Podcast Archive | Page 15 of 17

How To Upload Your Knowledge Into Your Employees’ Brains (So They Can Grow Your Business)

Owen McGab Enaohwo is the Co-founder and CEO of SweetProcess, a tool that makes documenting standard operating procedures and tasks easy and efficient. Owen is responsible for making sure that...

Owen McGab Enaohwo is the Co-founder and CEO of SweetProcess, a tool that makes documenting standard operating procedures and tasks easy and efficient. Owen is responsible for making sure that you enjoy using SweetProcess to systematize the operations of your rapidly growing company. He is experienced in the internet industry and previously was the CEO of H.Y.V.A.

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

[03:52] Owen McGab Enaohwo explains the origin of creating a system to organize procedures and processes
[06:27] Is there a simpler way to solve the challenge of documenting procedures?
[11:17] Why you need to start with an outline of a minimum viable procedure
[17:24] Owen talks about getting employees into the habit of referring to SweetProcess
[22:77] How searchability features can aid in teamwork collaboration
[26:18] Owen shares how a standard operating procedure (SOP) can cultivate innovative thinking

In this episode…

Endless tabs and unorganized documents on how to run your brand can be stressful. How can you easily share standard operating procedures across your brand and make them accessible from one place?

Owen McGab Enaohwo helped create a tool to organize your best standard operating procedures (SOPs) that runs the gamut. His tool helps businesses easily access documents with just a few clicks of a mouse, making onboarding and everyday practices smooth. When you have an SOP in place, you’re opening the door for innovative thinking and improvement. Are you ready to revamp your systems?

In this episode of the Quiet Light Podcast, Joe Valley sits down with Owen McGab Enaohwo, Co-founder and CEO of SweetProcess, to discuss how launching a standard operating procedure can aid in the growth of your company. Owen talks about organizing and documenting processes, why you need a minimum viable procedure for your business, and enhancing searchability features.

Resources mentioned in this episode:

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.

There is no wrong reason for selling your business. However, there is a right time and a right way. The team of leading entrepreneurs at Quiet Light wants to help you discover the right time and strategy for selling your business. They provide trustworthy advice, effective strategies, and honest valuations. So, your Quiet Light advisors aren’t your everyday brokers — they’re your partner and friend through every phase of the exit planning process.

If you’re new to the prospect of buying and selling, Quiet Light is here to support you. Their plethora of top-notch resources will provide everything you need to know about when and how to buy or sell an online business. Quiet Light offers high-quality videos, articles, podcasts, and guides to help you make the best decision for your online business.

Not sure what your business is really worth? No worries. Quiet Light offers a free valuation and marketplace-ready assessment on its website. That’s right—this quick, easy, and free valuation has no strings attached. Knowing the true value of your business has never been easier!

What are you waiting for? Quiet Light offers the best experience, strategies, and advice to make your exit successful. To learn more, go to quietlight.com, email [email protected], or call 800.746.5034 today.

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. Thank you for joining me for another episode of the Quiet Light Podcast. The guest today is Owen McGab Enaohwo. And now he’s from Maryland, and he’s got a partner down in Australia, and they’ve created a company to help people with their processes, whether it’s a knowledge base, like we’ve tried to create here, a Quiet Light, which is really just a collection of SOPs, for hiring processes for VAs and things of that nature. So as you look out in 2023, and are thinking about scaling up your people and your processes, using this guy’s company, or at least the advice he gives on this podcast, we’ll help you with that. I know that we’ve developed knowledge bases before here at Quiet Light, and because we don’t have a systematic process for it, they become dated fairly quickly. Some of the things that Owen talks about in this podcast will help alleviate that and help you get organized so that as you grow and scale both in revenue and in people, you can do it in an organized fashion, which will eventually help you with an exit, whether you’re exiting to your partner, friends and relatives, family, things of that nature, or doing a full exit to an outside party. So let’s take a listen. This is Owen McGab Enaohwo from SweetProcess. Here we go. Hello, and welcome to the Quiet Light Podcast. How are you?

Owen McGab Enaohwo 1:54

Joe? Thanks for having me. I’m good.

Joe Valley 1:57

It’s good to have you here. Man. Why don’t you give the audience a little bit of background on yourself and your company?

Owen McGab Enaohwo 2:02

Okay, so I’m the CEO and co founder of a company called SweetProcess basically is a software that we make it easy for, you know, the listeners and printers to be able to have a, you know, a single place online where they can find, you know, how is it that we do any recurring tasks in our company, you want to get one single place where your employees can go find these procedures and processes on how to do work. That’s what we make it easy for your listeners to be able to do and for our customers by providing our software. But if you want to give a quick, brief introduction as to how we even found a company and how this came about, yeah, please do. Okay, so before strippers is started in the fourth quarter of 2013, right. And so before that, I used to run an agency that used to provide printers here in the US small to medium sized business owners with back office staff. So typically, like virtual assistant and stuff like that to do work for them. And this came about during the period where, you know, we had read the books, like The Four Hour Workweek, the world is flat, and then they realize this moment, small to medium sized business owner realize that they too, can take advantage of the whole was a call outsourcing and it wasn’t a thing where, you know, just limited to the larger companies like the big telecoms and all of that, right? Because before then that’s what we’re accustomed to that, you know, the telecoms were and all that would go to this company to these countries, get like hundreds of employees in this, you know, like 100, seats, whatever to handle their customer support, and all that. So that’s what they thought, but these books made him understand that, you know, from small to medium sized business owners could do this. But then we started getting this kind of customers and the issues we had with them was when they will come to us, they came with this preconceived notion that some of them in different countries speak in a different language and in a different timezone can just magically take over their work. And do it the way they want it to be done. Just the way they’ve always done it without some kind of proper onboarding on education on how to you know, how the work is done, or training on how the work is done. So part of you know, when we got the customers, part of what we had to do was, you know, said this petitioners curricula, hey, in order for us to do the work the way you want it done, there needs to be some form of training. And so what we’ll do is back then to a Skype, not zoom, and all these other, you know, old school or school stuff, so we’ll meet on Zoom, and then we’ll say okay, what is that specific tasks that you want to give us to give out to us to do that happens on a recurrent basis that you want to start with, they will have a session with us and walk host shows showing on the screen and having a conversation on how to do the work. Then, after that interview is done. Someone else on my team would take that interview and then create like step by step procedures and checklists on how the work is done. But here’s where we had issues. The issues we had was the tools we were using for the document and all of these procedures either they were enterprise level tools, bills like process consultant, and we had to use all we’re just Basically hotkey to get a bunch of different document publishing to just get this.

Joe Valley 5:05

Yeah, that’s what we do. We just pack stuff together, we’ve I think I’ve got like 45 to 50 bookmarks, at least right, and hoping the rest of the team does as well. And then we’ve got everything very well unorganized in Google Drive. And when you want to find something, it’s a task amongst

Owen McGab Enaohwo 5:24

so you’re taking away my spirit, because that’s exactly the problem we’re facing. So my mind I was like to be better wait for this, because you know, this doesn’t make sense. And so fast forward, I went on a podcast like I am right now. It was called, it’s actually called Mixergy, hosted by Andrew Warner. And he knew I was there to teach his listeners how to systematize the operations, document procedures and stuff like that just similar thing I’m going to do on this call, and my co founder all the way from Australia, listen to the call. And he literally isn’t Miss Jervis. By the way, he reached out to me and said, Hey, he’s trying to, you know, build this, he has an idea for building this app, similar to the things I was talking about in terms of making it easy for people to document procedures, and he wants to like, share some feedback with me and get my tours. And so you know, I was open to it. And this was literally a cold email emailed me, right. So we had a conversation on the phone and all that stuff. And I was like, Okay, here’s the thing, what you’re trying to do is something that I have issues with, and I actually do try to do for my, my clients, you know, so just giving you ideas on how to do this, why don’t we just go ahead and build this together? Right. But we just what I want to do, I mean, I agreed. And so I was like, we have to work with this what we should do, because I’m running into issues where the tools that I actually want to use are kind of price level and hard to use. I don’t want to end up in a situation where we’ll build the same kind of hard to use tools. So why don’t we go ahead and interview a bunch of potential customers. So you can see what the problem you’re having with this whole thing of documented procedures and having a single place, right online, the employees can go find things. And so we can take our findings to go, Okay, what’s the root issues that people are really having, and then try to build a software that, you know, attempts to address the issues in a simpler way. So we did that we had over like 40 or so interviews were recorded all that stuff, you’d use what the root issues that we were having. And then we then went ahead to build the software. So fast forward. Now, as SweetProcess, you know, we have over 2000 companies using our software, the typical company is between that 20 employees, two all the way to 150 plus employees, we have branches in the company, using software, we have churches and their volunteers using the software, we have government agencies and software, lawyers, I mean, it runs the gamut. Because at the end of the day, this issue of you know, having your employees be able to do work predictably. And having the information right in front of the hand to go to work. It’s this is industry agnostic is not specific to specific industry. So that’s why we have different industries, using the software. So that’s just a quick introduction of how SweetProcess got started. Yeah, that’s,

that’s great, man, you’re solving a problem. First, it was your clients problem. And you said it was a problem for everybody else, you know, we’re in the same boat. Right at Quiet Light. We’ve got, you know, 35 36 employees now, and growing and doing, you know, hiring them on and bringing VAs on, in particular, I find always to be challenging, because we don’t have the process, we don’t have the SOPs in place to bring them first of all, on how to bring them on. Secondly, once they’re they’re brought on, you know, is the role that they’re going to work in, fully documented in the interest? No. Oh, and so how do you encourage your clients through SweetProcess to, you know, properly document things in terms of a onboarding be, you know, the work that’s going to be done by let’s say, let’s say a VA, because I think most of the audience would probably be working with virtual assistants. And onboarding them properly, is a barrier to getting that work done to begin with.

Okay, so let me give you a framework on how to get this done. Regardless of your reason of why you’re doing it, it might be because you’re trying to grow and scale the company, or you’re trying to do succession planning and get you know, someone else to take over from you or because you’re trying to sell the company because the company gets more valuable, because if you have these documents in place, all for training and onboarding purposes, to get quick use out of your customer. So based on the reason,

Joe Valley 9:21

pause right there, and don’t forget what you’re about to say, folks, he just talked about, you know, if you’re going to sell your company, and how this will increase the value of your company, and I’ve got to touch on that because it’s not a numerical thing, right? It’s not sellers, discretionary earnings times a multiple because of you, you know, what your processes and your onboarding, but what it does is it instills confidence in buyers. They believe in you as a professional, they believe you’ve built a business that is going to transfer more successfully and not have lots of road bumps and blocks that you have to get around as a new owner shortly after cool closing, because you’ve got everything well processed and documented. And if you, unfortunately get hit by a bus or just disappear off the face of the earth intentionally or not, after closing doesn’t matter, everything is processed to the tee. And it’s going to, it’s going to get you more value for your business either in higher offers, or a better deal structure. So, how to say it? Oh, and how to say it?

Owen McGab Enaohwo 10:21

Well, I’m glad you, I’m glad you. I’m glad you went on that. So the reason why you’re doing this, so we have agreed that you need to do this. So now the next thing is, where do you start? So before you get started, I would say no, evaluate the work you do on a recurring basis, because we only documenting the work you do on a recurring basis, right? Not the stuff that you do, you know, once and then you never do it. Now that doesn’t like projects you never do over and absolutely only focus on the things to do over and over again, that’s evaluate like maybe a week or so a month or whatever of like a timeframe of this work you do on a recurring basis. And then that will give you a kind of a list of what is happening in the company, right. And then before you start documenting, I’ll say the first thing you need to ask is, which of these recurring tasks are required. The reason why I say required is because some of these days, we just sort of tribal knowledge, we’ve always done things this way. And it’s not necessarily required, because, you know, you might just start by eliminating the things that are not required, so that you can only focus on the recurring things that are required, because we want to start this documenting thing. And it’s an effort, we don’t want to document things that are unnecessary. So now we are left with two recurring tasks that are required. Now let’s look at that and say, Okay, let’s break that into two parts, the tasks that are, you know, revenue generating, which are the sales and marketing tasks that bringing your customers like, you know, into the company. And then the other part of that, which is the production tasks, the things that you do to deliver what you’ve promised to your customers, right? Now, people are listening to this and say, Oh, maybe I should go ahead and start with the recurrent note with the with the sales and marketing stuff, because it’s exciting. You know, if you document how you do that, because you have a system, you don’t now you do now you can get more more employees to bring them bring in more customers. But as it was on that, because you’re going to end up having a system that works documented how it’s worked in bringing people to do the work. So they bring in more customers. So they this customers get pissed at the fact that you’re on your production site. There’s a lot of bottlenecks, right, you don’t want to miss more customers off. So that’s why I say start with the production side of things first, now let’s determine which task on the production side of things is the biggest bottleneck. And to identify that it’s like the tasks that anytime it comes up is like, oh, gosh, information nightmare information is missing here. And they’re all you really don’t like doing it because you feel like, oh, it’s taking so much of your time, or, you know, whatever reason it is

Joe Valley 12:32

to do it each month, that’s that’s the problem. It’s like, okay, this is once a month, it’s not a big deal. But at the beginning of every month, I’m like, How did I do? How do

Owen McGab Enaohwo 12:40

you do it? And it’s even now heightened now that people are not working in the same location, like back in the days before, you know, COVID make remote working fashionable, right? Everybody’s doing it now. You just rely on maybe walking into your coworker and interrupting them, because that’s what you were literally doing to try to get information from them. And now they have to figure out, okay, what was I doing before this guy can do to help me so I can do my work. Now, you can’t even do that. So everybody’s working from home. And keep in mind, a lot of them are parents, with kids and all that. So everybody’s attention is literally needed to do work. So it’s it now, because people are working for them. So back to the story. So we’ve identified that, you know, the biggest bottleneck on the production side of things. So how do you get started, I’ll say is the time when you about to work on the task, that’s when you start documenting, like, because you mentioned, you know, trying to remember how to do the work, right. So when you actually try to do the work, obviously, gonna have to try to remember how to do the work. So I say, Okay, why don’t you also take the time to document a procedure. But here’s the thing, I’m asking you to document an exact video at this point. And I’m asking you to document what I finally called a minimum viable procedure, which is a fancy way of saying a skeleton outline of a checklist. All it has it had days is titled procedure, title of each of the steps. So if you are working on a 10 step task, for instance, by the time you’re actually done working on a task, you will have a minimum viable procedure has scheduled the task and title, the 10 steps. How do you go from this outline of the procedure to something with more details fleshed in where mean details? I mean, screenshots in their text in between each step may be additional, like a small video blurb, or whatever that gives more insight into what you’re doing in each step. How do you get from that outline to that very point is, first of all, you have to put in the minds of all your your managers and your employees on the ground that, hey, this is going to be a continuous improvement thing we got to install in the in your mind, we’re all starting from version zero. And we are going to as we keep working, we’re going to keep improving which version. So now remember, you’ve documented that outline, the next time your employee, manager or whatever is about to work on this task. Again, do you need to have that outline in front of them? Right? And the task is as they’re working on the on the task, all they need to do is go in and put in some blurb into each of the steps, not not just something that we want to go from version zero to something with more detail. And your job is once they have done that is to review that document and upgrade of it to make sure that there is some information in there, right so that every time that this is the dance, every time you’re working on this task, we go into back to that document and trying to add additional information. And you are making sure that you have your eyes on this to make sure that you’re improving as you go. So that’s the framework. Now you go to

Joe Valley 15:21

the document itself, what is the format of the document? And where does it live?

Owen McGab Enaohwo 15:27

Okay, this is where we start talking about the actual tool that makes everything all come together. And this way, you know, I will talk about SweetProcess, but I’m trying to give you a framework on how to do it, regardless of whether it was eight, I don’t want it to just be an ad for three plus, I wanted to give them how to do regardless of sweepstakes or not. So the to answer your question the format could be I would say let it be, you know, a document, write a readable text document that has title of the document and title of each of the steps. And you know, you want to have images in there, right, I will say don’t put a video a long video, because the problem with videos is that when you have a video that is too long, now you’re telling someone that oh, I’m going to spend the time to watch this entire video to get an understanding of what you want me to do. So if you want if you do not have to use a video, make a video in less than a minute. We honest, right? Because we want that video to be representative of that very step. So personally, I rather not use videos, I rather use screenshots. And if you need to make the screenshot, a visual where people can see things or use a GIF, or GIF, we will show you some kind of animation, right? So screenshots and text, because when you make changes, it’s just a payout. It’s the new stuff, versus trying to use a video video, you have to render a whole new video. So back to the thing now. So you’ve you’ve identified that first document, you’ve gone through that dance, you’ve created that procedure for that first document. So every time employees are working on tasks, their job is to improve a document, you go there and approve it. Now you identify the next biggest bottleneck on production side of things, you do the same thing we mentioned, identify the next biggest bottleneck. And so you know, eventually you will have documented quite a lot of the tasks on the production site where you can start freeing up some time, it’s okay, let me start looking at the sales and marketing stuff started bringing customers into the company, you start documenting how you do those things as well. And here’s the thing, you now get to a point where you can start assigning, bringing on new employees to do those tasks. Knowing that on the operation side of things, you won’t run into an a bottleneck because you taught me how to adjust as the production side of things are done. And if you need to bring in new employees to take over some of those things, they have a starting point that they can go from. So now the next thing is you understand how to make this done? How do we also have this culture in the company that people have a system thinking mindset. So I’ll give you some some tips on how to do that. The first thing is, if your employees come asking how to do a certain thing, you have to make sure that you always tell them, Hey, have you checked SweetProcess? For instance, if you’re using SweetProcess, they know the first thing your manager or anybody who they keep coming to ask questions. Have you checked SweetProcess and what that does to them? So consciousness like hey, I can go ask my boss, I can go ask my manager how to do something onto my chest SweetProcess, right, for instance. And now. So now they now know that every time you have a question, the first place thing you have to do is go and check that software that you’re using, and see that document is in there. Now you’re trying to train and habit. Now what also happens is that eventually there’s gonna come a time where they check three brothers, for instance, they didn’t and they don’t see that document. Now that should trigger something where you’re the manager or you the mind, or you’re the owner, the company knows now that this is some information that is critical for your employees to have trained in every time they need to find something, then go and check that to process my answer. But now this document is not there, that should now trigger the opportunity for you to go ahead and document a new minimum viable procedure for that task, especially because it’s something that you want to do on a recurring basis. Another way to also encourage the whole thing of habits into your employees, right for this whole system thinking is, as your employee starts checking the SweetProcess, seeing how the documents are all document all the different types, you’re gonna start seeing, you know, you know, every document and employee’s name is next to a document that maybe they created it, or they were the ones that added a step to the document, or did it was to add comments to it. So what does that put in their mind? Well, all my colleagues are here, helping to improve a three documents, or how we work, maybe actually started joining in this dance too, because I don’t want to do like I’m not contributing to this company, right? Please start doing that. But now from the mindset of the employees, you are supposed to let them know that from a culture standpoint, where will you say that the company has your best interest other than the fact that okay, you are doing the work and we are encouraging you to come here and make updates to how you do the work. This is a company that actually listens to you and we care so much about you that we want you to be part of improving how we do work. So that’s this is ways to sell it to them. Now, people might say, Okay, well your employees have things to do, maybe, you know, they might not have the time. So let me give you some tips on how to add additional ways for them to do the work or incentivize them. You’re, they’re getting paid to do work. And now you’re, excuse me, now you’re asking them to, you know, invest some time to actually help you document and improve this, your procedures and processes, why not also pay them for doing this, right. So you can actually pay them to do this on Earth, and you can also do is that maybe you can create a kind of shortcut, some of these days, you can maybe create a procedure on how to create procedures so that all they have to do is copy that document, right? That template document. And that kind of gives them instructions on how whenever you created a procedure, this is how you want the procedure to be this how I want the title to be this, how I want you to have steps in how I want you to have details in there. So I’m just giving the listeners tips on how to do it. If you say for some reason that okay, all these tips is not enough for you to do something to get this started. Well, they are process consultants, people who are hire third parties who are hired to plumb into a company to help you document procedures, if prominent, follow this whole dance that I’ve mentioned and introduce a software like free process to actually help you get it done in your company. Now the thing is, obviously, if you hire a new process consultant is going to be more expensive than if you’re trying to do it yourself and with your employees, but at least you have all the options available to get this

Joe Valley 21:26

done. One of the challenges I have is creating, you know, a place where it’s properly labeled, so somebody is searching for, you know, an email launch, you know, sequence How do I do that? Or, you know, to change the list price of a business? How do I do that? Where like, how do you organize, you know, SOPs by employees or by departments and things of that nature. But how deep do you go?

Owen McGab Enaohwo 21:56

So I can tell from our standpoint, a suite process. So what we do is we allow you to create teams, right on how your company runs. So if you have a sales, your marketing finance page for different teams, and within those teams, obviously you have roles in those teams as well. Right? So let’s imagine if let’s say you run in a restaurant and you have a kitchen, right? And in that kitchen, you have a role where chefs, right, so you can put a role for chefs and people who are in that role, and then a role for dishwashers and people who are in that role, right. So now back to the teams is that, you know, you put documents into those teams. And those people who are part of those, those teams can only see documents in that in that team, they can see documents outside of that team. And then you can even further organize the documents within each team. By putting those documents in relevant orders. One of the things that we did to make sure that is a SweetProcess from the standpoint of search search ability is a universal search. Meaning that if you wanted to search for a document, all you literally have to do is sites, think of a specific key word that should be contained in a document, let’s say if you’re looking for, you’re writing a procedure on how to reform orders, right, and you’re looking for how to do that, how you would do is just type the word the key word reform, as we process will bring out a result of every single document that has that key word refund, either in the title or in the content. And it’s now easier for you to now see okay, from this result, I can see what I’m looking for.

Joe Valley 23:24

Yeah, this is this is the problem we had here a Quiet Light were searching for keywords in the title a document inside of Google Drive, searched, I think our entire Google Drive instead of the specific folders that we were trying to create. And funnily enough, we used to have what we called it a knowledge base and we used to have it as a separate URL accessible only by our team on our WordPress site. And I swear, every time I needed to upload a new video or training sequence or whatever it might be, I had to relearn it every single time. I didn’t have an SOP on it because I thought no big deal I’m getting this I know how to do this this month. And you know you do so many things in a month as an entrepreneur that you quickly forget tasks like that. And eventually the the the knowledge base, which really is just SOP documentation, it became dated very quickly. We’re in the middle of trying to rebuild it and I know Mark my business partner is doing it because I did it last time and it didn’t you know it’s a monumental task. And honestly I don’t think we’ve looked at SweetProcess so this is going to be one of the first things I have him do once we’re done with this recording. So I appreciate it. What other what other tips can you give to help people to get started even you know, again, they’re not you know, this isn’t a This isn’t an ad for SweetProcess, but if they’re not using SweetProcess and they’re just trying to get started, and they’ve only got you know, it’s them in a partner in three afford VAs and they’re hoping to add additional VAs in the coming year? What What tips can you give them to just start to get organized?

Owen McGab Enaohwo 25:09

So yes, the thing too is that I’ve given you a lot of tips and the framework. But you know, I also said, if you can do it, or your employees can do it, you can hire process consultant, now also a process component that is looking at it from a standpoint of consultant. But maybe that’s too expensive. There are actual people who there are jobs literally call them standard, standard SOP writers, you can go on on what’s it called on the LinkedIn and do like a title search, right? And hire these people. And these people are literally hired in companies to write SOP. Now, obviously, these guys don’t come with the spirit of consulting that process consultant will will come with. So it’s more of a hand held thing where you have to, you know, kind of give them way more information. And their job is to go there and try to write this stuff. So that’s another option that you can throw in there. But if you go with the process consulting route, here, they come from a much higher level where they actually kind of consulting and going through trying to help you think through things. And then eventually, sometimes they actually end up having SOP writers that they hire internally to do the actual writing of this document. For you. There’s something you mentioned earlier ways, like you said, you have to spend time trying to remember how the work is done, right. And so now this is interrupting the fact that you don’t get to do the work you need to do when you need to do it, you have to spend time trying to remember how the work is done. Now also argue that if you have all these procedures in place, you don’t have to spend any energy, trying to remember how work is done. As a matter of fact, because you don’t have to spend how much time trying to remember how the work is done. Because you can just get quickly get started on the work that also allows that innovation to come in. Because when you start doing the work, you start thinking Hmm, how can I make this better? That’s what your mind starts going to because your mind is free from thinking how do I do the work, you might just go straight to doing the work. So you’re now allowed to start thinking, Are you only you, but you are your employees? Because you have these SOPs in place, your employees that stuff yourself to start thinking, how can we improve stuff, and that to me is is is innovation, the whole continuous improvement of how your work is done. And that only comes in when you actually have that starting point, or the starting point is the documents in place?

Joe Valley 27:19

Yeah. My last company that I sold, it was it was me and one, you know, remote employee. And one of the recommendations I got from Mark here at Quiet Light, when I was selling my business before I was a partner with him, was creating SOPs for tasks I did every day, it was easy, because it was just me. And I knew who I was writing it for I was writing it for the new owners of the business. And it became very valuable and helped me get, you know, a full price all cash offer. I think the challenge sometimes own is when we are so busy doing all the things that we do, and an eventual exit is someday down the road. That’s not motivation enough to write the SOPs, but what you just mentioned is, it helps you continually improve your business and waste, you know, eliminates wasted time, and gives more confidence to people and they can continually improve the process that they’re working on, they can do you know more in less time. And that in itself is an improvement of the business, people will be happier, and the value of the business goes up as well. Or you just might end up making more money because you’re doing a better job at these organizational tasks. So there’s, there’s lots of reasons to do it now versus for Sunday for an exit, wouldn’t you say?

Owen McGab Enaohwo 28:39

Of course. And one final point is, you know, a lot of this documentation were documented so that human beings can do the work predictably the way we want it. But that shouldn’t be the end goal. That shouldn’t be where you stop, we should also think that, okay, as we keep improving this stuff, maybe we get to a point where we can start figuring out ways to actually start automating some of these things where some of the points in the tasks that we’ve documented procedure, maybe we don’t even need to have human beings do it, we can then you start using software and machines doing it. So that, you know, we go from, you know, 100% being done by human beings, we get to certain points where we start having automation. So that’s kind of the dance of how you’re doing this is that, you know, sometimes you can get to that point where a lot of the stuff humans don’t have to do, you can automate it. And now, you know, only out of Yeah, but you don’t get to that automation, until you’ve gotten a full understanding of how the manual things get done. You start from the documenting of the SOPs, and eventually get to the point where maybe the entire thing is automated or some parts of it or a large essence of it is automated and some of the parts are done by human beings.

Joe Valley 29:41

That’s awesome. The thing I like most is the fact that you have a document showing you this is the framework on how to create an SOP, and then the rest of your team uses that so they’re similar, right? Anytime you go to a new SOP. It looks familiar. You don’t have to learn it from scratch. It’s great and I just took a look at your your site again. And I gotta admit, I mean, I’m thinking about this for quite a while and be honest with you. It’s ridiculously affordable. It really is.

Owen McGab Enaohwo 30:11

Yeah, that’s a thing people keep saying all the time, I’m begin to wonder maybe we should increase the price and

Joe Valley 30:16

wait until wait until after we say that. How? How do people learn more about SweetProcess? Oh, and how do they reach you? How do they you know, get started if they want to take a look and see if it’s a good fit for them.

Owen McGab Enaohwo 30:31

So great. So what I want to do is because the listeners are listening to the all the way to this point, I want to give them an incentive. So if you go to allow a website, by default, the trial is 14 years because you’ve listened to this interview all the way to this point, I want to give you an extended trial. So instead of 14 days, you get 28 days with a longer time to try the software, use it for free. And to get this offer you go to SweetProcess.com/QuietLight again, as sweet, so sweet, like candy process like process.com, forward slash Quiet Light, and you’ll be able to get access to this extended trial of SweetProcess.

Joe Valley 31:05

Awesome. Well, thanks for coming on the podcast today. Oh, greatly appreciate it. Hopefully people will take you up on the offer and have a great day. 2023

Owen McGab Enaohwo 31:14

Thank you very much, Joe. Thanks for having me and to the audience. Thanks for listening to me.

Outro 31:20

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.

An Uncommon Exit Strategy

Amir Salihefendic is the Founder and CEO of Doist, a productivity software company. He is the Creator of both Todoist, an online task-manager and to-do list app, and Twist, an...

Amir Salihefendic is the Founder and CEO of Doist, a productivity software company. He is the Creator of both Todoist, an online task-manager and to-do list app, and Twist, an asynchronous messaging app that makes collaboration easy from anywhere using threads to organize your conversations. Amir was the Co-founder and CTO of Plurk Inc. and a Developer of Bioinformatics research activities at the University of Aarhus.

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

[04:13] Amir Salihefendic talks about creating a product to outcompete the competition
[08:22] How to build a lasting business model
[11:07] Why social media marketing can help your struggling brand
[17:43] Amir explains planning for proper brand governance
[22:55] How can an AI compete in the business world?
[27:27] Ways to empower people through task management
[34:01] Amir discusses some advantages of a remote company
[38:40] The value and efficiency Twist brings to communication lines

In this episode…

What if you could create a plan without pulling your hair out? How can your brand outlast and compete in a thriving market?

When Amir Salihefendic created his brand, he wasn’t looking for a means to an end. He desired to bring consumers a quality product he was passionate about — and one that would solve consumer problems around creating and organizing schedules. Building a better product means constantly changing with the times and staying committed. To Amir, that means no plans of exiting in his future.

In this episode of the Quiet Light Podcast, Mark Daoust sits down with Amir Salihefendic, Founder and CEO of Doist, to discuss pivoting and growing a business with no exit strategy. Amir talks about a business model that lasts, governance structures, and how artificial intelligence can aid in task management. Stay tuned!

Resources mentioned in this episode:

Sponsor for this episode

This episode is brought to you by MyAmazonGuy, an Amazon agency to help level up your PPC, SEO, Design, and manage your entire Amazon catalog.

This episode is also 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.

Mark Daoust 0:32

Hi, folks, thanks for joining us on another episode of the Quiet Light Podcast I’m Mark. It’s been a while since I’ve posted a podcast episode, but really happy to do so today as I was able to interview and have a great conversation with Amir, the founder and CEO of Doist.com, you may be familiar with Amir and Doist. And particularly, they’re extremely, extremely popular. To do a snap, sorry to do lists app called Todoist.com. Very popular to do is to add very, very powerful software. They also have another piece of software, which I absolutely love and have been working with quite a bit more called Twist. It’s like Slack, but not always on. It’s asynchronous as opposed to synchronous. Amir and I had a great conversation in which we talked about a core value that Amir holds with his company. And that is that they don’t have an exit strategy. I love this, I think it’s a great core value to have. And it might surprise some of you to hear me say that. But I actually think that going about your business, knowing that you want to hang on to it for the long term is a great way to to go about your business. And that’s really what he was speaking to, he was pretty clear that look, you know, an exit could always be on the table, if it made sense to do or maybe that day will come someday. But he’s not building this company specifically, because he wants to sell it someday. And I think that sentiment is absolutely right. To be able to have, we also talked in depth about some of the artificial intelligence tools that are out there, this was more of a diversion. It’s something that that was a lot of fun for me to be able to speak about. Todoist is implementing and experimenting with AI in their task and task management suite. And then we talked about the nature of running a remote company, something that he’s been doing ever since he started duelist in 2007. Anyway, I hope you enjoy this episode. And I just have to give a great big thanks out to Steven Pope. As you probably heard from some of the other episodes here, this episode is also sponsored by My Amazon Guy and Steven Pope, the founder of My Amazon Guy. I know him personally, you may have seen him over all over YouTube offering free educational content. If you need someone to level up your PPC SEO, design and manage your Amazon catalog. Make sure you check out Steven at MyAmazonGuy.com. Right, let’s get into the episode. Amir, thank you so much for joining me for this episode of the podcast for the Quiet Light Podcast. Really happy to be here. You’re with Todoist. And you have kind of an important role at Todoist as the CEO,

Amir Salihefendic 3:04

right? Yes, Mark, it’s awesome to be here. Yeah. And I’m looking forward to just like chat and see where this conversation brings us.

Mark Daoust 3:14

I remember when to do is launched or shortly thereafter, when Todoist launched. And I have the exact same reaction. Every time I see a task management, task management software come out another one. And I remember thinking that with what to do is but you guys have absolutely found your space in a hyper competitive niche. I would love to learn a little bit about what drew you guys to this space in the beginning, and how did you eat a little bit of the story as to how you pushed your way into what was already a fairly crowded niche at the time you guys started?

Amir Salihefendic 3:51

Yeah, yeah. Um, you know, like, I started this as a personal side project in 2007. And like, something that is a great thing at the beginning is like, you know, ignorance is bliss. So I didn’t really care about competition, I really didn’t care about like, a lot of other stuff. I was just, you know, focusing on like, creating a good product for myself that I love to use. And then I also had like a personal blog, they use kind of promote it. And that’s kind of like how I got started, like, you know, just like a personal project that I’ve made for myself. You know, this is kind of like a very big contrast to a lot of like, founders right now that kind of like try you know, to start something because they want to start something like I think it’s much actually better if you start something by like identifying a problem that you have or like somebody like a space you know a lot about has, and then solving that problem. Especially I think also like it’s really critical to be super passionate about the stuff that you like going to solve because a lot of times you know, it’s a lot also game like, you know, I’ve been doing this for 15 years now. Very, you know, you need to have a passion to work on a To Do app for like 15 years. Most of the days, I remember work on the weekends, but you know, like, everyday in and out, you know, like, working on like our space. And I think that sounds like something that’s maybe not valuable enough in like, the current founders is kind of like, a long term commitment and long term thinking. And, you know, just like out competing competition, because you’re just like, you know, going to outlast them, you know, we have outlasted like, companies that got bought by like $200 million, like Wunderlist, the chemical shutdown? And, you know, like, maybe they actually had a better product at that time, you know, but we just outlasted it. Because, you know, we didn’t sell out like we, we just stayed in the business and you know, kept churning out stuff. Yeah. Yeah. And find your

Mark Daoust 5:58

story fascinating. And the history of Todoist. Fascinating again, partly because it’s, it’s in this space, where, you know, building a To Do app is often the test that you give the developer who’s learning a new language, right, develop a to do list app. I remember we years ago for another company I owned, we actually had that as the test for React developers and one very simple task management list, can you can you do that, and we wanted to see how they broke their code up. But when you get into the layers of it does get more complex, and you can get really fine. I love the fact that you talk about, you’re solving the problem for yourself, right? Product Market Fit is always the key that unlocks a successful SaaS company. And so where do you start willing to start by solving a problem that you might be having? When did you have that realization? Of I want to make this public and put it out there? Was that from day one? Or was it after you had something that was working for a while that you decided to make it public?

Amir Salihefendic 6:58

Yeah, that’s a great question. And like, something to note, as well is like, I actually was like an indie developer. Before, it was cool. Like, I was an indie developer in 2007. You know, like, and somebody knows, like, I built in public, like alone, like, there’s a lot of, like, boundless amount of building public, I built in public, I had a blog, you know, I like I would talk every day, I would like, do some work, publish it out. And, you know, Todoist wasn’t really my first project, like, I’ve done like, a spell checking app, I’m actually also sold it before. And I don’t like CMS system, like, various libraries as well. So I was not like, only building like, a to do that, like, I was doing a lot of like, different projects. So, you know, I was just like, building public public sharing my my thing. And even like, the business model, you know, like, that’s also like, a strange thing is like, I didn’t know like, zero about building a business, you know, but I knew, Okay, like, I actually need to pay like hosting. And, you know, I’m a student, like, you know, like, like, I need to cover the cost somehow. So that’s actually also like, how the business model got got, got kind of invented in 2007. Like, it was very uncommon to actually charge a subscription for some software on online, you know, it wasn’t really super common. And I did that, because, you know, I didn’t read a book or like, I didn’t know what even like SAS was, you know, like, I was just like, Okay, I have cost, I need to cover this cost. Let charge. Yeah, and even know that the pricing part. And that sounds like something that’s very, you know, like, right now you have like, all of these, like sophisticated models, you know, I was just like, Okay, what should this cost $3 per month? You know, it makes sense. Let’s just do this. Yeah. And, you know, that’s also called the pricing point, got set and honest, like, we had this pricing point that I just like, threw out like, you know, out of nowhere, for like, I think, Oh, well, like a decade, before we can optimize the price. Yeah.

Mark Daoust 9:12

There we go. Who needs AV testing, just pick your prize and go with it, when you’ve got multiple projects going on. And I know, entrepreneurs can relate with this because we can’t sit still on a single project, right? Shiny Object Syndrome. We all know about it. I can relate with this when I started Quiet Light when I found in Quiet Light. Probably the first five years I treated this as something on the side that I was doing. And it just kept growing and kept growing and kept growing. And I had to make that decision at some point to say, Okay, I’m actually going to go all in on on this, right and get rid of most of my other projects. Did you have that moment or did Doist just crowd everything else out for you? Where was that pivot point for you? And I mean, you talked about you did the spell checking nappy as CMS, you had all these other projects going on? Maybe you still have them all going on?

Amir Salihefendic 10:08

How did that how did that transition happened? Yeah, I mean, something to notice, as well, it’s like, to this was like a side project for me. From 2007 to 2011. It’s about the same time

Mark Daoust 10:22

for me, it was Quiet Light. Actually, that’s what was the effect? Same arc there. Yeah,

Amir Salihefendic 10:27

yeah. And, you know, I didn’t like see our business. Like, I didn’t think like, this would be a bit like, it was a side project. No, I had thought this, during the night, actually had like, to start off with around, there was CTO of a social network or clerk, it’s access to the operational. So you know, I didn’t really see this like, really as like, a business, you know, I was just like, okay, you know, this is kind of my pet toy, you know, I really feel passionate about this. But, you know, at some point, like, especially, like, I kind of quit this social network. And, and I started another project called we Doist, which is like, team based project management app. And then at some point, like, you know, I was, like, really struggling finding, like, product market fit. And then I had like Todoist, you know, like, which have product market fit, like people were using, like, people will also send me like, these huge emails, you know, like, this, this thing’s, like, sucks, you know, you need to improve this, you know, like, You’re ruining my life, you know, like, and honestly, like, some of these, like, wouldn’t be like, super long. And like, I was just like, you know, like, also, with, like, a lot of feedback, and a lot of just like, poof from the market. So at some point, I was just like, okay, like, why am I actually like trying to find product market fit, and struggling when actually have something that works. And if I just, like, apply more energy on this, we just die off. So that’s kind of like when delight kind of came to me and said, you know, like, I see a vision now. And like, this is the path. And in that time, but maybe to this was meeting about, like $3,000 per, per month or something like that. And when I actually, like came back Todoist, and started to work on a full time, I think it took me like, I don’t know, six months to bring like 230 K per month. Yeah, because, you know, like, I had so much knowledge as well, like, of building like, a social network and all of these other things that you know, and then it also became became like, our survival mode. Yeah. So much like, you’d have the same similar story with your company. But yeah.

Mark Daoust 12:37

Yeah, I mean, I’m sure people here quite like can tell you that I get distracted. And it’s a matter of months before I wake up one day and think, What am I doing? Why am I doing this? I’m curious. Who was your first hire? At Doist? Who did you bring on? First, that first hire I always think is interesting and difficult and feels weird sometimes.

Amir Salihefendic 13:01

Yeah, I mean, my first hire, like real hire was actually a support person, because I was getting so much support. And like, it was, I was also honestly, like, a super bad, like, support. person, because like, I would take like this as an offense, like, you know, they are criticize, like, sometimes, actually, we had, like, so this is a funny story. Like, we had some people that joined this afterwards. And they would show me like emails, you know, like, when they send supporting, I would, I would just, like, respond back like, Yeah, I’m going to look at that, like, this is not important, you know, like, just be like, one line as you got like, like, the the zero, like customer support, because, you know, I was just like, overwhelmed. And also just like, you know, I took it very personally, like, you know, yeah, so that was my first hire. That’s, that’s hilarious.

Mark Daoust 13:55

That’s hilarious. All right. I’ve been sitting on this question for a little bit. So I’ve got it, I’ve got to ask it now, right? Today, with the company, you are obviously a well formed company. You have values, the core values for your company, and one of them stands out, you put a write on the website do est. And obviously, it intersects beautifully with what we do here at quiet light. And I actually really liked this value, even though it means that my business would go up in smoke if everybody adopted this, and that is, you don’t have an exit strategy. That’s part of your core values. When you’re teaching this to your team. And using this, what do you tell them? Why is that a value that

Amir Salihefendic 14:31

you hold dear? Yeah, yeah. I mean, you know, I think that as a company, and as a founder, you really need to find like, edge, you know, and like, you need to be different. So most of the founders, you know, they have an exit strategy. Most startup companies, they think short term, you know, like, their success. It’s kind of like, Hey, can we get acquired can we do IPO or whatever else with this? So Like mighty fresh in Australia is kind of like, there’s no exit, you know, like, this is full commitment, you know, and like, if you as a leader go in and say that, um, you know, I can also pack this up, because I have worked on this for 15 years now, you know, like, I turned down offers and like, I don’t even like, it’s a team, like, acquisition talks, or whatever else like, is, like, it’s a really powerful life, because it makes you very different. And it makes like a commitment very, very different. And I think like, people can really feel this, like, you know, this isn’t just like something that the state, you know, it is the reality no. And of course, also, like, a lot of founders, or companies can’t really do this commitment. Because, you know, like, maybe your project isn’t really, you know, something could work 50 years old, but, you know, I believe, like, our space, it’s something that we can easily do. Yep. So, you know, yeah, like, you know, finding a match finding a moat, and being different, you know, yeah. Yeah. And that is one aspect. Of course, that aspect is, you know, just like being, you know, like, like, not having a boss or like, you know, like, not having somebody that can, like, big data are our, you know, our decisions, like, we’re just like, yeah, we can do whatever we want. Because, you know, we’re independent. Yeah. Honestly, like, I think that is initially I thought, actually, that was a very strong belief. But I don’t actually believe that, I think like you always have, you know, stakeholders, like that could be your customers, that could be your employees. I mean, right now, we are 100 people, that means like, I’m actually in charge of, like, 100 families, maybe, you know, that is the huge, like, you know, like, we are not just independent, like, we can do anything that we want, you know, yeah, so I think like, that independence, like, I always think you have stakeholders, and that’s all something that I’ve been thinking about, especially like, you know, watching like this FTX, you know, explosion, and like fraud happening. I really think like, the problem there is really like, stakeholder control, and not actually having like, you know, a board and like, you know, somebody, somebody that calls like the execs or the CEO accountable. And this we’re actually very similar right now. Like, you know, of course, like we’re not fraud, but like, we don’t really have like this for and I think actually, there’s a reason why most corporations actually adopt this, I think it’s a great way to have accountability in a company. So you establish a board with with Doist? No, no, but you know, that is definitely like, my, my future plan is kind of like have a proper governance structure that holds, you know, the C team in place, the CEO, and even myself, you know, like, maybe at some point, you know, I should get replaced, you know, like, if I’m not doing a good job, if I’m not, you know, yeah. Yeah, you know, so that’s something like, it has evolved a lot, you know, all the time. But I think like, if you want to do a good job as a founder and CEO, you really need to, like, take care of the company, and all the stakeholders inside the company. And sometimes it means like, you need to exit, you know, like, you need to switch your job as well. Yeah,

Mark Daoust 18:23

yeah, I’ve done that exercise as well, Quiet Light, about 35 people large, but when you take into account spouses, and children, partners, and you start to realize the decisions that you make, as the founder, as a CEO, you impact a lot of lives, hopefully, all positively, right, and maybe some negatively, and that that’s, you know, it becomes industry, where it’s all about freedom, and it’s about doing what you want. Pretty soon you do have real stakeholders. And then there’s, of course, the customers. So you have 100 people that are dependent on the income you produce. But the number of people that you enable, that your company enables, from a productivity standpoint, and the extension there is the hundreds of 1000s if not millions of people that are benefiting from the work that you do. It’s an awesome responsibility. And you guys have done a wonderful job with it. You’ve done a wonderful job with it. Overall, you know, the the don’t have an exit strategy. I was at a dinner years ago at a conference called e-commerce fuel. And somebody grabbed me after a dinner and said, hey, you know, I want to know your opinion on when you think the best time is to sell my business after starting now, how many years should I hold on to it? And I told him, I said, never actually. He said, What is never I mean, hopefully you never get to the point where he wants to sell your business right hopefully is so good. That it’s you want to hang on to it forever. And it was a surprising answer, because obviously, you know, it goes against what we do we do live in, generate our revenue on people who do reach that exit point, I think there are natural exit points. But I am opposed to the short term thinking that you see some times with founders of build just to just to exit at some point, because it does set up that short term thinking. So I applaud you for having that that resolve, and I can imagine the trickle effect that it has on everybody that works with the company, to know that this is one of the core values of the company is that we’re in this we’re committed to doing long term benefits, as opposed to just whatever is going to benefit us in the short term.

Amir Salihefendic 20:32

Yeah, I mean, I couldn’t agree more on that, Mark. I think like, yeah, and honestly, like, you know, I’m not opposed to exit. You know, like, I think they are a natural part of this, I just think that there’s like, way too much focus on that. And maybe an even, you know, like, I think in us, it’s actually much better than the in Europe. Like, if you look at Europe, like we don’t actually have very big companies, you know, tech companies, and one of the core, maybe driverless car complacency and like, you know, like, you know, like, at some point, people just cash out, you know, and you will Verado, you know, just like, be on a beach the next year, you know, like, build something that’s much more valuable. And, you know, empowering to a lot of people. Yeah, so, the IVs actually, like more, especially, you know, maybe in the US, actually, I think there’s like a class of founders that are super focused on the long term, and they really live for like a mission. And in Europe with like, at least, like, based on what I’ve seen, is there’s a lot more like short term focus, and like, there’s no mission, there’s nothing like, it’s just like, Okay, can we make some money and like, exit or whatever? Like, yeah, right,

Mark Daoust 21:44

right. Right, right. Yeah, the natural exit points to come up over time, as a founder, as an owner. When the time comes to exit, you’ll know that that’s when really the right time is right. When, when I always say when the landscape of your life when the landscape of your profession changes. You’ll know it at that point that it’s time, time to exit, you guys are playing around with AI, with to, Todoist excuse me, which is absolutely fascinating. I’ve been personally obsessed with my journey. And I’ve been playing with open AI as new chat based response tool. So much fun, huge time suck for me, because I keep going in here and saying, I wonder if I could get my attorney to do this? You know, and I’ve had some really cool things come out of it. Where do you see the AI component of task management going? Do you really see this as being a key part of the future? And key part of the offerings for for Todoist you’re moving forward?

Amir Salihefendic 22:46

Yeah, I mean, that’s a great question Mark. And, you know, like, I’m super passionate about this, I read like, above this every day, I see a lot of like demos. And like, I’m just like, yeah, I really do this, like deep into this. And honestly, like this, like, there’s been like a huge explosion in the space in the last like, few months. And also, like, if you look at like, the growth of board and subsequent hardware, but also software in like these models, they are growing, like at an exponential rate, year over year. So it’s kind of like, I think, the latest model, like so GPT, three, which all of us probably use, opening eyes is maybe 250 billion parameters. There’s actually a model right now with 500 billion parameters. You know, and yeah, so that’s thing is kind of like these current demos, you know, they’re just demos. Like, it’s kind of like, you know, watching the first iPhone. So I really feel like this is actually not only like task management related, it’s kind of like a huge paradigm shift. And I think, actually, we are not only creating, like, general intelligence, on demand, I think we are creating, like super intelligence. Because you know, something that grows exponentially. You don’t need a lot of like, iterations for it to reach a stage where, like, no humans will be able to compete. So I feel like, you know, we’re kind of like, in this moment where, you know, chess, like you had, like these, this match between IBM and Kasparov, where like, you know, there was kind of like, some doubt, like, you know, can this like really be humans, you know, and then suddenly, you know, like, right now, like, there’s no human or compete, like, some of these best, you know, computer chess players. And the same thing has been done for a go. There’s like, also some strategic games right now, where like, computers just like winning more and more. And even like, you see this, you know, society, I’m pretty sure like, we are So let’s add Well, you know, like these systems, they will be super intelligent, like, a human will not be able to compete against them. And, you know, how does this shape our world? You know, like, I think it’s actually a following, you know, because we are basically, you know, is basically huge leverage, because, like, one of our biggest assets as a species is like, our intelligence, and we have basically, you know, made it available and like, it will maybe be super intelligent. So, yeah, I, you know, I, you know, I must like, if you have seen, like, some of these models that sold like matte and scientific things, I mean, it’s, like, you know, it’s, it’s incredible. Like, it’s really scary. Yeah,

Mark Daoust 25:48

yeah. I was playing around with it yesterday, the the latest model that has the chat based interface, and I think he’d be true. Yeah, challenging. Three, I just put some very basic scripting challenges for it. Well, I think what I said was, I want a three column layout, with headers on each and different shades of blue. In each column, what is HTML and CSS for this? Within two seconds, it gave me a written response with perfect code in there. Obviously, that is an extraordinarily simplistic challenge, right. And I’ve seen some people put in some more complex challenges, and it’s still spitting out. Accurate code, I sent it to a friend said, I think developers should be worried. Right? The ability for the student to be able to take some, some coding bases and create legitimate code is impressive. And I can just imagine where we’re going to be going

Amir Salihefendic 26:50

here in the future. Yeah, yeah. And even hear something like I, unless this podcast, I’m not sure if you follow that, but there’s like, interview with like, GitHub co pilot creator, where he shows fear, some stats, and you’re like, already, right now, like, GitHub copilot, which basically AI auto completion, it’s used, like, on a mass basis, to just like, turn off code. Because, you know, it’s just like, smart auto completion, the camera empowers you. And of course, like, you know, this is kind of like a demo of what’s to come. Because imagine, like, this model is like, 10 times or 100 times better, you know. So, yeah,

Mark Daoust 27:35

let’s bring it back over to to do is because I want to stay on that view. And I could easily go down this rabbit hole, it’s, it’s such a big topic, and so fascinating. When it comes to task management, you are bringing in is publicly available now what Todoist to use the AI

Amir Salihefendic 27:47

capabilities. Yes, yes. I mean, we have like this experimentalist. So basically, you can get like, you know, these experimental features, and like aI features is one of them. And right now, we basically have a very simple thing where it can basically like, you give it a task, and then basically creates like, tasks to solve this thing. So it’s like, you want to run a marathon, it kind of creates, like, a small plan for how you can run a marathon. And also, like, it’s scarily good. Like, it’s really, like, you know, it will probably create better tasks than the average person at this point, you know, like, more actionable, like, it’ll break stuff up. Yeah. Yeah. And, and, you know, this is just like, a small thing to come. Like, we’re still kind of, like, you know, venturing into this, I think there’s like, a lot of ways you can kind of empower people. Because all people like struggle, you know, like, we like creating good tasks, creating actual size, breaking tasks of, like, you know, like planning projects. And the thing to notice about like, something like, GP d tree, or similar model, is, it’s trained on like, billions and billions of like, examples. So actually, if you tell it like, Okay, I want to, and I think that’s like the future. It’s kind of like, how does this work like project planning, you know, you will just tell it, you know, I have like, run a marathon, I want to spend four months on it, create me like a plan. And then it actually goes out and uses, like, humanity’s knowledge to kind of create a plan. That’s like, Yeah, we actually have like a demo. We haven’t published it yet, of this feature on it. I think it’s really incredible what you can do. Yeah.

Mark Daoust 29:34

What I like about that we were talking about this as my business partner and I and some of the other executives here at Quiet Light. You know, we set out our quarterly goals and what we’re going to be working on specifically, we call them rocks, right? What are the rocks that we’re working on? And there’s always this push and pull between us. i I hate listing out steps to get there because I always told me that I don’t know what the sixth step is yet. I gotta get to steps one and two, and then I’m going to By now, you know what maybe the next two steps are. What I like about this is it gives you a roadmap, at least an initial roadmap. And it will definitely bring up things that maybe I haven’t thought about. On my own when I’m sitting down trying to break this this up. And that, that I think is is a fascinating use case of this. By the way, your example that I saw you use online, I think it was on Twitter initially, when when I first saw that you guys were doing this was not run a marathon, it was become a dictator. I believe. I think the last one was watch out for the coup, I think was?

Amir Salihefendic 30:36

Yeah. Yeah. Yeah. I mean, you know, I mean, that was like a joke. But you know, that’s the thing about these things as well, I think you can use them for some great things, you can also use them for some evil things as well. So so, you know, something I actually liked about, like, open AI is like, the safety is kind of a core concern for them. So actually, you know, like, one example is, if you actually try to create, like, a plan for killing yourself, right now, they would kind of figure it out. And then we’ll actually try to suggest like hotlines, you know, talking with friends, you know, like, it will not actually go in and like, give you like a cold plan, it will actually try to help you. Which I think is like very fascinating, you know, that? That yeah, like, you know, like, harming humans isn’t really a core. Like they’re probably trained not to do that. Yeah,

Mark Daoust 31:36

that’s great. So we don’t have to worry about AI. Becoming sentient and taking over the world just yet. Few more years,

Amir Salihefendic 31:43

or years. I’m actually I’m not sure about that. Yeah. Because like, we don’t really know, you know, like, how, like, like, how have we become sentient? You know, like, we don’t really know how our brains work. And we are creating, you know, recreating something without like, really understanding what we are recreating? Yeah, so yeah, I am. I don’t know. I mean, I think like right now, like, I’m more like, excited about the possibilities of just like leveraging and empowering people, you know, and just like speeding stuff up, then, you know, like this problem, like, you know, AI taking over the world. Yeah,

Mark Daoust 32:22

right. Well, for all those listening, your next few sleepless nights are brought to you by the Quiet Light Podcast, you’re welcome. Let’s, let’s actually switch gears a little bit, because we are starting to run out of time. And I want to touch on another topic as to how do is run similar, again, to Quiet Light, in that we are a 100% remote company. And I would never imagine going back to the office. This is the push among tech companies right now, obviously, coming out of the pandemic. A lot of the companies that were in office in person previously went remote and struggled during that time, or are now struggling, there’s definitely advantages to being in person. I know Rob walling has talked about how when he found a drip, initially, he made it in person, and he would not do anything different than that, because of some of the the benefits there. But I like the remote portion. I would like to ask you guys run remote. What was the thinking behind running remote. And then also, let’s, I want to talk a little bit about twist in the idea of asynchronous communication being a better way of managing communications on remote teams. So let’s start first with with your decision to work remote. Was that just how the company developed? Or was there a conscious decision to do that?

Amir Salihefendic 33:41

Yeah, I mean, something really is like, when I actually started to work full time, on to this, I was actually living in Chile, in Santiago. And, like, you know, starting a company from there, and like, finding the talent that I needed, like, that was a no go, such like, you know, running this remotely in hiring remotely like that. It wasn’t even, like, you know, like those that came supernatural. And also something as well, he’s like, you know, my background is like, development. And, you know, like, developers have worked remotely for a long time. I mean, some of the most successful projects, like Linux kernel, you know, is being developed, like 1000s of like developers remotely, for a long time. And same thing like with some other like, you know, core libraries, you see, and you use, so, you know, this remote thing that wasn’t really you know, like, very decent for me. Yeah, so, and also like, it was a huge edge and, and I’m actually happy that like this kind of like I saw, like this tweet yesterday that like, you know, all the top Silicon Valley VCs founders don’t really believe in remote work. I’m just like, yes, you know, this is amazing. Yeah. comparative advantage here we come again, like, because again, like I think like, as a company, you really need to find a match where you’re different. But if you’re doing the same thing as everybody else, like, you know, you’re probably not going to find that edge. And I think like remote and like making being amazing, that remote work, you know, that is super empowering. And it can lead like to hiring amazing people, you know, and I think most you can become more productive. If you just fully embrace this philosophy, then like, you know, this hybrid structure where you suck, you know, like office work, you also suck at revolt and like, you have like, the worst of both worlds. Yeah. Yeah. So So honestly, like, for myself, like, I think actually, it’s better to kind of like be office only, or remote only, like, not these hybrid structures. I don’t really believe in them. Yeah,

Mark Daoust 35:52

yeah, they’re trying to do remote work. Well, the hybrid models in everything hasn’t worked. It didn’t work in schools, when they schools tried to port the school system to remote. I know we’ve we’ve homeschooled our kids. And we’ve also done online school. And we also do in person school, you have to have totally different mindsets for all three and totally different approaches for all three. And so I don’t know how you go run, run a workplace, trying to recreate the in office work, it doesn’t work, you can’t do it. But remote companies can work. And they can work really, really well. But you just have to go about them differently. communication. The communication is a big part of this. Now. I wanted initially to use Slack with quiet light and the vast majority, my team said, Please, please do not do that. Right. Nobody wanted the green dot. They didn’t want that always active. Cal Newport talks about it as the hyperactive hive mind, I think is the phrase he uses. And he’s absolutely right. Asynchronous communication. This is what twist is? Where did you guys stumble upon this as the model that you incorporated at Doist? And what sort of advantages have you gained and just full disclosure for everybody? I’m at this point, transitioning our company over to Twist half the company is on it. And we will be rolling it out to the rest of the company here shortly. I absolutely love it. But when did you guys discover this as slack is kind of good. Better than email in some ways, but it’s sort of not. So let’s find a product that does work.

Amir Salihefendic 37:31

Yeah, yeah. I mean, that’s a great question. Like it and something, you know, it’s like, we were actually some of the early adopters of Slack. So, you know, like, we adopted slack or very early on. And the reason why we actually developed twist was that everybody else was kind of copying slack. And running like a remote company that distributed where you actually don’t want to have like, nine to five schedules, you know, you couldn’t find out and like, like, Slack is super, like, toxic for this environment, and, you know, real time communication in general. And then you’d like when we look at the market, there was like, nobody that really sold this or had this problem, you know, and we just like, you know, this kind of sucks, like, you know, my life sucked, because I will be spending a ton of time in some meetings. And then combined with that, you know, real time presence all the time inside a chat room, or like multiple chats, like direct messages, you know, it wasn’t really a great environment to do, like deep working. And that was kind of like, you know, the need to create, like, Twist and like, like, create more like, asynchronous way of communicating where, like, you don’t need to be connected all the time. You can do like longer messages that have like a lot of payload. You can distribute work across the world. And also, I’ve never used this, I think since 2015. Maybe. And, you know, like, we are huge believers in this. The problem is like, when the COVID a pandemic hit, we thought, oh my god, like, we are going to be like suit like, This is amazing. Like, everybody’s just like, you know, and then like, everybody just like copied, you know, like, the office environment, put it in inside the cloud meetings all day long chat rooms, I mean, if you look at the stats, like meetings have have increased like 250% inside like Microsoft tools since 2020 250%. You know, so yeah, and you know, purchase like we do have like some, I think, like pioneers that cannot see the vision, believe it, but the majority of market is just like, they’re still like stuck in these meetings in real time chat rooms. And honestly, I think it’s amazing because like, it means they’re not really finding their edge. And you know, it helps can sometimes to you know, yeah, be against the status quo. Yeah.

Mark Daoust 40:00

One thing I’m fascinated by are workplaces that that are hacking or playing around and messing around with the generally accepted structure of how to run a company how to go about a daily work life, right? So much of you know, the nine to five sort of structure started with industry, and shifts, and we don’t need that anymore. And when you see companies that play around with this idea, you can see some pretty fascinating things start to come out of their workforces, but everyone’s scared of work and play around too much with it. They don’t want to completely torpedo their company’s progress. But there’s a lot of gains. And I think we’re incredibly inefficient. That’s that you said, but 250% increase in meetings, is mind boggling. absolutely mind boggling to think of. absolutely mind boggling to think of, we are coming up on time, unfortunately, because I would love to talk more about the asynchronous communication and go into that, for those that are not familiar with what we’re talking about with asynchronous communication and everything else, just check out twist.com. It’s a great piece of software. It’s like Slack, but not the same real time where people are going to have all this context shifting going on at all times, which is such a distraction to productivity, especially when people are being paid to think about things. So check it out overall, or anything else that you want to just cover or if somebody wants to learn more about you, I know you’re active on Twitter, so you’re good follow on Twitter, any other places where they can follow your work and things that you’re doing?

Amir Salihefendic 41:39

I think that Twitter is a great army. I’m a very active user, I blog, a lot about tech AI, you know, productivity and stuff, like remote work as well. asynchronous work. Yeah. So you know, if you are interested in this, like, Please, just like follow and, you know, hopefully create some good content there. Yeah. Yeah. And lastly, I think, like something that really struck a chord with me, Mark, like, is really like inefficiency. Because I think, really, this is a huge problem, not only for the tech sector, I think for the whole world, like, you know, we have, like so much leverage. And so like, you know, great tech, but we are just like, not utilizing it properly, I think. And I’m really, like, passionate to work in this space, because I think there’s like so much possibility to kind of empower people. Yeah, so yeah. So that’s, that’s kind of like, you know, feeling like this, like, yeah, like removing this inefficiency. I think, like, it’s a huge opportunity.

Mark Daoust 42:41

Absolutely. It’s a lot of fun. Well, on behalf of a lot of people listening that I know used us to do this. Thank you for creating an incredible piece of software there. I also think before creating Twist, because we are absolutely loving it. Here. We are. Thank you so much for coming on. Appreciate your time here. Today. This is this has been phenomenal. It definitely scratched the itch of my Gi Gi hearts. So thank you so much for that. We’ll be posting links to your social media profiles, and obviously to the company and some of the other incredible things that you’re doing. Thanks again, Amir.

Amir Salihefendic 43:13

Mark, thank you for having me. This was really, really fun. And you had some amazing questions. And yeah, yeah, and best of luck as well, like, you know, Twist with asynchronous I O. It really gives you a huge edge. Yeah.

Outro 43:27

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.

Email Campaign Boosts Monthly Revenue by $300,000

Reinis Krumins is the Co-founder of agencyJR, which helps e-commerce businesses scale and increase sales at record speed using a proven product launch formula. At agencyJR, clients see a 15-30%...

Reinis Krumins is the Co-founder of agencyJR, which helps e-commerce businesses scale and increase sales at record speed using a proven product launch formula. At agencyJR, clients see a 15-30% boost in sales, increased profitability for all marketing efforts, and a 10-20% abandoned cart recovery rate. Reinis is also the Product Director for Frozen Ventures, LLC and has experience as a social media graphic designer.

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

[03:23] Reinis Krumins talks about having more control of your website’s data for targeted email campaigns
[06:50] Why you need to implement regular updates and split testing to boost sales
[11:08] What email flowchart should you follow?
[16:47] Reinis explains a case study examining business email marketing
[22:50] The importance of studying successful niches to target consumers
[28:31] Reinis shares agencyJR’s onboarding process

In this episode…

How can email marketing impact valuations and the expected growth of your business? What if you could send a specific email to drive traffic and boost sales?

For a successful campaign, there is a flow to follow: reminder, discount, and value. Reinis Krumins helps brands do that. Reinis recommends you follow this flowchart to successfully showcase your products for greater returns. This helped a client scale from $1 million in sales to $1.2 million just by implementing email campaigns and updating their existing email flows! Are you ready to do the same?

In this episode of the Quiet Light Podcast, Joe Valley sits down with Reinis Krumins, Co-founder of agencyJR, to focus on how email marketing can increase sales. Reinis talks about controlling data and split resting for desired results, proven campaign strategies to increase sales, and thinking from a customer lens to target your audience.

Resources mentioned in this episode:

Sponsor for this episode

This episode is brought to you by MyAmazonGuy, an Amazon agency to help level up your PPC, SEO, Design, and manage your entire Amazon catalog.

This episode is also 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. Thanks for joining me for another episode of the Quiet Light Podcast. Today’s episode is brought to you by MyAmazonGuy.com. I know Stephen personally, they’ve helped out lots of folks that have bought businesses from Quiet Light, and actually helped a lot of people increase the value of their businesses before they sold. So if you need to upscale your Amazon advertising your SEO, any aspects of your entire Amazon catalog reach out to my Amazon got got, you know, I’ll get that right folks, you know, MyAmazonGuy.com. Reach out to them, ask for Steve and let them know I sent you, they’ll definitely help you scale up your business. Now today’s podcast is about scaling your business through email marketing. We’ve got Reinis Krumins joining us on the podcast today. He’s the founder of agencyJR. They focus fully on email marketing. And they’ve done about $30 million in revenue for their clients through email marketing alone, in some cases, boosting the monthly revenue from 600 to $900,000, in a period of 30 days. This is sort of an afterthought, part of our marketing campaigns in many cases. And it’s something that folks, if you pay a little bit of attention to set up the proper campaigns and flows, which I know very little about. And he talks about them quite a bit here. It can really help boost your revenue, boost your profit and overall boost the valuation of your company. So let’s jump into it. Here we go. Reinis Welcome to the Quiet Light Podcast. How are you today?

Reinis Krumins 2:03

Doing great. Happy to be here.

Joe Valley 2:04

It’s good to have you here. Appreciate you joining us why don’t you share some of your background with the audience so they understand who you are and what you do?

Reinis Krumins 2:12

Yeah, some Reinis. Three years ago, we started an email marketing agency. And so far we’ve worked with over 250 clients in Europe, USA, Australia, Canada, all over the world, all over the world, really, with a variety of niches all the way from electronics to clothing and everything in between. And so far, we’ve generated around 30 million in sales, specifically through email marketing for e-commerce brands, we’ve gone through brands that have that have been acquired by companies brands that have been sold. And and we’ve seen how email marketing can impact valuations, not just valuations, even, even overall the profitability and the expected growth of the business, and how impactful this can be. I would

Joe Valley 2:59

assume most of these companies are not selling the majority of their products on Amazon. It’s mostly Shopify and things of that nature.

Reinis Krumins 3:06

Yes, it’s mostly Shopify, we have had brands that have sold on Amazon. And then they want to build out the Shopify, their Shopify arm, to sell more of their products and have more of a control over the fulfillment side and whatnot. Obviously, Amazon is a great, great channel to have. For them, they want to expand into the direct to consumer side of things as well, they have, for example, Amazon as a huge channel for you in the US, you might be able to possibly have more control and have more data. If you ever, if you have your own Shopify store, with a Shopify store, you do get people’s emails, you do get their contact contact information, which an Amazon has, has lots more limited, you do see people throwing in a slip ends, so maybe guarantees that you can redeem by going to a website and entering an email. That way, you know, you can collect some data from Amazon. But you know, Jeff Bezos is not going to hand the emails and names for everyone to you.

Joe Valley 4:05

Yeah, no, he’s not that kind of guy. He’s doing it. He’s doing enough like we should we shouldn’t sell because he’s not sharing email. So he’s doing enough for everybody. A lot of businesses that would never exist if it weren’t for for Amazon for sure. Tell me about some of the first, you know, 123 things that you do with a client that you onboard? And how’s it making a difference for them?

Reinis Krumins 4:25

Yeah, 100% Well, the biggest thing is if someone doesn’t have email marketing, or your email marketing is unoptimized, you’re probably losing 20 to 30% of your top line revenue. Even if we look at the profitability, a lot of times you could be losing up to 30% of your profits. And that’s because email marketing really is the most profitable marketing channel at the moment. You know, acquisition is the most difficult part and the cost the most money. Once you have a client that’s placed an order from you, it’s a lot easier to get them to buy again and again. Email Marketing, SMS marketing are the tools to do that. When we onboard a new client, we typically do three things. First thing is understanding their exact situation with email marketing, what are they doing what’s working for them, what’s not working for them. Typically, its lack of email flows that have been set up. So email flows, think of them as behaviorally based email sequences. So if someone abandons a checkout, they receive emails, if they place an order, they receive emails, if they place three orders, they receive different email. So if they do X, they get why. And on the flip side of email marketing, we have email marketing campaigns, which is more disruptive based marketing. So think of that as a Facebook ad, on on your Facebook feed, you’re scrolling through feed, you see organic posts, and then there’s a disruption of someone trying to catch your attention. The same thing we deal with in the inbox, is we decide when to send what to send to whom to send a very specific Email to Drive Traffic, no matter what they have done, or they haven’t done on the website. Typically. We look at these, this area, that’s phase one. And after Well, let

Joe Valley 6:09

me ask you a question in that regard. When it comes to the flows, how often are they updated? Right, the one where do you just set it and forget it? And assuming? I mean, obviously, you’re tracking data and testing in that nature. But how often is it updated? How much work is involved with setting up the flows? For folks?

Reinis Krumins 6:27

That’s very good question, I’d say the bigger the brand, the more often you need to update your flows, it all comes down to the mathematics. If you have a brand that does maybe 200k a month. For them, we would typically update them every six months, or run through an audit every quarter. But we’re not actively working on updates. However, for a brand that does maybe a million a month in sales, doing monthly updates, or quarterly updates, at least, can help out a ton. You can run different split tests, you can tell test different kinds of emails, you might update a product in your catalog. So you might need to update some specific emails test new upsells cross sells. And that can impact your sales by quite a significant margin. Even if you boost sales and email flows by 1% over a year, that adds up to $120,000 in extra top line revenue, which if you’re maybe looking to acquire, acquire a business or even sell a business, that can change, you know, all the they can change the valuation quickly.

Joe Valley 7:27

Yeah, even just you know, 120,000 additional sales, maybe call it $24,000 in profit, and it’s $100,000 to the value of your business depending upon what kind of multiple you’re looking at. So what’s involved in an audit? Well, you know, you say you audit them, quarterly things of that nature, what’s involved with an audit.

Reinis Krumins 7:47

So we we go through every single flow in every single email, but in the flow, we’re looking at the Playstore, rates, open rates, click through rates. And we basically put all these metrics within a document we have and compare them alongside our KPIs, we might see that we have an abandoned checkout flow that’s recovering, let’s say 12% of abandoned checkouts. But we see that email three out of five is only maybe recovering 0.5%. So that’s an email which we can test a couple of variables on, we can test when the email is sent, we can test the subject line, we can test, the button layout, the the copy, and the main angle of the email, and we look at these variables and then we try to switch up, we try to ensure we can convert to more customers. Sometimes what we might see in accounts. If there has been abandoned checkout sequence created, it might be a lot simpler, where the first email is just trying to get people to go back to the site. Second, email shows discounts third email just twice as scarcity around discount. However, the email flow might not be handling the customers true concerns. So we might split this that against an FAQ email, we take the frequently asked questions, put them together, send that out and run it and run the data. And then in the Navy Test calculator until we get statistical significance.

Joe Valley 9:06

And how you how do you do this split test within I’m assuming it’s clay VO, this is a software that you’re using. And there’s split testing a component to Klaviyo pretty simple.

Reinis Krumins 9:16

Yes, there is. There is. So you can there are two options. If you are testing, let’s say just a subject line, you can just start maybe tests for the same email, like select a different subject line and ship out the email itself. But if you want to test different email styles, or different types of emails being sent out, they have a split testing feature, which you can simply drag and drop and play around with

Joe Valley 9:39

and the initial flows that you set up in the emails that are being sent. What’s the best type of email to send in terms of is it just checking in with you is it you know, giving away information for free? Is it being helpful? Is it a discount? What are you finding that first email to be most successful, what kind of email should be sent out? So

Reinis Krumins 10:07

when you say the first email, do you mean the first email within a flow? Or the

Joe Valley 10:11

real idea what I mean? I’m just I have I have Clay Do I pay for it every month and I don’t send out emails on the extra per door side. And on the Quiet Light side, we’ve got a team that handles it. So I’m not even part of it. But I’m asking I guess from an e-commerce brands perspective. Is there a certain type of tone that you want to apply in those first emails? Are you just is it a salesy thing? Is it a downsell thing? Or kind of what are we looking at what’s the best

Reinis Krumins 10:41

approach? So the steps females you mentioned previously, we typically like to mix all of them together, it wouldn’t be a mix and just like a Frankenstein put together one email, but we take these different elements and sprinkle them out. Within the email newsletters slash campaigns we send out when an email flows as well, you have to look at it from a customer’s perspective. I’ll take an abandoned checkout series flow, which everyone is familiar with. The first theme that can be just a simple reminder, we can showcase the products benefits and remind the customers to go back to the site. The second email can be at discount the third email, you have to you have to look and ask yourself, if I’ve received two emails, why am I not buying? What are my concerns, you can ask your customer support team? What do people ask before buying the product? And you might realize if you’re selling, let’s say a shirt, they’re just thinking whether the shirt runs small or runs big, they can’t quite understand the right size. So the third email might be help maybe a value email, showing them how to showing them how to properly pick a size. As an example, there are even we had a customer, we had a conversation with a brand that sells skiing equipment. For them. They have seating equipment, and they also have swim shorts. Now they wanted to eliminate the swim swim shorts from recollection for Christmas. But I told them Look, I don’t think that’s going to be the best idea. Because imagine that you go on a skiing trip, you typically go to a skiing resort, what do skiing resorts have? They have spas. So even keeping a lower inventory, or selling out the existing inventory and not discounting it too much, can be a great way to upsell customers and get that immediate sale, we can tell them and give them an idea of saying hey, look, you already have your skiing equipment, take the time and enjoy. Enjoy your vacation outs. You know when you’re off the mountain. And we can showcase the products and push them to buy a lot of times the emails we send out. It’s to handle concerns and give ideas. A lot of times people they just want to be given ideas for them to just say yes, I like to say the LME just buy the product.

Joe Valley 12:50

Gotcha. Okay, so that was all about, you know, the initial sequences that you’re setting up. And then I wanted to delve into that you wanted to go on to step two, what are the next phases that you work with on a client that you’re onboarding?

Reinis Krumins 13:05

Yes, so first thing was the audits which I mentioned. The second thing is we focus on building email flows. So with email flows, there’s depending on a scale of the brand, I will, let’s say, you know, if the brand is doing half 1,000,002 million a month, we immediately start with the full email setup, which is a welcome series paired up with a pop up on the site. So with the pop up itself, it’s not something annoying, which shows up as you immediately anthracite and annoys customers. Instead, we delay apt to try to target people who as I like to call are on the edge of buying, meaning they’ve been on the side, they’ve looked at a product, but they still haven’t decided whether they want to buy it or not. So we can capture email and retarget them through email marketing and sell them there. The next thing is a site abandonment sequence. So site amendments means if someone has gone through the site, but haven’t hasn’t looked at any specific skews, we send them an email to try to retarget them. Next layer is browse abandonment. That’s where people that have gone to the site looked at a product page but haven’t gone to the checkout or to cart. Next layer is Add to Cart add to carts for people at tap the Add to Cart button but don’t go to the checkout, then we haven’t done the checkout. So we we practically take the entire funnel and we add an email flow for each one of the funnel steps. This is for the front end. How are you capturing their

Joe Valley 14:24

email addresses in the situation if it’s you know they’re abandoning the site? Is it the pop as

Reinis Krumins 14:29

so site abandonment, browse abandonment Add to Cart? They only work for people whose emails we already have already meaning they’ve already previously placed an order opted in or they’ve abandoned a checkout. Theoretically there are tools like get emails with calm, but we haven’t seen the best success with them those tools. They look at the cookies of the person that enters the site, and they take the email from that cookie. We haven’t we haven’t seen it be the most accurate soul so we’re not using it But for some people, if you get a ton of traffic, it might be worth a shot. However, you need to be careful. So you’re gonna get too many bounces a bounce is basically you sending an email to fake email address, and then then it not delivering.

Joe Valley 15:11

Yeah. And then that means all of your other emails are going to wind up in spam or junk folders. Exactly.

Reinis Krumins 15:16

Yeah, exactly. Do you have some situation?

Joe Valley 15:18

Do you have any case studies that you can talk about in terms of a client that you’ve on boarded and what, you know, the setting up proper flows and campaigns and whatnot, how it impacted their business?

Reinis Krumins 15:29

Yes, we had a client we were starting to work with they sell in Canada in the US. And they they had a decent flow strategy. It depends on some clients. In their case, they were doing 1 million a month in sales, we scaled them up to 1.2 million. So adding 200k in sales in their case, it’s that was just specifically by implementing email campaigns and updating their existing email flows.

Joe Valley 15:57

So they were already using email flows, but hadn’t yet really, is it that they weren’t updating it on a regular basis? They weren’t focused on it. They weren’t sending the right messages. How do you go from? You know, yeah, how do you add $200,000 a month in revenue? Yeah, we’ve even

Reinis Krumins 16:13

had even had a crazier case, the we scaled a brand from 600k to 991k, in 30 days, and it’s all comes down to after auditing 351 Clavia accounts, we see that typically, first things first, people don’t have the flow, full flow setup. So the flows I mentioned, there’s still more flows than that we set up. And when brands set up email marketing, it’s kind of like a back burner, right? Do you want to focus on acquisition, you want to focus on paid advertising, and email marketing is something you sweep under the rug and you kind of set it up, you might maybe look at a course look at the default flows. Clavia shows you, but that’s not the full picture. Quite often, it’s simply put together strategy that has no depth and there has no depth really, we have too few emails, the content of the emails isn’t well enough, you have too few flows. That’s what it comes down to. On the email campaign strategy, typically, the segment, segmentation strategy is not dialed in, the content is not good enough. And they’re not sending emails frequently enough. So it’s, quite often you can see with email marketing, people are trying, they’re going in the right direction, they’re not doing enough of it, and they’re not going deep enough. And they understand that you, you still want to focus on the growth of the business, which will come through developing your products, working on paid advertising. And retention is something that’s very important. But the most, the most growth long term will come from having better acquisition, bread products, email marketing is important. But it’s always going to be more of a lagging measure, if you have a million dollars in monthly sales, you’re not going to be able to bring email marketing to to take you to 5 million directly, like your email, your email list is going to be smaller than the traffic you can generate through paid ads in this example. So I believe that’s how people also look at it. And they kind of leave it in the back of the room.

Joe Valley 18:09

Well, I think as far as a positive return on investment, you know, marketing is pretty high. You know, the cost of Klaviyo cost of doing it themselves or services like yours versus the return on investment. probably much higher than paid advertising and things of that nature, wouldn’t you say?

Reinis Krumins 18:28

I completely agree 100%. So that’s why I say email marketing might not scale the business from one to 5 million directly, but it can do it indirectly. So in the case, these I mentioned the brand, we scaled from 600 to 991k, in 30 days, just with email marketing, they’re able to generate 300k More which they can reinvest back and spade advertisements back into r&d to build new products. And again, that’s what I mentioned previously, as a business owner. Those are the main things you’ll be focusing on research and development, building your products, improving the existing products and focusing on paid advertisements. And email marketing is a tool that helps fuel those those verticals, those areas, which are aggressively going to help you scale and the email is a profit machine which you can use to to feed those those verticals.

Joe Valley 19:15

How do you decide like what to write and who writes it in your case, if you onboard a client, or you guys and your team at agencyJR, doing some of the copy creation, or giving examples of campaigns and flows to clients or the clients doing all

Reinis Krumins 19:30

of the writing. So when someone works with us, we take care of everything all the way from strategy designs, copywriting, everything and and declines and gets as involved or as detached as they want. So they want to get very, very involved in give more revisions they can when it comes to who writes it, definitely in our case, it’s either an account manager or a copywriter. The difference is a copywriter is more well versed in research and in writing more complex Pay, whether that will be for brands like finances, or very specific niches that you need industry knowledge for an account manager, someone with more broad knowledge or someone who is specified on a specific niche. So let’s say we have people who, who primarily handle beds, clients, or who primarily handle beauty clients, we’ve had simulation racing, which then would need to be handled by a copywriter. It’s a very specific niche. Coming up with email ideas, the easiest way to do it is looking at your brand and the world from a mic for a macro scale and then diving in a more niche scale. So from a macro scale, you can look at the world, what are different holidays that are happening? What are the world events that are happening right now. So from those you can narrow down, you can create like different different events and and holidays are happening and write emails around those, then you can go deeper, what’s happening within a brand? Is there something special happening this month? Do we are we launching a new product, or we may be doing an internal discount is it may be on our anniversary, then we can go down more niche to a product level. We can look at what have been the best sellers of the previous month best seller so far, if they changed, they might say the same practically all the time. In that case, you know, you can skip that step. But then again, you can look at your season and think of think think of it from your customers lens. And you can look from a couple of lenses there. You can look from your buyers. And think hey, if I have purchased product X, which might be yours hero SKU what would I need to know or what would be useful for me to improve my product x. So if you purchased even gym shorts, there might be different upsells you might have for weightlifting, which might be weightlifting straps, maybe wrist wraps, wrist wraps, and you can write content and combine the two products together. For people who haven’t purchased you can think about how can we get them to trust us more you can send emails showcasing case leads from clients, recent wins from clients, and tie those in with the product you’re selling. And a lot of times it comes down to giving customers ideas, what are specific ideas we can give them. I’ll take Mother’s Day, for example. On Klaviyo, you can segment customers based on the prediction of their gender, whether they’re male or female. And we could send two emails, once a males want the females for males, we could say hey, for for Women’s Day, get your girlfriend, get your wife, get your mother a gift. For women, we could take a similar angle, but the way we talk with women and men is different. When a chauffeur for a man that you know this is gonna, they’re gonna love you more, they’re gonna be more emotionally swayed to you. For women, it’s more, you know, telling them, Hey, take care of your family, take care of your mother show her love verse for a man, we can take a different angle. And through segmentation, sort of giving customers ideas, we can write more unique case studies. And what works very well if you can’t come up with anything. Look at similar niches and take ideas from them. If you are selling dogs, dog products, look at what people are doing with maybe food supplementation, maybe take some ideas and adjust it for your niche, quite often what’s working for them, could end up working for you. So you don’t need to be original 100% of the time. That’s what’s great, you know, working for working with an agency, you have a lot of data, they see what’s working in the nation, so they can take the best from each nation, combine it to get the best results quicker, you know, if

Joe Valley 23:46

somebody wanted to do all of this on their own? Like, is there a structure? Is there like a roadmap of how to set up your, your campaigns and your flows? And all of this? Or is it something that you really have to do individually for each type of business?

Reinis Krumins 24:04

There so there are principles you follow, but there isn’t a template per se. Principles are typically quite simple. If I have to look at most accounts we’ve seen in the mistakes we make. I would say first things first, focus on again, look through everything from your customers lens the same way you would write your landing pages copy, send more emails and you think you might need to send and create more flows than you might think you might need to create doubt will be the Aegis breakdown for someone who wants to deal with on on their own. There obviously are courses on my Twitter page, I do produce a lot of content, breaking down different email examples for inspiration. Showcasing different case these showcasing the flows and the amount of females we’ve set up in in each one of the flows.

Joe Valley 24:53

But you know so what’s your Twitter handle for folks that are listening right now?

Reinis Krumins 24:57

Email Reinis, so email as an Email and Reinis as as an r e i n i s got it.

Joe Valley 25:04

Okay, great. Yes. The I’m sorry, I’m spelling your name right now I’m writing it down, folks. Because it’s, it is what it is. It’s, it’s, it’s a little harder to spell. My mother, right, very simple minded when she named me, St. Joseph, it didn’t work out the same part. But you know, she got the name, right. Anyways, this has been great Reinis, I find personally, you know, it all to be a bit overwhelming, right? Again, on my book sales, you know, I’ve got a VA that does it. And we do it really, really poorly. But I don’t have you know, products to sell, other than than the book I, you know, did that intentionally the book is to help people. And it’s not necessarily for me to make money. And I said, I always said, If I could give it away for free, I would. And in some cases, I do just the digital version of it. So it’s overwhelming to me. And I would imagine that some folks that are listening, that are really, really focused on simply product marketing, that they haven’t delved into this email campaigning as much as they could. I totally agree with you. And I’ve talked to a lot of experts in the space. And knowing what I know about business valuations. And what we do here, a Quiet Light, you know, a 10% bump in revenue can make an enormous bump in valuation of your business and odds other businesses your greatest asset, so you should pay attention to those things. It’s all a matter of bandwidth and capacity. And when it comes to hiring agencies to do this rareness it’s often you know, more work that somebody needs to do. So if you know, if I were a client, that’s onboarding, how much time does it take from a client’s perspective that is already straight out with running their business and doing everything that they’re doing? How much time is involved? If they’re choosing not to do this themselves, and try to figure it out and hiring an agency like yours? How much time are they putting in? And over? What period of time? Does it settle down into? How much a month should they be dedicating to email campaigns and

Reinis Krumins 27:06

so on? So if someone does it on their own? No way to tell? Yeah, it’s it can be it can be depends on how much time you put in, like you can work on advertising campaigns, and put in a little bit of effort to not get any results and put a lot of effort and dive into it and not have any life and just scale scale. I

Joe Valley 27:26

really I really mean with, you know, because everybody’s different. They learn different ways. But I really mean with with working with an agency like agency car, capacity wise, how much time in my day do I need to have to be on boarded with you and get this up and running over the next, you know, three to six months.

Reinis Krumins 27:45

I can’t speak for other agencies. But for us specifically, the process is very simple for the clients, there would be an onboarding call at the start, we might ask some questions, but you wouldn’t even need to spend an hour a day on on on communicating with us. I’d say during the onboarding phase, you might want to spend one half hours plus max, and the onboarding phase typically is two weeks, then afterwards, as we move forward, you don’t need to spend as much time with us on a monthly basis, it can be as hands on or as hands off as you like, we have a process in place that the workflow, you can either approve every single little thing we create, or if you trust us, you can let us do our thing and completely forget about it. And you can make a decision anytime you want that this process follows follows through. And we follow this process every single every single month, typically with most companies do, they might introduce us their CMO. And every single month, they have two main days where they might need to spend an hour or maybe two hours on each days with us. They want us at the start of the month around the seventh of each month to approve the content calendar. So content calendar talks about the exact emails we have prepared for the following month. And day two of this process would be towards the end of the month. So around the 20th, or maybe 25th, where we send all the finalized emails, email designs, email copies and for them, and they can review that they can make revisions. And if we have those revisions, we’ll execute upon them. If not, we schedule the emails and start sending them out. It’s pretty simple. Like we understand that everyone’s busy and, and we don’t want to make it difficult and complicated for the clients. The onboarding process is is super smooth, you have to fill out an onboarding form schedule an onboarding call with us. And afterwards, this is really how much it takes to work with us.

Joe Valley 29:38

And how does the pricing work? Is it fixed fee on a monthly basis? Is it a scale depending on the size of the business? Is it yearning a percentage of the revenue? How do you guys work?

Reinis Krumins 29:50

Great question. So we have two main pricing models. One is either a flat retainer and the other one is a hybrid model. So it might be a retainer plus performance based. We don’t have packages per se Hey, so I can’t give an exact number right now. But I will give a range typically our clients pay us two to two to 6k a month. 2k is on the lower end. 6k is for higher scale clients as well. Obviously, the higher the scale, more emails, we can send out high responsibility. So we have different teams working on different scales as well. That’s definitely a range we’re working, obviously, for the commission based. They’re there sometimes the cap sometimes isn’t. But we make sure the deals we have they make sense for the clients and for for us as well.

Joe Valley 30:36

Overall sounds pretty simple to measure the return on investment, which is always important. In this situation, Great Reinis how to how to folks learn more about you, how do they reach out to you how to get information on your services and things of that nature?

Reinis Krumins 30:50

Yeah, so you can go to agencyJR.com. So it’s agency is an agency, J is in Jacob Rs in Reinis dot com. And through there, you can learn more about us. If you specifically want to book a call, you can go to agencyJR.com/call. So the same agency, J as in Jacob, ours and Reinis.com/call. And you’ll be able to book a call with me.

Joe Valley 31:14

Pretty simple. All right. All right. Appreciate it. Thanks for joining us on the on the podcast today.

Reinis Krumins 31:19

Very happy to be here. Thank you. We’ll talk soon.

Outro 31:24

Today’s podcast was produced by Rise25 And the Quiet Light content team. If you have a suggestion for a future podcast subject your guests 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.

Deal Debrief: 7-Figure Content Site Sells for All Cash

Deanna Berardi is the Head of Partnerships at Quiet Light. In this role, she helps develop relationships with buyers, sellers, and partners to ensure the best experience for clients....

Deanna Berardi is the Head of Partnerships at Quiet Light. In this role, she helps develop relationships with buyers, sellers, and partners to ensure the best experience for clients. She is also the Manager of Customer Success at Intuit.

Deanna has over 20 years of experience in strategic business development and was the Marketing Manager for Smart Wires Inc. and the Marketing Program Manager for Ernst & Young LLP. She graduated from Indiana University Bloomington with a bachelor’s in business administration and marketing.

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

[04:38] Deanna Berardi talks about why a seller wanted to exit their growing business
[07:06] Why you should be careful of personal branding
[11:50] How can you remove your personal brand from your content site?
[18:34] Deanna discusses conversations about a deal structure
[21:34] How can an SBA approval increase your likelihood of an exit?
[25:06] Deanna explains why seller education is crucial for a greater exit

In this episode…

What steps can you take to minimize your personal likeness when trying to exit your business? The sooner you can think ahead on the transferability of your brand, the easier your exit will be.

Deanna Berardi knows that the more valuable you are to your business, the less valuable your business is. Preparing your personal brand for exit begins by slowly removing your likeness from your content site. By removing risks, you’re building the valuation of your brand which can lead to a greater exit. Listen to this episode to hear Deanna talk about lessons learned from selling a content site.

In this episode of the Quiet Light Podcast, Joe Valley sits down with Deanna Berardi, Head of Partnerships at Quiet Light, to debrief a deal that ended in a seven-figure, all-cash exit. Deanna talks about bringing value to your brand, negotiating an SBA loan, and how seller education can help sell a difficult brand. Stay tuned!

Resources mentioned in this episode:

Deanna Berardi on LinkedIn
Deanna Berardi’s email: [email protected]
“How To Earn $15,000 by Sending an Email” with Deanna Berardi on the Quiet Light Podcast
Quiet Light
Quiet Light on YouTube
Resources to Help You Grow Your Business | Quiet Light
Joe Valley
Mark Daoust
Walker Deibel
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
Buy Then Build

Sponsor for this episode

This episode is brought to you by MyAmazonGuy, an Amazon agency to help level up your PPC, SEO, Design, and manage your entire Amazon catalog.

This episode is also 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, we’re gonna do a deal debrief. Typically we’ve had sellers on talking about their business, how they built it, the challenges that they had listing it for sale, going through due diligence, things of that nature, and ultimately, how they feel after they exited. Deanna Berardi on the Quiet Light team heads up a lot of different things. One of the things that she does is talk to the advisors once a month, on all deals that closed, she interviews them, they talk about the strengths and weaknesses of the business challenges that they had with selling the business and things of that nature and how long they’ve worked with the client in advance of even listing the business for sale. And that’s a key thing here, you want to do that as much as possible. And then that is shared internally, it’s not an external, it’s not going to go to you folks, because there’s some really private information there. So what the Deanna has done here we’re going to talk about in a minute is she’s sort of whitewashed, some of those details. So we’re not giving away the URL. We’re not talking about the brand itself, or the sellers name. But we’re going to talk about some of the things that need to be done in order to sell in this particular situation, a seven figure content site had been around for a long time, particular owner had been running it for more than a decade, and was ready to move on to her next adventure. One of the advisors work with her well in advance, helping her prepare, modify some things to make it more transferable, more sellable. And ideally for all cash. And I’m going to cut to the end, it ended up being an all cash deal for seven figures. And we’ll talk about that in the interview with Deanna. Before we jump to that, I want you to know that this podcast is sponsored by My Amazon Guy, if you run an FBA business, you got to check out MyAmazonGuy.com. Just go to the site or go to YouTube and start looking at all of the content that Steven Pope produces. To help you understand and improve the overall value of your business. It’s there for free. But eventually, if you want an agency to help you scale up your SEO, your PPC, whatever it is, you do on your Amazon business, My Amazon Guy is the company to work with. So check them out at my amazon.com MyAmazonGuy.com. And now let’s jump to Deanna Berardi and A deal debrief. Here we go. Deanna. Welcome back to the Quiet Light Podcast. How are you?

Deanna Berardi 2:51

Hi, Joe. I’m great. How are you doing?

Joe Valley 2:53

Fantastic. This is going to be interesting, folks. Deanna is in charge of a lot of things are Quiet Light. Referral Program, she does a deal debrief with the advisors each month writes it up, does a video interview. And then it shared with all the advisors as well. And as you know, as the audience, we sometimes bring clients on that have recently sold their business. But we’re going to try something new for the next few months. And that is a deal debrief, debrief on a monthly basis where Deanna is going to come on and talk about a deal that closed and she interviewed one of the advisors and she’s going to talk about all the strengths and weaknesses of the businesses, what the sellers could have done a little bit better to improve the likelihood of the business being sold and getting maximum value for it. She’s doing an in depth interview with the advisor. Sometimes the advisors are a little shy and don’t like to come on the pie, the Quiet Light, I guess. But Deanna you’re not shy at all are you

Deanna Berardi 3:52

know, I love this stuff.

Joe Valley 3:55

Good. I love it, too. So we’re going to talk about a content site in the same seven figure range that one of the advisors sold on the team. We can say his name, right, which advisor.

Deanna Berardi 4:09

Now we can’t do that, Joe,

Joe Valley 4:11

that’ll give away people were going to give away too much information. It might have tried to figure out the name of the business, okay, we’re not going to, we’re not going to give away the exact price of the business. We’re not going to give away the URL of the business. It’s just a content site in the what niches at Deanna.

Deanna Berardi 4:28

It’s the states in that it’s like in a home kitchen niche. All right. Cool.

Joe Valley 4:33

So give me a little background, what what can you share about the business and we’ll go from there.

Deanna Berardi 4:38

So So kind of cool. This is a content site. And it’s we started in 2009. And we started by an awesome seller who had a real niche and a real a real knack, I should say for for for creating content that got a lot A lot of traction very, very quickly. And especially the business went through a boom, because the content was relevant in a pandemic, when people were at home and they were in their kitchen, they were absolutely absorbing this content like crazy. And so the seller was just ready to exit, you know, young children for them very successful for you know, 11 years, and wanted to leave and just move on to

Joe Valley 5:26

the business become too much for the seller to handle with four kids at home, sometimes sold businesses where they wanted a little side hustle, and it turned into this massive business that required too much time and attention and thinks, you know, oh, my goodness, I’m doing a million in revenue. This is not what I wanted, please help me sell this is that kind of the situation exactly

Deanna Berardi 5:45

what ended up happening plus, the kids did aged out, thank God. So over a 10 year period, you know, 2009 by 2020, she’d been doing it for 11 years, the kids were kind of aging out, she was very successful, but she wanted to explore other things, in addition to the kids just growing up and didn’t want to have this other thing plus the kids plus the existing business. So wanted to add to the existing business, spend more time with the kids, but also watch something new. That was the genesis of it.

Joe Valley 6:10

aging out what does that mean? I’m an empty nester, you’re close Is that what that means? You start going

Deanna Berardi 6:14

to school, you know, they’re not all for home all day underfoot, they’re starting to finally get into middle school in high school kind of thing.

Joe Valley 6:20

Gotcha. Okay, so what kind of lessons can we learn from this particular business? And what what were the strengths of it? What were the weaknesses of it? What did the advisor that handle this, and I know, this particular advisor has handled lots of blogs and content sites, even in particular, he’s handled, this big lesson

Deanna Berardi 6:38

here was a watch out for personal branding. And you’re building these content sites. And if we had to create a tagline, this is when that mean, the adviser created together on this this business, the lesson learned was, or the knowledge point gained was, the more valuable you are to your business, the less valuable your business is. And that would mean to a prospective buyer. What does that mean? Exactly? So meaning that if you are the brand, you are the personal name and the URL, you are the personal likeness on your content site, you are a heavy contributor to the content, then you’re you’re very valuable to that business, the less valuable that business would be to somebody that wants to buy it. Buy that? Well, Joe, it’s touched on in your book, it ties back to transferability.

Joe Valley 7:32

Well, it’s still transferable, right the business if it’s JoeValley.com, which by the way, I don’t own the folks I used to, I gave it up, and now photographer owns it. But if it’s JoeValley.com, it’s got my name and face all over it easily transferable, that’s not an issue, I can transfer it over to you. The problem might be the risk associated with you. With me, not you owning you owning the site of me not being the name and face of it anymore. That’s that’s the real challenge there. Right? So if

Deanna Berardi 8:01

second goodwill and then intrinsic value, that’s hard to put your finger on, that is not staying in the business, when this amazing woman who started at leaves,

Joe Valley 8:11

what do we do in a situation where, you know, 100 members of the current audience are running businesses like this already, and their names and faces all over the website? What kind of recommendations do you have for them? Or what kind of recommendations to the advisor have in this situation? Because that’s exactly the situation?

Deanna Berardi 8:27

Yes, exactly. So the advisor did give some guidance to the seller on this. And it was tough, because the personal name of the seller was in the URL. And so there was a, you know, an 1112 yard history of that person’s first name. Luckily, it was kind of a common name being in the URL. So I would say you’re kind of stuck at that point. And that’s kind of what the advisors figured out figured out too, is the personal name and URL. It’s in there, you really don’t want to be changing that URL or changing the name of that landing page is

Joe Valley 9:01

too much risk. Yeah, you don’t want to take that risk and have the trends fall down and people type in the URL. Sometimes redirects don’t work. And you lose some rankings. So that’s definitely a no, no buyers would not want you to do that and don’t want to do it because it could tank your business for even just for a few weeks. And you lose all that revenue, you lose a few weeks worth of revenue and affects the overall value of the business. So the sellers first name. First time was in the Euro, not the last name,

Deanna Berardi 9:33

first name, you’re saying to me. So if you’re listening to this podcast early enough, and you’re doing an awesome blog content site, just just try not to even start there at all. Just don’t do it first. If you can, but if

Joe Valley 9:47

you’re there if it’s you know, cooking with Jennifer I think I talked about that in the book right cooking with Jennifer’s or cooking with Jennifer. What do you what do you do then? It’s two, three years in I’m not going to change the URL Um, what what’s what’s the next option, what’s the next step that this advisor recommended or had to deal with in this particular situation?

Deanna Berardi 10:06

Exactly. So, so basically, there’s a lot of coaching, that was provided upfront, which was, hey, you’re probably going to need to agree to keep your name in the URL, and you’re probably going to need to agree to stay on to the business with your likeness. And we’ll do everything we can now to start taking your picture, and your name and kind of bearing you on a back page, like let’s demote the about piece of it, let’s, let’s put you on the About tab that’s have you in there on the contact and about section that let’s just make the pictures as small as possible, and the write up as smooth as possible. And let’s kind of do that now. To see how with your face and likeness being on a back page, not the landing page, what the trends are. So you kind of they kind of had to sit with that and start measuring this is what happens when that likeness is somewhat buried. So at least six months of that, to get some history of what happened

Joe Valley 11:04

to make sure that the the time on site doesn’t change dramatically. If that person’s name and face is not all with all over the website,

Deanna Berardi 11:13

traffic, monitoring the traffic.

Joe Valley 11:16

Okay, what about you say likeness? Is it minimize the size of the photo? Is it create a caricature of in this case? That’s good. I don’t know if there’s a URL URL out there that says cooking with Jennifer, I just made it up. So, you know, would you create a caricature of this person? Or just minimize their photo and bury it on the site? So they’re less important to the business overall?

Deanna Berardi 11:43

Yeah, well, in this particular situation, there was a photo. In some cases, though, there’s logos of the seller, people have little logos that have the seller incorporated their face or likeness, or they may have a video on there that shows them doing their task for their audience, or maybe very prominent on the landing page. So all those things were kind of stripped away. So if there was a video it was, it was maybe taken down. Or, or if there was a prominence on the landing page, it was removed. So the likeness could be in those things logo, video, photo, or even a character in a cartoon. We’ve seen people that have content sites where they have a cartoon that looks like them, all those things, you just want to start eventually demoting and tracking the demotion of them and how that impacts the traffic on the site.

Joe Valley 12:27

I would say the cartoon is fine, personally, because it’s not your face, right? I can’t find you your image on LinkedIn if it’s a cartoon. So I’d say that’s probably fine. But your first and last name, making everything as prominent front and center. So you are the business. Because what happens is that the audience becomes incredibly confident about the content, because it’s you that’s delivering the content. If you want to sell this business and transfer it, you need to put yourself sort of on the backburner and make yourself less important. You know, here’s a quiet light, I used to do 50% of the total transactions when it came to brokering deals. At one point, it was 70%. Now I do nothing. I’m so unimportant when it comes to actually doing transactions. So I’m putting myself on the back burner, because Hey, folks, I’m getting old, right? Someday, I’m not going to want to do this anymore. And so I’m naturally doing that over time over the years, putting myself on the back burner and making myself less and less important to the brand quite like you need to do the same thing. If you are the name and face of a content site. What do you do in a situation? Or what did the advisor recommend? And how did you overcome objections from buyers? In the situation where this is a content site? It’s a blog, it’s writing about stuff in the kitchen, on a regular basis? Is the written content that’s being posted on a regular basis, still being posted by the owner of the business? Or by guest writers or by somebody else? All together? What was the situation recommendation their DNA?

Deanna Berardi 13:59

Yeah, and that was that was one of the key aspects as well, that was very important to the buyer on this deal. Was the content contribution. And you know, how many of these blogs and articles were actually being written by the seller and how attached were the readers to the sellers personal content that was going on to that side? So and this person posted something with that getting a lot more views or looks or you know, tracking to it than another one? And luckily, in this situation, the content contribution, she had began to using ghost writers she had began to stop tagging it directly to her and outside of a feature or two, so most of it kind of was ended up being completely fine because that was something that was controlled and looked at

Joe Valley 14:45

writer, a Guest writer or is it the situation do you mean a made up name?

Deanna Berardi 14:51

It could have been mult. I think in this situation. I think she had used a ghost writer and the ghost writer was just kind of using different names. You know, there’s so and so contribute this recipe so and so likes this one. So it was different kind of names, but it wasn’t like one person was doing all the content. Okay?

Joe Valley 15:07

That makes sense. It’s, it’s a scalable operation where you might have, you know, 20 guest writers, and they don’t need the credit. But there are employees that are writing for you. And you can attributed, as long as as long as the audience’s receiving the good quality information and believing in the content. That’s the key, you could test that dabble with it, do split testing, make sure that the time on page doesn’t drop dramatically, because your personal name is not on it, or your personal likeness is not on it as well. These are things you need to dabble with early on, so that you can eventually plan your exit in a situation where you’re ready to sell and all of this is in place already. Sometimes you just have to accept that you’re not going to walk away from the business. At closing, not completely anyway, I, I’ve talked about this on the podcast before but if you didn’t hear it, folks, I sold a prepper site years ago, you know what a prepper site is Deanna? Now tell me, a prepper site is more a prepper business or a prepper in general is somebody that believes that you know, the the worst of the predictions of the world are going to come true. And they Oh, right. They’ve got more than a sword on their side gasoline stored on their land, they’ve got gold coins, they’ve got food that lasts for years, all of this stuff. And so not only do I have a prepper site that’s been around for a long time. But the owner of the business was the name and face of the business. She wasn’t in the URL, but she wrote content and reviewed products and everything for you know, the prepping industry. And when the business was sold, she had to stick around in name and likeness. So the person that bought the business negotiated that he would use her image and her name in new content for up to 12 months. Caveat was that she had to pre approve that content because it had her name and face on it. And then of course, we had to negotiate the amount of time that she had to pre approve that content, right? If she had a life, she had vacation, she wanted to retire things of this nature. So it gets a little sticky and makes it more difficult. And not all buyers are willing to work through all of that. My point is that, like you’re talking about Deanna is that the more you can think in advance of the transferability of the business that minimizes the risks, right? If you have your name in the URL is still transferable, but your name is in the URL and you want to go away as the you want your name and face and content creation to go away. It has to go away, but that increases the risk for the buyer. And when that increases the risk, it’s they lower the valuation, or they require an urn out in that situation. So you want to do everything you can to remove those risks so that you’re getting maximum value for the business at closing, hopefully all cash in that situation. What other objections were surfaced during the listing process of this particular business and due diligence that the advisor had to overcome?

Deanna Berardi 18:23

Yep. So yeah, good point. So the first thing you asked about was, you know, what was one of the struggles and we talked about it. So the coaching that the advisor had to give opening up this listing, and again, before it even launched was the whole personal likeness, the name and the URL, the next part of the conversation was, let’s anticipate that the buyers are going to do one of two things, they’re going to do risk this by putting a deal structure in place that’s going to protect them. So there could be a hold back, there could be some sort of burnout component to this because they want to test on you right at your exit is what you said true, you know, with you being gone is the state still going to be valuable. So that was another it’s kind of it was kind of a bummer, because it was a very sight now they’re having conversations about deal structure where you can’t get your cash up front, you have to keep your picture on there. And now you have to actually take a difference deal structure that directs the buyer, not you,

Joe Valley 19:18

right? And if the seller does all this in advance, they don’t have to worry about that that doesn’t have to be negotiated. It’s not what if it’s already hey, we’ve done this, it’s been running this way for six 912 months is not as important as I used to be to the business and therefore this is not a risk, right? It’s not what if all you have to do is and this is what I hear from you know, sellers over the years it’s all you have to do is launch this new product and revenue is gonna go up and that’s why I want this multiple or this is why I want all cash. All you have to do is blank. Remove that blank and do it yourself and take that risk away from the buyer and you will get more money for the business. It will sell quicker, it’ll be a better transaction a better deal structure as well. None of this earnout. Seller note, what was the other a whole back term that you use there that situation as well?

Deanna Berardi 20:13

Yeah. So the advice that was given before we even David got buyers in on this one was prepare for that, you know, that might that might be what happens. That’s not necessarily what was wanted at all, but prepare for it. Now, the good news was is that this deal was SBA approved, so the seller had an SBA designation on them. And so there was a lot of different buyers looking at it. So that was kind of a big plus on this. And so we know the SBA buyers coming in, they’ve got cash. And there might be the only deal with a buyer might be their first and only deal. And so maybe they don’t want the sophisticated deal structure of having earnouts and holdbacks. And you can’t

Joe Valley 20:49

actually with an SBA, there’s no earnings allowed. Okay, yeah. Okay,

Deanna Berardi 20:52

that was kind of saved the day on this one, because there was a non SBA buyer that did come in with a component like I described, which had a turnout hold back to it. And they were really wanting the likeness of that they wanted the person to stay in and continue to actually create content, continue to do some videos and stay on the front page. And that wasn’t really what the seller wanted. That person had a little better offer all in to the deal. components were not quite as desirable. And so at the end of this deal, the happy story is that it did sell for cash all upfront, at a lower number than the first offer. But it was an SBA buyer that did not really require much of the involvement from the seller at all, except to bury them on the about page, like I mentioned,

Joe Valley 21:43

right. And normally folks in the negotiation of the asset purchase agreement, there’s training and transition period is typically typically up to 40 hours over the first 90 days after closing. And I can pretty much guarantee you that was part of this asset purchase agreement on this seven figure exit of a content site, you just don’t sell it and walk away. That’s the reality, you need to be a good human. And you’re going to be contractually obligated to be a good human and put that time in after closing to help the buyer make sure that their investment is sound because they’re investing in it to take care of their family and their future. And you always want to do the right thing there as well. So, so SBA buyers, generally, great buyers, folks, great buyers, Deanna they have a 10 year note from the SBA, so they’ve got financing over a 10 year period. The interest rate is unfortunately variable in this marketplace is variable. What happens though, interestingly enough, is that your your your payment amount doesn’t go up. But you’re still making the same monthly payment, even though interest rates have gone up. The difference is that more of it goes to interest, and less of it goes to principal, as interest rates go up, your payment stays the same on these SBA deals in that situation. So it’s just a matter of, you know, less principle being applied with each payment that you’re making. When a business is listed, SBA pre approve, the advisors will pre approve it through an SBA lender, we’ve got several of them if you want to run your own business through it folks, or and see what the lenders think. Or if you’re a buyer out there, just go to the Quiet Light partners page. It’s QuietLight.com/partners, we’ve got a number of SBA lenders there that can help you. You want to have in this situation, as you mentioned, the end of the business was how old 11 years old like that?

Deanna Berardi 21:46

Yeah, it sure was right. So

Joe Valley 23:45

the business had its own entity, I would imagine and no commingled funds with other businesses or side projects and things of that nature. So the tax returns were probably pretty clear. And there were at least three years of them that allowed it to become SBA eligible. Sometimes you can get SBA pre approved with two years, but in most situations, they’re requiring three years. And sometimes they require 10% down as well. But in this situation, you said there was I’m sorry, not 10% down but a seller note in the situation it was the buyers probably putting down 10%. But the sellers getting 100% of the exit value. Is that the situation? Yes, yes. Beautiful thing, a seven figure exit all cash just like that.

Deanna Berardi 24:29

It’s pretty solid. Exactly. Exactly.

Joe Valley 24:32

What are the things came up from the adviser that were challenges with this particular business that you can think of?

Deanna Berardi 24:38

Um, you know, I think this was a hugely agreeable seller because just highly motivated to do it. But you know, when I asked the advisor again, what would be the, you know, the lessons learned because when we do these debriefs, we always focus on what gems or what lessons learned come out of this because of the 15 advisors, somebody would definitely come across this again. And the key thing was just I’m educate the seller really early on and upfront, whenever you see anything that’s personally branded, and it comes really difficult Joe, when it when it’s when there’s these consultants that are putting their face out there, and they’re trying to sell their consulting services, or their digital marketing services, or their tutoring, or online education services very difficult, because they’re hiring the person to be smart in front of them and partake, you know, send knowledge. So it’s a little bit easier in this case, because it was just, you know, a content site where they were offering like, you know, something that was kitchen and kitchen days, you just read it, it’s different when it’s delivering in person. So that is even more difficult to actually depersonalized yourself.

Joe Valley 25:43

Let’s give an example there. Our buddy Walker Deibel, here at Quiet Light, is the best selling book Buy Then Build these a Wall Street Journal bestseller now and he runs something called the acquisition lab. Folks, if you haven’t been there, if you’re out there, hoping to buy a business, check out the acquisition lab, they’ve got cohorts that run you through a 12 week program on how to buy a business, not just an online business, but any business. And Walker is the name and face of Buy Then Build, he wrote the book, it’s kind of hard not to be. But what he’s done is minimize the work that he does on a monthly basis with the business. It looks like he’s working crazy hours. But really, it’s Chelsea that’s doing all of the work. Walker produces videos and does some educational content upfront, and hops on to these cohorts on a regular basis. But still very minimum, if Walker wanted to sell the acquisition lab, it would be very difficult at this point. But he’s working on continuing to minimize himself and make the educational content pre produced where somebody can then hop onto, let’s say, a communication or discussion room. Eventually, it’s a it’s a tricky situation, if you’re in a situation where you’ve got a brand and name recognition like Walker dipole, creating a business that is eventually going to be something that you can sell can be challenging, but you’ve got to think about these things. And I bring this up because you said consultant, the consultants, businesses are generally really, really hard to sell. And I can’t think of one that we’ve sold in the past. We sold SAS content agencies, e-commerce, FBA, you name it, we’ve sold it. But I can’t think of one consultancy, because generally, it’s the owners expertise. And this is where the transferability comes in. It’s an owner’s expertise, that you can’t simply transfer somebody else’s head. You and I have talked about this, right? You’re running the quiet light referral program, which what was the what let’s let’s just talk about the referral program briefly here as we wrap this up. Last year was about 25% of the total transactions were referrals. Is that right? Yes. Yes. So last year being 2021. Folks, I think we’re about that, Mark, so far this year in 2022. This is actually going to air in 2023. In early January, the referral program is something that is never been managed, it’s always happened sort of organically. But now Deanna is running the referral program with goal of scaling up the total number of referrals from 25% to 50%. And typically, it’s been friends of quiet light, trust their friends, to trust quiet like to work with their friends to help them achieve their exits. Now, Deanna is working with more of those friends, more personal touches more conversations with them, and also scaling up and trying to find scalable ways to increase the referral program. We talked about it on a podcast recently with Vienna, in terms of how one email can generate 10s of 1000s of dollars in income through the referral program. I think the highest referral fee we paid in 2022 was was close to $60,000, wasn’t it?

Deanna Berardi 29:02

Oh, we paid no, we? Well, yeah, I guess 60,000 was in the last 12 months, but we didn’t. Before then that was 80,000.

Joe Valley 29:10

that’ll pay for a few years of tuition. School, not a private school. I just I just stroked a check for the next month. Next next semester’s tuition at the private school area. All right, well, this is this has been very helpful deal debriefs is what we’re going to try to do on a monthly basis, folks, we’re going to cover FBA businesses. We’re going to cover SAS businesses, we’re going to cover straight up e-commerce content, even some agencies in some situations, and Woz is going to come on the podcast and talk about agencies in a few months, because he’s sold several of them in the process. Deanna has been fantastic. Let’s dial this in and continue to bring deal debrief to the audience on a regular basis. Looking forward to chatting with you more often on the Quiet Light Podcast. Thanks for joining me.

Deanna Berardi 29:55

Thanks so much Joe you enjoy

Outro 29:59

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.

The Top 3 Recommendations (To Improve Cash Flow and Value) From a Fractional CFO

Matt Putra is the Fractional CFO at Eightx, where they help brands optimize cash flow, plan for growth, and be more resilient — but more importantly, they provide brand owners...

Matt Putra is the Fractional CFO at Eightx, where they help brands optimize cash flow, plan for growth, and be more resilient — but more importantly, they provide brand owners with the tools to stop stressing about their business! He is the Co-owner of Keep Nature Wild, where he promotes volunteerism and responsible outdoor recreation through trash cleanup. Matt is the Chief Financial Officer of Little and Lively Clothing and Fikse Wheels. Previously, he was the Chief Financial Officer for the Community Forward Fund, Vice President of Finance for New Market Funds, and Vice President of Finance for New Commons Development.

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

[03:20] What is the primary focus of a fractional CFO?
[07:48] Matt Putra talks about his team and how to predict cash flow for future planning
[13:50] Matt details client conversations about the economic future
[18:24] Why you should invest in financing options during times of growth
[22:07] How messy bookkeeping may be holding your brand back
[26:26] Matt explains the process of making a business plan

In this episode…

As a business owner, how can you stress less and forecast your cash flow so you’re still scaling? Sometimes your business plan doesn’t always follow the chronological order you set. What can you do to add value to your brand?

Matt Putra is seasoned in having conversations about scaling brands. While the nature of entrepreneurship may come with risks, many people feel challenged when it comes to reserving their cash flow. But if you’re looking for ways to grow, Matt recommends following these three things: be cautious with fixed costs and additions, finance when you don’t need it, and maintain regular bookkeeping.

In this episode of the Quiet Light Podcast, Joe Valley sits down with Matt Putra, Fractional CFO at Eightx, to discuss critical steps entrepreneurs need to take toward success. Matt talks about future planning for cash flow, investing in finances during times of growth, and bookkeeping as a business plan. Stay tuned!

Resources mentioned in this episode:

Sponsor for this episode

This episode is brought to you by MyAmazonGuy, an Amazon agency to help level up your PPC, SEO, Design, and manage your entire Amazon catalog.

This episode is also 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 podcast is sponsored by My Amazon Guy. I know Stephen Pope, the founder personally, you may have seen him all over YouTube sharing free educational content. If you need someone to level up your PPC, SEO, design, and manage your entire Amazon catalog, check him out at MyAmazonGuy.com Great stuff on YouTube that he does for absolutely nothing. It’s free, great educational material there, you got to check it out, do a search My Amazon Guy, or MyAmazonGuy.com. Okay, on to today’s podcast, wow, we are talking to a fractional CFO guy’s name is Matthew Putra, or Matt Putra, from a company called the Eightx. And we go over a number of different things that are critical to online entrepreneurs doing let’s say a million or more in revenue, the million or more really, when you get to that size, it’s time to really start thinking deeply about cash flow, preparing your business for getting lines of credits from lenders, banks, whatever they might be, and perhaps even an eventual exit or deciding Are you going to scale up your staff and your overhead? And what is your capability to do that if things go great if they go terribly, or if they go just right. That’s what a free fractional CFO does. And Matt goes into it in detail. We talked about a little bit about his background, but then talk about what he does to help companies get their hands around their cash flow their forecasts and things of that nature and how it helps them scale up. So let’s take a listen. This is Matt Putra. From Eightx.co. Here we go. Matt, welcome to the Quiet Light Podcast. How are you?

Matt Putra 0:35

I’m great. Thank you so much for having me.

Joe Valley 1:39

It’s awesome, man. Glad you’re here. Whereabouts in the world.

Matt Putra 2:15

I am Vancouver, Canada.

Joe Valley 2:22

Okay, I’m down in the southeast part of us. And for the folks listening today. Can you give a little bit of background on yourself and what you do over there at Eightx?

Matt Putra 2:31

Absolutely, yeah. So we’re fractional CFOs. We have a team of CFOs, vice presidents and financial analysts. Basically our goal is to help e-commerce owners scaling businesses with more cash and less stress. We do that with top notch financial planning, scenario analysis, risk management. And just making sure that we’re steps ahead of where you need to be and watching the future for

Joe Valley 2:56

that. Managing Cash Flow with less stress that just seems like an impossibility for most entrepreneurs and myself often included in that. Yeah, well, we’ll dive into that for the purposes of this podcast, why don’t we start with what the heck is a fractional CFO? What do you do? What do you do with clients who need you?

Matt Putra 3:17

Absolutely. So I mean, who needs me, I would say anybody doing or who needs one, somebody like me is anybody doing a million and above, I would say in revenue could benefit from a fractional CFO, what we do is, you know, basically, you’re gonna get the benefit of someone who’s worked at the high level, what does the CFO full time, but they’re going to work for you between, you know, two, four days a month to two days a week, when you’re at a million bucks a year, I would say you want someone that’s going to two to four days a month, up to getting up to 60 million 100 million, you could probably get away with someone that works for you to three days a week, and you get the benefit of someone who’s been around the block made all the mistakes, and so they’re not gonna make the mistakes now on your behalf. Basically, what do we do? Primarily, our focus is cash and profit optimization. From there, you get the universe of anything else CFO can do contract review, hiring, planning, goal setting, financing, raising money, kind of all that investor reporting, we can do everything most of us.

Joe Valley 4:13

Okay, so if I have a full time bookkeeper, or an outsize bookkeeping firm, I would still keep them if I’m hiring a fractional CFO, is that right?

Matt Putra 4:23

Most of the time? Yes, a bunch of us have bookkeeping divisions. When I would say if you’re talking to CFO who has a bookkeeping division, I would suggest moving bookkeeping to them, just because then they can work hand in hand with a bookkeeper that’s that’s reporting to them on a daily weekly, whatever basis. But if by no means do you have to switch most bookkeepers out there are talented, your CFO is only going to make them better. And we work well with other

Joe Valley 4:48

bookkeepers. Okay, my first thought is, man, this sounds cost prohibitive. We’re getting a CFO and it’s been a very high level of large organizations. And now they’re going to look at my p&l. Now it’s going to take me a lot of time to work with them and get them to understand how much it’s going to cost me and how do I get my positive return on investment? And can you talk about that a little bit?

Matt Putra 5:10

Sure. So in terms of costs, I’m very, very transparent, you can go to my site, there’s a calculator, you’re going to be paying anywhere from two to five grand a month, depending how big you are based on your revenue only in terms of the cost of your time. So we have now figured out basically how to minimize the cost of your time. So what we do is we have a list of questions. In the beginning, you answer a lot of questions around a bunch of phone calls with us as we get on board. But I would say that’s not more than 10 hours in the first two months, to really get us to understand, we dig into your QuickBooks, we dig into Shopify and all your channels, talk to your bookkeeper, talk to your accountant, we do all the work to get us on board ourselves, and the things that we need you for what is what do you want the next couple of years to look like? Who do you want to hire next? And those are pretty lightweight questions, lightweight phone calls,

Joe Valley 6:01

what do I want to hire next? Why would I see a fractional CFO firm be involved in that? Yeah, well,

Matt Putra 6:07

I mean, if you’re, well, I mean, cash optimization, right? So if you’re at a certain level, and you want to hire two people, Well, what I’m going to do is, I’m going to add those two roles to our financial plan, and check, can you afford it Cash Wise? What does it do profit wise, and then I’m gonna come back with a recommendation saying, hey, you know, could you wait or go ahead and do it? Because it’s can be a leverage point for you.

Joe Valley 6:30

Okay, so if I wanted to increase my net income percentage from 23 to 26%, is that something that a fractional CFO is going to dive into? And say, you can do it this way? Or you’re not going to be able to do it? Or how’s it work?

Matt Putra 6:44

100%. I mean, this is part of the thing is, you know, we’ll, we’ll look at a year and we’ll say, Okay, this is where we are, where do you want to be? If it’s 23 to 26? We’re gonna say, okay, great. From what we can see, here are some levers. Here’s some things to dive into, on your side with your ops team, let’s say, we’ll help you figure out what is are the roles that you don’t need? Are there fixed costs that you don’t need? Could you offshore certain costs? There’s so many ways we can help? And sometimes the answer is it’s not going to work in the near term.

Joe Valley 7:15

Well, that’s that’s an okay answer, right? It’s, we often talk to clients that want to exit for a certain amount, and we say, we can get you there. Just not yet. Exactly. You got to stick around and do something. So you gotta be honest with them along the way. Talk to me again, about the experience of your folks like at what level of education do they have? What level of I mean, were they CFOs in private organizations? Are they expert bookkeepers, and CFOs? Just talking to

Matt Putra 7:42

staff so we’re a small team. So I was the CFO for a private equity group and private lending company for a number of years. Just didn’t didn’t want to do the corporate rat race anymore. So I left that. We have another CFO who was a forensic auditor, who’s been doing bookkeeping and controllership and CFO work for many, many years, more than more than me, actually, our Vice President worked just this summer, he switched to us from a $50 million a year e-commerce company before that he was at $120 $120 million mining company, and he led the financial planning departments for both of those companies. My Financial Analyst was AIG, Emerson, Citibank alumni. So we really look for people that are multidisciplinary, but also like really, really good.

Joe Valley 8:27

Okay. All right. So one of the big struggles that, as you know, most online businesses have, and if we just talk about e-commerce, actually it’s could be could be content, or SaaS businesses or even agencies is predicting cash flow. Sometimes it’s very hard to do. And you know, if growth goes, you know, off the charts, trying to keep up with inventory really diminishes the cash on hand, how do you? How do you plan for all of that, what kind of worked as a fractional CFO to help manage that, do the forecasting and have the owner, you know, stress a little bit less and be able to, you know, make sure that they’re able to take enough money out of the company to feed their family?

Matt Putra 9:07

Totally. So anyone that tells you that they can predict what cash flow looks like next year, probably like, how we do it is we look at a number of scenarios. So at the most basic, we’re going to have a forecast that looks at next year, it’s going to be probably the most likely occurrence. So revenue is going to be let’s say, 10 million, okay. And profit will be, let’s say, million. That’s our base case, it’s the most likely scenario, it’s the one that’s based right off of the numbers to see here, then we’re going to look at a worst case. So what if the CPAs go horrible? What if the cost of goods goes up? 10. So that case is going to look something like well, maybe you’re doing 7 million, and what does profit look like? If revenue comes in at seven? Then we’re going to look at a best case. The best case could be 15 million, but that means then you have to buy a whole bunch more inventory. So we’re going to test these three centers euros at minimum. The other thing we’d like to do is we’d like to test the best case, inventory purchasing plan with the base or worst case revenue plan as a new overbought inventory. What does that do your cash flow? Can you withstand it out of the margin suffer or not? And what we need to do is come up with what we’re willing to bet for next year or the year after. So, you know, if you bet in the best case, that doesn’t happen, way overbought inventory. So can you afford to do that? Or can you not, if you can’t, we might need to dial back. That might mean, you sell out here and there. But it’s a conservative way to make sure you don’t run out of business, like you don’t run out of cash. And you can survive, fight again next year, next year.

Joe Valley 10:43

As part of that process, do you work with the owners of the business to determine what their living needs are livable wage, something that it’s taken me, you know, I’ve been self employed for over 25 years now. And part of the challenge of being self employed is you know, your income goes up, it goes down, it goes up, it goes down, and you just take distributions now. And you take whatever you can salary wise to benefit, you know, so you know, it’s paying self employment tax and get some money into Social Security, if it is going to be around by the time we all retire, setting, you know, figuring out and setting what a livable wage would be, I think is it’s done sound like it’s hard. But it feels like it’s hard. It’s been hard for me over the years over the decades at this point. Finally, I’m at the point where I know what it is. And if I just said that, what do you do you work? So you do work with the owners of the business to set that dollar amount, you know, on a monthly basis, and then you work the cash flow after that, because that’s an expense, it’s going to be above the above the profit line, right?

Matt Putra 11:45

Yes. So sometimes distributions, dividends, sometimes it’s it’s wages. We don’t we don’t work with them, like on a personal financial planning level. But we will we’ll try to figure out like, what do you want to take from the business? We will put that in the forecast? Okay, great. And we’ll leave that in through these scenarios. And we’ll see. Does one of these knock your earnings out of where you want them to be? If so, are you okay with that for a time period? Or are you not? If you’re not, then we scale back the forecast, we figure out another way to make it work. A lot of what we do is personalized to an owner. So some owners, you’ll know this to are happy to take risk, happy to happy to work off their savings for three months, and some are not. And so in our case, we we work with them to figure out what they’re willing to risk. And of course, I’m usually the Chicken Little in the conversation saying hey, I don’t think you should do that. I don’t think you should risk this today. Sometimes my job is to be a bit more Cavalier when the owner is very conservative, and to say, hey, you have a really big cash reserve, you can take market share with this. But it’s all based around personal preference and trying to figure out the owners risk tolerance, basically,

Joe Valley 12:56

let’s talk about the current economic environment, then, you know, you’re talking about cash flow projections best case, worst case, you know, middle of the road, and and if you’ve built up cash reserves, take market share, what are your conversations like with clients now that may or may not be worried about a further economic downturn in in the next six to 12 months?

Matt Putra 13:20

So if I’m talking to someone who’s not worried at all, I’m being Chicken Little in that conversation. So I’m saying, hey, you know what, like, we have no idea. So you should be conservative. So I’m advising caution with adding fixed costs and salaries. I’m advising, generally small bets to term small is relative to what the company can do. It’s also relative to the owners risk tolerance. But generally, I’m advising caution, I wouldn’t suggest anybody buys inventory based on their best case right now. But it’s, you know, at the end of the day, if if someone wants to make a big bet, I’m going to be there to model what it looks like and model the downside. And I’ll be there for them if it doesn’t work, and try to figure out a way out of it. But typically, I’m advising caution to those that don’t see a problem in the future. Conversely, go ahead. No, no, no,

Joe Valley 14:15

let’s hear the converse part.

Matt Putra 14:16

So conversely, if someone is like, there’s gonna be a huge problem. I gotta sit on all this cash. I’m saying, well, we don’t know there’s going to be a big problem. So let’s make some calculated bets. I have two clients in mind that I’m thinking of when I say this. They have strong cash reserves, they’ve managed their fixed costs and manage the payroll. This is the time to make the calculated bets. This is the time to try new things to market because as everyone stops spending, if they do, then they’re now as they innovate, and how they you know, market and how they do their product. They’re going to come up out of any problem we have better off than if they didn’t test at all.

Joe Valley 14:54

Yeah, it’s it’s an interesting time for many companies trying to figure out you know, what, what cash flow is going to look like? In the next six to 12 months, building up cash reserves is something that a lot of folks I’ve talked to, over the last few months have done. But in order to do that, and this seems like it would be a simple task. You know, it’s the, I think it’s best to probably pick a how many months cash reserves do I need in case things fall off cliff? Yep. Believe it or not, though, I feel like a lot of people have challenges doing that. Why do you think that is?

Matt Putra 15:33

I think part of it is the nature of entrepreneurs. I think we’re all risk takers, in general, we see upside are optimistic. And, you know, and for those reasons were successful. But also for those reasons we can chip on our own strengths, I think. So when you look at rose colored glasses all the time? Well, bats can cause problems, because it’s not always going to be a good outcome. So that’s why I think it’s hard for people to build reserves. It’s just it’s the nature of the game and nature of who we are entrepreneurs.

Joe Valley 16:06

Painful, I tell you, we’ve we’ve made a point of doing it this year, in the last 12 months, I mean, and then you’ve got to account for the fact that you didn’t distribute that money, but you’ve got to pay the taxes on those earnings as it’s, and you know, given the calendar year 2022. And what happened in the market, it’s probably best that we held our money and, and use it for other purposes. All right, let’s delve further into cash flow. Sure. Hey, you know, what are you know, without hiring a fractional CFO firm? What are the top one to three things you’d suggest people do to really get a better handle on on their finances and cash flows?

Matt Putra 16:48

Absolutely. So the number one, and this relates to I’ve worked with now, I don’t know, 20 year, companies, and I’ve talked to hundreds more, the happiest founders that I know, have been very cautious about adding fixed costs and salaries. There, they have the stress of a lot of work. But they don’t have to worry now about cash flow. And they can think about how I’m going to take market share. And this is the number one thing that I’ve seen is people that are cautious with fixed costs and salaries are the happiest in the three years, I’ve been doing this as a fractional. That’s what I’ve seen. So that’s number one. Be just go ahead.

Joe Valley 17:24

Yeah, and let me address number one before we get to number two here. And I love to give personal examples. So Quiet Light, historically, we’ve been around since 2007. Historically, we had no fixed overhead, literally no fixed overhead. Because our advisors got, you know, they earned a percentage of the transaction setting get paid salaries in 2021. You know, we had to scale up or, you know, we grew by 85% over the previous year, and we grew 55% For the last five years in a row. So we had to scale up people wise, because we needed to support a larger team of advisors, we felt the same, that we scaled up a bit much with people, and we’re trying to, you know, get the right people in the right seat and be more efficient with it. But I completely agree with happy founders that have low fixed overhead because it takes that stress and concern away without meeting payroll and things of that nature. So 100% Agree.

Matt Putra 18:24

Totally, that’s the way we do it too. Like, we will wait, I won’t hire for a role until that role is covered by revenue. I mean, honestly, it causes it’s a lot of work to do it that way. But I don’t have to worry about cash. So number two, I would say is go get financing when you don’t need it. So when people wait till they’re like, oh, shit, this order I gotta pay for I gotta finance it. And then we’ll it’s like, well, it’s too late. Or now the banks can’t move as fast as you need. Or, for example, they’re like, Hey, we’re going to invest in growth. And what that means sometimes is is adding payroll, which would reduce your net income. But what they should do is go get the loan first, while their net income is still 20%, or whatever the number would be. Because when the bank looks at a couple of years of good profit, they’re more than willing to give you the money now, whereas if you wait and you hire those killers, let’s say to grow the business, then your net income was 510. The banks are less willing to lend. So I will say this time and time again. Go get money before you need it, and you can get the best terms that way too.

Joe Valley 19:29

Okay, I agree. 1,000%. I was playing golf with Uncle Walter folks. And he’s been my mentor for about 20 years now. And he said the same thing to me out on the golf course. He said the best thing you can do is get a line of credit set up before you need it. Now being the smartest person in the room, I didn’t do that. And in 2010 I sold my last e-commerce business and didn’t set up A lot of credit, I had close to a million dollars in equity in my home, and I had money in the market, but didn’t want to take any money out of the market because it was trending down. So I sold my business, plenty of cash, plenty of equity, plenty of stocks and bonds. And I went to get a line of or a home equity line of credit, just on my house. Yep. And it was a local bank, they know me, I know them great relationship. And they’re sorry, Joe, I’m sorry, you don’t have a job. Like, you’re kidding me. Like, no, these are the rules, you don’t have a job, you don’t have any incomes. And we’re not going to give you a line of credit on that house. So I’ve waited too long. And there were there were opportunities that I missed out on. Because I wasn’t going to take cash out of the market, I wasn’t going to use my proceeds from my sale. And I wanted to use a line of credit on my home, which was the intention. That’s why I put so much down, mainly because I’m an entrepreneur, and I don’t know, you know, what things are going to be like, but critically, critically important. For those out there listening to this going, Yeah, I’ll get to that Sunday, Sunday is going to be here. And it’s a way late, get a line of credit set up, we actually have a partners page with a number of lending opportunities or options for you go to quietlight.com/partners. And there’s some for acquisition, lending, there’s some for inventory lending and things of that nature as well. local bank, if you if you can build that relationship, sometimes I think it’s the best option for girls, and you’re setting it up well in advance

Matt Putra 21:26

all day that I have with the local bank, I 100%. Agree, get that relationship, get a small line of credit. So you’re used to working with the credit team, so they know you so you, they get reports. And then when you need the big one, then they’re there. And they’re primed to present.

Joe Valley 21:41

Yeah. 100% agree on that, too. So we’re two for two. What’s what’s number three here?

Matt Putra 21:48

This might sound counterintuitive, but regular bookkeeping, regular bookkeeping. And so when when COVID first kind of popped off the early days of my business, or helping people arrange financing, I wanted to just help entrepreneurs get money, I talked to probably 400 People in six months. Didn’t number one reason they couldn’t access government support loans, whatever, they didn’t have their books ready to go. Number one reason. So this is number three, because if you don’t have bookkeeping, the books are not ready when a bank or ask or when you need it. Or even let’s say you can’t look at your financials and know how you’re doing. There is no way for you to manage. And if you don’t have bookkeeping, a fractional CFO can even help you. Unless you let them do the bookkeeping to, you’re just blind, you’re blind. And so you have you can’t be blind, you are

Joe Valley 22:35

preaching to the choir, if I had a voice that I could sing with, I would do it now. I’ve been preaching this for a decade or more. You know, we recently were approached by somebody that would like to sell their business to Quiet Light. And you know, they had one year of financials in an Excel file, we were like, Do you not know who we are? Do you not know what we do? Do you not understand what we’ve been preaching for a decade? And you come to this come to us and want to sell your business with this little financial information? Yeah, absolutely not, it makes, it makes you be able to get lending easier, but you’re gonna wake up Sunday, and you’re gonna be tired, and you’re gonna want to exit hopefully, you’re not gonna wake up and decide to exit. As I say, you want to sort of get trained and learn to exit and do it at your own time in the future when the value and time is right for you. But you’re not even going to get out of the gate if you don’t have clean financials. I give examples in the book about it was guy named Bob, he was like 49 years old, his goal was to retire at 50 and become a minister. And he had, you know, a decade worth of financials in an Excel spreadsheet. And we went out to market one under loi twice, and it fell through twice just because if the buyers lacked confidence, no confidence in the details. He took the same data that hired a bookkeeper finally, and put it into QuickBooks, spit it out. And it’s the same information just exported from QuickBooks. It was right. So the history that the Excel files were right. Yep, QuickBooks was right. But having it there in QuickBooks just installed much more confidence in buyers. We ended up reversing the process, ended up with three offers and went through, let them go through the due diligence files the data room, and then we were going to and then we closed within two weeks of deciding on which one which was kind of a nice process, but it closed and it closed for $50,000 more because the financials were in good shape and the offers got more competitive, beautiful. So the number one thing I think owners can do in terms of maximizing the value of their business, reducing stress and getting peace of mind is building the business so that it’s you know, something that can be viewed from an out Side party with confidence, you’re instilling confidence in potential buyers and investors and bankers that are going to loan you money or buy your company. And you want to make sure they feel fully confident in you and your business. So that they’re going to stroke a bigger check or more downpayment or lend you money on a line of credit that you need to continue to grow are high people. So I am 100% on board with all three. So I’m glad we didn’t, we didn’t plan that. But I totally agree. Perfect, totally integrated. Okay, any other any other thoughts or wisdom that you’d like to share with the audience in terms of, you know, the benefits of fractional CFO work or things that they can do to further improve the value of their business? Or put in a position? Would they be able to hire somebody like your your team more readily?

Matt Putra 25:46

Yeah. So I mean, if you don’t hire a CFO, what I would say that you could do is do some form of planning. So even down to as simple as, print out your QuickBooks, month by month, profit and loss, and then type in your estimates to the to the right over time, and then find out your net profit would be just even that will will put you ahead of other folks. And there’s Are there tools out there like float app is one Fathom is one, and they can help you with the scenario planning a bit more automated, but do any form of planning and one of the reasons why as we know the plans don’t work out the way you make the plan. However, when you make a plan, you can look back and say this is what I wanted to do. This is what I thought would happen. It did or didn’t happen. But why? So I hired this role, and they didn’t, you know, sales didn’t go up. Why is it OKR thing? Is it a personality thing? It allows you to go back and dissect the past and figure out what happened. If you’re looking at, you know, like I say the the ways to grow, or get to a point where you can work with the practical CFO, again, bookkeeping is huge. Get a good bookkeeper, get them sending you stuff every month, look at it, you know, target gross margin for like a brand selling items 60% for an agency, could be again, I wouldn’t say 60% is great. 5040 is okay, if you can minimize your your like admin costs. But those are the those are the key things.

Joe Valley 27:18

We’ve talked about bookkeepers here, let me give a shout out to, again, that partner page are quite like QuietLight.com/partners. We’ve got eight bookkeepers that we’ve worked with consistently over the last 15 years. We trust and respect them. Everybody on the team at Quiet Light gives feedback on a quarterly basis, we send out a survey to the 15 advisors about the folks that we’ve got there. And if there’s enough negative stuff, we just kick them off and remove them from it, but quite like to accomplish those partners that will help you audience in terms of finding a good bookkeeper. If you’re convinced now that you need one. I would say that we probably need to add a section to this for fractional CFO, when you think

Matt Putra 28:03

that I think that’d be great. There’s a lot of really good folks out there, including yourself, including myself. Yeah.

Joe Valley 28:10

Awesome. Well, this has been great. How do folks reach you? I know they can probably go to Eightx.co. But is that the best approach? or is there other ways that you want to reach out to have

Matt Putra 28:21

if you want to chat get in touch? I would say LinkedIn is a great opportunity. So so find me on LinkedIn. Send me I accept all my connection requests. And then your last

Joe Valley 28:31

name for the audience.

Matt Putra 28:32

Yeah, that’s Putra. So P as in Peter, U T. R A. So Matt Putra. Look me up on LinkedIn. Send me a DM. I will have lots of chats with people through DM. Lots, we will reach out just for a coffee and a hang. I do that as much as I can. I even will give advice short stuff if you need it. If you comment on my posts, I’ll answer most questions. I will sometimes create new posts off questions I get. So yeah, LinkedIn is a great place to get in touch in the short term. And if you want to like meet that you can go to my site and book a call. But even LinkedIn is probably still passing that.

Joe Valley 29:08

Excellent. We’ll put those up in the show notes as well. Thanks, man. Appreciate your time. Thanks for joining us and appreciate your wisdom.

Matt Putra 29:15

Thanks so much for having me.

Outro 29:18

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.

←1...13 141516 17...17 →

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.

Resources for Buying and Selling Online Businesses

Contents:

Never Miss a Beat - Get Updates Direct to Your Inbox

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

In this episode…

Resources mentioned in this episode:

Sponsor for this episode

Episode Transcript

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

In this episode…

Resources mentioned in this episode:

Sponsor for this episode

Episode Transcript

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

In this episode…

Resources mentioned in this episode:

Sponsor for this episode

Episode Transcript

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

In this episode…

Resources mentioned in this episode:

Sponsor for this episode

Episode Transcript

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

In this episode…

Resources mentioned in this episode:

Sponsor for this episode

Episode Transcript

Transcription:

Episode Highlights:

Resources:

Transcription:

Transcription:

Transcription:

Episode Highlights:

Resources:

Transcript of Interview

The Interview with Shakil Prasla

Thinking of Selling Now or Later?