% in financing. I bought socksrock.com recently and I was able to finance about 70% of that. The bank already had my financials on file so when I went into due diligence I told the bank, “Hey, I’m looking for this business to buy.” “What do you need from me?” Usually they’ll ask for two to three years tax returns, balance sheets, I think I mentioned tax returns. You know, those two, three things are very important. Performance for this year. I’ll just pass that onto them. I’ll tell the seller, “Look, I’m looking to get financing on this, I’m not going to do an SBA, I’ll close within 30 days but I do need this information.” I want to move on with the business as well too. Usually the seller will be able to give those information because it’s part of the financial due diligence anyways. I’ll give it to the bank and they’re usually able to approve it within 30 days, give me 70% financing, five years, 4.5% interest. That’s able to move very quickly.
You know, bank financing is big, seller financing if that’s available, holdback if those terms work out. Then I’ve taken a personal line of credit as well too. I’ve tried to utilize all types of financing. I think some people are scared of debt, some people like to brag about how they don’t carry on debt. I like to brag about how much debt I’m carrying because I think the way you can really make your true money is by financing. Right? With online business usually you’re able to buy around 3X lets say, that if you see how the ROI works on that, that means you make your money back in three years, which is a 33% return on your money. If you’re able to borrow on 5%, you’re making that 28% pretty much spread as your income. You know, I would borrow as much as I can.

Mark: Interesting. With the bank financing that you’ve been getting, the non-collateralized loans, how did you, without giving away maybe anything that you want to keep secret here, how did you find that? We talk with buyers all the time who would love to find a loan like that with their bank, but so many banks just don’t know internet businesses and because there are no hard assets, thus the non-collateralized portion, they get just kind of scared away from that. Did you have a relationship with your bank before? Is that how you got in? How did you find banks that would be willing to extend a five year loan at those rates? Those are fantastic rates as well.

Shakil: I think it has to do with a few things. You know, I think you have to have a stable income, high credit score. Besides those, the bank mainly looks at the income, the debt to income ratio. Is that business going to be able to pay the debt income? Usually, if you’re buying at a 2 to 3X multiple, it should easily pay for the income or the debt. The way you’re able to find it, and the way I did it was, just like I reach out to multiple brokers for buying a business, I reach out to multiple banks. These are banks that I don’t even have a relationship with, you know I bank with mostly one bank right now. Here in Austin, there’s a lot of small banks. What I’ll do is I’ll look online for local banks that are here in Austin and I’ll just email all of them saying, “Hey, I have an opportunity.” “We don’t have a relationship with you but I’m interested getting this financed.” “Would you guys be willing to listen to it?” A lot of these smaller banks, they usually have one banker and one underwriter and they sometimes may even be the same person so it’s easier to kind of move that process along.
The timing has to be right as well. I remember once when I approached the same bank that gave me the loan they said, “Right now we have too much risk going on.” Sometimes the bank just has the right appetite, it just has to be the right timing. The goal here is to reach out to as many banks as you can. Build the relationship with them first, and once the opportunity comes, present it to them and it could work out.

Mark: Yeah, awesome. All right, we’re almost out of time here. We have about five minutes left so I’ve got a couple of fairly quick questions for you here. In order to get eight companies, all right so eight companies, we’ve already said about two per year. I know a lot of buyers that have been looking for a business for two years and they haven’t found anything after two years. They’re registered with all the different brokerages out there to try and get as much information as possible. How many deals do you say you would look at in a given month?

Shakil: Oh, I would say I probably look at maybe 80 deals a month out of which I will ask … I have a set of initial questions just to kind of peak my interest. I’ll probably ask questions to about maybe 10% of them, so maybe eight of them. Then from then on, I’ll probably try to place an offer one to two every quarter. I do look at a lot of prospectus. Again, I like to just kind of see what other businesses are doing, if it’s going to peak my interest. I look at a lot. If you’re registered to a bunch of brokers, that’s good. Also, check out [bizbuysell 00:26:20]. It’s a great resource. All you do is click on the criteria of the type of businesses you want, the income you want, you click search and you see a popup that says, “Do you want to save this alert?” Just click that, save the alert and you’ll get daily or weekly alerts on that specific criteria. When a business comes for sale, you’ll see that in your inbox as well. I think patience is key. Do not rush into buying a business just because you’ve been looking for a long time. You want to make sure it’s the right fit for you.

Mark: Yeah. Out of the, you raised that about 10% peak your interest. Do you have, I’ve talked to other buyers in the past who have even written down checklists. Do you have either a mental checklist or a written down checklist of criteria that you need to see from a business?

Shakil: Yeah, I do. You know, there are products I like to buy. I want to make sure it’s not a fad, it’s been here for a while, it’s not a technical product either. I like to see the business on an incline or flat is fine in terms of revenue or growth. I like to see the business at least in business for at least two years, that usually means it comes with some failed strategies, it comes with strategies that it’s worked out and I want to utilize that. I like to look for opportunities where the seller has not been able to utilize growth. I think the way I’ve been able to buy these eight companies is I’m always looking for the right opportunity. A lot of sellers are not utilizing paid ads, they’re not utilizing their email list. A lot of these sellers have 10, 20, 30 thousand emails that they don’t even email and that’s a great way to set up mail chimp, or set up on Facebook … What do you call? Retargeting ads and such. I always look for the right opportunity that’s there.

Mark: All right, well our last question here. What would be one of your top tips for negotiating with the seller when you’re actually in, if you find something you want to acquire, you want to make a bid with that, and you’re going through due diligence? As you know, there’s a lot of psychology that goes on during the deal, a lot of emotions that can go on during the deal, and complications. What one tip would you give to somebody whose maybe going through this the first time? What to expect and maybe how to manage themselves during that process?

Shakil: Put yourself definitely in the sellers shoes. Remember, they’ve spent a lot of time building those financials, building their prospectus. They’re anxious now to sell the business, they’re opening the business to strangers now and there’s a lot of anxiety that goes there too. Number one thing you should do is build that trust, be empathetic, get to know your seller and let them know that if you are to take over the business, you’ll take great care of it. You will help grow the business. You’re taking over their baby pretty much so definitely recommend to build that trust and be empathetic towards the seller.

Mark: Yeah, absolutely. After doing as many deals as we’ve done over the past 10 years, I can say that is probably the number one tip I would give as well, is that empathy and understanding that the things that you need to know as a buyer are not necessarily the things that a seller understands you need to know. They don’t get necessarily why you’re asking the questions you are. That empathy really helps get deals done. I have like two pages of additional questions so I may have to have you on again in the future because you’ve been really helpful and I think a lot of our listeners are going to love this interview and some of the information. Thank you so much for coming on.

Shakil: Yeah, thanks. Thanks, Mark for having me.

Mark: All right, we’ll talk soon.

Shakil: Take care.

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The Interview with Shakil Prasla

Thinking of Selling Now or Later?