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Former Hubspot VP Acquires 7-Figure eCommerce Business

Katie Ng-Mak is the Former Vice President of the Global Solutions Partner Program for Hubspot, an inbound marketing software company, before she ventured on her own to purchase a purification...

Katie Ng-Mak is the Former Vice President of the Global Solutions Partner Program for Hubspot, an inbound marketing software company, before she ventured on her own to purchase a purification business. She has experience in business and earned her BA in economics from Columbia University and her MBA from Harvard Business School. Katie worked for Cummins Inc, where she conducted due diligence, risk analysis, financial analysis, and market research. She was a Credit Risk Analyst for Bear Stearns and an Analyst for BlackRock.

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

[05:38] The inspiration and motivation behind why Katie Ng-Mak entered the world of entrepreneurship
[10:38] Katie talks about building communication skills and buying a business
[14:07] Why buying a business requires a diligent process
[19:21] Katie explains why trust is crucial when buying a business
[24:54] How leveraging your expertise for due diligence can generate a smooth transition
[28:45] Katie describes harmoniously working with the previous owners during the transition period
[34:05] How to keep your letter of intent simple while still showcasing your best qualities
[38:47] What attracted Katie to buy a purification business?
[43:49] Why you shouldn’t waste time on trivial items and instead focus on what can be successful for your business
[47:34] Katie gives a detailed example of growing your business responsibly

In this episode…

The process of buying a business may feel like a formidable task if you’re unfamiliar and uncertain with the process. How can you ensure you’re buying the right business? When Katie Ng-Mak purchased her first business, not only did she leverage her skills, knowledge, successful tools, and network of professionals, but she also followed her intuition.

As an entrepreneur, you accept a particular degree of uncertainty when running a business. It is crucial to hire the right people to help you plan — especially when purchasing a business. But what steps can you take to generate growth? For Katie, seeking support, seeing the possibility, and engaging with a business plan is the best way to recognize and respond to uncertainty.

In this episode of the Quiet Light Podcast, Joe Valley sits down with Katie Ng-Mak, Former Vice President of the Global Solutions Partner Program for Hubspot, to discuss the ins and outs of a business purchase. Katie talks about leveraging tools of expertise, why your conscience should be your guide, and focusing on growth and opportunities in your business. 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.

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. By providing trustworthy advice, effective strategies, and honest valuations, your Quiet Light advisor isn’t your every-day broker—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 their 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 is offering 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. Thanks for joining me for another episode of the Quiet Light Podcast. today’s podcast is sponsored by My Amazon Guy. I know Stephen, personally, we’ve been on each other’s podcasts a number of times. If you own an Amazon business, you can learn an awful lot from My Amazon Guy on YouTube. He’s got a ton of great educational content. If you want to level up your PPC, your SEO, your design any aspect of your Amazon business, My Amazon Guy can help you check him out at myAmazonguy.com. Okay, so onto the podcast. Our guest today is Katie Ng-Mak she is really, really impressive. Let me just say that first of all, she she went to Columbia for undergrad, she has her MBA from Harvard, she worked for BlackRock she worked for Bear Stearns was the first 100 employees at HubSpot rose through the ranks here, ranks there over a 12 year period, and then ventured out onto her own, decided she wanted to buy a business not necessarily an online business, she looked at all sorts of different businesses. And one of the interesting things that we talked about here is that she did decide to join Walker Deibels Acquisitions Lab. Even with her educational background and business background, she made the choice to join the lab and get some real experience and education on how to buy an online business, which I think was a very smart move. She looked at about 20 businesses, the one that she ended up buying, she bought with some of her own funds and SBA funding, she talks about that process a little bit, go into detail about due diligence, what she learned there, again, with her background as a Harvard MBA and all the business experience that she has, she still hired two different types of due diligence experts. And we talked a little bit about the challenges that she’s had what she did during the training and transition period. All aspects of it. It’s just fascinating to see somebody with her level of expertise and maturity and education and background. To go through the process, and how focused and diligent she was about getting it right. She took nothing for granted. didn’t take anything. I want to say risk. Much. I mean, there’s always risk when you’re buying an online business, she talks about that as well. You just have to accept some aspects of it. But she talks about a little bit what she learned in the due diligence period and considered it you know, a bit of a roadmap on how to improve the business as well. It’s just fascinating. So let’s jump to it. Again, this is a acquisition, a seven figure acquisition that Katie Ng-Mak made. Her advisor was Paul at Quiet Light. So let’s take a listen. See what she’s got to say. Katie, welcome to the Quiet Light Podcast.

Katie Ng-Mak 3:27

Hey, Joe, thanks for having me today.

Joe Valley 3:29

I’m so excited. You came to us via our mutual friend Walker Deibel from the Acquisition Lab. You were a I almost want to say a patient that No, you weren’t a patient. You were a student at the acquisition lab. But you know, I’m looking at your first of all, I’m looking at the email that Walker sent me. And then I’m looking at your LinkedIn profile. And Columbia, Harvard, you went to work for Blackrock Bret Bear Stearns top first 100 employees at HubSpot, and we know HubSpot. Well, because Sam sold to help Sam Parr sold to HubSpot, and then to the acquisition lab to become an online entrepreneur or actually, that’s not the case. You became you wanted to become an entrepreneur, period. Normally Katie, I’m asking people to give some background on themselves, but I just kind of did it for you. What, what a journey. Tell me Tell me, tell me a little bit about how you grew up and how you decided to go down this path. business wise, this is a very impressive resume you’ve got here.

Katie Ng-Mak 4:35

Yeah. Thank you. I’m glad you shared the background, Joe, because I’m generally not comfortable. Like, you know, bragging about myself, as you mentioned, so I’m glad we got that out of the way. I enjoy terms of a little bit about myself. I’m Katie. I grew up in New York City in an immigrant family, so I’m my family and I am relates to the United States when we were one, I would say that I grew up in like, a low income like family, though I never felt poor. And in that community, like, I remember when I was young, like one of the things that I’ve always been curious about are these small businesses, right? And, and I remember like, very specifically, there’s this one noodle shop that, like, is very popular in Chinatown in New York City where I grew up. And it’s like, it’s very popular, as I mentioned. And I remember thinking, I was like, Oh, that’s really cool. Like, you know, they’re like, employees hair that are like serving these delicious noodles to the community. And one day, my mom told me, she’s like, oh, yeah, like, they’re not employees, those are the owners. And in fact, like, they just they don’t own like, just this noodle shop. And this noodle business, they actually own like, a couple of buildings down the block. Like their landowners, they actually, they just, they don’t only sell noodles here, they actually distribute them nationally. Right, like, they make a lot of money. And for me, it wasn’t just about like, not being able to make a lot of money. Like, I just thought it was really cool. Like, they sell noodles to the community. Like, they actually have a distribution business. They also, even though I didn’t know what I was what it was called. And like they clearly did very well, right. And they like made enough of a name for themselves within this immigrant community where people usually have like, low paying jobs. And I also thought it was really cool that like, you know, they didn’t really have to run this noodle shop, like their owners, like they have buildings, you know, but I think they found a lot of joy in being able to offer this low cost food that’s really enjoyed by this community. And, and, you know, I think that’s why they do what they do. And they, you know, they work hard over the weekends to do that. And to be part of one of my impressions of like, a small business, and it stayed with me, I don’t think I ever had felt like I had an opportunity to do this, just because as I went on to college and thought about what I wanted to do, one thing that was really important to me and my family was that, you know, I would move into a high paying career, just because I had students that I felt like it was important for me as like, you know, for immigrant to just be able to be a success story, I felt like it was important for me to one day be in the position to support my parents if they needed my support. So just, you know, entering into, like, a career of success, and like, you know, that offered a little bit more reassurance and predictability was important. And that was what led me into a career into finance and eventually into tap,

Joe Valley 7:51

did you find that you were working harder than your non immigrant peers? Because you had to prove something, or you just had the drive within you versus somebody that, you know, has been in this country for several generations?

Katie Ng-Mak 8:06

Yeah, that’s a tough question. I, you know, I think that there are a lot of hard working people out there, right. Like, I do think that the so like, you know, even when I was working at HubSpot, a lot of the employees, they’re, like, they don’t share the same like, you know, recent immigrant story, but super hard workers. And I think the motivation was different, right? Like a lot of the my peers there were driven by, like, you know, passion, and just really wanting to make impact. I had that in me, for sure. But I also think that there was this like, separate narrative. That was a big part of my life. And, and so I wouldn’t say that, like, I had to work, I don’t think that I had to work harder. You know, I feel like, I’ve met a lot of people who have worked very hard. But I definitely feel like there was this, like, need and desire to really like lift myself out of that community that I grew up in. It’s kind of ironic, like, I love that community. My parents still live there, right? That’s where their lives are. But you know, I think the story of every immigrant family is that they want their children to be able to lift themselves out of it, not forget it, and come back and you know, be able to help that community but they, they really want their children to be able to lift themselves out of it.

Joe Valley 9:25

Well, you’ve clearly done the undergrad at Columbia, MBA from Harvard, Black Rock, BlackRock, Bear Stearns, and then more small business with HubSpot. What led you from the likes of Blackrock and Bear Stearns? To

Katie Ng-Mak 9:41

HubSpot? Yeah, it’s a good question. So, I will say this, like I think I always kind of had this entrepreneurial edge. I never felt like I was in a position to stretch it, to follow through with the analogy, but I always felt like I should prepare for it. Right and coming out of this In school, like, honestly, I wasn’t sure what I wanted to do, it’s really easy to tell the story of my career by saying like, hey, you know, during that time, I just saw that hot Tech was gonna, like take off. And I just put myself in a great position. It really was not the case. Like I didn’t know what I wanted to do. And I so focused on what I wanted to learn. And one of the things I wanted to learn during that time was I wanted to learn how to sell because I knew that one day, if I were to own my own business, or if I were to, like, you know, maybe just even climb the career ladder in corporate, like, being able to sell is just such a critical skill. And I’m a natural introvert, I’m actually very shy. So I never felt comfortable conversations. So I wanted to challenge myself to just like, you know, build that skill, get that under my belt, and then you know, maybe put it to use Monday. So that was actually an I got in contact with HubSpot, because they had a sales job available. And I got connected to to Bounders through a connection, started my career there and just ended up being there for 12 years, because it was a great company with a lot of opportunities. Well, it’s

Joe Valley 11:11

incredible what they’ve accomplished during that 12 year period, new as well. So congratulations to everything that you did there. I’m looking at your LinkedIn profile, and it’s talking very, very impressive on the number of different things that you did there. But let’s jump to the entrepreneurial side of it fully. Katie, you bought a e-commerce business from Quiet Light, in June of 2022, just about four months ago, through Paul, I’m looking at the details of the business. It was a seven figure purchase. There were a total of five offers on the business. Congratulations, you were chosen. The right person made that connection with the owner of the business. But prior to that, I think you went through Walker Deibel’s Acquisition Lab. What What led you to that? How did you find Walker? I know he’s obviously part of the Quiet Light team. He was on the podcast a couple of weeks ago. How did you how did you find the acquisition lab? And I mean, by all rights and purposes, somebody is going to look at your resume. She doesn’t need the lab. She knows everything she worked at Bear. She worked at BlackRock, she’s got a Harvard MBA, why? Why do you need to go through the lab? So tell me tell me about that aspect of why you why you chose to do the lab?

Katie Ng-Mak 12:28

Yeah, that’s a good question. So I would say that probably like around eight years into my HubSpot career, I started to get the idea of buying a business. And it was actually because I was being recruited by a private company. And like, I got a call the guy, the founder, and CEO of the company, also graduated from Harvard. And it was clearly in recruiting call. But he was like, hey, you know, I was wondering if you’re up for meeting for coffee on tap your brain for some expertise. We had a great meeting, he told me about how he had bought that company, that business when there were only two employees, that we really liked the product. And then he grew it over the last 10 years to be like a very sizeable private company. And actually, I believe they were acquired by like a public company over the past two years. And I just remember him telling me that story. And I walked out of that meeting. And I believe I actually said this to him. I was like, Hey, I just want to let you know, I’m actually not interested in becoming your chief revenue officer. Because he did mention that there was going to be a role opening. But I want to buy a business like you. So can you give me some advice. And that began kind of like this. It just planted the seed of the idea of buying a business. And then after that, like, you know, I just went into like, kind of like my network, like basically asked, asking the right questions is like, Oh, I wonder who has bought businesses and how they did it. And, again, like I fell back to my Harvard connections, and I found out that a bunch of my classmates actually bought businesses through a search fund, started look into search funds, and came upon one of Walker’s friends who was running the search on during that time. And we chatted a bit, and I began to realize that a search one wouldn’t work out for me because, like, my family, and I live in Massachusetts, in a city in Massachusetts, everyone’s happy, my kids are happy. My husbands are happy. I’m like, I’m not moving. And I knew that that constraint when worked out while was search fund investors. So one of Walker’s friends mentioned to me she’s like, well, you know, I have a friend who Ashley started something called the acquisitions lab. He actually wrote this book called Buy then Build, why don’t I introduce you to him? And that was how I formed a connection to Walker and and then that’s how I get pulled into acquisitions lab. And then to answer a question directly about like, hey, like, why do you need something like acquisitions lab? When you got like a Harvard MBA, the dangers at buying in business and everything that you cover in MBA, like it’s completely different, completely different, like, I like today, like when I explain to my friends who have never bought a business like, like what that process is like, I actually describe it as like, being really like a process that’s very similar to buying a house. The only thing is that you know, you want to buy a house, I actually feel like the process of doing so in a lot of markets, it’s actually quite like it’s quite mature. So like, you’d go, like you go on Zillow, you look at a lot of listings, like, you can probably like call up like, a real estate like agent, and then, you know, the entire process is actually quite mature. But then what I’ve learned is that if I wanted to buy like a business, more like on main street level, right, like, there’s actually like, I really didn’t have like a real estate person I can call up to be my advocate. And then that entire process is actually like, not that clear. And, in fact, the acquisition acquisitions lab and the walkers, but I didn’t have the clearest resource resource to me around, like, what needs to get done, how, why, when, and all the mechanics around that. And that’s why I found the book and the labs so incredibly important.

Joe Valley 16:23

Well, you’re not the only one that I think they’ve done close to 100 million in acquisitions at this point, or people within the group. So it’s, it’s true, you know, the real estate market is very mature, you know, how to buy you know, how to sell, it’s pretty well known. And what we do through selling online businesses, or people acquiring them, it’s immature, right? I think Katie, probably, I mean, of the 100 million in transactions that I’ve done personally, maybe one transaction had a buyer representative. No, it just, it’s just generally not what happens in this world anymore, or not anymore, ever. And so the people on the sell side have to have the experience to help the buyer through that process and doing what you did, you’ll learn an awful lot about what’s ahead of you, how to analyze a business how to how to present yourself how to prepare in advance, right, the, the aspect of, you know, the search fund, if you don’t have the funds all lined up and ready to close, and you’re not the decision maker, and there are five offers, you’re probably not going to be the one buying the business. So let’s let’s address that. You know, this is a seven figure business. How did you fund it?

Katie Ng-Mak 17:38

Um, I so do a lot of personal savings, and also an SBA loan. Okay. You know,

Joe Valley 17:45

savings and SBA. Good. So, so you had it all lined up you probably knowing Walker, you probably worked with somebody like Steven spear from was it econ? Econ lending or somebody else that you used? I ended up working with multi funding multifamily know them well, okay. So you had it probably pre approved in advance, you did your due diligence, you got yourself pre approved, they told you how much you could spend, what you could afford. And then you went out and hunted for that business, or a business that would would fit that. Tell me about, you know, that process? How many businesses did you look at? Before you made your first offer?

Katie Ng-Mak 18:24

Yeah, that’s a good question. So it’s interesting, like, I have a lot of peers in the, in the lab, who actually, I think, were much more diligent in the process and looked at a lot more businesses, I would say, beginning to end. I’ve only looked at around 20

Joe Valley 18:42

Wow, that’s impressive. Excellent, you know, you know, when somebody tells me they want to buy a business, you know, within the next year, next year, I mean, it’s it’s almost like a full time job. So yeah. Did did going through and this is, folks, this is not a sales pitch for the acquisitions lab. It’s just happens to be that Katie went through it did did going through the lab, short circuit that process in terms of, you know, other people that you know, that did not go to the lab that ended up buying the business, do you think you were able to analyze what you wanted a little bit more quickly and, and sort of narrow your search a little bit, too?

Katie Ng-Mak 19:21

I absolutely think so. So, so there were a couple of things that were really important to me as I started, like analyzing businesses. The first one I almost feel like people don’t talk about as much I think it’s highly important. It was super important to me like I just had to trust it broke ground on our side. Like and you know, for better or for worse, like I think this segment of the market I was operating in in like, it’s kind of messy, you know, I like it because it means that there’s a lot of opportunity you just have to like do some sifting, but like you know, I I basically contacted brokers, whenever I saw that there was a listing that was interesting. And, and I, I took a lot of, I took a lot of like listings to the point of having conversations with the sellers. But like, if along the way, I just felt like, you know, there’s something here that’s not transparent. We’re not on the same page. Like, I was like, nope, not including, like, so that trust to me is super important. Like, I think, you know, the foundation of business is trust. Absolutely, absolutely. Like every part of the transaction and like, the brochure, like, it’s like the number one person, I feel like we’re on like, opposite sides of the table. Like, you know, there’s, that was not how I wanted to engage in my first transaction, maybe later down the road when I’m a little bit more experienced, but not the first one.

Joe Valley 20:54

Yeah, listen to that people that are out there listening, that are entrepreneurs owning their business, forget about the broker aspect of it for now. But the number one foundation of it is trust, you’ve got, you’ve got to build a business. That’s not just great for you. But it’s going to be great for the next owner as well. And you need to be a trustworthy, likable, honest person, or highly qualified buyers, like Katie are just gonna walk away, they’re just not going to trust you. So, beyond the broker, were there any opportunities where you had conversations with the sellers of the business? And after the conversation? You’re like, Nope, I’m out, because you just didn’t trust them? You didn’t feel good about the owner of the business?

Katie Ng-Mak 21:34

Yeah, like, I think I felt like, I’m not sure that like it was that I didn’t fully trust them. But there was just something in like, the presentation of the vitamins that didn’t add up. Right it like, like, I think it’s either like the financials, or like, a strategic decision. And, like, the information just didn’t add up to help me get to a comfort level, where I’m seeing like, okay, like, let me take the next step. I mean, I think that like, you know, as an entrepreneur, like, you do have to accept a certain degree of uncertainty, right? Like, if you wait until, like, everything’s all clear, like you actually, like, you probably will never have a deal. But like, you, everyone has your, you have to, like, figure out where your threshold is. And if like, if it ever crosses that threshold, like you just have to, like, you just have to, like, you know, end the process right there. So I definitely have had those conversations. But like, you know, besides the trust level, like the other element that just made it very clear is that it was just like, like the numbers, right? I had a certain budget, that was one constraint. And then I also had a certain expectation for the profitability for the business. And, you know, for the segment that was operating, there were just so many opportunities out there. So I was just very stringent. Like I didn’t in the beginning, I looked at the more businesses just to learn how to read, like, you know, like a lot of prospectus just to kind of get to know the process. But after a while, I was like, I just have to really stay discipline like I can’t talk myself into something that will eventually not be effect.

Joe Valley 23:12

Yeah, discipline is huge, right. Sometimes some people just push, push, push, and they end up buying something they’re really unhappy with, because they set an unrealistic, unrealistic goal. Personally, I did that myself. Back in 2012, I bought a business that I shouldn’t have bought, I pushed and pushed and pushed. And it ended up costing me about $280,000. Because I lost every penny of it. Katie was a bad decision wasn’t necessarily my fault. It was a Gu ag algorithm at that time, I couldn’t blame somebody else. But if I hadn’t pushed, I wouldn’t have bought that business in the first place. So you never know what the reason is that you shouldn’t shouldn’t buy it, but you should follow your gut. And I just didn’t, I wanted it so badly, I made a bad decision. So the nice thing about buying with an SBA loan, in my view, is that it’s not just you, you know that you’re doing your own due diligence on this business, you’re gonna, you know, run your own numbers, but you’ve also got, in this case, multi funding, also doing their analysis of it. Just out of curiosity, as a buyer with your level of experience during due diligence, did you did you run the due diligence process on the numbers on your own? Or did you hire an outside company like Centrica or somebody else to help you?

Katie Ng-Mak 24:30

I hired an outside company. So, again, like, you know, I told myself that like, this is my first transaction, right? Like, just bring in the additional support. Like, don’t don’t nickel and dime, that part of the process. You just have to, like, you know, bring in the experts who have seen this before. And just like, you know, leverage your expertise to give you a little bit of guidance. So I hired a team for financial dude diligence, they also hired a separate team to do, like, kind of like operational due diligence. And you don’t have to hire two teams, it just so happened that I didn’t, I wasn’t able to find someone that was available during that time to handle both together. So it ended up being like two separate parties to handle that. And then I also had a financial

Joe Valley 25:22

lawyer. Yeah, you gotta have that. Who did the financial due diligence? A firm?

Katie Ng-Mak 25:28

Yes. Oh, man. I’m like, I’m cap watch.

Joe Valley 25:33

Cap, did it for you. Okay. Matt removes the over a Cap Forge. Excellent. And the operational due diligence is interesting, how many employees of the firm were there, but not the, from the company that you bought.

Katie Ng-Mak 25:48

So the company only had to the sellers are a husband and wife team was a small business, and they had a lot of manual processes, right. And so it was actually through working with the operational due diligence team, where they kind of just flagged for me that like, hey, you know, JT, like, we just went through the process, like, you know, great news, like, the books are very clean, right, like, a lot of like, everything that was shared with you is proving to be true. But one of the things that you really want to look out for is that a lot of the like, you know, process sees in running the business, it’s very manual. And even like, you know, the sellers during that time had mentioned that to me. And they wanted to just make sure that I didn’t underestimate that how much time it would take to learn the process, and also like, transition into an employee at a later point. So during the due diligence process, that was something that we definitely went back to the seller for, to have a conversation and just make sure we’re on the same page of that.

Joe Valley 26:53

Did you extend the training and transition period after closing? Because of what you learned in operational due diligence?

Katie Ng-Mak 26:59

Yeah, we definitely that definitely extended, like included, specified a very, like clear number of hours, I was told that it’s a lot more than average.

Joe Valley 27:11

Yeah, typically, folks, what we do is up to 40 hours over the first 90 days after closing, what did you wind up with getting,

Katie Ng-Mak 27:19

we ended up with three months on we’re in 20 hours, I use every single second of that 120 hours. And then on top of that, we also, you know, agreed that if I needed more time, like how we would arrange for that it will be off like a consulting fee. And I used some time to not not as much as I thought I might need. But I’m glad that we actually defined that. So that one louvered there at the moment where I like need a little bit more time. And that final stretch, like everything was discussed already. And I think that just made it easier for everyone.

Joe Valley 27:53

I think relationships in the way you treat people are incredibly important in a transaction like this, or in almost all aspects of life. But did you think about that? Are you just the kind of person that you needed to have a strong relationship with the owners of the business? Because you’ve got to work with them after closing? And in this case, for three months, 120 hours and beyond? Did you find that on that first buyer or seller? Get to know each other call that you just connected with them? And that you found them to be honest, likable, trustworthy people? Or was it something that that you had to build with them?

Katie Ng-Mak 28:31

Yeah, it’s a good question. I found them to be likeable and trustworthy, exactly, as you described. I think our trust level like went way up during the, during the transition process, like they were just really awesome. Like, I feel really lucky. Like if you’re really lucky that they were as supportive as they were during the transition process. I and I do think that that trust is incredible, right, and is important. And one thing I would say in terms of like, you know, what made me feel such a high degree of trust with the sellers during the process. I felt like the trust wasn’t just reflected in how they presented themselves during the calls. It was, it was reflected in how they responded to requests. It was reflected in like, clean books. Like one of the reasons why I bought the business that I bought is that the books were clean.

Joe Valley 29:23

If I could just shout that from the rooftops people. I preach this way too much. Right? Clean books, clean books, clean books, it’s not perfect books, but it’s clean books. So there’s somebody like you Katie can you know read a profit loss statement and analyze it look at the balance sheet look at the numbers and go okay, well, I can improve upon that aspect of the business. Their cost per acquisition is too high. Why did that? They hire that consultant. It didn’t make sense just clean enough to be able to digest it is the key thing. Because you’re, you know, you’re spending seven figures here it big risk, you’re not, you’re not going to have a second opportunity to spend seven figures. Because you’re going to be gun shy the second time, your family is going to say no, you’re just not going to have that second opportunity. So folks, if you’re out there running a business and you’ve not hired a company, we’ll call out cap forge because Katie mentioned them. If you’re not hiring, you know, an e-commerce bookkeeping company like cap, forge, seller, accountant, acuity, there’s a whole list of them, go to the quiet lights for test partners page. And there’s a whole list of e-commerce bookkeepers that can help you. Please do if you’re not doing it. Because eventually you are going to sell your business and your business is likely your most valuable asset. And if you don’t get the numbers, right, if you don’t get the books clean, somebody like Katie not gonna buy it, you’re gonna walk away, right, Katie?

Katie Ng-Mak 30:49

Yeah, like, I mean, it was probably one of the most attractive parts of this, like, this transaction. Like, the fact that it was like clean bucks. You know, I had spoken with CAP Forge, and they told me they’re like, you know, we really have, you can have like, really good books. And we really have like, like, like, you know, the books, like, you know, tie back to the accounts down to the penny, but these tied back down to the penny. And so and that was important, you know, because what it helped me feel was that, like, the reality is that like, you know, you can poke and you can dig and, and there’s going to be like, a lot that you still don’t fully like, get, right, especially for like a first time buyer. Like, no, like, amaze is going to prepare you for everything that you need to be looking for in like your first purchase. And, and but like, you know, when something when you have clean box, you just trust that like, Okay, if the owners brought this level of attention and detail to their books, they’ve probably brought this level of attention and detail to other elements of their business, and it just kind of reflects on them and how they do business. And, and that’s comforting. Right without them. So that was that was a big, big part of it. And it actually was part of what made me realize that this could be a good fit for me, for my first business.

Joe Valley 32:15

Yep. I want to emphasize again, folks, that if you’re Katie has an MBA from Harvard. She worked for BlackRock and Bear Stearns and HubSpot. Yet she still hired a due diligence firm, a financial due diligence firm and an operational due diligence firm. So as buyers out there, spend that extra bit of money. There’s so much that you learn. You learn what’s wrong with the business and how you can improve it and how you can make it more efficient. Wouldn’t you say, Katie?

Katie Ng-Mak 32:49

Yeah, absolutely. Absolutely. Like I think I’m, there’s, it’s it, you know, that due diligence process is funny, because you kind of want, in a way you kind of want them to come back and say like, everything’s perfect. And reality is that, like, if they dig deep enough, like there are imperfections to any business, and those oftentimes are like your opportunities, or some of the things that you should pay attention to sooner rather than later. And, and it’s nice that someone kind of did some of the legwork to help you identify them. And then you know, once you go into owning the business, you just have to validate that process.

Joe Valley 33:24

Yeah, their growth opportunities more than anything else. It’s like, this is this is what’s wrong with it. And now you know, how to fix what’s wrong with it and have the business grow. But Katie, you had five offers with a business, the business had five offers on it, you will just wanted them. Why did they choose you?

Katie Ng-Mak 33:39

Oh, that’s a good question. I, you know, I actually, what I knew, I wasn’t sure how this whole process work, right. Like I put in the offer. And then I didn’t hear back from for a few days, I thought that there might be some follow up questions. I didn’t hear anything. And I was thinking, I was like, you know, they probably chose someone else. And so I’ll just take this as a learning. But I was kind of surprised that they chose my offer. And if I were to guess I would say a few things. One is my background. So I think the sellers, like saw my background with HubSpot, and the business is an online, you know, an online store. And I think they felt like, as they look out into the business, and like, and kind of like identify, like, what they think are the growth opportunities, they felt like, I would have like, one of the best shots of taking the business there. And, you know, I happen to buy a business from sellers who had owned the business for almost three decades. So this is like their baby, right? Like they it’s not just like, you know, they sell the business and they’re gonna ride off into the sunset, they will, but they also really wanted to hand it off to see someone like take care of it, like nurture it and take it to the next level. So I think they felt like I was a good candidate for that, given my I given my background, I think the second thing that I did is that I kept like the LOI simple. So because I was part of the acquisitions lab, I leverage some of the resources to put together an LOI, and a letter of intent. And there, there were a couple of versions of it. And I basically chose like, the most simple one, because that’s just my style. Like, I don’t want to, like I just wanted to, like keep the terms simple. I didn’t want to have too many like, you know, if this happens, then that if this happens, then that I don’t want to overcomplicate it at the level of at the LOI stage, right, and, and, you know, you’re a better judge of whether that’s the right call or not, but

Joe Valley 35:48

is the right call, it is 100%, the right call, you know, there’s my process, and our team does it a little differently, depending upon the advisor. But when I had a business that was listed with multiple offers, I would not even want an LOI. In fact, I’d prefer that we use the quiet light template loi, which I’m sure you have a copy of it through the acquisitions lab. Because within each loi, there’s maybe five or six important bullet points of the purchase price, the time to close, you know, what’s going to happen in due diligence, the non compete things of that nature, training and transition period, what you’re asking for, in terms of hours and things of that nature, there’s only five or six of them. And I think it’s best when there’s a multiple offer situation that all of those things are listed out and can be viewed equally against all of the other offers versus somebody finding a template letter of intent online and filling it out. And it’s complicated, or even hiring an attorney for it because the letter of intent is non binding, fully contingent on due diligence, and the further detailed asset purchase a grip, there’s a lot to really get through before you have a legally binding agreement. Now, of course, with the loi, it does become exclusive for a certain period of time, and it changes based upon SBA vs cash and things of that nature. But it doesn’t look to me as I’m, as I’m looking at the closed sales report, there were five offers, but it didn’t go over asking price. It looks like it’s sold at asking price. My guess Katie is that it’s all of the things that you said, and that they liked you. Right? If I, if I done my homework, I could have called Paul up and said, you know, what, were some of the offers higher than asking price? And he probably would have said yes. There was a strong multiple, it was let’s just say in the broad range of three to four, it was listed at a strong multiple, because it’s a strong business has been around for a long time. That’s just solid. I’m curious, Katie, it looks to me as I look at it, it’s it’s in the air filter water filter humidity control space, that there’s it. To me, it looks like there’s a recurring revenue aspect of the business. Is that something that was attractive to you? And is it first? Is that accurate? And is that something that jumped out? That was really attractive to you?

Katie Ng-Mak 38:10

Yeah, the recurring revenue aspect was definitely very attractive to me. They had a, like, average order value that was high. Because they were they sell like units, air purification units. They sound to b2b. So that was just a good fit for my background. And I find a whole area about around air purification, water purification, like, I felt like there was topic area where, like, I can engage with the topic, like I care about, like air purification. In fact, I have air air purification unit in my home, I care about water purification. In fact, I also have a water purification, like, you know, countertop solution in my home. So like, I felt like I can I care about the products, I would be willing to invest my time and energy to build expertise in it. I also felt like the products were learnable. So if you started to enter into, like a super highly technical product, where you just need like a PhD in order to, like be a qualified expert at it. And then you know, I don’t know about that fit. But you know, just given the fact that I care about it. I felt like it could be engaged with the product. But you know, like that resonated with me quite a bit.

Joe Valley 39:27

How did that? Yeah, I think I think it’s personally I think it’s very important. Some people just say, you know, it’s a widget is a widget is a widget and my belief is that when times get tough, and generally they always do as an entrepreneur, there will will be a period when times are tough. I think the more passionate and interested you are in the product or service that you sell, the easier it’s going to be to get through those tough times of the of the 20 listings that you looked at before you were able to buy this one. The other 19 Were there some that the business was generally pretty good, but you weren’t as excited about the product, and therefore you chose not to make an offer on

Katie Ng-Mak 40:05

Ah, yeah, like I looked at a range of businesses. I looked at manufacturing companies that print, you know, customized labels for products for other small businesses. I looked at a school bus company that drives kids with special needs. I looked at a, like, power washing company, but like, you know, the business that does like power washing for like, major trucks, right. So it’s like a b2b sale. super interesting. Like, I think like, if I were to think about all of those different, like services, like, the power washing company, was most interesting in terms of like, business model to me. And look background, they had enough complexity, the financials were interesting, like the, the numbers kind of match what I was looking for, like, pretty cool market development opportunities that like, match my skills. But it was like power washing. Yeah. Right. And like power washing and trucks, and there are people out there who will like, you know, look at that. And they’ll be like, awesome. And then I looked at that as like, Oh, okay. You know. And so, so, you know, I gave myself some time to see it, my reaction would change. And then I was like, oh, powerwashing, you know? So I wasn’t the reason that wasn’t like, the only reason I said no to the business, but it definitely was one of them. You know, I was like, Hey, this is a commitment of a number of years. And so I have to, like be engaged in what’s being offered to end customer.

Joe Valley 41:49

Yeah, 100%. And part of running a business are the people that you operate it with the team that you’re going to build. And with powerwashing, I would imagine there’s, there’s more people and human resources that are needed, then, you know, the the business that you bought, Katie, tell me about after closing, any regrets? After you closed on the business? And you’re working through that training and transition period of 120 hours with the three decade lawn? You know, owners of the business? Did you ever go, Oh, my goodness, what am I done?

Katie Ng-Mak 42:24

Some of you have regrets. But there are a couple of things that like, you know, if I were to do this again, right, like buying another business, I would do it differently. So like, luckily, right, just silly things. So you know, for me, one of the first silly things that I think I did is that, you know, the sellers render email on Microsoft. And I’m like a Gmail person. I’ve used Gmail through like my, you know, my entire time at HubSpot. And I was like, oh, you know, I should just migrate email from Microsoft onto Gmail, and started spending time on how to do that started, like, looking into like, who could potentially help me with that. I didn’t around like, three, four days in, I was like, Katie, you idiot. Why are you spending time on like, the, you know, a productivity platform like that, when you’re like, when you should just be transitioning? Like, it’s Microsoft, like, you know, you can send emails, call it a day, right? So like, just wasting time on things that, like, shouldn’t have been prioritized that way. Like, that’s like one regret. Another more tangible one, like, I wish I like just knew bookkeeping, better. Like I, I just if you’ve never done it managed, like if you’ve never been an entrepreneur, right? Unless, like, you were like, your dad, or your mom ran a business and you help them like manage your books, you’ve probably never done bookkeeping. And for the business that I bought, like, you know, you are like, like, you just can’t move. Unless like, you have hair in this case, like QuickBooks sorted out. And that was just like, like, there was just like little things that I didn’t know, I didn’t know, like, I needed like, I thought you transfer a QuickBooks account over to me the way we transfer everything else. But that’s not how it works, like. And I didn’t realize that until a several days in. And then by time I sorted it out, I felt like, like it took two weeks. And that’s like a lot of lost time in a transition period. And it made everything way more stressful than it needs to be. So we’re the

Joe Valley 44:26

owners using QuickBooks Online, or they do on a desktop version of it.

Katie Ng-Mak 44:30

They had a desktop version of it. And the thing is that their file was so old, that it like it didn’t really like transition as easily as I was expecting as the people who were helping me were expecting and I think that like, you know if I would ever do this again, like buy another business, I would definitely prepare for that stuff a lot harder. I mean, it’s no one’s fault. Like I think it’s just that I didn’t have the background you were unaware that I needed to do some preparation. Yeah,

Joe Valley 44:59

yeah. Did you end up hiring a due diligence firm? Another due diligence from a bookkeeping firm to do your books way? Did you mean will financial due diligence was done by CAP Forge? Did you hire them to do your books afterwards? Are you taking that task on yourself?

Katie Ng-Mak 45:13

I’m in the process of sorting out like, like I am hiring someone, she helped me with that. And I’m in the process of finalizing that

Joe Valley 45:22

good, because you want to have clean books yourself. Right? Yeah, someday you’re gonna sell this business?

Katie Ng-Mak 45:26

Yes, that is absolutely. I mean, that’s something I learned right about like, like, going through the process of buying a business, like I’m wondering, I’m starting to think about is, like, hey, like, you know, me, I put together a business plan, like for myself, when I was like, you know, during the, you know, in support of the purchase process, but I think I’m guessing every entrepreneur does this, like, now you’re really putting together the business plan. Because you’ve come in, like you’ve dug into the business, you validated certain assumptions. Maybe you’ve invalidated certain assumptions. And now like, you really want to think about like, how do you want to grow this business over the next couple of years? And where are you going to place your bets? So I like I’m definitely thinking about that with the end in mind. And one thing I know for certain, like, I have to have clean books, like without clean books, like I just feel like you just also move so much slower.

Joe Valley 46:24

When you just use the word growth. Let’s talk about that for a minute. You’re only four months in, in the last four months compared to the same period last year. Is your business growing? Is it stagnant? Is it shrinking? And if yes, to any of those questions, why?

Katie Ng-Mak 46:41

Yeah, it’s flat. It’s like, honestly, I’m relieved. Like, the reason why I’m relieved is for a couple of, like, I’m really relieved for a couple of reasons. One is that, you know, I feel like I can kind of bind to business and I have a recession, right? Oh, yeah. And all of us are a little bit like, how’s this going to impact my business, and you kind of don’t really find out until like, you see the numbers. So I’m gonna round flat right now. And I am relieved about that. I’m also prepared for, like, trending downward a little bit in the coming year, I just feel like you just have to, like, like, you know, be prepared for a number of scenarios and know how you will respond to that. But at the same time, like, you know, I bought this business with the intent to grow it. So I plan to invest in it. Right. So, so I think that, yeah, like I’m, it’s, it’s flat, it’s more or less what I expected, just because, you know, when I was looking at some of the marketing investments coming into the year, but like, but like, Yeah, I’m planning to grow it, I

Joe Valley 47:53

feel like flood is, is kind of a win, given the economic headwinds that we have right now. And, you know, you could also say that, Oh, it’s grown by 30% over the previous year. And that comes with its own challenges as well, because then you’ve got to update your, you know, inventory projections, and, you know, working capital to buy that inventory. And there’s just different challenges that come along with crazy rapid growth. So I think, taking over business, its steady as she goes, is a good thing. Because you’re really learning the ropes as you prepare for the growth that you’re going to implement and not in necessarily, you know, the next six to 12 months. But as you look at it, as somebody that has been around and I think really has a business plan, you’re not looking at, oh, I have to grow this by x percentage in the next six to 12 months. It’s more, I would guess you’re probably got five year numbers and things of that nature. Is that Is that correct? Assessment?

Katie Ng-Mak 48:55

Yeah, it’s like, you know, I’m definitely like, I came in with a three year plan. And I’m definitely, like, extending a lot of grace to myself next year. I told myself that so emotionally, hopefully, I get myself there. And yeah, I think it’s, it’s a hard, it’s a hard decision to make as an entrepreneur, because you, you feel like you just like took on this massive responsibility, you probably got a dream in from your family, family members to do this. And this is kind of like a bit of your own thing. Right? So I think, and then first, and then it’s so different, probably for many of us than what we used to do. So I think you’ve put a lot of pressure on yourself to like, get it right. So I definitely feel like I put a lot of pressure on myself to get this right. And get it right, sooner versus later. And, you know, one of the things I’m learning is that like, you know, there’s a some of these decisions, I have to slow down on a little bit. And really just take the time to You set up the foundation for a couple of things. And also, like, take the time to just make sure I truly understand, like some of this stuff, right? Like, I mean, it’s great that we’re from spot, but knowing what needs to get done is very different than like, doing it. And some of the stuff I’ve never done myself, like, I’ve never like done actual work and, and like, even if I plan to hire like, you know, a service agency, like a service company to help me with some of these functions, like, there’s a degree of expertise I need to bring to the table to just choose the right partner and so forth. So, like I’m, you know, definitely telling myself that like in next, like, definitely six, maybe even at least 12 months, like I need to just extend a lot of grace to myself in and the numbers will be what it needs to be. But like, I need to think, much more long term and build for the future.

Joe Valley 50:52

You know, earlier on, we were talking about your education, you said, you you really focused on what you wanted to learn, which I think is just an incredible statement for students, right. I’ve got two kids in college. And I think it’s, you know, what I’d like them to do focus on what they want to learn not what they think they have to learn that now you’re in a situation where as the business owner, you kind of have to focus on what you have to learn as you need to bring certain level of expertise to the table. So I congratulate you on that. I wish you best of luck with that. I have the feeling you got to do amazing things. Katie, I look forward to staying connected and learning how things are in 12 to 24 months. And when you sell this business for, you know 10 times what you bought it for in three to five years, I want you back on the podcast to talk about your incredible exit printer journey. So we can do the full circle aspect of it. Congratulations on everything and just incredible success story. Just in terms of your your life, Katie and your path and the things that you’ve chosen the challenges that you’ve taken, taken on. And now this new entrepreneurial journey, you’ve done it right, because of the work that you’ve done with with, you know, your first of all, your education background, your work background, joining the lab, looking at as many businesses that you looked at hiring due diligence firms, not just for financial, but for operational doing it right. Having that transition period. I have no doubt that regardless of the economy, what’s gonna happen in the next 12 months, you’re going to do very well. Thank you. Thank you so much for coming on the podcast. Katie. I appreciate it.

Katie Ng-Mak 52:37

Thank you. I really enjoyed the conversation. Joe, thanks for your time today.

Joe Valley 52:41

Thank you. Folks, thanks for listening to the Quiet Light Podcast, I have a big favor to ask of you. And that is just go and give us a review on iTunes. Tell us what you think. We don’t ask for that much. And it helps our rankings and help helps us reach more people. So please do that when you have a moment. Also, again, I mentioned it in the middle of the podcast, please go ahead and check out a quietlight.com/partners. It’s our new resource partners page where you can find highly qualified e-commerce, bookkeepers, tax advisors, attorneys, growth, capital acquisition, lending, everything that you need to help grow your business and get you through due diligence if you’re buying one as well.

Outro 53:42

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.

Why You Should Avoid “Best Practices”

Kurt Elster is the Host of The Unofficial Shopify Podcast and Senior eCommerce Consultant and Shopify Plus Expert at Ethercycle, Chicago's premiere Shopify partner agency. He helps Shopify merchants, like...

Kurt Elster is the Host of The Unofficial Shopify Podcast and Senior eCommerce Consultant and Shopify Plus Expert at Ethercycle, Chicago’s premiere Shopify partner agency. He helps Shopify merchants, like Jay Leno’s Garage, uncover hidden profits in their websites by developing apps and providing strategy and advisory services. Prior to his work with Ethercycle, Kurt worked as the eCommerce Manager for THMotorsports, an Adjunct Professor at Oakton Community College, and Chief Technology Officer for the Center for Entrepreneurship in Liberal Education in Beloit.

Kurt graduated from Beloit College with a degree in business economics and earned his MBA in entrepreneurship and entrepreneurial studies from the Illinois Institute of Technology. He attended The University of Chicago Booth School of Business for a certificate in integrated marketing, where he gained an integrated marketing perspective to help maximize the impact of marketing efforts.

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

[04:20] Kurt Elster talks about the evolution of shopping tools and accelerated e-commerce adoption
[08:59] Why are best practices in e-commerce not realistic?
[12:08] How Google Optimize delivers statistically significant results
[16:53] Kurt shares the method of split testing for better performance
[21:01] How can you increase conversion rates through surveys?
[25:10] Why readability is the number one way to increase customer satisfaction
[32:04] Kurt explains why people abandon their online cart over shipping rates
[37:18] Kurt examines how to optimize landing pages
[43:47] Why upgrading a slow website is easier than you think

In this episode…

“Best practice” can have numerous meanings and set up false expectations for entrepreneurs. How can you get the same results with less effort? When your website is the face of your brand, how can you optimize and increase conversion?

Kurt Elster follows his rule of thumb: simplify. Don’t complicate, confuse, or slow down your website when you can optimize and increase conversion rates. By having a traditional landing page with simple, easy-to-read links to your products, consumers can easily navigate on any device and platform — the proof is in the split testing.

Join Joe Valley in this episode of the Quiet Light Podcast as he sits down with Kurt Elster, Host of The Unofficial Shopify Podcast and Senior eCommerce Consultant and Shopify Plus Expert at Ethercycle. Together, they break down why “best practice” is unique for everyone, achieving statistically significant results by increasing readability, and upgrading your website to increase conversion rates.

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 0:32

Hey folks, Joe Valley here. Thanks for joining me for another episode of the Quiet Light Podcast. Today’s podcast is sponsored by My Amazon Guy. I know the founder Steven Pope personally, and you’ve seen him all over YouTube sharing free educational content. If you run an Amazon business, you’ve got to check it out. If you need someone to level up your PPC SEO, design and manage your Amazon catalog, check them out at myAmazonguy.com. Today’s guest is an expert in all things Shopify. I’m telling you folks, the knowledge bombs that were dropped throughout this podcast were fantastic. Our guest runs a company called ether cycle. His name is Kurt Elster, and it’s absolutely fantastic. None of it though, is rocket science. That’s the key thing here. Everything he talked about is fairly simple. You can implement it on your own store and improve your conversion rate and improve your profit and improve the value of your business. Let’s just jump right into it and go, here we go. Hey, Kurt, welcome to the Quiet Light Podcast. How are you today?

Kurt Elster 1:41

Oh, thank you for having me. You know, it’s a delightful fall day.

Joe Valley 1:46

I can tell because you’ve got a jean jacket on you and you dressed warmly. I’m in North Carolina. So I still have a T shirt on. We’re about to you.

Kurt Elster 1:53

We’re in Chicago, but you know, this time of year potentially I’m either dressed for the weather or fashion sweaty one of the two. You

Joe Valley 1:59

could be wearing. Like a snow suit too, right? I mean, I know it’s only September. This is going to air in October but you ever had snow this early? Probably not. Right? I’m from New

Kurt Elster 2:09

Years ago, we had snow on Halloween.

Joe Valley 2:11

Oh No kidding. Yeah, it

Kurt Elster 2:13

was not great for my toddler who just wanted to go trick or treating.

Joe Valley 2:16

My kids are now in college and yes, we’re going to talk about you and what you do and how you’re gonna help the audience in a second but my kids are in college now. We used to go trick or treating and Main. Just very much like Chicago weather wise and you know, you’d bundle up and it would be nice and kind of kind of okay weather when you go out trick or treating, but by the time you’re done, it’s absolutely freezing. And in 2006 We moved to North Carolina in August and the first time we went out trick or treating it blew my mind kids are out it’s I’m walking around and jeans and a T shirt holding a beer. I’m not cold at all. It was the best Halloween I’ve ever had. So folks if you want to get get your Halloween on move south and stay warm, especially for the kids. It was great. Anyway, Kurt Elster, tell the audience who you are what you do, I know we connected. First a shout out to Ezra Firestone and Blue Ribbon mastermind we connected through that group. They’re nasty, but those that doesn’t make that yes. Do it again. Go ahead. Tech nasty. Oh, man. You can’t tell if he’s has his shirt on or off on that one. Yes, Ezra, I’m calling you out for taking shirt off too much these days. But Kurt, tell us about yourself and what you do.

Kurt Elster 3:34

Sure. I’ve worked in e-commerce. Almost my entire adult life. I’ve been a Shopify partner for the last decade. And we’ve worked exclusively on Shopify stores for probably eight years now. And so we they live, eat breathe e-commerce as a result. And so we host a podcast about e-commerce. And we run a Shopify agency just like a lot of theme development store setup, store migrations, conversion rate optimization, general strategy support. And then additionally, we’ve got a few Shopify apps with of those old one is successful, but it’s like a preorder campaign manager. So with that, I’ve quite a few, quite a bit of experience with what works in growing scaling, operating an e-commerce Store. And truthfully as tools have gotten better over time and I’ve watched it happen, they become more accessible, it creates more competition and things change. And then like when 2020 rolled around, man, that accelerated e-commerce adoption, and then things really changed because now customers are also in they have enough experience where like they are sophisticated in the ways of e-commerce as well. Like often customers are aware of drop shipping. No, I’ve already started I got going on here. Stop there.

Joe Valley 4:54

Keep going. Customers are aware of drop shipping and they don’t like it because it’s gonna take too long. Gotta get the product. Where were you going with that,

Kurt Elster 5:01

though? It’s a. So well, when buying online, I think once you’ve gotten past, like the research phase of, yes, this, I know what I want, this is the thing I want. I want to buy this thing. Now the next step is, Well, who am I going to order it from? Because general have a lot of options. It could be a series of websites, it could be online stores, it could be marketplaces, which a majority of the time that’s going to be Amazon, but not necessarily always. And I think, ultimately, regardless of what you sell, people are going to go with the option where they’re like, this is the one that reduces risk the most. So like the one that feels safest to them. So customers have gotten more sophisticated, and they live through the pandemic and locked down and ship again, they just want to know, when I give you my credit card number am I going to get my stuff? And with with dropshipping, with Amazon with all these things, a lot of people and not necessarily everybody, but a lot feel most comfortable buying direct from the real brand from the manufacturer. There’s this perception that like that, well, they made it, they own it, they have it, I’m gonna get the real thing. Like sometimes you get counterfeit stuff off Amazon, that scary, not always not often, but people know it, it happens it’s in the back of their mind.

Joe Valley 6:20

So the agency and I’m gonna butcher it ether cycle. Okay, so that’s the agency and your Shopify partner, what the heck does that mean? Is? Is it easy to get that label? Does it make you you know, super important? Are you just like everybody else helped me out with that.

Kurt Elster 6:37

So there’s there are levels to being a Shopify partner. I think, last I checked it, anybody could just join could become a Shopify partner in which they go, Hey, here’s resources, here’s tools, like you could fire up a dev store is not going to cost you anything. They’re saying, Come play in our sandbox, right? So I believe anyone could just go try it become a Shopify partner, at which point, then you can create and submit an app, submit a theme, or if you’ve done a few stores, you can like fill out an application and become a Shopify expert. And I like that’s any of those would be very exciting. Truthfully, themes is the hardest one to get a theme in the Theme Store. That would, they’re just extremely selective. I think apps is probably the easiest, because in that process, they’re like, Hey, here’s what we want to see. Here’s what you need to change, like the expectations are made very clear. And then for being a Shopify expert, where they say, alright, we we know this person has experience and a good reputation. Now, I don’t know what you got to do to get that these days. It’s tough. Like there’s a shop for experts directory catching on top of that, keep

Joe Valley 7:43

hitting the Ezra Firestone button there because he’s always wearing Shopify, you know, clothing when he’s online, he must have some special deal with them. Is he is he one of their experts?

Kurt Elster 7:55

No, I he’s. I believe he’s an affiliate partner. Okay. Fair enough, because he uses them for what uses Shopify for all of his his e-commerce stuff like we built his overtone haircare, we built the theme that that runs on Shopify, it was already on Shopify was headless. And then in January we designed and developed

Joe Valley 8:16

this is this is not the end of the show, but overtone haircare. Is that one of his products. Yeah, yeah, he bought that.

Kurt Elster 8:23

I didn’t know. It’s like it’s conditioning hair dye

Joe Valley 8:28

conditioning for the man bond.

Kurt Elster 8:31

You know, I you know, I don’t think he’s dyeing his hair quite yet. Maybe. Maybe. But yeah. It’s like hair dye and conditioner all in one.

Joe Valley 8:39

Okay. All right. Maybe I need to buy that myself. For those for those watches for men. Yeah. For those watching. Instead of listening. You’re going Yeah, that’s right. You know, you should. Anyway, Kurt, what do you guys specialize in Eddie’s like, I know that you did a presentation about split testing. But you do a lot more than that, where you guys specialize

Kurt Elster 8:57

it? So certainly I I would like to think that the theme design and development is our core competency. I really feel like that’s the thing we’re best at. And in doing that. There’s a dangerous word that gets thrown around BP best practices, where there’s always someone on social media yelling like this is best practice. That’s bad practice, or somebody’s publishing studies like this. I don’t think best practices in e-commerce are particularly a realistic thing. In fact, I think they’re kind of dangerous,

Joe Valley 9:28

wouldn’t it last like three days and then something changes?

Kurt Elster 9:32

There’s so much that could change. And I think more importantly, the audience for an e-commerce site can be wildly different. The like, I can go online, I can buy a I can have a crate motor for $10,000 shipped from Ford to my house, that’s e-commerce. I can also go online and buy shapewear for 30 bucks, right? That’s e-commerce, totally different audiences, every 100% of all of that changes other than the fact that a transaction occurred on the internet. And so to say like, well, this is best practice. I think it’s just a wildly irresponsible way to go about things when like we’re saying, like best practice for who best practice for Best Buy, or best practice for the guy who’s selling print on demand T shirts. That’s my issue with it. Is it like just kind of sets up this false expectation of, we’ll just do what the experts say, who are winging it. And you’ll be okay. I think you’ve got to if you can, and everybody can, I think you have to test as much as is reasonable.

Joe Valley 10:30

Okay, well, what’s reasonable? Big question, right? And how do you test how do you decide what to test? There’s, there’s so much to do. And I’ve said this on the podcast before I thought I knew my customer best back when I was running my e-commerce store. And my developer, I didn’t have an agency, I guess he was an agency at the same time. He finally, you know, convinced me to do split testing. And turns out, I was actually wrong every time and I was hurting. When I thought I knew my customer best. So

Kurt Elster 10:56

that’s the best situation, guys, you you just uncovered some hidden profits and like loose change lost in the couch every time you have a test where like you were wrong. And the alternate is better.

Joe Valley 11:06

Every single time. His name is David Addison, and he was right that I should do split testing. He never lets me live that down anyway. So like, there are no best practices for it. But how do you decide? You know where to start? I mean, there’s so much on every page, where do you go? How do you begin a low,

Kurt Elster 11:24

the low tech counterintuitive thing, because the issue with split testing is you have to have a ton of traffic traffic. And in addition to that, you have to have a ton of transactions, and you need to be able to figure out how to work Google optimized, which is free and not that hard. I swear to God, this is not that tough. Okay, technically.

Joe Valley 11:42

So we’re not talking about the platform like Amazon, we’re talking about your own storefront, let’s call it Shopify, in this case, and what’s a ton of traffic.

Kurt Elster 11:54

And I think like a really, realistically, we need to be minimum 15,000 20,000 visitors a month, is where you’re going to start to be able to do this, and you but even with that, like you can only run so many tests, before you’re gonna get statistically significant results. And like tools like Google optimized now will try and save you from yourself from making mistakes around like, hey, this isn’t you need to let this test run longer, because none of this is accurate yet,

Joe Valley 12:22

right? I was gonna say if you’ve got a lower volume of visitors on a monthly basis, Does that just mean you have to? If you’ve got, you know, 70 570, instead of 15 15,000? Does that mean you have to run the test twice as long? Or is it still not a useful test?

Kurt Elster 12:35

You have? Well, 100%, you’d have to run longer, but then like it starts to introduce other variables to it. Right? That’s how I think like minimum, you got to run it for two weeks, regardless of the level of traffic. Because think about this, people get paid usually get paid on Friday, every other week. And so whether or not a test fell on a situation where it had two Fridays, versus one like that can actually swing it that can make a big difference depending on what the test is

Joe Valley 13:03

to make sure you don’t life is not that complicated. This is something I was like, I’ve never thought of that. It’s never occurred to me, I’ve been self employed since 1997. And it never occurred to me that I need to let it run through people’s pay

Kurt Elster 13:18

periods. And again, this is where audience matters. So like, it’s so hard, we saw that effect, really, really impact sales on a store that sold jewelry, it sold moderate jewelry, it was not costume jewelry, it was not like designer it was right in the middle. And that those pay periods had an absolute effect on the store sales. Versus we also worked on a store that sold premium linens, including, like personal shoppers for celebrities sent the stuff to houses in the Hollywood Hills, like that was the difference in market here. That store, you can graph their daily conversion rate date, like all their their KPIs, you could graph that and it would track with how the stock exchange had performed that day. Totally different markets. Like if I’m spending hundreds of dollars on linens for a guest bedroom. That’s very different, right? Than what, how a lot of stores are selling. And so when you hear those best practices, like that’s totally different things, different audiences a different places differently, etc. And so that’s kind of what drives me nuts about it. Ultimately, like what’s the thing that’s changing here? Really, it’s the audience, the people, right? That’s the thing like I hate the phrase consumer, it makes it sound like locusts, their people, your person, your your customers are people. I think the place to start to learn what you should do to figure out what those bad best practices are. Get your customers on the phone. No one wants to do this. And I get it. It’s weird. And like I’m a millennial. I know. If the phone rings like we go hide in the closet that’s terrifying. And God helped me if someone leaves me a voicemail, I

Joe Valley 14:58

just snap protects your customer. Just kidding, I did it. I did it. And I learned an awful lot during the last downturn in the economy in 2008, nine and 10. And I had a subscription program, and people were just canceling. And so I pick up the phone call and see if it was the product. If it was the service, if it was something else, and you know what I learned, they were just doing it to tighten the belt, the one that stands out the most is No, I haven’t lost my job, but my neighbor did. And therefore interest canceling my subscription. Sometimes you’ll learn that you just can’t do too much about anything. So yeah, pick up the phone call that’s interesting, is the

Kurt Elster 15:36

easiest way to do it is you go Alright, who bought in the last 30 days, or like maybe six weeks, and you go, alright, like, I could filter it pretty easily. Like I just want give me all the ones that were paid and delivered and didn’t get refunded. And then email those people, I go, Hey, I’ll give you a $50 gift card, if you’ll just talk to me for 30 minutes about your experience, because I just I want to make a better product better store, I just want to talk to you, it’s my brand, I’d love to hear from real customers, you’re getting something very genuine, where you’re gonna also give them the reward, you’ve given them a reason to spend their time with you. And then out of that, you’re really only getting like, if I reached out to 50, I’m lucky if I get three to five, who actually show up to the call. But that’s all you need, right to be able to develop insights, like you just did with that with your subscription program, as opposed to like guessing or going like, I’m my best customers. So whatever I say goes, when you’re starting out, that’s the best way to do it. But later, you’ve got the call, you have the resource. So talk to those people. And like once you’ve talked to five, well, maybe there’s something that all four of them said, Oh, well, the thing they’re suggesting to me is probably the best practice. Now let’s implement that. And then can we test it? Can we see if that makes a difference? Ideally, split test it. But if not, you could try and do the totally not scientific method of try it both ways for two weeks back to back and see which performs better.

Joe Valley 16:58

So sending out a survey would not work, you got to pick up the phone and call them and you’ve got you’ve got potentially a huge list of customers, can you ask those same questions can get similar results with less effort? By sending out a survey? Do you think you’re not going to get the survey responses?

Kurt Elster 17:15

I think you do it both ways. I like it both ways. And if I like your apps, I don’t want to give people the out of like, all right, you could just do the survey, not talk to him on the phone. Just because getting the people on the phone is so unbelievably valuable to be able to like talk in real time. And you know, the people you do talk to especially if like you’re doing it as the brand owner, often they will become brand advocates. And so there’s some some extra bonus effects there. But we’ve had tremendous insights by doing surveys with people and just asking them like, Hey, would you buy from us again? If we disappeared next week? Who else would you buy from and like, Oh, now, like, you’ll see a list of your competitors. So I do love doing the mass survey as well, where we just go, alright, let’s just email everybody from the last 180 days who made a purchase, send them to a survey form. And then at the end of the survey form it spits out like here’s a one time use coupon code for you.

Joe Valley 18:09

Yeah, I don’t. I asked knowing what the answer was. I don’t think it’s one or the other. I think it’s both and I personally love the pickup the phone and call Of course. I’m not a millennial. I don’t think what I looked at this yesterday, Kurt is kind of fun.

Kurt Elster 18:24

A geriatric millennial Are you like right over the cost?

Joe Valley 18:27

I think maybe I am because I was born in 65. Yes, people I was born in 65. I think I’m the very, very last year that I could be considered. Gen Z and Millennial. I don’t know. Okay, now I’m sorry to sound like an idiot. It was yesterday that I looked at this and today I cannot remember.

Kurt Elster 18:43

I think I will make you Gen X that that’s Yeah, I think you’re right. Yes. Sounds way cooler than millennial. I

Joe Valley 18:49

thank you. I think my son, you’re right. My kids are millennials that’s born 1985. And after I think maybe No, I guess

Kurt Elster 18:57

at I’m 83. So maybe I didn’t make the cut. Oh, no,

Joe Valley 19:02

I’ll just stop. I’ll just stop. Let’s move on. Let’s move on.

Kurt Elster 19:06

I want to do another 20 minutes on which generation is best.

Joe Valley 19:10

Somebody send me an email straight me out. Let me know. It’s funny. You know, we were we were on a group call the other day. And with all of our advisors, we’ve got 15 advisors on the team now. And a couple are, you know, younger than me, everybody’s younger than me on the team. But somebody said something about, you know, we did something in 2010 It’s actually when Jason sold my business back in 2010. And one of the advisors I’m not going to name names said, Damn, I was in high school in 2010. And that just made us all feel very old and made us think he was very young. But you know, he’s, he sold the business for seven figures by the time he was 28. So he’s he’s fine. He’s fine. Anyway, yeah, good problem to have pants and I bet you he knows all about split testing and doing it right All right, so we want to definitely test for more than two weeks, we want to pick up the phone and call the customer if we can. That’s the best way to get the test ideas, test ideas, first pick up the phone call, and then test for two weeks. But what are we testing? We’re testing new products, we testing new language. I mean, you gotta get new language from the customer, right? How do we know where to go?

Kurt Elster 20:19

So that when you when you do the survey, the like the wide survey, the incredible thing that often comes out of that is like key phrases. And the best converting headlines, body copy bullet points that we’ve ever produced. And that’s a really easy thing to split test and Google Optimize. It’s like all point collectors no code, is to find these, like nuggets of headlines. And let’s say you’re brand new, you don’t have you can’t send out a survey, I’ll go through people’s reviews for like really similar products. And you’ll be able to find great poll quotes that way that you can turn into headlines. So I like that a lot. And truthfully, on conversion rate, that’s like, just that copy. Split testing is some of the absolute biggest wins we’ve ever had, especially when we pull them from surveys, because how customers talk about products, not necessarily how you talk about products. And so it’s nice to be able to pull that in.

Joe Valley 21:17

Are you are you doing multiple choice? Are you giving them the headlines? Or are you allowing them to add in other when you’re asking them about headlines?

Kurt Elster 21:27

Now in the survey, we would just go very, I like all general questions, for the most part, just open ended. And then I’ll run through that. And I’ll try and I’ll run it through a text tool where I can find like, give me every five words, find every five word phrase in this thing, and then sort them by frequency. And then suddenly, you’ll see if you get really lucky like a key, you’ll discover like, oh, there’s this like three word phrase, this five word phrase that 25 People use to describe our product. Oh, okay. That means I should definitely give that a shot, like work that into a headline,

Joe Valley 22:04

what is that text tool?

Kurt Elster 22:06

is the worst part, I think it’s text mechanic is to verify it

Joe Valley 22:11

text mechanic to be verified? Is this something you do for all of your clients that either cycle? Or do you do for your own products? Do you just recommend to them how to do it? Do you guide them? Coach them? How’s it work?

Kurt Elster 22:24

ever come men to everybody do it we perform. But we can conduct those things for people. Most people that aren’t necessarily interested, don’t want to do the work, don’t see the value in it. And it’s like, it’s just such low hanging fruit as

Joe Valley 22:43

math. Right? Yeah,

Kurt Elster 22:45

there’s not a like it really, really is not difficult to do to set up a survey and send it out. Like you have all the tools, you’ve done all these individual things before it’s just constructing in a different way.

Joe Valley 22:56

It’s a shame. It’s a shame that, you know, it’s it’s clear math and numbers that they could increase profit by doing some of these things, but they don’t want to do the work. How can I guess it’s not your job to convince them otherwise, right to do it. There’s so many things, I think entrepreneurs and myself included when I was an e-commerce entrepreneur, and today running quiet light, there are things that I can do and should do. And I do follow my advice most of the time. In terms of always, in my case, I’m always telling people to train for their exit, and I do that I know my numbers, and I know what my business is worth, and I guide the business towards an eventual exit someday, probably to our team. But why do you think people don’t make the effort when you can see clearly that if you can increase your conversion rate by 2%? That it’s going to add X amount to your bottom line? What’s What’s the issue? Are we all just too busy to focus on gross revenue or

Kurt Elster 23:56

what? I think we all we all have our blind spots. And we all fall victim to letting like more immediate pressing needs or more immediate gratification, like winds take precedence. I think it’s just a matter of like the squeaky wheel. There’s no one clamoring to be like, send me a survey, please send me a survey. I want to fill it out so bad like that. You don’t have that. But you do have like, you know, people call in and be like, where’s my order? Where’s my stuff? You know, we got to solve for that. Hey, we then it’s like shiny toy syndrome. Like there’s nothing sexy about sending out a survey or calling people on the phone. Nothing at all. It’s a chore. No one wants to do it. But then you hear like, social media is always like, here’s a screenshot of like how I made $100 million in one day because I just installed this one app right course and that stuff always ends up being stealing your attention.

Joe Valley 24:48

Yeah, let’s let’s talk about something simple that everybody can do. Is there a particular font that should be used on your website versus another? Okay,

Kurt Elster 24:57

so we talked about like, copying content was really realistically, what’s the greatest conversion rate hack? Like it’s not design, it’s not layout, that stuff is nice, but it’s set. It’s window dressing, versus the content is really like the thing that makes or breaks you. But I gotta be able to read the content. Readability by far, is like one of the most important things to get right. Even in terms of accessibility. Like if you’re set. The issue is brand owners, especially if you’re in like fashion apparel, as designers we go subtle and sophisticated. And so we’ve got like, Alright, I got my 12 point font, it’s in light gray, and it’s on a dark grey background. And we hope someone can read that. And you know what, it’s a challenge because we’re edgy, well, then they’re not going to they’re going to your biggest competitors, Google, they’re just gonna go back and go to somebody else. And so I the, in the web’s like 95% text, and you gotta read products and headlines and descriptions and all that stuff. And so if you just make the site easy to read, that’s like, the number one immediate conversion rate when I always start with when like, refreshing a site, like minimum 16 Point body font. The make sure it’s, you know, nice, nice high contrast. So I’ll do like printers, Black 333, the hex code on a white background, you know, fff bpfi, that kind of thing. It’s just like, give me black text on a white background, and make it big enough. And then you want to get fancier, you can start fiddling with line height, in schools to be like, Ah, I’m gonna write a 10 page paper, unless I use my friend double space, right? Like you actually want, right? The margins are 1.5 spacing, and you want to shrink the margins. Like if you’ve ever read, everybody’s seen a newspaper, I assume. It’s got really narrow columns, there’ll be like three to five words in a column. Yeah, that’s really easy to read. There’s a reason why we we read like that. And then when you go on, like an e-commerce website, there are called the text has to go edge to edge. And so it’s like on a 30 inch monitor, you’re reading this giant line, no one’s doing it. No one reads on the internet, I wouldn’t say hard to read.

Joe Valley 26:58

Yeah. And when I looked at your site this morning for a call, it reminded me of a buddy of mine site, and he is a designer, and I can see that you’re involved in this a little bit as well. So I would encourage people, and I’m not, again, this is not a pitch podcast, but I’d encourage people to go to ether cycle.com and just look and go. And strangely enough, when I opened up your site this morning, I actually started to read the content. Uh huh. Yeah, imagine that. The other one is popkitchen.net. It’s literally my roommate from my freshman year of college on we’re still friends today. And he’s an incredible designer, working for high, well known names, well known names, putting stuff in target. And there’s who’s the Midwest, the Midwest woman that is very much like Martha Stewart, can I think of her name? Did all the

Kurt Elster 27:56

cheese in the dead center of the Midwest? And I don’t know you are.

Joe Valley 28:00

I can’t think of her name anyway, popkitchen.net or ethercycle.com. To get a really good example of how the content pops. Both of them are fantastic.

Kurt Elster 28:09

Yeah, this pop kitchen, he really has a great sense of typography. I’m like a big, big type nerd. Like I just want to go back and do letterpress and mate start printing out Gutenberg Bibles is the kind of typography shenanigans I want to get into. But when you make stuff easy to read, and you treat a webpage, like a magazine layout, it really performs much better, regardless of audience, regardless of product and offer, just make the darn thing easy to read is step one.

Joe Valley 28:38

Yeah, imagine that. Again, some of these things are not hard. But maybe it goes back to everyone trying to look up and follow best practices, maybe, but we’re talking about some basic stuff, make it easy to read, but never be fancier pretty make it easy to read. Call your customer and have a conversation with, right. This is how you and I are getting to know each other right? We’re talking on a podcast next time I see you, I’ll know you more, versus just sending an email or text back and forth, not real complicated stuff. So make it easy to read any other tricks there. There’s no there’s not any particular font or anything like that, or you just named a few but there’s nothing else.

Kurt Elster 29:15

That’s probably well like as people worry about site performance. And one of the things that really impacts the Google core what vitals which is like the six KPIs they use to determine if your site is slow or fast according to Google engineer locked up somewhere. They’ll a loading a, an external font, as opposed to just like a regular system font really slows down one of those KPIs. And so an easy thing to do if you want to make the site easy to read oftentimes, is not load Google Fonts. Like I all my sites use Google Fonts. I love it. Like I want the look. But if we want to be realistic about performance, dump the fonts.

Joe Valley 29:56

So where do you how do you pick a not Google font? Where do you get Um, what are you talking about this is I’m not a designer help me out,

Kurt Elster 30:02

okay? All computers, Mac, Our windows have like a handful of fonts, you have a pretty good idea are going to be installed, it’s like airy over Donna times new roman Georgia, if you just stick to those, they always look great. They render write no always work, you don’t have to have this big load because the font is fairly big. It’s like loading a large image. And then the browser has to render it, and it’s harder for it to render than a, than a photo. So using the system fonts, just like those, those classic fonts really helps. There’s a website, CSS font stack, that will tell that will give you like, you’re like, I want this and I’ll be like, Okay, here’s like the stack to use. And it’ll give you, you know, like, here’s five fonts that will work, you know, 98% of devices.

Joe Valley 30:49

Okay, I don’t know what the hell it means this is this is the stack to use, but I’ll just, I’ll skim right over that.

Kurt Elster 30:56

One, pass that info onto your developer friend. Okay, thank

Joe Valley 30:59

you. Thank you. There’s, there’s one thing that as a consumer as a person, when my wife and I are shopping, that sometimes we like, and sometimes it just pisses us off. And Edie has that is, if you spend x amount of dollars, we’ll give you free shipping $5, and I’m at even even on Amazon sometimes now when I’m up, I’m a prime customer, I feel like if I spend a little bit more, I’m going to get it a little bit quicker. And it. I always need stuff like we used to joke in our house. But we needed that. Right? So Amazon shows up every day, we need that. But does it hurt from a conversion rate standpoint to play those little tricks that are so obvious to the customer, that you’re just trying to increase the average ticket, and then you pay for the shipping?

Kurt Elster 31:49

I think 10 years ago, like the prevailing wisdom, even now is the number one reason people abandon checkout is unexpected shipping expense. I think in a post a post 2020 world, that expectation around you have to have free shipping has gone away. Because everyone with e-commerce experience understands I’m paying for the shipping either way, it’s just Did you bake that into the product or not? And so this I really wanted to I wanted to figure out I wanted to play with. And so we ran split testing shipping rates, it is fairly difficult, I could not figure out a good way to do this with Google Optimize. In the Shopify universe. There’s two tools I found that’ll do it ship scout and intelligence. There may be others. But they’re like two apps that will specifically do this one thing they will test shipping rate thresholds for you. And using that we tested different thresholds and like free shipping on everything versus no free shipping versus 2575, etc. And like, obviously, this changes is another one where no best practice. But what was interesting was we found as you lowered the shipping threshold, certainly, checkout conversion rate did go up. But no, but it was like marginal differences were nowhere near as huge as one would have thought. And so once you start to factor in profit, which these apps could do, like if you know my to pick pack and ship an order typically cost me $7 $8, you could put that cost in. And now it’s going to start calculating average profit per order using that. And what we discovered was your free shipping threshold should probably go way higher than you think once you factor in profit, like you’ll end yet, you may lose a few sales, but you’ll end up more profitable overall. Now this is a tougher one, because there’s so many factors like you really need to test this one for yourself. But for sure, I think like as a rule of thumb, I would take your average order value tack on 20%. to that. And that should be your free shipping threshold. And then if you want to get fancy, and you’re on if you’re on Shopify Plus certainly go grab one of these tools and and try to test it to figure out the ideal threshold.

Joe Valley 34:08

So very confusing. Obviously, there’s so many factors in there and you can’t cover them all. I mean, if I sell something for $300 versus $30, that’s gonna be a big difference in terms of whether I choose to charge shipping or not.

Kurt Elster 34:21

Yeah, at this point, I like until I’ve, I’ve sat down with a spreadsheet and two weeks of data. I feel like I’m just making a best guess.

Joe Valley 34:29

Yeah, yeah. What other things you know, are really standout easy things that people can do on their Shopify store to improve conversion rate.

Kurt Elster 34:39

This is one that’s always controversial when I bring it up. Okay, when you land on any website, like just about anything, there’s that big, beautiful hero image. Sometimes it’s even a video that’s like the first thing that loads at the top of the page. And, like the homepage 100% I’ll have that in e-commerce. A category collection page will probably Have it product pages generally won’t. The funny thing about it is we split tested this. And every single site, when we got rid of the banner on the collection page perform better, I thought, and I love the way those banners look. So I’m like, let’s try this again, maybe it’s mobile versus desktop. Same deal always performs better without maybe it’s new versus returning customer Same deal always performs better without it. And the the hypothesis, the theory here is pretty simple. The banner is just shoving the products down the page. So if you get the products above the top to the top of the page sooner, people are more likely to scroll and browse and therefore more likely to buy. The same goes on your homepage, like I swear to God, the best homepage should just go head like here’s the value proposition. Here is a feature product or a featured collection, and then just let them scroll through it and decide if they’re going to buy or not.

Joe Valley 35:53

So I had to go and look at certain sites, you know, so I’m turning my head over here because I’m looking at the other monitor. And because we talked about Ezra right, and can you hit the button again? Oh, of course, check nasty. Tech nasty, okay. I went to boom by Cindy Joseph, just to see if Ezra who’s I mean, amazing at e-commerce and what he does. And lo and behold, the last thing you said, it’s right there. There’s a new fun, natural, no makeup look button right there. And you can sort of see some of the products and all that good stuff. It’s interesting, you know, at exitpreneur.io, where I sell the book, and whatnot. I’ve removed the big headline. And first thing my developer said, Oh, nacelle, you gotta you gotta put that big headline back in there. Now, look, I’m just promoting a book, it’s a very different thing than a product. Even looking at the quiet light site was like, What is it, we’re doing the same thing. We don’t have a whole lot above the fold there. We’ve got one thing we want people to do, which is get your free valuation on the homepage. So I think we’re doing okay, there. But there’s a lot of space, like there that one of the best practices, Once Upon a Time was lots of whitespace. I feel like now that I’m looking at my site, we’re stuck in that best practices phase, would you agree?

Kurt Elster 37:18

Which one exitpreneurs?

Joe Valley 37:19

No, quietlight.com. Don’t even look at exitpreneurs being redesigned. Everybody should go and everybody else should go. Oh, thank you very much. Appreciate it simple. Quiet, light, calm. Look how much whitespace there is. Yay or Nay. There’s one button, we want people to get a valuation. This is a lead generating business, right?

Kurt Elster 37:37

Yes. And so what I would do, if we really want to go ham on the lead generation, you go, you make what’s called a captive site. So like more traditional landing page. So on this site, if you just for only the homepage, if you just remove that main menu at the top, sell, buy, learn about success. Now suddenly, I got to one option, and it’s click free valuation. And so you just that immediately, you’ll get more people to do it. It’s also an easy one to split test.

Joe Valley 38:04

I guess all the buyers would have a problem with that though, because they want to buy a business and they go to the Bikepark. See, so you’d have to

Kurt Elster 38:11

have like you could do like a text button like a text link underneath Get Your FREE valuation be like oh, you’re looking to buy click here. And so now it’s like a choose your own adventure with just two things. This is another one like people in I’m not saying your main menu is screwed up. But in e-commerce, like I think

Joe Valley 38:30

if it was just for the record, I’d be okay with you saying that.

Kurt Elster 38:35

Now now, now the, in econ, like we’ll see, you go in like a Shopify store. And you’ll the main menu will be like shop and everything is jammed underneath that. And then there’s like 10 more legs that’s like, blog about FA it. The important part is the shopping and you buried it under four little characters in this like big flyout menu. And but if I go to like Amazon, or any of the big box stores, you look at the main menu, show me one in which a single thing in the main menu does not go to a product or category page. And so like that’s the optimization. That’s an easy one. Everybody misses this. It’s just like point and click Change navigation. Don’t have to mess with code. It’s such an easy one.

Joe Valley 39:18

Yeah, just [email protected] and it’s also very, very simple. It’s not complicated. I feel like that’s the theme here right now. Everything you’re saying is just simple and logical. It’s not rocket science, but people don’t do it.

Kurt Elster 39:33

Now I want to my goal is always not to complicate it. complicating things is how things break right? complex things are more prone to failure. A your your conversion funnel is it’s a process and so when you can simplify it and kick get rid of friction, get rid of issues, stumbling blocks confusion, wow, lo and behold, the whole thing performs better. Well additionally, managing the site as the business owner also becomes was easier. Everything in your life gets easier when you focus on simplicity. And you can mix in a little bit of automation in there, which is not simple. But the end result ends up being simplifying things.

Joe Valley 40:13

Let’s complicate it with this question. Browsing History. I see it. I’m not sure. I mean, I understand the algorithm pulls up what I’ve looked at, and things of that nature, if I’ve been on a site, but is this something that can be controlled in any way by the site owner?

Kurt Elster 40:34

Oh, you’d be like, so I’ll go on Amazon. And they’ll be like, Hey, here’s your recently viewed items. Remember when you were looking at that thing two weeks ago?

Joe Valley 40:41

Right? Can you tell that’s a Shopify store, too? Yeah,

Kurt Elster 40:45

so a lot of Shopify themes can just produce a recently viewed items list like it’s built in. And if it’s not adding, it is not difficult. The recently viewed items widget, like I earlier said, designers like subtle, subtle, sophisticated, when I’m honest, and now I’m saying like, Hey, we got to simplify it by everything. So when I’m on a site, and I’m like coming up with split tests, really, a lot of my split testing is just like me looking for to justify being able to get rid of stuff, I gotta get rid of those recently viewed items, definitely one of those things that I want to get rid of, unfortunately, when I split tested this one, in it, it was a net win. Whereas if I had the recently viewed items on a cart page, I think that’s a good spot to put it. You had an like a cart page or the end of a product page. The site always perform better. And it makes sense like, oh, yeah, this was the thing I was looking at two weeks ago,

Joe Valley 41:37

it’d be like, Oh, thank you. Now I don’t have to shop for that. It’s right there appreciate Yeah, I’ll spend more money.

Kurt Elster 41:41

But when when a test doesn’t go my way, when it does the thing, I don’t want

Joe Valley 41:46

to see results in lie to your people.

Kurt Elster 41:49

No, no. Would that be tough? But no. The I’ll, I’ll start running it as segments where it’s like, Okay, is there a further optimization here? Like this is the result different mobile versus desktop, and the new versus returning customers with a recently viewed items, which it was interesting, when I showed it to new customers, they it had a negative effect. And so it’s like it probably because it’s on at that point it is it’s a distraction, right. They’ve been on the site for minutes. And this thing’s like remember that stuff you were looking at 30 seconds ago. So it didn’t help. But if I’m a Returning Visitor, whoa, oh, yeah. Hey, this little helpful widget. That’s the thing I was looking for. Thanks, buddy. Isn’t that comes helpful.

Joe Valley 42:30

That’s a widget issue. Can’t the widget say don’t pull up anything unless it was 12 hours ago? Or is there a time period there?

Kurt Elster 42:38

You know, it depends on the platform. And like if you’re using an app to implement it for me, I Google Optimize, in addition to be able to do split tests, you can also have a do personalization, where it’s essentially like the same technology, but it goes, Oh, this is a new person to the site. Alright, we’ll hide that element. Oh, you’re a returning visitor. Okay, we’re not going to do anything. So I’ll use Google, the personalization feature in Google Optimize to implement stuff like that. If you can’t, like, ideally, I could do it, you know, in whatever, like, widget is running. But if you can’t do that, Google Optimize will do it for you.

Joe Valley 43:13

And this is a stupid question, because I think the answer is yes. But Google, Google optimized can not just only work with Shopify can work on all sorts platforms, WordPress, so on and so forth.

Kurt Elster 43:23

If you can run Google Analytics, or Google Tag Manager on your site, you can use Google Optimize.

Joe Valley 43:28

Okay, good. I wonder if we’ve ever used it? Probably not. All right. Okay. Any other knowledge bombs you want to drop before we finish up? Hmm,

Kurt Elster 43:43

I will say I think I think a lot of people worry about is my site slow? You know what the answer is? Probably yes. And also, it does not matter or cost you nearly what you think it does. Like we have several stores that are into eight figures. And also, Google is like, this is so slow. We don’t even think anyone on the internet’s ever loaded it before. Oh, then how did it make $20 million this year, my friends. Now with that site perform better with a faster site. Maybe the tough part in e-commerce is like, they are really complex sites that use a lot of JavaScript. And that’s the thing that kind of chews through your your Google Pagespeed score, but I put his like, a faster site doesn’t hurt a slow site doesn’t help. But it is not nearly the detrimental thing that it’s been made out to be. I would

Joe Valley 44:37

think that most people today would think that it’s their own internet service that’s causing the site to load slow. I could be wrong. That’s the first thing I would think I’m like, dammit, the wireless in the house over this spot is so slow. I need to move by the time I move. It’s loaded and it’s good. I can shop on that site.

Kurt Elster 44:55

I always do this move I like just turn airplane mode on and off. Like that’s like my mini reset. Just like Alright, let’s just reconnect everything.

Joe Valley 45:02

That’s it. That’s, that’s really the knowledge bomb right there.

Kurt Elster 45:06

You know, sometimes it works, too.

Joe Valley 45:08

So those two, you know, you said, we’ve got two eight figure stores and they split the load really slowly. Are those your clients? Are those yours?

Kurt Elster 45:17

No, I do I personally do not have have an e-commerce Store.

Joe Valley 45:21

It’d be a conflict at this point, I would say, unless you, well, maybe not.

Kurt Elster 45:25

years ago, like we years ago, we tried. We had some false starts. But you know, so it’s so time consuming. It was like attention splitting. So you got to commit to well, art, what are we doing here? We’re going to help clients and and build an agency and software? Are we going to try and build an e-commerce Store? Like you? It’s really not a thing you can have asked.

Joe Valley 45:47

So not half assing at the agency. Again, your specialty is what I mean, you talked about a whole bunch of different stuff here. specialty is what

Kurt Elster 45:57

Shopify theme development and conversion rate optimization.

Joe Valley 46:01

Okay, so we talked to all about conversion rate optimization, not a whole lot about Shopify theme development in 60 seconds, what the heck is that?

Kurt Elster 46:10

So, with Shopify themes, I would say your people really get hung up on like, what’s the right theme for x? At this point, if you’re installing a new theme from the Shopify Theme Store, there really is not a wrong choice. They’re all going to be online store 2.0 themes, which means they got all the features all the bells and whistles. And if it’s a paid theme, it’s probably fantastic. You know, I don’t think there’s a bad one in there. Just pick the one that is closest to the layout and look you want and then it is not tough to customize them from there.

Joe Valley 46:39

Cool. Awesome. And the podcast, you’ve got like 2 million downloads on your podcast, I think, is that right? And what is the name of the podcast and what the heck you’re talking about?

Kurt Elster 46:49

The Unofficial Shopify Podcast, mostly what we we talk all Shopify, we mostly interview Shopify merchants and some sub Shopify partners. Like we had a lovely woman, Elaine from Quiet Light on the podcast a few months ago. And the but yeah, you’re right. We hit 2 million downloads this summer. And really, that’s brute force. I’ve been doing it eight years and over 400 episodes.

Joe Valley 47:13

That’s a lot. I think we hit 10,000 downloads last month, which is, you know, good for us. We’re happy, tiny little niche. We’re good. That’s a lot of downloads. The unofficial Shopify podcast, right, that’s right. Awesome. And URL again, ethercycle.com. Check it out, folks. Kurt, thank you so much for all the time you spent with us today for having Elaine on the podcast for having that Ezra Firestone button that just takes it over.

Kurt Elster 47:45

Yeah, well. That’s too nice.

Joe Valley 47:49

Thank you. Alright, man, I appreciate it. We’ll talk soon. Okay.

Outro 47:55

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

How To Retire in 10 Years

Jodie Cook is a writer, entrepreneur, and athlete. At age 22 she started a digital marketing agency and sold it ten years later. She is the author of Ten...

Jodie Cook is a writer, entrepreneur, and athlete. At age 22 she started a digital marketing agency and sold it ten years later. She is the author of Ten Year Career: reimagine business, design your life, fast track your freedom, and Stop Acting Like You’re Going To Live Forever, where she empowers entrepreneurs to run a business that can thrive in any crisis. She co-wrote How To Raise Entrepreneurial Kids, where she introduces the four pillars to set children up for success, and the children’s series Clever Tykes storybooks and resources for entrepreneurial education.

Jodie is a regular contributor for Forbes on entrepreneurship and competes for Great Britain in powerlifting.

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

[04:20] Jodie Cook details the series of fortunate events on her path from entrepreneur to writer
[09:07] Why executing and systematizing social media platforms can be difficult to grow on your own
[12:52] Creating a plan to bridge the gap between expansion and systemizing
[18:03] Jodie explains the “scrutinize” process and the decisions many entrepreneurs face
[22:37] How journaling can provide a sense of balance and opportunity to your entrepreneurial journey
[26:53] Being intentional about exiting your business
[32:50] Jodie talks about initiating chemistry calls to funnel potential buyers for her business
[37:11] Why an effective sales process and team can create a smooth transition during an exit

In this episode…

Building a business can be confusing for entrepreneurs. How can you know exactly the right moves to make at your stage? If you could reimagine your business to achieve greater success in less time, would you?

According to Jodie Cook, you can have the financial freedom and time you desire. She crafted the Ten Year Career framework’s four pillars to scale and exit your business: execute, systemize, scrutinize and exit. Being able to see your business as a product — to take a step back and see it from a different perspective — can help you move forward during the exit process.

In this episode of the Quiet Light Podcast, Joe Valley sits down with Jodie Cook, author and entrepreneur, to discuss implementing a plan of action to scale your business and exit for success. Jodie talks about how to delegate for expansion, minimize the challenges entrepreneurs face, and be intentional when creating an exit strategy. 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 0:32

Hey folks, Joe Valley here, welcome to a another episode of the Quiet Light Podcast. today’s podcast is sponsored by My Amazon Guy. I know the founder, Steven Pope personally, and 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 them out at MyAmazonGuy.com. Okay, so today’s podcast is with someone that went from 22 to 32, building a business and exiting it and does not have to work again for the rest of her life. She’s just published her 20th book. And no, that’s not her business. That’s just her side gig. And she is in this particular book, she’s called the 10 Year Career. And she’s helping people plan out through the book and through their entrepreneurial journeys, how to be done in 10 years, she’s done it herself, she’s helped a lot of other people do it as well. And if you implement what she talks about in the book, then you can have the same path. Now you could be done and not work in 10 years, or you could just go on to your next adventure, knowing that you are financially free. She breaks things down in a way that makes complete and total sense. For instance, probably 60 65% of you listening are still in the execute phase of your business of your entrepreneurial journey. You’re working on the business, you’re grinding it out, you’re just the name the face, your without you, the business is not going to last for two weeks. If you go away for two weeks, things are going to start to fall apart because no one can do what you’re doing. You got to get beyond that into what she’s called the systemize phase. It’s what she did. That enabled her to step back from running her agency and this was a social media agencies that she operated, allowed her to step back and run the agency from afar. She was no longer the name the face the initial person that clients talk to the one managing the website doing these different things. And for about six years she traveled and did whatever she wanted to she’s she’s a powerlifter as well. She’s won some championships, power lifters. She represents the UK and some events and things of that nature. And she’s like five to like you would never know when you when you look at her. If you have if you have a if you’re listening check it out on video as well on YouTube. But then it gets into a couple of different sections scrutinize and exit. So you’ve got execute systemize. Scrutinize and exit we go into details on all of them. She tells her journey, her story, some incredible advice. All along the way. Her name is Jodie Cook. It’s called the 10 Year Career. You can have one to just pick up a copy of the book. Listen to what she’s got to say here. It will help you dramatically. Here we go. Jodie Cook. Welcome to the Quiet Light Podcast. How are you?

Jodie Cook 3:35

Hey, Joe, thank you for having me. I’m amazing.

Joe Valley 3:38

So good to have you here. Whereabouts in the world. Are you at the moment?

Jodie Cook 3:42

I’m in Lisbon, Portugal, and I’ve been here for about a week so far.

Joe Valley 3:46

About a week. Good for you and but you from the UK folks in case you’re listening to the to the accent. We’ve got one gentleman over there on the team. David Newell great guy. Don’t ask me exactly where because I can’t remember. Sorry, David, you’ve told me 20 times and I still can’t remember. Congratulations on what is your 20th Book 10 year career. It’s quite a milestone just to write one book is crazy. I know it’s a lot of work. The 20th That’s pretty impressive.

Jodie Cook 4:14

Yeah, I really love writing books, as it turns out, which is good. But they started off as journal entries to myself when I was running a business. And I was just processing all the mess that was going on in my head when I was hiring and firing in getting clients and losing clients and figuring it all out. So I’d write journal entries about what I was going through. And then through a series of fortunate events, I got a contributor slot on Forbes. And that’s when I started turning those journal entries into articles for entrepreneurs. And then that thought that felt really raw and vulnerable writing this stuff out there. But then I got such good feedback that I just carried on and then they turned into a bunch of articles and then articles turned into books and then they were 20

Joe Valley 4:58

But you’re not just a writer. You’re an entrepreneur and 10 year career comes from all of your years. It’s really not that many years in terms of being an entrepreneur, building your own agency and exiting to the point where you really don’t have to do anything you don’t want to do for the rest of your life, you’re very well off financially from the sale is, is it? Let’s, I mean, let’s just cut to the chase 10 years can almost anybody that pays attention, does the right thing, have a 10 year career and then do whatever the hell they want for the rest of their life, just like you’re doing now. Think so? Because I wish it I mean, if that’s the case, why didn’t you write this book when I was 20? That’s what I want to know. Sorry, probably because I wouldn’t have paid attention to it. I wouldn’t have read the damn thing. We just talked about that a little bit that people don’t, you know, read the books, they want a piece of the author and talk to the author and whatnot. But yeah, so talk to us about the point of the book and and the steps that people can go through to really have the outcome that that they want to have in their career.

Jodie Cook 6:02

I think that looking back, it’s so much easier to create a pattern and a framework and a story out of everything that happened. I don’t think when I was 22, starting an agency, I thought, oh, I can build it and sell it and then not have to work within 10 years. I don’t think that was what I was even imagined was possible. But I feel like someone now at the start of their journey, could aspire to that and could get it done if they did the right things in the right order. And doing the right thing in the right order is a really big part of the book. So the four step framework is execute systemize, scrutinize and exit. And if you follow those four steps and do those things at the right time, I think it would set up any entrepreneur pretty well to have an exit on their terms, that they that means that they don’t have to work again. Why exit? Well, yeah, you don’t have to exit, you could step back, you could continue to own the asset, and you could have someone else run it. I know from my situation with my agency, I don’t think I would have found that. Easy. I think that you need to search strong brand boundaries as to when you can be tapped on the shoulder and when you absolutely can’t be tapped on the shoulder. And then you have to be okay to let fires burn maybe because if you have exited to the point where you own but you don’t run the company, you can’t just get involved at every opportunity, because then it undermines your team who are looking after everything. So you don’t have to accept but I think it’s a very good thing to do, as you know,

Joe Valley 7:34

well, yeah, I asked you facetiously. But you’re right, I’ve talked to people that have elevated themselves to the Board of Directors, they’ve got a CEO, CTO, CMO, also to acronyms, but somehow they’re still involved. You know, as I think about the next phase of my career, here at quiet light, you know that that makes a whole lot of sense, because we’ve got a great team that would eventually step up and want to move into a new role. And of course, the exiting people make more money when they exit than they generally do running the business. And that’s all yours in the history of the business. But all businesses are slightly different. Thinking about those four steps, look at the challenge. Let’s just talk about the challenge of entrepreneurs because we’re both entrepreneurs. So if, if I speak ill of us some speaking, you know, truthfully, we were scattered we, we just try to keep the wheels on the bus, we’re just trying to get the business going. We’re not thinking about systematizing. We’re not thinking about exiting, we’re just trying to keep business alive. At what point? Do people or shoot would you recommend if they truly want to have the shortened career to be able to then do whatever the hell they want? And maybe it’s to continue to run that business that they’ve built and love that? At what point should they really focus on these four steps? I think

Jodie Cook 9:02

from the get go from day one. I feel like the reason why execute is probably the most important and also the most fun. Let’s face it, because you’re saying yes, you’re doing the stuff you’re setting up, you’re testing stuff out, you’re seeing what works. And you’re probably involved in every step of your business, if not a massive like bottleneck and you’re in charge of nearly everything. It just does not run without you. I think that’s the time where it’s so easy to get distracted. Start a side project and do anything other than just work on getting your business off the ground. And so getting your business off the ground for me involves three things. It’s your flagship product or service, just one not like a bazillion different offerings and all their own landing pages just one your target audience so you know your exact customer avatar and again, just one it’s like marketing managers not marketing manager And entrepreneurs and these people and these people just want. And then the third is the channel through which you reach them. And again, just one. So I totally did this by accident. But in the early stages of my business, we were selling social media management, to marketing managers through networking. And that was it. And I feel like the goal of the execute phase is just to get that right. And then once you have that, right, and you know that it’s growing, that’s when you can move to systemize stuff, knowing that as you are Systemising, your business will still be growing. And then systemize is a whole other section, which involves a whole other load of challenges

Joe Valley 10:39

systemize, so that you can grow and take on more of the same clients or expand your your type of client base? Well, kind

Jodie Cook 10:47

of both. So if you’ve completed the execute phase, well, then you know, you’ve got something that is in demand stands up to questioning that you’re proud of that works. And so that’s required when you go through to systemize. Because this demise is not really going to make you money, it’s probably going to cost you money, and you need to see it as an investment. So the idea is that as you write down, every process that happens within your business, to be able to automate delegate, eliminate, your business is still continuing to grow while you’re spending this bunch of extra time doing it. Oh, those

Joe Valley 11:21

are part of the systemized part, right? Automate delegate eliminate, yeah, yeah, in other words grow up, right and otherwise, right for me,

Jodie Cook 11:31

for me, when I got to this stage, and maybe people listening can relate, but I was, well in the trenches of the execute phase. Everything that happened in my business went by me I was, I was the main point of contact for every single client, I was doing. All the marketing myself, I was doing all the prospecting myself, I was going through all the events, I was speaking at the events, I was even you what this is so embarrassing, I was creating invoices on Microsoft Word every month, and emailing them manually declined, because they didn’t even realize that zero was a thing, they didn’t use anything like that. So there were so many processes that were meaning that I was not only doing them all, but I was crazy busy doing them all. And I could not see an end to it. I felt like I couldn’t go on holiday. And so I kind of affectionately refer to this as the charity show. But the thing that marked going from execute to systemize was working out that this God show was completely unsustainable. I wanted to take a holiday, and I had to do something about it. So for me, this was a table of fancy Microsoft Excel table with four columns. And the first was every single process that happened in my business. The second was, who did the process now, which was just me, and anyone listening, that’s an execute, they probably do all the processes in their business as well. The third was, who should do it in the future. This was either someone who was already in my team, it was the name of a role I was going to hire, it was a software that I was going to use to automate it, or it was just don’t do it, because it just didn’t need to be done in the first place. And then the fourth column was the plan of when I was going to make this happen. So that was the kind of plan that bridged the gap between execute and systemize.

Joe Valley 13:11

How long did it take you to come up with that, like, as busy as you are in the execute phase, you don’t have time for holiday, you don’t have time for much of anything, except doing those invoices in Microsoft Word and emailing them manually every year, or every month? Yeah, sitting down and doing what you did was systematize makes a whole lot of sense. Because ultimately, it’s going to free up your time and allow you to expand the business and have a life at the same time and eventually get to that last phase which is exit, which is where the money is. But like, it’s quite the process. So thank you for doing it, I guess, let’s talk about how long it would take for somebody reading the book or going through your process. And I know you’ve got a lot of it on your website as well. What kind of Trent tailing timeframe would you put on on sort of systematizing.

Jodie Cook 14:01

So I think I did this in a way that I wouldn’t necessarily recommend, which was to massively throw myself in at the deep end. There. When I decided I wanted a holiday. I booked the holiday. I booked a five week trip to Australia, three months in the future. And I gave myself a deadline to get this sorted out. So my Systemising was born out of necessity of thinking, I’m going to be the other side of the world I have to make this happen. And part of coming up with the plan was talking to a team member about the trip I booked and them saying I’m really worried about your trip and me saying why? And they tell me all the reasons they were worried and I wrote them all down and decided to make a plan for each of those things happening. And that was what led to the table with all different processes.

Joe Valley 14:48

That sounds like something that’s smart, not not so smart. Right? You say you wouldn’t recommend it to everyone. But we’re entrepreneurs we probably the majority of us didn’t graduate top of our class, we couldn’t sit still we had to focus, we had to do our own thing, we might have had an issue with authority. And we just knew we could do something better on our own or serve people in our own way. And oftentimes, we wait until the last minute. And we do that work incredibly well at the last minute, or just grind it out. And I hate that word, grind it out, because it’s just not the way we should be living our life. So good for you for doing it. For most people, it’s probably going to take longer, and I suppose if they plan it, personally with quiet light we’ve done we’re we’re still in systematize. God, we’re How old are we now, folks? 2025 years, 24 years now? No, that’s not right. I can’t do math 2007. So 15 years, and we grew by 85% in 2021. And all of a sudden, we’re like, and we’ve grown 55%, year over year for the last six years. But it grew to the point where like, oh, we need people, we need bodies, we need help. And we exploded the size of our team in the last 18 months to do that. So sometimes you’ve got to do it just when the business needs it, I would imagine, we could still go on holiday. So we had that benefit and could could do different things. But for us, it’s been 18 months, and now we’re faced with potential recession. So it may be even a little longer in terms of, as you said, Sometimes this may cost you money, right? systematizing, as opposed to, you know, it’s saving you money. This is this is without doubt costing us money, but in the long run. And that’s how we’re looking at the businesses. And this is what most people don’t do. They don’t get out of the execute phase, they get completely burned out. And they sell their business. And they sell it for a hell of a lot less than it would be worth if they jumped into systematize hung on for a couple of years, and then came out of it for a couple of years and their businesses were so much more. The problem is that they they get shiny opposite object syndrome while they’re in the execute phase, and they take on all these other little projects, because they don’t want to do the work to get to the system. Eyespace my opinion. I’ve seen it happen 1000 times I’ve talked to a lot of people. So I’m excited about the book. And I hope everybody in the audience picks it up and reads it because there’s a lot to it. But let’s go to the next phase beyond systematize. What is that God routinize scrutinize? I think we only be in that place now. So, in fact, I’m pretty sure we are because we go What the hell are we doing? Go ahead, I want to hear about this part.

Jodie Cook 17:39

In an ideal world, you’ve completed execute, you know, you’re three things you’ve graduated execute, you’ve moved to systemize. And now you have begin the process of making sure that you are not the bottleneck to your business. And ideally, if you’ve done this in a really good way, you are now surplus to requirements. You’re not really needed. You want to be involved, and you may be you doing, you’re doing your thing within the business, but you’re not totally needed. I think this can be really difficult for entrepreneurs, because our egos get in the way. And when we’re not needed to answer questions and put out fires, we started to think, Why does no one need me am I not important do not matter. And it’s really that can be really tough to deal with. But if you can deal with that, and if you can get through systemize, you should now have this very well oiled machine that is still growing, because you’ve moved yourself out of processes that you probably weren’t giving your full attention to other people have taken taking them over. If you’ve hired and trained the right people, they’re probably doing better than you did, which means they’re seeing things that you that you didn’t. And you’re in scrutinize, which is where you are faced with this decision of what do I do now. And there are a whole host of different things that you could do now. So just as a side we have a quiz at quiz dot tenure career.com. And that’s how you tell which stage of your 10 year career you’re in. And of all the 1000s of entrepreneurs that have taken this quiz. 62% are in execute 33% are in systemize 4% are in scrutinized and only 1% are in accept. So it really is hardly anyone who makes it through to scrutinize if you’ve done that if you systemize your business, you’re in the top 5% of businesses according to my data from my survey

Joe Valley 19:30

before you set before you gave that data. I was definitely going to like where but now that you’ve said it we’re in scrutinize because sometimes I’m wondering what I’m doing I don’t have that much to do anymore, which is which is wonderful. But I don’t want to brag and say I’m in the 5% but I think we are I’m gonna have to take the quiz and see what it is quiz dot 10 year career.com Did I get the right?

Jodie Cook 19:52

Yeah, that’s right. Now you have you have decisions you could say there are a whole host of them. I just run through them in a in no particular order. You can To proceed to exit where you sell, or where you continue to own the business. But you step back and you truly aren’t involved not just pretending you can’t just say that you exited and then actually be doing loads of work, it has to be like a no, I’m really, really not involved no email address, no slack access, etc, you could decide that you want to just step back a bit, you want to travel, you want to do other things. That’s exactly what I did, when I had completed the systemization of my business. I spent one month in every three just traveling and training and exploring different parts of the world and did that for about five years until COVID hit. So that was absolutely an option, you kind of run your business like a lifestyle business at that point. Or you could start a new project, which could be a completely separate project, because now is the time to side projects, because you’ve got something that is your main source of income that is that is working and is running. Or you could head back into execute in the same business. So the guy who bought my agency was really interesting, because he had the scrutinize phase, decided that running agencies was just his jam. So he bought a bunch of different agencies and headed back into execute, but with like six different agencies to kind of move together rather than just the one. So you’ve got loads of things that you could do. But it all relies on this huge sense of self awareness. And just asking yourself, what do I actually want to do? And what how do I actually want to spend my time? Yeah, it’s

Joe Valley 21:26

your agency buyer had been there, he’d done it. So in that execute phase, it probably wasn’t as painful as, as it was the very first time he did it, or you did it or that I did it. There’s the learning curve is a heck of a lot shorter, for sure. Yeah, we we talked about what to do after an exit many, many times on the show and in personal conversations. And I’ve seen people go and sell their business and jump right into another one. Or they’ve sold the SAS business and they buy an e-commerce business or vice versa. And some people say, if you’ve got the financial wherewithal, don’t do anything new for 12 months, and figure out your next path. What’s your recommendation, given that you’ve, you’ve had this option yourself?

Jodie Cook 22:13

Oh, my goodness, it’s a minefield, and you have no idea what it’s going to feel like until you do it, or I didn’t anyway, I’ve thought a lot about myself before it happened. The sale took about six months from the moment I decided to sell to the moment we completed. And at the start of that I really visualized what I thought I would feel like when the sale completed. But in reality, it was nothing like that. Because it was deep in the trenches of COVID. We were in lockdown, we couldn’t travel. It was like my gym was in my living room because the gym was shirt. And so it was just such a strange existence. And it probably made it more strange. But I definitely agree with taking time out after because you just need to sit in the void and see what it feels like. But then I think a really good thing to do is loads of journaling. So that you work out how you feel what you miss, what you don’t miss what’s missing, and therefore what your next step would be. I did a bunch of experiments. They were meant to it’s like I said yes to podcast interviews, and I did loads of those. And other mentors, I had two powerlifting competitions. So I did those and focused on that. And other was focused on writing, in other words, just did nothing and traveled and did it all with a with a view to just getting to know myself and then working out what my next step should be. And where I got to was the business that I had sold was not the business that I would start from scratch if I was starting another business. And I think that’s because I was 22 when I started it I was 32 when I sold it, you’re a whole different person then yeah, so I realized that I did want to start a new business. But it wasn’t that one that wanted run its course, I think having that period where you just sit in the stillness, you journal, you work out who you are, can lead you to your next step in a really good way.

Joe Valley 24:04

How was it for you at the age of whatever you are now I won’t say you just said 32 ish? How is it for you at this age, with the freedom and flexibility that you have? When most of the people your age have to actually get up and go to work every day? Do you find personally that? It’s it’s difficult to say? Yeah, I’m just gonna hang out in Lisbon for a while then I’m gonna go down to New Zealand for a couple of months. Or do people have you just been that when people you’re within your circle are like that as well. This is this. I like that as well. They’re all like that as well. All right. And

Jodie Cook 24:47

that’s because I’ve sought them out. One of the networks I mean, it’s called Dynamite Circle and it’s a group for location independent entrepreneurs. So I hang out with a lot of location independent entrepreneurs who are focused on where can I live Have where can I train? How can I be in the sunshine all the time, and they’re not just focused on, I have to have a business or I have to do work. And then what underpins that is that I felt like even when I was running my agency, it didn’t really feel like work, because I enjoyed it so much. Because I think doing work that you would do for free or doing work, that doesn’t feel like work is how you win at life. So I’ve been trying to create that situation for myself for a very long time. So I don’t really feel any different post exit to pre exit in that sense.

Joe Valley 25:32

Yeah, doing work, that doesn’t feel like work is the way to win at life. And we, we all know that and we hear it. But unfortunately, people get on paths because they think that they should, because they got pushed into it, or the the whether it’s parents or peer pressure, or whatever it might be. I totally agree. But I know how hard it is to actually go down that path. Let’s talk about the fourth section exit. What, what is the book talk about there? What are you advising in that part of your process?

Jodie Cook 26:05

So the book mentions your framework within exit. And you know, I read your book after I’d sold, and I was I really wanted to read it. And I was more relieved when I did that. I didn’t do anything wrong.

Joe Valley 26:19

Good. People usually swear at me after they’ve read my book, and they’ve already exited, you know, kind of the same thing. Why didn’t you write this before?

Jodie Cook 26:29

Yeah. So yeah, it goes into your book and your five pillars growth, risk, transferability documentation, and then the magic is that the fifth one that isn’t the whole being someone that someone wants to do business with. And then it talks a lot about having an intentional sale, which I think is super important, because I know that I’ve chatted to business owners before who they vaguely think that they want to sell their business, but they haven’t really been intentional about it. And there’s one friend in particular who I think has been selling his business off and on for like, three years, and he has one buyer at a time and then it always goes through. And I just think when you want to go, you want to go and then it’s really important to line up everything at the same time. But for me, something I did that was super geeky, was I wrote myself a pretend check. The amount I want to sell for the one social media agency with no earnout, I signed it like the perfect buyer or something cheesy. And then on the date, I wrote the date that I wanted to sell. And then what ended up happening is we sold for that exact amount, didn’t have to do an urn out. And the date I wrote on the check was within two weeks of meeting the buyer. So I feel like there’s something about being really intentional about it. And then learning everything makes it happen so much more so than just vaguely flitting around, telling people which is the worst thing ever, and then not taking the action that you need to.

Joe Valley 27:49

That’s just incredible that you wrote yourself a check. It’s not super geeky. It’s super smart God. I mean, you put it into action, you just put it out there. You set a goal with a date, and a timeframe. I’m sorry, a date and $1 amount. And of course, you had some feelings with that as well. You know, I talked about that in my book, dollars dating, feeling. That’s really, really smart. I would encourage everyone right now, to do that. Write yourself a check, sign it the perfect buyer put the date on it. That’s brilliant. Why didn’t I put that in my book, my God, that’s great.

Jodie Cook 28:24

SQL, you put it in the next one. But I what I wanted to do was make the sale feel inevitable. Because I think that one of the hardest things to do is barrel forward with, with everything that you need to do in order to sell your company without knowing for sure that you’re going to sell it. And no one really does know for sure that they’re going to sell it because it could fall through at any point you could never find the buyer. So it was writing the pretend check. It was also googling social media agency acquisition or social media agency sold and just seeing how many different agencies were sold all the time, bought and sold all the time, which made me think this is normal. This is this is doable, this can happen. And then it was working with a broker who told me the process of selling a company and what that would be month by month, that also made me think, Okay, this is routine, this is inevitable, it’s going to happen. And then because I believe so strongly that was going to happen. It meant that I could work backwards from there rather than having to kind of blindly navigate my to do list without really knowing.

Joe Valley 29:29

Yeah, I mean, there’s so much information out there. Of course, I want to go to the broker versus no broker aspect right now because you just said blindly navigating things, not knowing what you were doing. Did you always intend to use a broker to help you exit? Or were there always people and little people on your shoulder saying you can do this on your own? You don’t need a broker do this on your own? What was your mindset there? Before?

Jodie Cook 29:55

The six months before I completed myself I didn’t even know Just gonna sell, I didn’t really know it was possible, I didn’t really know that companies got bought and sold all the time, I just thought I need to speak to someone who would know about this stuff. So there’s a friend of a friend who’s an agency owner with an agency about maybe nine times the size of mine, and I got on a call with her. And I said to her, you’re probably about the size of company that would buy us from what I’d found out in my research, what would you want to know? What would you want to see? And she was amazing, because she told me all the questions that she would ask the one that she wanted to buy, he sent me the list of them. And then I like prepared answers to those as if I was selling to her, even though that wasn’t the point of it. And then she said, we work with a m&a consultant who you could speak to, if you want to help you a bit more. So I was like, Yep, great. got on the phone with him. And that’s when he said, You need all this stuff in place, you need us completely systemized business. And you need a second tier management team in place, who will look after everything. And I was like, Well, I’ve already got all this, this is exactly what I’ve got in place already. And so he said, Well, you don’t really need to work with me, then you’re you’re way ahead of this, you don’t need to do the kind of six months work that would be involved in this, I can put you straight on to someone who we work with who’s a broker. And so when I met the broker, we were ready, I’d written the deck, the that kind of put my business as a product to ready to show a buyer. And, and yeah, he pretty much signed us up straight away. And it seemed to make sense the process of what we’re doing month one through two months, it made sense. And then we started getting introduced to buyers, and then had chemistry meetings, and then they turn into offers. So it demystified the whole process. I don’t know how I would have done it without a broker, I think it would have worked. But I think there are some things that you don’t want to just say yourself, it’s really good having the broker on the call them instead of you.

Joe Valley 31:52

Yeah, yeah. And the key is the demystifying the process, because you don’t know what you don’t know. And at one point or another things generally go sideways, it could be more stressful than you need it to be, you don’t need to need sleep, lose sleep. And, you know, you can hold firm on your with a broker and your case can hold firm on the all cash offer that you got, or whatever structure it is, and, and not waver on a call because you’re doing a zoom call with them. And they asked you a difficult question about modifying the deal. So you’ve always got somebody in the middle there.

Jodie Cook 32:29

The Zoom calls are really interesting. And I’d been prepared by the broker before we did those as well. And he called them chemistry meeting.

Joe Valley 32:36

I love those. Yeah, I’m gonna change that we’re not doing we’re not doing by teleconference calls anymore, folks. We’re doing chemistry calls? Because that’s what they are. Yeah, yeah,

Jodie Cook 32:45

exactly. And they were, I think we had 12 in the end. And there were some where we had loads of chemistry, there were some where we just didn’t have any, and that’s fine. It’s just, you know, it’s okay. It’s just not going to work out. But we will miss we all wish each other well. And what I thought was really good about the chemistry course was that they went first, though the potential buyers talked about their business, their clients, what they were looking for. And then I was there scribbling notes down. And then when I talked about my business, I was talking about the stuff that was relevant to them, because I could have talked about a bunch of stuff that didn’t matter at all, but it meant I could steer the conversation in that way. And then yeah, we had a lot of a lot of good calls with them, but I was really happy that I was prepared for them.

Joe Valley 33:24

Did you get more than one offer? Yeah. And did you choose the highest offer or the buyer that you liked the most?

Jodie Cook 33:33

Both it was, we were lucky. It was the same one lucky

Joe Valley 33:36

the same one? Yeah. Okay, good. Did we did we cover I know, under execute systemized scrutinize we covered, you know, a number of different steps. Did we cover those already through this conversation on exit?

Jodie Cook 33:50

Yeah, I think so. It’s mainly, it’s a lot to do with your pillars, it’s seeing your business as a product, it’s finding some way of taking that step back and being able to see it with perspective, that if you’re really intertwined, and you think your business is all about you, and you think it reflects you, it’s going to be really, really hard to do that. And part of it as well is not telling people, because I think that’s important. It’s like your team doesn’t need to know your clients, they need to know, your grandma doesn’t need to know, no one needs to know it’s like, just do it and don’t talk to people about it, because it means that you can avoid hearing things like oh, you’re named and the company name, you’re never gonna be able to sell or Oh, X percent of your revenue from this one client, you’re never gonna be able to sell like someone will always tell you but they don’t really know. And so if that puts you off, and you won’t do it, so it’s just better to say nothing and only work with the professionals who can actually help you. But then after that exit is all about moving forward with intention, having a plan making it happen, and it’s it’s the shortest of the four different phases. Definitely the shortest because you will know you can’t be vaguely selling your business for years and years.

Joe Valley 34:57

This I think the key thing about those the four paths Whereas on the person behind the business being the fifth is that if you don’t get those things, right, your value changes dramatically. If there’s one weak pillar, instead of getting an all cash deal, you’re getting an urn out, because you’re the name and face of the business and all the clients rely on you, and you have to stick around for 18 to 24 months. That’s not the kind of exit that people generally want. But you said something about that name, face your names on the business? Don’t tell people because they’ll tell you CATSA was your name on the business? Yeah,

Jodie Cook 35:35

it was. It had my initials in it, had your initials

Joe Valley 35:37

in it, but you would remove yourself. So did the clients that you had in the agency, know your name? No, your face ever talked to you on a regular basis at the point when you were selling? Or did they have client managers? At the point

Jodie Cook 35:53

at which we sold? I wasn’t the key, I wasn’t the main point of contact, but anytime and I hadn’t been for years, probably longer than that.

Joe Valley 36:03

Six months. That’s incredible. And was it was it 10 years that you had the business?

Jodie Cook 36:07

Yeah, it was 10 years, I had the business. But once I started to systemize, it was like, This doesn’t make sense, because I’m the main point of contact for all the clients, but I’m not doing the work. So that was a big shift where I stepped aside from being the person who called them follow them or sent me a report, because I didn’t want to, because the account managers would do such good work, I didn’t want to downplay that. I didn’t want to just be the person who was the face and kind of took all the credit. So that was about hiring better account managers, teaching them and client communications, because it’s very specific how you speak to clients. And then from then on, they looked after that, and they had team leaders. And we had a general manager. And that was all looked after. By then. The hardest part of that was when I was in between, in between Systemising a few different things. So when I wasn’t doing the client communication, but I was still doing the sales, that’s when I would do the selling people would sign up with me. And then I wasn’t looking after them. So there was a lot of friction there because it was like, hang on, you sold us and now you’re not looking after us. But as soon as I systemized the sales process as well got some amazing sales people on board. Clients didn’t ever need to speak to me because they’d be looked after in the sales process, then they’d be handed over to their account manager and I was just this kind of face of the business who was off doing other things. I think having a personal brand can really benefit you from needing to be involved or clients thinking that you’re going to be in meetings, I think it can work the other way it can actually work in your favor.

Joe Valley 37:35

It’s all very impressive what you’ve done. And now you’ve written your 20th book, I don’t know. And you’re and you’re a powerlifting champion as well, right would champion be the right word?

Jodie Cook 37:47

I mean, I’ve won a few competitions. I wouldn’t call myself a champion. I would definitely a power lifter, power lifter. And I compete for Great Britain and England about once a year as well.

Joe Valley 37:56

That’s, I don’t know how you do it all very impressive. The book itself will hit sort of shelves in the US when can people buy them here in the States? For that for those that are listening in the States?

Jodie Cook 38:10

For those that are listening in the States, you can buy it from the 15th of November 2022. From those that are listening anywhere else in the world, you can buy it right now. It’s that 10 year credit card minutes, it should be anywhere that sells

Joe Valley 38:21

books. 10yearcareer.com. And if I’m in the States, can I buy it at 10yearcareer.com. Right now, if well, then we’re recording in September, folks, can you buy it in advance in the states and have it shipped from overseas? Or is that just ridiculously expensive?

Jodie Cook 38:36

You probably could do if you really, really, really wanted to get it ahead, you could definitely do that. But otherwise, it’s pretty ordered. And you’ll get it in November. But there’s Kindle there’s paperback and there’s also an audio version as well. So you can listen to my Birmingham accent for hours and hours. Select All right, well, good.

Joe Valley 38:52

Lots of different choices. God 10yearcareer.com. Is that how people would find you? Congratulations on your 20th book. I’m excited to have the audience read this. I think that it it will get them beyond that execute phase, which I think so many of them are in and you’ve done the thinking for them. So I appreciate it. I’m gonna look at it myself. I’m gonna go to quiz dot. Make sure I get this right quiz.tenyearcareer.com. Yep. And see which phase I’m in. I’ll shoot you a note tell you how wrong I was that maybe I’m still in the Execute.

Jodie Cook 39:29

Find out what we really interesting and 66% 63% of people are in execute execute.

Joe Valley 39:36

Yeah. And they shouldn’t be there in the third year of running their business, necessarily, right. They should move to it as soon as they can to the systemize phase, I suppose. I guess every business is different though.

Jodie Cook 39:50

I feel like I want people to have a 10 year career where they progress every year, rather than just have the same year 10 times. And it’s like we have Have these progression plans for our team members? When someone starts with us, they’ll be like, Okay, what am I gonna do in one year and two years and three years and we have answers and they have appraisals, and we know what’s around the corner for them. But what about us? So I want this to be our progression plan of how we progress through our own businesses and then don’t need to again within a decade.

Joe Valley 40:19

Brilliant, I wish I wish you wrote it sooner. Thanks for coming on. God, I appreciate it.

Jodie Cook 40:24

Thank you, Joe.

Outro 40:27

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 podcast at quietlightbrokerage.com. Be sure to follow us on YouTube, Facebook, LinkedIn, Twitter and Instagram, and subscribe to the show wherever you get your podcasts. Thanks for listening. We’ll see you next week.

Profitability of In-House vs Third-Party Fulfillment (and the Actual Cost of Running Out of Inventory!)

Cole South is the Co-founder of SDDC Goods, an e-commerce business that focuses on building profitable and marketable brands from the ground up. As part of two brands —...

Cole South is the Co-founder of SDDC Goods, an e-commerce business that focuses on building profitable and marketable brands from the ground up. As part of two brands — BirdRock Baby and Gold BJJ — Cole has gained valuable experience, from maintaining multiple inventories to the market of cryptocurrencies. His passion for innovation allowed him to create Synchronize, a software tool designed for e-commerce businesses that helps streamline catalog management and sales predictions.

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

[4:46] Cole South talks about the transferable poker skills that helped him establish his e-commerce career
[6:58] Third-party versus in-house warehouse fulfillment: what is the best method for your business?
[9:09] Cole breaks down and compares costs between an Amazon and an in-house warehouse.
[12:42] How to deal with the challenges of managing multiple inventories
[18:24] Cole talks about software that streamlines inventory management
[20:41] Synchronize: the ultimate e-commerce tool for sellers
[25:03] Cole’s tips on maintaining a stable inventory and what to do if you run out

In this episode…

Successfully managing a product inventory is all about having a stable process in place and a reliable framework that could maintain the momentum of a business. But what happens when the inventory runs out?

According to Cole South, mismanaging inventory could be costly for a business, however, completely running out could be catastrophic. Fixing such an issue would not only cost substantially more, but it often takes time, which, for an online business, is of the utmost importance. Cole, however, has developed a system for success that integrates e-commerce and inventory data across multiple platforms to help you keep track of your available catalog. That way, your e-commerce business is free to focus more on profitability and growth.

In this episode of the Quiet Light Podcast, Joe Valley welcomes Cole South, a professional poker player turned successful entrepreneur. They talk about overcoming the different challenges of keeping a stable product inventory, maintaining shipment timeframes, understanding in-house and third-party warehouse costs, and how to tie all that up into e-commerce profitability.

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 LightPodcast 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 LightPodcast. Guess what we have a sponsor today. Today’s podcast is sponsored by my Amazon guy. I know the founder, Steven Pope, personally is good guy. He’s been on my podcast. I’ve been on his he’s got a YouTube channel. He’s sharing a ton of free educational content where you can learn everything you need to know about listing selling on Amazon, PPC, SEO design. Everything that you need to do they do at my Amazon guy, they can help manage your catalog, check them out at myAmazonguy.com. MyAmazonGuy.com. Okay, so today on the podcast, we’ve got Cole South, talking about a variety of things. Cole is a pretty impressive guy. Every morning, he does jujitsu. He’s been a professional poker player, been involved in hands that are topping to half a million dollars, runs two e-commerce brands touching on the eight figure range and launched a inventory management software recently that we talked about in the second half of the episode. And it’s actually Amazon’s inventory management software using Google Sheets. A lot of us have have all tried to manage inventory in different ways. But we often go back to Google Sheaets. And he and his business partner ended up going that way as well. But integrating Google sheets into the into the automation process so that at the end of the day, you’re importing everything automatically into Google Sheets, and I’m not going to get it all right. So listen to the second half of the episode. He talks about his story in terms of bringing inventory in house when COVID hit versus just doing everything at a 3PLs or everything at Amazon, about 60% of his revenue is from Amazon. But 40% is from his Shopify store. And it’s pretty steady that way. He lives in San Diego, not a cheap place. He’s got 5500 square feet. And he decided with his business partner to bring the inventory in house and then ship what’s needed to Amazon on a timely basis so they don’t run out. And he really hones in on the drawbacks of running out of inventory at Amazon and how much it costs you at the end of the day. So tune in this is our episode with Cole South. Here we go. Cole South. Welcome to the Quiet LightPodcast. How are you, man?

Cole South 3:02

Hey, Joe, thanks for having me. I’m doing good. Thanks.

Joe Valley 3:04

Tell the audience a little bit about yourself just so I don’t get it all wrong.

Cole South 3:07

Sure. Yeah. So I’m from Virginia. And in College in 2005, I discovered online poker and became a poker pro for a little over 10 years, which led me into the e-commerce world. Through my poker career, I got to travel and play high stakes games online in Vegas, Macau, Europe. But by the end of my poker career, the industry was shrinking. And I was ready for something new. So my wife and I moved to San Diego, and started an e-commerce business with fellow co-player based around products that he and I personally use. Because he and his wife had just had two young kids, they had an idea for a new type baby shoe. So we launched a baby shoe brand called Birdrock Baby, and a martial arts brand called Gold BJJ. Jay and I both train jiu jitsu every morning. And that was started our e-commerce business. It was just a side project, when it picked up enough momentum that we thought, hey, we’re really onto something here. People really liked these products. We jumped into it full time. That was in 2016. So we’ve been running an e-commerce business for six years now.

Joe Valley 4:04

And are you doing five figures? Six figures, seven figures, eight figures? What are you guys doing to get?

Cole South 4:09

Somewhere in the 7-8, 8 range?

Joe Valley 4:11

Okay, depends on the year probably right? Yeah,

Cole South 4:13

We’ve kind of had slow slow and steady growth over the past couple of years, but definitely some yo yoing around COVID For sure.

Joe Valley 4:19

So tell me what the hell is it about poker players that make them such good e-commerce entrepreneurs or entrepreneurs in general? Because I think we’ve got one under loi now and close to eight figures. And the dude’s a poker player. Jack Ness Mike net Jack is who formerly from San Diego friend of yours friend of mine poker player probably not as good as you but what what is it about you guys and e-commerce what what transfers over or am I just making this shit up?

Cole South 4:46

No, I mean it’s definitely has a lot of skill sets that transfer over I think the two main ones are one just approaching things analytically in poker, you really have to look break down the numbers and you know, take every play into account to figure out what the most profitable It is and that transfers over to e-commerce a lot. But I think even more importantly, in poker, you really get used to losing. And okay with that, and like, if you lose a hand, you really got to regain your composure, get back to the table, and not just play terribly the rest of the night. And that transitions over e-commerce. Because no matter how much you research, any new product launch or prepare for a new ad campaign, you never really know if it’s going to work. And so poker players have that ability and experience taking risks and being okay, if they don’t work out.

Joe Valley 5:28

That is an excellent point, because you’ve got to keep losing in order to win. And we’re going to talk about e-commerce here. But I’ve got one more poker question. We’re going to talk mostly folks about 3PLs versus bringing your warehousing in house and the profit, profitability difference between the two and all the logistics and everything. Cool. I looked at your Wikipedia page, what’s the most you’ve ever won in a poker game? And what’s the most you’ve ever lost?

Cole South 5:53

Oh, man, I mean, some of these high stakes games that were online, like the hands are all public, and you can pull them up on YouTube. And there’s a few, you know, pots in the five or $600,000 range? Yeah, there’s some really high stakes action. So definitely won and lost hundreds of 1000s of dollars on any given day. And, you know, it’s all about in the long run, and hopefully that the winds outweigh the losses. But there’s certainly plenty days that’s done for sure.

Joe Valley 6:21

I hope they did. I hope they did. You live in San Diego, and it’s not a cheap place to live. So I think you probably did, okay. If you move there before you started your your e-commerce business. Alright, so tell us about the two e-commerce businesses and let’s talk a transition talking about the concept of a 3PLs two, which is to most people it’s like, easy, I don’t have to deal with that stuff. Versus bringing it in house, which means you’ve got to be good at logistics good at managing people good at inventory management, you got to do that through PLs too. But what have you done? What do you do now? And let’s let’s talk about what you like.

Cole South 6:59

For sure. Yeah. So I mean, there’s a lot of ways to, you know, run your warehousing fulfillment for our business, we have so many different colors and size variations for our baby shoes, or a martial arts uniforms, that it’s really hard for Threepio to get their hands around all these different SKUs, which you might have limited inventory of some of them. So we kind of bounced back and forth between warehousing in house, as well as trying to use three peels from 2016 to 2020. And then when COVID hit and everything just went totally haywire trying to use three peels, we brought everything in house. So for the past two years, we’ve been fully in house warehousing, and it’s gone great for our business.

Joe Valley 7:36

And did you do that simply because you felt like you had to or because they were screwing up so bad that you had to or you kind of thought maybe you wanted to prior to doing it?

Cole South 7:45

A bit of both. I felt like we didn’t have any control of our business, whenever anything went wrong. It was this, you know, 48 hour turnaround time to get an inventory count on a SKU or an answer to a customer of why their order hadn’t shipped out. And I didn’t feel like it was done being done with a bunch of precision either. Again, I think part of that is just due to the complexity of our business, and not necessarily the three people’s fault. If we had a business that was selling one SKU that was super simple and standardized and didn’t have a bunch of returns or anything, then I think repealing might make more sense for our business

Joe Valley 8:16

Might make more sense. Okay. And in your business, you’ve got the baby moccasins, lots of different, I would assume different sizes and colors. And the same with the ju-jitsu to it looks like uniforms and accoutrements and things of that nature,

Cole South 8:30

Uniforms, rashguards, bike shorts, all sorts of stuff like that.

Joe Valley 8:34

Lots of different sizes. But you live in San Diego. Somebody’s gonna go Yeah, that’s gotta be expensive, or did you open your warehouse somewhere else?

Cole South 8:43

No, our warehouse is here in San Diego. So yeah, it’s not cheap. It’s definitely I wouldn’t say a luxury for our business. But it’s definitely an Expense Center for sure, actually brought the exact numbers from our warehouse, as well as Amazon’s kind of want to break down, you know, hey, is this actually saving us money versus Amazon?

Joe Valley 9:01

Let’s let’s dig into it then. Because that’s the big question. Right? People? Yeah, people from expensive places like San Diego. Yeah, I can’t do it. It’s too expensive here.

Cole South 9:09

Well, my hunch, you know, before looking at these numbers was I don’t think running our own in house warehouse is maybe the best immediate financial decision. But there are a ton of intangible factors that we’ll talk about later that I think make it the right long term play. But looking at Amazon’s numbers, Amazon charges 83 cents per cubic foot. In the slow seasons, that’s January through September. That’s nothing I mean, a three cents for a cubic foot. You can imagine some products or cubic foot and that’s no closer $1 a month for story that Amazon. At our warehouse, we have 5500 square feet, and we pay 8600 bucks a month for rent. So that’s about $1.50 a foot. And if you figured that we could stack products, maybe 12 feet high, that’s 66,000 cubic feet in our warehouse. Obviously we can’t use all that. Let’s say we use a third of that. It’s roughly 20,000 cubic feet, we’re paying like 13 cents per cubic foot. Or sorry, you’re paying like 40 cents per cubic foot. So it kind of like half of Amazon. Yep. And then Amazon peak season, Amazon is charging you 2.40 per cubic foot. So we’re looking at, you know, a 6x savings during q4. So I do think on the storage side, we’re probably saving a little money doing it in house.

Joe Valley 10:24

What about on the customer service timely shipping side? Can you

Cole South 10:29

That’s definitely a different question. When it comes to a pair of baby shoes. Amazon is charging us $3.72 As an FBA fee to send a pair of shoes to a customer, to small light products, pretty simple to do, we can do that for roughly the same price, when it just comes to the shipping costs from our warehouse sending out via USPS first class is under a pound. But we do have labor costs a bunch of other things going into that. So we are definitely losing money, shipping ourselves compared to doing it through Amazon.

Joe Valley 10:59

Can you can you do it in the same sort of timely fashion that Amazon

Cole South 11:03

I would say we’re faster. And it’s just a better customer experience coming from our website, where we get our hands on the exact product before the customer just just out all of our employees know our products. So it’s not like, we’re on Amazon. So maybe somebody will buy one of our products returned something totally different. That then gets beamed back in our inventory. Another customer orders what’s supposed to be our product that then gets either a cheaper version or something totally unrelated. That’s pretty common with Amazon. So I do feel like we’re at the point with in house supplement where shopping on our website is a legit better customer experience than shopping on Amazon.

Joe Valley 11:41

What percentage of your orders come from Amazon versus your Shopify site?

Cole South 11:46

It’s roughly 60% of our business. Right.

Joe Valley 11:48

Okay. Is that and is that growing or shrinking as a percentage of the overall revenue?

Cole South 11:53

Staying about the same? But I’d say it’s taken more effort to build the Amazon side for sure.

Joe Valley 11:58

Well, yeah, yeah. To be expected. So are you doing fulfill by merchant right? Is that what it is?

Cole South 12:03

So you’re shipping FBA, so we’re, you know, importing containers from China or Pakistan, to our San Diego warehouse, then splitting it up and drip feeding inventory into FBA? While we’re filling Shopify orders through our warehouse.

Joe Valley 12:17

Okay, so you’re still letting Amazon ship, but you’re just managing the total amount of inventory you’ve got there? How do you do that? That’s going to be quite the challenge, I would imagine because you run out of inventory on Amazon, and you have to build it back up and hope that they get it in time and check it in into up. I’ve heard stories, horror stories of people that ship products to Amazon, it takes three four weeks for them to, you know, get it I don’t know listed or whatever it is.

Cole South 12:42

Totally Yeah, can be unpredictable to especially over COVID, where prior to COVID typically ship something to be a pallet or UPS and we get checked in real quickly. But then Amazon’s had had such staffing issues with their warehouses that sometimes your shipment would sit outside their warehouse for three weeks before they look at it. I definitely think what you’re talking about here is the two biggest challenges we face in warehousing. And that’s inventory forecasting, and FBA, replenishment. So when it comes to the FBA replenishment side, we just tried to make sure we leave ourselves a decent cushion, where we’re trying to keep 45 to 60 days of inventory at Amazon. And we have alerts kind of set up in our inventory dashboard that hey, if that number dips below 30 days of inventory, we need to get on that quickly and replenish that good Amazon.

Joe Valley 13:24

Okay, so you’re saving 50% on the storage fees, you’re paying a little bit more to ship to the customer on the Shopify side. What about the labor? I mean, how many people do you have? Do you have to benefits do you have to deal with all that other stuff, you’ve done the full math, I assume whether you’re more profitable or less profitable by

Cole South 13:45

California labor is not cheap, for sure. And we found in warehousing that you kind of get what you pay for that if you go cheap on labor or warehousing equipment or anything else in the warehouse. It turns out to be very expensive in the long run. So we have a warehouse manager who is just an absolute Rockstar, we pay him really well type person that like I can just trust to make good decisions for our business. And I think he’s probably more productive than three people in the warehouse that are moving slowly don’t really understand our business don’t have a hustle to get the job done. So yeah, with labor costs, I would say probably tips warehousing, versus shipping everything directly to Amazon and not touching it to slightly unprofitable for us. But running our are aware our own warehouse does unlock the ability to sell wholesale for our baby shoes. For example, my wife runs a wholesale program. She’s got him in 250 300 stores across the country, that sort of thing that wholesale stores just are not going to be okay with their order dripping in from Amazon and 15 different packages with Amazon barcodes on it not going to work in a retail setting.

Joe Valley 14:46

Yeah, yeah, it makes sense. And it makes sense in your situation to do this. It’s interesting. Do you know Bill de la Sandro from Elements Brands, he’s

Cole South 14:54

Yeah, very familiar with this company.

Joe Valley 14:55

Okay. So what you’re seeing is very similar to what the Bill has told me in person and on the podcast, which is when you have, you know, an in house fulfillment center, and people that actually work for you versus VAs and 3PLs, like your guy, he cares about your business, and he’s focused solely on your business, and how to improve it. In fact, I think Bill was away on vacation. And when he came back, first of all, he was away on vacation, and was actually able to check out and be on vacation, versus having to deal with emails and things of that nature from a 3PL. But the warehouse manager, in his case, redesigned, you know, complained about the size of the pallets that were coming in and suggested a redesign, and ended up saving 1000s and 1000s of dollars a month, just simply because he was dedicated to Bill’s business, as opposed to a 3PL who’s just dedicated to the 3PL. So there is that benefit as well. So you’re slightly negative, but you can do other things like the wholesale stuff. What else are the other benefits for somebody that’s got multiple SKUs, sizes and variations?

Cole South 16:03

I think one of the biggest ones for us is just less reliance on Amazon, to where this really hit us in the face and started COVID When Amazon slapped on inventory restrictions on how much inventory you could send in. And we were sending some products directly from China to Amazon. But very quickly, we had to change our workflow up because we couldn’t, you know, if we send an entire container of one product, we couldn’t restock anything else do the restock limits. So I think running our warehouse just gives our business some defensibility some ownership of our own products where you know, we don’t get a listing suspended on Amazon, and then we can’t fulfill Shopify orders, because all of our inventory, is there, stuff like that.

Joe Valley 16:37

Well, that part makes sense. But with the container stuff goes straight to Amazon, couldn’t you have sent that to a 3PL and they would piecemeal pack it and ship it off to Amazon the way you want it to? Yeah.

Cole South 16:47

In theory, I guess.Working with repeals like that? Yeah, it just it’s never as easy as like you walk into your warehouse and you break things up and you get the things sent to Amazon in an hour working with a free PL to do that. I feel like in our experience was both expensive, where you have the container unloading the the palletizing fee, the unpalatably feed the box label, all of these things that are stacking up. And just the turnaround time to do this made it so bandwidth intensive for our team and their team.

Joe Valley 17:16

How did you take this on? Like, how did you start? I mean, I know you did it because you felt like you had to? Because you just couldn’t deal with it anymore. But did you and your partner went out found the space and just started being warehouse managers and taking these products in and pick packing and shipping yourself until you got the rest of the crew to help out?

Cole South 17:35

Oh, yeah, I mean, we started not as warehouse managers. But as warehouse employees, we were slapping labels on orders for a good week or two, at least, you know, just just us figuring out hey, this is the process we want to run things through. You know, we need to be scanning barcodes to make sure order that the right orders are going out all these sort of things. Aaron Rubin from ship hero, I believe might have been on your podcast.

Joe Valley 17:58

I know I know the name, but I don’t think he’s been on the podcast. But if he has I’m sorry. But I don’t remember. But

Cole South 18:05

Amazing warehouse content and runs just like a really killer fulfillment company. So we’ve learned a lot through him. And he actually got his start and warehousing fulfillment, running a Brazilian Jiu Jitsu brand, which has been a big inspiration for us. So definitely kept an eye on what he’s doing and trying to learn a little bit from people who really know what they’re doing and warehousing because when Dave and I got into this, we certainly didn’t it is

Joe Valley 18:24

ShipHero’s just it’s a content site, or what is it exactly,

Cole South 18:28

no, I mean, ShipHero started off as a warehouse management system. Okay, and has grown into their own network of warehouses. I think they raised venture capital at a multi billion dollar valuation like absolute monster in e-commerce right now.

Joe Valley 18:41

Gotcha. Okay. So you started out as warehouse employees yourself got the process going things of that nature? What kind of software are you using in house? What have you tried? What did you not like? What do you what have you settled on now to, you know, obviously, print your labels and track your orders and all of that stuff? Or is it? Is it just, you know, UPS or, or usmail.com or something like that?

Cole South 19:07

Yeah, we ShipStation ShipStation. We run everything through it connects to Shopify perfectly. There are some more complicated things you could do with adding extra integrations in but I feel like just keeping ShipStation and Shopify as the source of truth, keeps it simple. And it works.

Joe Valley 19:24

If you were located in I don’t know, Midland, Texas, somewhere somewhere in the middle of the country, let’s say bordering the Mississippi, do you think that your costs your profitability on the warehouse would be in the positive or negative or would shipping it from the sea, on rail to the middle of the country offset any savings that you might have?

Cole South 19:49

Yeah, I don’t think getting a container from Port of LA to Midland, Texas is all that expensive, and you can fit so much product in there that I bet that costs will be relatively negligible. And warehousing in a cheaper area would probably swing it into the profitable category.

Joe Valley 20:05

You wouldn’t be able to go fishing, though. Not saltwater fishing anyway?

Cole South 20:09

No, no DC is efficient, of course, Mexico. Okay, sounds

Joe Valley 20:13

like you’ve done it and you enjoy it. For sure. All right. So one of the other things that you guys have figured out along the way through trial and error is managing your inventory. So you don’t run out making predictable, you know, guesses on when you’re going to run out what colors what sizes, things of this nature. And you developed, synchronize? First of all, what is synchronized? And how the hell did you get that URL? And let’s talk about that.

Cole South 20:40

Yeah, so synchronize is a software tool that allows e-commerce sellers to use Amazon, Shopify, Facebook, and other data directly in Google Sheets. So for our inventory forecasting, we have virtual assistants that are every single day exporting the Manage FBA inventory report, Amazon sales for yesterday, Amazon sales in the past 30 days, Shopify sales, Shopify inventory, all these reports, they’re doing this across two different brands, uploading it all into Google Sheets. And we were pulling that data in our inventory dashboard. This was a huge pain point for our business, because all it took was an employee choosing the wrong date range when they exported the report, or uploading the wrong report to the wrong tab. So we built an in house tool to totally automate this where instead of importing and exporting these reports on a daily basis, can use simple formulas like equals Amazon inventory, my SKU, or equals Shopify sold units my SKU yesterday, and get these constantly refreshing data points that you can plug into any data dashboard, you could dream up in Google Sheets.

Joe Valley 21:45

And the entire point of it is what?

Cole South 21:48

So inventory management is a big part of it for us. So like we have, you know, our list of SKUs, and then the Shopify inventory, Amazon inventory, Shopify units sold over the past 90 days, Amazon unit sold, getting all this data fed into these dashboards on a real time basis. So we can make accurate projections for both ordering products, replenishing FBA, that sort of thing.

Joe Valley 22:11

I would imagine that that has helped with your working capital needs, right? So people that have not been doing this since 2015, or 16, that are still in the startup phase, fine. They’re taking every ounce of profit and putting it back into inventory because of growth. And sometimes their guesses and projections are off, and they’re holding too much inventory, and don’t have money for other things. How have you found this to help people with projections and yourself with projections and things of that nature?

Cole South 22:40

Yeah, absolutely. I mean, it’ll help you make more accurate projections, where you’re not over ordering. Personally, for our business, it’s more helpful on the other side, where it’s super painful, where you run out of stock, a product that you actually have demand for, and then you got to regenerate momentum on Amazon, get the listing back up. So in our eyes, where we’ve had serious pain points for our business, is where our projection is wrong on the short side, and we just don’t get enough inventory, or we don’t replenish FBA. And then like you were saying, it can take them a month check in the inventory, but we only have four days worth at Amazon, we’re gonna be out of stock for several weeks, Cisco has been very helpful for us to keep keep our inventory stocked.

Joe Valley 23:18

Just a little aside here, what actually happens when you run out of inventory, your your listing is not there out of inventory, and then you put inventory back into sales pop right back up, or do you have to spend extra money? Or, well, how do you get sales back to where they were before?

Cole South 23:36

Well, the issue in my eyes is that not only have you lost momentum, so your Best Seller Rank has decreased. But when Amazon starts to check in your new inventory, it’s not fully available. So the customer might land on your product page, and it says in stock, but it’ll say arrives in 14 days or something like that, because Amazon’s still shuffling it around. And that absolutely tanked your conversion rate, which then lowers your bestseller ranking even further because people are getting to your listing and not buying. See on our experience, you really have to fire up the marketing to revive listings as you get into a deck and stock.

Joe Valley 24:10

And so not only are you losing money, because you ran out of inventory, you’re not making those sales, but you’ve got to spend extra paid advertising to rent it back up because of what you just talked about.

Cole South 24:21

Totally. And that’s why the 80-20 minimum inventory management in my eyes is like if a product is a reliable seller, and you know you’re going to help with inventory at some point like do not run out of inventory at all costs, whether that’s at your warehouse or at FBA, because fixing that issue is just such a pain.

Joe Valley 24:36

I sold a few businesses over the years I think probably 80% of them. I always ask the question I used to have it listed a business reset personally for almost two years now. It’s kind of kind of nice. Everybody, you know, for the most part again 80% or so when I asked the question, have you run out of inventory on any SKUs the last 12 months they all say Yes. Why is that?

Cole South 25:03

It’s a hard problem to get you, when you’re running an e-commerce business, you’re juggling so many different balls in the air, got inventory management, you’ve got marketing, you’ve got a bunch of different SKUs over all of these parts of your business. So for one SKU to run out of business, or to run out of stock is really easy to let slip through the cracks.

Joe Valley 25:21

And synchronize is going to help with that. Yeah, for

Cole South 25:24

sure. I mean, synchronize pumps at all and all of your e-commerce data into a Google sheet where you can then make sure you’re very closely monitoring how many days of stock you have at your warehouse at VA, to make sure that you aren’t running out of stuff.

Joe Valley 25:40

It’s interesting, you know, most people that do this, use Google Sheets, but aren’t doing the automated important things of that nature and projecting. Why did you choose Google sheets in this situation as you’re building the software?

Cole South 25:52

Yeah, it’s great question. So we basically had tried every hosted inventory solution inventory planner, there’s a bunch of them that I think they’re good pieces of software. But every every person’s business is just so different, and has unique little quirks that made it so we weren’t happy with any of them. And we would always end up back in Google Sheets. So we were first building this tool, we were thinking, hey, maybe we would build like a new hosted inventory management solution. But we were talking to a lot of other sellers. And they just had the same story of us that, hey, we tried these didn’t like them, we ended up back in Google Sheets. And now we’re doing this very manual process of getting our important data into Google Sheets, so we can run our analysis on it. So we thought, hey, if everybody’s ending up back in Google Sheets, and that’s what we’d like to do in our business. Why don’t we just meet them there and make sure we automate as much of the data exporting connecting process at the end?

Joe Valley 26:40

That makes total sense. Honestly, it’s only from a poker player, when somebody come up with something as simple and logical as that. All right. I’m curious again, I joked about it a minute ago, but how the hell did you get the domain name synchronized.com.

Cole South 26:54

You know, I’ve always been big and just collecting things, and gambling and all sorts of entrepreneurial stuff on the internet and flipping domain names has been one of them. So I bought the domain name synchronize.com, over 10 years ago, when another big domain name collector had some sort of cash crunch liquidity crisis in his life, and was buyer selling a big part of his portfolio. And I picked up synchronized.com Yeah, 2011 I think

Joe Valley 27:21

I can’t imagine what that would cost them. An actual .com a word that is a .com. Do you think about selling, it seems like you could sell a lot of money. Yeah.

Cole South 27:32

And I have flipped and sold some high value domain domain names. The thing is, it’s such an illiquid market. If you’re trying to sell something like synchronized.com, you’re gonna be sitting on your hands waiting for the perfect buyer to come along for you know, I’ve been waiting for 10 years. And I finally found a project that I was working on, that seemed like a good fit for us

Joe Valley 27:50

Yeah. And anytime anyone comes to us to sell a domain name, we don’t do it. We tried back in, you know, maybe 12-13-14. It’s just not what we do. It’s not our specialty. So if there’s somebody out, it takes a unique buyer essentially, is what it is. From a brokering standpoint, there could probably not be an easier business to sell. If you want to call a domain name that’s doing nothing of business. Because you know, there’s no p&l, there’s no analysis, there’s no risk growth, transferability documentation, none of it. Here does buy it or don’t. It all depends on how much they want it for so good for you. Cool stuff. Cool stuff. You’ve just launched synchronized.com, as I understand it, and you’ve got a special URL for the folks that are listening to try it out.

Cole South 28:37

For sure. Yeah, so if you run any party or business out of Google Sheets, I really do think you’ll find this tool useful. And if you go to a synchronize.com/quietlight will have a special offer for Quiet Light listeners.

Joe Valley 28:48

Sweet OkayYou are a former professional poker player. You’re running two businesses you do jujitsu every morning. what else what else are we missing in this incredible but you got kids too, you’re a dad?

Cole South 29:01

Yeah, two young kids two and a half year old son six month old daughter, a handful

Joe Valley 29:06

You do you do? Are you part of any events or meetups or anything like that in the San Diego area that a e-commerce driven that people can find you at

Cole South 29:16

You know I used to go to a decent amount of e-commerce events prior to having kids now that I’ve got a couple infants run around my house priorities have changed a little bit and that’s on the back burner for a bit. But I’m on Twitter at a at Cole South to reach me on there.

Joe Valley 29:30

Sounds like my golf game I played before I have kids and now they’re both off to college. So I’m taking lessons because I’m horrible after 20 years. So back at it. We’ll call this something great folks out there listening. Check it out. Synchronize.com And if you’ve got a single if you’ve got a single skill maybe you know doing in an in house warehouse isn’t for you. But if you’re in Cole’s situation where you’ve got multiple sizes, SKUs colors and all that certainly makes a whole lot of sense. Cool. Thanks for coming on the Quiet LightPodcast man. Appreciate it.

Cole South 29:59

Thanks, I appreciate it.

Outro 30:00

Today’s podcast was produced by Rise25 and the Quiet Lightcontent 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.

Coaching Buyers to 90 Million in Acquisitions

Walker Deibel is a longtime acquisition entrepreneur with a passion for educating aspiring brokers and helping them navigate the intricacies of the business. He is an M&A Broker for online...

Walker Deibel is a longtime acquisition entrepreneur with a passion for educating aspiring brokers and helping them navigate the intricacies of the business. He is an M&A Broker for online businesses with Quiet Light, where he works virtually with a group of nine other entrepreneurs to assist online companies in a transaction.

Walker is the Founder of Acquisition Lab, a membership program that facilitates resources and tools valuable to any successful entrepreneur. He also authored Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game, which garnered praise with its release and became a crucial part of many universities.

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

[2:22] Walker Deibel talks about his book Buy Then Build
[6:57] Walker shares his insights on the Q3 trends of 2022
[16:24] The revolutionary effect of Buy Then Build as a resource hub for business brokers
[20:06] Walker talks about Acquisition Lab and its educational value
[25:46] Different deal structures and strategies to help you close deals
[31:28] Walker shares the most desirable qualifications for people who are getting into brokering

In this episode…

Acquisition entrepreneurship is an advanced business practice that requires a certain understanding of business frameworks and models. As an upcoming or tenured broker, how can you elevate your professional experience and bridge the skill gap required to get into this business?

Decades ago, the educational resources on business acquisition techniques were limited in scope. To Walker Deibel, that only meant he had to carve his own way as a broker. His immense success as an acquisition entrepreneur sparked a mission to help educate others and led him to write Buy Then Build, a book that is now being used in many universities.

In this episode of the Quiet Light Podcast, Joe Valley welcomes guest Walker Deibel, Founder of Acquisition Lab and Author of Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game. Joe and Walker talk about business acquisition techniques, where to find valuable resources for entrepreneurs, current investment trends of 2022, and what changes to anticipate in the upcoming years.

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.

Episode Transcript

Intro 0:07

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

Joe Valley 0:32

Hey, folks, Joe valley here, welcome to another episode of the Quiet LightPodcast. This episode is entertaining, shall I say, but educational as well, we’ve got my old friend Walker Deibel. On the podcast. Walker is one of the lead advisors on the Quiet Light team. But he’s also a best selling author his book Buy Then Build has sold something like 65,000 copies. And he runs something called the Acquisition Lab, which is a program to help people buy businesses of all shapes and sizes, online, offline manufacturing, whatever it might be. And so we talk a little bit about the state of the online world and the economy and whatnot. But most of this podcast is talking about how to buy a business period, what the process is like how Walker’s helped people what you can do, what you shouldn’t do things of that nature, a little bit of stories of Walker’s background, and some awkwardly funny experiences he’s had in, I’m gonna say it in the bathroom, where people know who he is and approach him while he’s in the urinal. Please, please listen. And I didn’t hold anything back. So here we go. Great episode with author of Buy Then Build. By the way, let me just say right now, you can get a 99 cent copy of Buy Then Build this week, just go to amazon.com and get your copy. We mentioned it in the podcast as well. He’s relaunching the book, the hardcover copy of the book, but he wants to get his rankings up there. So you can get the digital version on Kindle for 99 cents. Okay, here we go. Walker dial folks. Walker Deibel. Welcome to the Quiet LightPodcast. And welcome back. I guess I should say,

Walker Deibel 2:22

Joe, it’s so good to be here. It’s been a long time since you and I have hung out one on one, especially on stage. So I’m looking forward to this.

Joe Valley 2:29

I know the pandemic has ruined our I know, folks, we’re out of the pandemic, but I’m still not traveling that much. But you and I, you know, sitting down and having our old fashions at the end of the event of a long day. It’s my favorite part. And you know how to make them. You tell the bartenders how to make them and adjust them, folks, he’s he’s actually sent them back heat. If you don’t know Walker dial, he’s one charming, MFer. And he will go back up to the bartender and actually turn them into making it his way. And it’s the best band old fashion I’ve ever had. So if you need instructions, Walker is a man of many talents and old fashions is one of them. So just hit him up at [email protected]

Walker Deibel 3:12

Joe, I’m not sure that that’s going to land well with people that makes me feel you know, like very excruciatingly specific and I’m pretty easygoing guy.

Joe Valley 3:21

Well, what else? Do you do that? Why don’t you tell these guys who you are and what you do?

Walker Deibel 3:24

Oh, gosh, this is actually the hardest question for me to answer. My daughter. My eight year old daughter recently told me that I need to quit one of my jobs, which I did. I ended up stepping back from I was an adjunct professor at the Wharton School of Business, teaching acquisition entrepreneurship, actually. And but what what do I do? I sort of think that my life is three legs of the same stool. Okay, so number one, first and foremost, I work as a broker with Quiet Light Brokerage and help online entrepreneurs exit their business. Okay. Second is, everything’s sort of Buy Then Build related, right? So I wrote this book, called Buy Then Build after I acquired seven companies, over 10 years, it was a little over 16 and a half million in revenue. I think I acquired and I wrote a book about it, and kind of was trying to wake up entrepreneurs by saying like, Look, you don’t have to start from scratch. Right? Not everybody is Steve Jobs. You know, you can you can also be, you know, one of those people that lives in like the expensive part of town that runs a company no one’s ever heard of, right, I’m from St. Louis. That’s what the situation is. And so the third leg is actually the companies that I have acquired, right and so so on the one hand Quiet Like brokerage, helping sellers, on the other hand, Buy Then Build, the Acquisition Lab, helping buyers and on the third leg is just companies that I own.

Joe Valley 4:45

It’s an awful lot and I’m with your daughter, you got to you got to make a change. And just because you can doesn’t mean you should and you’re doing you’re doing a lot man and I know Look, I know the book. It folks if you have not and especially the buyers out there in the audience that are listening. If you’re not, if you’ve not bought Buy Then Build, you need to go out and buy it because it’s a great book. It’s I don’t know how many copies sold out 50,000 100,000

Walker Deibel 5:10

i It looks like it’s gonna be about 65 By the end of the month. That’s incredible. My 1000 not 65 65

Joe Valley 5:17

No, that’s my book.

Walker Deibel 5:21

I will say, I’m just gonna insert a plug this right now. But the week that this podcast is, is being released, we’re actually selling the ebook for 99 cents. Yeah, I

Joe Valley 5:29

was gonna plug it, I was gonna plug it. So um, I have no problem with a shameless plug. If it’s going to help the audience that’s its podcast. And if honestly, if you’re if you’re hoping to buy an online business, and you can’t afford the 15,95 that the paperback costs, or what the 23-24 that the hardcover relaunch is coming, you probably shouldn’t be buying an online business, right? Just keep doing what you’re doing and focus on on on growing your wealth that way. But yes, the book, the digital version of it is going to be 99 cents for the week of September 27.

Walker Deibel 6:05

September 25, is the Sunday so the 27th right,

Joe Valley 6:08

as this podcast is airing, so how do they get to amazon.com?

Walker Deibel 6:12

Place it’s gonna be everywhere.

Joe Valley 6:14

Okay, so shameless plug but one that will help you be a better buyer. And and then of course, you’re gonna have to get the experts playbook to understand how to be a better seller as well and build more wealth. Walker.

Walker Deibel 6:29

It’s a boxset Joe,

Joe Valley 6:30

it should you and I did you and I need to do a complete read together and make it about what’s happening in the market today, right? We are three quarters into 2022. Quiet Light had a record year, you’re probably the worst guy for me to be asking this because you’ve been on a really negative run as a broker. I’m wondering if I should just edit this out right now?

Walker Deibel 6:57

No, no, cuz here’s the thing is actually if you just look at what I actually have currently under contract, I I’m actually teed up to have the best year I’ve ever had it just even as isolated as a broker. Right. So you know, it’s been a bit of a choppy year, right. And I think that I had a lot of FBA businesses under contract set to close at the end of 2021. And literally two weeks for the end of the year, they all fell apart every single one of them. And then we went into q1 with with a handful of FBA businesses trying to and they were large, right. And so the audience for that as aggregators. And so we were heading into, you know, I found myself heading into aggregator land during the choppy waters that they’ve experienced thus far. Right. And I hate to say it, but they sort of were making the same mistakes that I made, you know, back in, you know, 2014 15 16, right.

Joe Valley 7:52

They didn’t buy your book. That’s why,

Walker Deibel 7:55

unfortunately, they bought it. They just scaled incorrectly, but I shouldn’t say that they’re doing great job. They’re doing great.

Joe Valley 8:02

I say Yeah, well, obviously. Yes. So everyone had a banner year in 2021. Quiet Light folks. I think I’ve said it before we grew 85% over 2020. And if we look at 18, 19, 20, and 21, the average was 55% year over year growth. We’re not going to have that in 2023. In fact, it’s going to be down a little bit. Maybe maybe we’ll see what happens right? There’s there’s enough under the law that will match 2021 Right now, but not everything is closing because buyers are getting scared. They’re they’re seeing interest rates rise their their their trends from the businesses that did great last year are off a little bit and are you finding that that’s making buyers more skittish Walker,

Walker Deibel 8:50

I’m gonna I’m gonna disagree with you just a little bit. Okay. And that you’re you’re right. Everything you just said is right. But you’re we’re also comparing it to a time of zero interest rates and the largest, the largest m&a market in human history. Right. So when I look at all my companies right now, what I’m doing is I’m comparing 2022 to 2019. Yeah, up significantly. Right.

Joe Valley 9:12

Right. Well, you’re agreeing with me, then you’re not disagreeing with me? Yeah.

Walker Deibel 9:16

Well, the thing is, is like I think sentiment is really sort of off out there. But the thing is, is that everyone’s still there’s still more cash in in American hands than ever before. They’ve got people on tons of money right now. Yeah. Yes, the the interest rate thing, has some people spooked, but I think that, that the other sort of big trend that’s been happening is that through COVID, you’ve got a lot of people that are shaking up their life, they’re like, wait a minute, what was I doing? Like, I don’t necessarily want to go back to work. I don’t necessarily want it you know, and they start to learn about things like, you know, maybe passive income or, or, you know, buying a small business or probably the most favorable buying an online business that they can run And from home, right? We had a

Joe Valley 10:02

Right, but buyers are still looking at the year over year trends. That’s part of the challenge, right? I’m in your camp 100%. If if, if Quiet Light looks at 2022 and compares it to 2020, we’re still up. Right? It was just 2021. That was just an incredible. Yeah, record shattering year. How do you think we can educate the buyers to look at it from that Periscope as opposed to just looking at the year over year trends?

Walker Deibel 10:33

It’s gonna depend on the business, I think. Do you have thoughts on this? I mean, you’re asking me that question. But I’m like,

Joe Valley 10:41

I think it’s one on one conversation. I think I think that’s what it is. You just have to have one on one conversations and a little bit more of this. Let’s take a look at the bigger picture. I’m somewhat hopeful that in q1 of 2023, we’ll start to see some normalization, right? It may still be off a little bit. But hopefully, q1 of 2023 is going to be you know, similar to q1 of 2022. So we’re not comparing it to 21 anymore. And buyers will be like, Oh, okay, this guy is actually not falling. Things are okay. I can take a risk on this business, because it is technically still growing. Right? I think the fears will be subsided a little bit, they’re not that it’s bad, right? Again, if we compare most businesses that are operating today to 2020, instead of 2021. They’re there. They’re doing well.

Walker Deibel 11:34

Yeah. And we’re also speaking kind of macro like, like, I think that, um, I think that number one, everyone understands 2021 was a bit of an anomaly, right? Yes,

Joe Valley 11:43

but not when they’re stroking a check for 500,000, 1,000,000, 2 million, $10 million. They still get skittish, when they find a reason. They find a reason to renegotiate. That doesn’t have logic associated with it. Your numbers are down, your numbers are down look. But of course, they’re down. It was a banner year for everyone. So you have to you have to fight that logic somehow. Even though it’s a logic I guess it’s frustrating. Keep going I’ll shut up

Walker Deibel 12:07

Well, no, but I guess the thing is, is like it seems like this is really nuanced, Joe, but But what I’m seeing is that sellers were getting the sort of best prices, better prices than ever, but then the 16 year history, right in Quiet Light history. And so sellers were getting like the top price and every listing that we were putting out there, we were getting multiple offers and logic was gone a little bit and so like valuation started getting pushed north. Okay, it got a little frothy. Okay, I’ll just throw that out there.

Joe Valley 12:39

Well, now hold on. Now, I’m going to disagree with you just a little bit. Okay. Okay. You remember the last valuation roundtable call we had with the entire team, we do this on a monthly basis, folks, and we have this deal dashboard. multiples are up slightly, compared to 2021. Now, caveat is that, you know, it’s all, you know, a median thing. So when we look at some specific things they might be down. I think they are going to come down. I don’t think they’ve come down yet the walker. And I haven’t looked since our last call. And I hear yes, I could look now and maybe I’m talking about inside of my mouth, but slightly up, right. It’s not really like up. But I think you’re right, I think they are going to have to come down a little bit and be a little less frothy, we’re still getting multiple order offers, per transaction. I think it’s still like 3.5 or 3.6 offers per listing. The challenge is sometimes those listings once they’re under under loi and other month passes, and the trends go down. It’s not worth as much as it was, you know, when it went under LOI. And that’s, I’m hoping in q1 of 2023 We’ll start start to see less of that downward trend.

Walker Deibel 13:52

Yeah, I’m the the, the twist here is that you just said exactly what I was gonna say.

Joe Valley 14:01

You disagree with me, I said, we’re saying the same that I disagreed with you.

Walker Deibel 14:06

thing was that buyers were stressed out buyers weren’t actually paying enough buyers were wanting to renegotiate where I was gonna go with that was actually we’re seeing deals getting done. It’s just not there’s not as many offers coming in. It’s making everyone a little crazy. Right. So I think that and I also want to dig into some of some of that data a little bit because my view is that it’s probably going to be guaranteed payments have come up a little bit and I think probably the deferred payments and the sort of like the keeping that on guarantee portion of the valuation that’s kind of getting eliminated or cut down is my guess but I don’t I don’t have the good data there. Do you mean

Joe Valley 14:43

the cash so what you’re saying is that the deal structures might the multiples might be about the same but the the cash amount down might have gone down and the back end money might be a little higher. Overall keeping the multiple lot. Yeah, yeah, a little bit, a little bit of that happening. It’d be interesting to see what how As we go forward, let’s, let’s shift gears a little bit, because I totally put you on the spot there. Talk to me talk to the audience free,

Walker Deibel 15:08

we just think we disagree. I know.

Joe Valley 15:10

The key thing is that both of us have big messy hair right now, yours worse than mine, and we’re both wearing black shirts, you pull yours off a little bit better than I do. And that’s for you folks that are not, you know, taking the time to watch us. And you’re just listening to us. Talk to me about what you’ve been doing. Since you launched the book, it has been a huge success. And then you launched the acquisition lab, you being smarter, better looking than I am, you actually had a back end to the to the book launch that would help more people and actually generate some revenue. Not necessarily profit. Yeah.

Walker Deibel 15:46

I mean, the truth is, is it was it was somewhat deliberate, but totally also accidental, right? Like, I feel a little bit like, like, like the, you know, like, like, I think there’s a term like the, like, the hesitant protagonist or whatever. But here’s the deal. In 2004, I went out and tried to, you know, I was a graduate with my MBA, my startup failed, and I was like, I know, there’s a way that I can acquire, you know, one of these small businesses, right? And, you know, people I was talking to thought I was a little nuts are like, in there, like, how are you gonna pay for this yummy money? And I’m like, no, like, I’m gonna go to the bank, like, I’m gonna buy it, like, you know, with a bank loan.

Joe Valley 16:20

And they’re like, You can’t do that. Well, you look like you were 12 years old to at the time.

Walker Deibel 16:24

Yeah, exactly. Yeah, that was I’m gonna crush it in the in the old folks home, Joe, I’m looking forward to those days. But it’s one of these where eventually sort of got it done. And there was no good books at that time. There was no good resources at that time. And what I found was that number one, you know, business brokers in 2004, Quiet Light didn’t exist. Business Brokers, by and large are quite terrible. Okay. There’s, it’s unregulated. There’s no formal regulation, there’s no best practices, and it’s kind of opaque and fragmented. And the data seems subjective. And it’s, it’s a tough business, right? And so, you know, eventually I figured it out. And I started to write by them build by interviewing other people that bought companies. And what I found what and I just want to, like, come up with best practices. And what I found was, everyone I interviewed was saying, like, well, you, I’d say, like, what do you what were you looking for? And they’re like, Oh, I was just looking for whatever one was looking for I was looking for. And then they would say something that differed from everybody else. Right. And so I was like, how do I make sense of this? And I decided it wasn’t best practices. It was frameworks, right? So I wrote by them built in the effort of, you know, writing kind of the book, around navigating the private capital markets as a wannabe small business owner, right? What came of that? You know, speaking, I got job offers to teach MBA programs. You know, this, I go to a conference, I went to a conference, Joe, and I was in the men’s room. And this guy came up to me and said, Are you Walker Deibel?

Joe Valley 18:06

This is this is a PG show, just not sure where to go?

Walker Deibel 18:11

And I said, Well, it’s Deibel. But yes, I am. And he said, Oh, my God, I’m here because of you. And I said, Well, right now I’m peeing in the bathroom. At the event, I’m at the urinal, right? You know, I’m like, right on, I’m peeing. Let me start off with you in a minute when I’m washing my hands or whatever. So anyway, the point is, is people started coming to me saying, like, Hey, can you can you help me find and buy a business? And I was like, No, No way, I’m not doing that. Number one, you know, people that do that they charge $125,000 usually is a minimum, or there’s like a, you know, a $5,000 monthly retainer with a double Lehman success formula or something like that, you end up paying, you know, six figures in order to do it. And the thing is, is I was like, You’re gonna pay me a lot of money. It’s, I have to charge you, I don’t know if you’re going to do it, right, all these other things. And so I said, Okay, how do I how do I sort of unpack this? And if I did just write the textbook, what does the what does the class look like? Okay, let me pause for a minute. I now want to explain what became the acquisition lifecycle or do we have questions?

Joe Valley 19:17

I’m still stuck on this guy walking up to you in the urinal looking over and saying are you Walker diable it first of all, I straight eyes down folks.

Walker Deibel 19:29

That’s what I knew I was famous.

Joe Valley 19:34

Was there a divider between the two urinals just for clarification? I

Walker Deibel 19:38

don’t remember. I assume so. In my mind, there probably was yeah, it was

Joe Valley 19:44

okay. I’ll stop I’ll stop all right. Yeah, yeah, no questions. Tell us was

Walker Deibel 19:48

it it wasn’t full display. So I’m gonna go with Yes. I’m gonna go with the

Joe Valley 19:51

full exploit exposure or display. Alright, anyways. So, yeah, the lab. What did you What did you do? read it because I honestly, I know all about the acquisition lead, but I actually know nothing about it and what yeah, do for folks?

Walker Deibel 20:06

Yeah, sure. So basically, I said, Okay, what what, you know, what would the first you know, do it with you by sight advisory service look like? Okay. And I started came up with number one the foundation and anchor would be not just in education but world class education. Okay. And I wanted to dig into what that what how you built that and, you know, bring in the right people to help me execute on that number two, a vetted community. So the acquisition lab is not a mastermind, where, you know, if you want to pay us money just to join in and get in, the answer’s no, we actually have an application and vetting process, when we started, we only let in about 12% of applicants, it’s now up to about 25%. I think that’s just because of our referrals, right from people that go through it. So three out of four people that apply and want to give us money, we don’t let them in. And it is created this kind of lynched I’ll just use the word legitimate community, right? It’s not like a big Facebook group with 1000 people in it and one person actually executed, they’re like, I did it, I did it, you can do it, and everyone else is wasting your time. It’s a lot of competent people who can be CEOs who have the ability to execute they’re in the group.

Joe Valley 21:20

So what do they get when they it’s not like just joining a mastermind they apply and 25% get in, you actually have cohorts where you do lots of education training, to help people buy businesses? Yes, yeah.

Walker Deibel 21:32

So it’s, it’s world class education, bedded community, group coaching and tools and resources. Okay. So when you, when we launch it, we have cohorts of a maximum of 23 people per cohort, okay. And we’re not launching one a month, but I guess we could, okay. And so that cohort goes through the intensive that lasts a month, okay. And the intensive is a lot of work. Okay. But in my opinion, if we’re all going to be hanging out looking for businesses together, I need to get you up to speed with how we think about things, our language, our tools, our analysis tools, our evaluation tools, our modeling tools, all of those things. You know, so it’s, it’s service provider networks, it’s all of the, you know, models and everything you need. We also subscribe on we I spent 1000s of dollars a month, subscribing to tools that that these searchers can use to compare different industries. This is this is not online specific.

Joe Valley 22:33

Yeah, it’s just gonna ask, right? It’s not right. It could be any industry.

Walker Deibel 22:37

That’s right. We’ve had people buy manufacturing, home service companies, home health care online businesses, content sites,

Joe Valley 22:44

kind of makes sense. Because you have not always owned just online businesses yourself. The first one you bought was, wasn’t it? It was a company company. Yeah. But right

Walker Deibel 22:53

now I own a aluminum fabrication company and a powder coating facility.

Joe Valley 22:57

Your daughter’s right, you do too much. Yeah. And

Walker Deibel 23:01

then I also have my e-commerce site. And then I’ve got a content site as well stop re e-commerce sites stop,

Joe Valley 23:08

you could shatter all records at Quiet Light if you just stopped doing. And actually, you’d make me more money too. So please stop.

Walker Deibel 23:19

So, you know, the concept was I want I want to build something that that applies to every person that wants to buy a small business. When I say that, we’ve done, we’ve done deals in the lab where we’ve almost closed on like north of $25 million deals, but like, most of the deals are somewhere between one and 5 million. Right. And so in the last 18 months, I think we’ve just closed on the 50th transaction of lab numbers. And I think we just exceeded 90 million in transactional value. Don’t hold me to that. But because we need to formalize the numbers, but that’s what it’s looking like,

Joe Valley 23:52

that’s pretty solid. So 90 million divided by an average worth 3 million bucks or something like that, is that we looking at, you know, a 30% success rate of the people that go through the lab or like how do you measure that kindness? Yeah, making sure they’re getting? So when I turn on their investment?

Walker Deibel 24:09

Yeah, when I did research, when writing by them build, I found I found out I discovered that about 10% of people that start looking for business to buy actually close, which is very similar, by the way to people who start a business who actually end up with with a business, right. And so it resonates with what we know about these things. And the lab using 2021 numbers, I’ll tell you, we let in 150 applicants and we closed just under 35 transaction, but 60 million. Yeah.

Joe Valley 24:39

And just because they didn’t close one and 2021 They’ve got that education, they’ve got the tools, they’re gonna, you know, think if they keep hunting, they’ll find one eventually. Well, I

Walker Deibel 24:48

mean, you know, yeah, we probably let in, you know, 60 people in q4 2021. So I mean, you know, we’re giving them days that’s wrong. I mean, here’s the thing, Joe, is that when I wrote by then build I almost didn’t publish it because I was like, you know, people are gonna read this and you’re gonna go and buy a business and then they’re gonna like screw it up or something, right? And then blame me for it right. And I was like, I don’t know that I want that on my conscious. But it’s not any different than writing a book saying quit your job and go start a business. Like, that’s crazy. If you really think about it, right? Like this is a much more measured approach. The hard part is that people have to get around the fact that if you’re a real player, and it’s your first time doing it, you really need to get comfortable with the fact that you’re taking a personal guarantee on a bunch of cash in order to acquire a business usual, That’s most people’s situation. Go ahead.

Joe Valley 25:35

We taken a personal guarantee on a bunch of cash, we talked about the buyer, taking a

Walker Deibel 25:40

personal guarantee or the seller, the buyer, so like an SBA loan, for example. Right. Okay. Okay.

Joe Valley 25:46

Talk to me about deal structures, like what are you seeing? Like, what, what’s your, what’s your take and vibe and feel inside the lab for, you know, buy a business with no money down? Use $500 of your own money and buy a business?

Walker Deibel 26:04

Yeah, I think that, um, look, I bought a business with, you know, no money out of pocket and all that stuff. There’s no version of reality that I’m going to start a coaching program teaching first time buyers how to do that. It’s completely unrealistic. Then the number one job career path that MBAs at Harvard Business School want right now is independent sponsor, which means a funless sponsor that basically buys companies with none of their own money. And yeah, and that’s sort of an elevated version of five business with no money down. But the thing is, is like, that’s doable. But number one, your bottom feeding. Number two, it’s, it’s pretty advanced. And like when you have a resume that is sort of empty with business acquisitions, people aren’t eager. But this is what I do. When people ask me this question. I’m usually in a situation where I’m on stage, and there’s a bunch of people, and I say, raise your hands, if you are willing to lend 100% of your exit value of your business, to someone who’s never bought a business before. nobody raises their hands. nobody raises their hand, it’s the number one most valuable thing people have. Why on earth? Would they give it away to somebody and say, Hey, I got you, there’s no, you’re looking for people in tight situations, completely off market, you’re leveraging the fact that they don’t understand the private capital markets, and you’re taking advantage of them. I’m gonna, I mean, that’s pretty aggressive there.

Joe Valley 27:27

And I mean, the business is on shaky ground if they’re selling it that way. 100% leverage data and

Walker Deibel 27:34

emergency someone I

Joe Valley 27:36

you know, I had a, I had a listing at SBA listing at one point, and I had two Harvard MBA grads, literally, like they graduated a month ago. Yeah. And one of them. His dad was his sponsor, right, he was gonna go ahead and supply that the money down, they got denied from the SBA, because the SBA said, You guys have no business experience, just because you have your MBA, you don’t have any real life experience. Sorry, we’re not risking that I think it was a $2 million deal. We’re not doing this with you, and we ended up selling it to somebody else. So if the SBA is not willing to risk, you know, their money, or the banks, you know, SBA backed money, why in the world would a seller, you know, again, like you said, unless there was a high risk situation.

Walker Deibel 28:25

And since we’re on the topic of the lab, I will also say that during the intensive during the interview process, and the intensive, we do a pretty good job making sure that that doesn’t happen to our members, we’ve had one out of just north of 300 members that that ended up having to got past the goalie,

Joe Valley 28:41

meaning they ended up they couldn’t

Walker Deibel 28:43

get the SBA loan to close on the business day, I don’t know if it was them, or the or the business, I’m not exactly sure what happened, but the lender,

Joe Valley 28:51

so you’re getting them pre qualified as part of your, your lab process before you take their money, you’re making sure they’re pre qualified,

Walker Deibel 28:58

we make sure they’re pre qualifiable. And then they’re definitely pre qualified by the end of the first month

Joe Valley 29:03

with, okay, who’s your go to person for that? Or do you just go to a variety of different folks,

Walker Deibel 29:07

so I’m, part of what we celebrate at the lab is choice. But our very good friend, Steven spirity, calm lending, comes in and teaches a session during the intensive about SBA lending and the actual fundamentals of how it works. And so their team will also prequalify everybody in the lab,

Joe Valley 29:29

does he do lending that’s not e-commerce related to somebody’s buying a manufacturing business to see somebody that will lend money or do you generally go to somebody else?

Walker Deibel 29:36

No, thank you. He actually does that. Did you know that?

Joe Valley 29:39

I didn’t, yeah, no, he

Walker Deibel 29:40

does. That’s actually why I reached out to him at the beginning I was put all together because the thing is, is he’s called econ lending and that’s really where he you know, we’re sort of stands out and is made a market but the truth is, is that all of his lenders if you if you look at his business model, you know, he’s got whatever a bench of 12 lenders at all times and they all have different baskets and he blending with the online businesses is filling one of the baskets of all of his current lenders. But all of those lenders have other baskets they’re trying to fill. And so, um, yes, they absolutely will, will fund, not online based businesses. I mean, the other thing is like, I mean, a lot of people, a lot of, you know, a lot of people that sort of, we’ll call it self funded searching, right, usually come through, you know, acquisition entrepreneurship through the search fund framework, okay. And in a lot of the people that come from that direction, usually will know of, you know, Live Oak Bank or, you know, Bruce marks and other people, active very good guy in the in the community. And so, I mean, obviously, you know, you get exposure to all those people in the lab, but, you know, yes, we

Joe Valley 30:47

do have favorites. Is it realistic for somebody to come out of college, their MBA and join the lab to get the experience? Or is that? Would you decline them? Because they have no experience? And they’re not going to get? It depends,

Walker Deibel 31:02

right? It depends is the answer. And I think that like, um, you’re talking right out of undergrad, you know,

Joe Valley 31:11

what I know, I guess it’d be grad school, I guess it could be either. But like, if you want to, you know, get pre approved or pre qualified join the lab by a $2 million business. But you’ve never had anything but a job? I know, it’s doable, because I’ve sold lots of businesses that way. Yeah. Like, what’s the what’s like, the magic recipe for somebody that wants to go off? And on their own? How much how much business experience? Do you feel like they should have in general, as somebody who just doesn’t want them to fail? Of course, I

Walker Deibel 31:42

think it’s different Joe, right. Like, like, I think it’s, I think it’s, it’s going to be mindset, it’s going to be drive, it’s going to be understanding the business model. When you understand the business model. It’s really easy to take that leap of faith. And I feel like, so many of us have spent so many time with buyers that just like second guess themselves, like, they’re not confident like they’re looking, they’re trying to de risk and acquisition. And it’s like, look, the magic is not in the derisking of the acquisition, right? The magic is in what do you bring to the table as the CEO? And how are you going to not only buy, but then build right on on the on the platform that you just that you just acquired? Right? So it’s all about what does this person bring to the table? I’ll share with you, when I started teaching MBA classes, I had to completely change all my curriculum, because, you know, I’d hired a curriculum designer who does, you know, accredited programs and certification programs, and she helped me build out the original curriculum for the acquisition lab. And then I then I was like, Oh, I got all this, like dope content. I’m just going to try it in this in this university setting. And there was a gap. And more than ever, I understood the demand, or the I should say, the pain that has resulted in search funds, okay. And in my opinion, search funds, sure, mid career people can go out and like start a search fund, but that is not, you know, the A one use. So for people who don’t understand a search fund, it’s a to a traditional search fund, I’ll say, it’s a two raise situation where you do the first raise, to raise 24 months of just living expenses that you can search and find that business, then you do a second raise once you get the business under LOI. But no, Joe, how many times would you put a company under loi without proof of funds? But anyway, okay, so you now you’re going to do a second raise, okay, in order to raise the money to acquire the business, including the debt and that first, that first money gets a step up? When I was speaking with MBA students, they were like, look, you know, one of the questions we asked it, they’ll have is, but to get in the application process is just do you have access to $100,000? And that question, right there knocks out half the people we’re talking to, like, I can’t sell some I cannot help you. If you can’t answer that question. I’m not asking even if you have it. I’m simply asking do you have access to it? Can you get it? Are you smart enough? Are you nimble enough? Are you scrappy enough to get $100,000? I don’t know. Encourage them to answer it that way. But that’s what I’m asking. And if they can’t find $100,000, I can’t find them 5 million, or 1 million. Like I can’t do that, right? They’re not going to succeed. The point is, is the MBA students, we’re all like, Walker, this is great. I’m accumulating massive debt sitting here in this chair right now listening to you speak, right for God for college credit. Like, how do I get, you know, that $10 million or $15 million to actually buy this company? And the clear answer was search funds because there’s investors out there that are funding, you know, these these recent MBA graduates in the right situations, and again, they’re not looking at business experience. They’re looking at you know, do you have the chutzpah? Do you have the mistake one to actually be a CEO.

Joe Valley 35:02

Yeah. And and to think that you actually have to have the business experience is a little narrow minded. And I’m saying that about myself. I’m interviewing somebody in a couple of weeks that, you know, started her business at 19 years old. She sold it at 29. And now doesn’t have to work for the rest of her life. So, you know, we all do different things at different stages in life. Think

Walker Deibel 35:23

Mark Zuckerberg did something like that, too. No, he went.

Joe Valley 35:28

He went to Harvard. He, he didn’t graduate, though, did he? Yeah, but but he’s a he’s a, he’s he’s cookie, Mark Zuckerberg. Whatever it is, former President Trump called him last week and interview. We’re not talking politics here, folks. But really, if anybody is watching this, or listening to it, please go on to YouTube at about the 44 and a half minute mark, and just look at Walker’s hair, it’s sticking straight out. of bed every day. So it’s interesting, you know, I have conversations with somebody earlier today about thinking like an owner and an entrepreneur and not an employee. Because you can’t do it. We’re not we’re not in the corporate world, your people, some of your people must come from the corporate world. And think about the, you know, arm’s distance, corporate world thing here. We are both by all measures, incredibly successful yet here I am making fun of your hair. And we’re wearing black T shirts and jeans and I got sneakers on you probably due to it. We’re very informal. How do you how do you knock the formality out of somebody that’s been a C suite executive at a fortune 100 company and joins the lab, how do you tell them to calm that shit down? I don’t

Walker Deibel 36:51

need to Joe because the thing is, is like, you know, look, yes, I own a manufacturing facility. But But like, I’m very much an online entrepreneur as you are, right? I mean, I run a coaching program online, I run, you know, I’ve got an e-commerce business, I’ve got a content. I mean, you know, I broke I broke or, you know, online businesses, like, like, I resonate as an online entrepreneur. But, you know, if you’re gonna buy, you know, a home health care company, that has, you know, five managers and, you know, at part time, you know, pseudo nurses, you know, your, your, my lack of knowledge, you know, sometimes our nurses sometimes they’re not at the point, but but you need to have management skills and at a level that you and I don’t put into practice right now, right?

Joe Valley 37:36

Or could I, you know, that’s, that’s my biggest weakness. That’s why we that’s why we have this wonderful, you know, the independent company here Quiet Light, you know, you never need to be managed.

Walker Deibel 37:47

first company I bought had a president and accounting manager, a production manager, a pre press department had a press department had a binary manager, an HR, HR manager, that’s like seven. And then I had 45 employees to shifts 50,000 square feet. I wore, I mean, I didn’t wear a tie. But I wear a button down and either slacks or khakis every single day for seven years and like ran the company

Joe Valley 38:13

just to play that role.

Walker Deibel 38:16

Right when buying online based business in 2006. Yeah, of course, SBA was still trying to bid the SBA was not backing these loans. So I had to find a business that had so I became like a raving fan of Quiet Light, like pre 2010. In fact, I remember sitting in that office, my button down shirt, looking at the Quiet Light website, right and being like, how do I acquire one of these? Right? Because he was like, I couldn’t use bank financing at that time. That all changed in 2018 January 1.

Joe Valley 38:44

So it’s, here’s a here’s how he acquired one folks. He was on a call with me looking at a particular business that somebody else bought, right? But Walker was kind professional, memorable, likeable, it maybe he didn’t have two nickels to rub together at the time, I don’t know. But he made an impression and this is I one of the day how to buy a business with when you don’t have all cash or to beat somebody with all cash. And it’s being a nice guy. And that’s exactly what happened. And so then mark sent a note out to me and Jason and Amanda because we were the team at the time was like Hey, I got this really private seller that does not want to list the business and they need just the right kind of buyer you got anybody Walker Deibel and that got you into this online world you bought something quite late you running all sorts of different companies now and and you’re part of the team I still again with your daughter, a Greg get rid of everything else and just do this, but that’s not going to happen.

Walker Deibel 39:46

We’re working on it. One thing, one thing at a time, I

Joe Valley 39:49

know but you’re you’re launching the hardcover copy of your book now the buy them build I was going to call it the acquisition lab. It’s not it’s by them build. You’re still racing in some Be different positive directions and helping so many different people. So it’s a good thing. I make fun of you. I just want you to selfishly focus on one thing for me. And for your daughter. That’s all I care about. Just me and her. And I know you’ve got more than one daughter, you got three kids, right? You got three.

Walker Deibel 40:13

Yeah, and a dog

Joe Valley 40:15

and a dog. I don’t care. And a wife of course, let’s have Walker, we’re running. We could talk for another hour, but people are probably sick of listening to us. Folks, if you’ve not bought by then build please do this week. It’s 99 cents. If you can’t afford that send Walker an email, I’m sure he’ll send you 99 cents. I’ll split the difference with him. Thank you, if you if you the audibles done incredibly well by an incredible voice. It’s not Walker’s it’s not mine. It’s somebody that actually does it for a living. And the hardcover book will last forever. So pick it up, get a copy of Biden bill do today. Let’s make him let’s make him a New York Times bestselling author. Let’s let’s make that the goal. Can we do that?

Walker Deibel 41:01

That’s a stretch. That’s a stretch. If like New York Times is sort of like trying to get your film into Sundance, it’s very hard to predict because it’s too random.

Joe Valley 41:09

Yeah. And he’s a film producer to folks, but we won’t go there as well. He’s multitasking, multi multi talented multi multitasking at all times. I don’t know how the hell you do it. Anyway, folks. look him up. Walker. dyeable. He’s on the quite low website. He’s on by then Bill. He’s on the acquisition ladies all over the place. Send them a note. Look for him in bathroom stalls any.

Walker Deibel 41:32

Please walk away from the just Pro tip. Pro tip.

Joe Valley 41:39

Just the tip. No. Okay, we’re not going there. All right, Walker. Thank you for coming on the Quiet Light podcast. Once again. Let’s end this before we say anything we truly regret. Thank you.

Outro 41:50

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.

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What’s a Legitimate Add Back

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

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

Episode Highlights:

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

Transcription:

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

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

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

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

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

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

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

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

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

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

Mark: I would add both those back.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mark: It’s absolutely ridiculous.

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

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

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

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

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

Mark: No fights here, thank goodness.

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

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

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

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

Joe: What?

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

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

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

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

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

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

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

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

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

Joe: 100%.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Links and Resources:

ECom Crew Episode

Quiet Light Academy YouTube

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

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

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

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

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

[Download Our SBA Starter Kit PDF]

Episode Highlights:

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

Resources:

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

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

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

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

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

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

Episode Highlights:

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

Transcription:

Mark: Joe how are you?

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

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

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

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

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

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

Joe: Guaranteed.

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

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

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

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

Rochelle: Not a problem at all.

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

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

Joe: Excellent.

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

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

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

Joe: Okay.

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

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

Rochelle: Right.

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

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

Joe: Let’s talk about that-

Rochelle: You have to assess that.

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

Rochelle: Yeah.

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

Rochelle: Generally.

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

Rochelle: Of course.

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

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

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

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

Joe: That’s the sellers.

Rochelle: We want-

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

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

Joe: Okay.

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

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

Rochelle: Okay.

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

Rochelle: Right.

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

Rochelle: Exactly.

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

Rochelle: Right.

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

Rochelle: I mean the chats.

Joe: You mean the chats, okay.

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

Joe: Okay.

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

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

Rochelle: No, I have no idea.

Joe: Okay.

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

Joe: Okay same as phone call side too.

Rochelle: Exactly.

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

Rochelle: Right.

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

Rochelle: Right.

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

Rochelle: Exactly.

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

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

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

Rochelle: Right.

Joe: You should be doing-

Rochelle: Absolutely.

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

Rochelle: Right.

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

Rochelle: Right.

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

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

Joe: Got you.

Rochelle: And it’s been pretty seamless.

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

Rochelle: Excellent.

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

Rochelle: Right.

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

Rochelle: Right.

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

Rochelle: Perfect.

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

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

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

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

Joe: Yeah.

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

Joe: Exactly.

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

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

Rochelle: Separate VPN.

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

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

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

Rochelle: That’s right.

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

Rochelle: It makes no sense.

Joe: And it’s just risky.

Rochelle: Exactly.

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

Rochelle: Right.

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

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

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

Rochelle: Right.

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

Rochelle: Right.

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

Rochelle: Right.

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

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

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

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

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

Rochelle: We can talk about your fishing poles.

Joe: Sure.

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

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

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

Joe: True.

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

Joe: Right.

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

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

Rochelle: Yeah.

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

Rochelle: Get on a phone.

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

Rochelle: Absolutely.

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

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

Joe: Yup.

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

Joe: Right.

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

Joe: Let’s jump to the indemnification clause.

Rochelle: Yes.

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

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

Joe: Well in advance.

Rochelle: Well in advance.

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

Rochelle: Right.

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

Rochelle: Right.

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

Rochelle: Right.

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

Rochelle: Let me frame this a little differently.

Joe: Okay.

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

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

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

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

Rochelle: Right.

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

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

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

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

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

Rochelle: Thank you.

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

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

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

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

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

Rochelle: Thanks, Joe.

Links:

www.walklawfirm.com

Walk Law Firm, PA

The Wells Fargo Building

100 S. Ashley Dr., Ste. 620

Tamp. FL 33602

Phone: 813-999-0199

Fax: 813-839-4896

Is Buying an Amazon FBA Businesses a Good Investment?

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

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

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

Episode Highlights:

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

Transcription:

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

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

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

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

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

Carlos: Oh that was all good stuff.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mark: Yeah.

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

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

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

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

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

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

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

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

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

Mark: What is SPV?

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

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

Carlos: The advertising space.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Links and Resources:

Thrasio

Company Profile

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

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

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

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

Episode Highlights:

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

Transcription:

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

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

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

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

Ramon: Thank you so much Joe for having me.

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

Ramon: Yeah.

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

Ramon: Uh-oh, all right.

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

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

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

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

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

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

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

Ramon: Well.

Joe: Briefly.

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

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

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

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

Ramon: Yeah thank you, Joe.

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

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

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

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

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

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

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

Ramon: Okay.

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

Ramon: Yeah.

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

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

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

Ramon: I know.

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

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

Joe: Right.

Ramon: So it was a difficult decision.

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

Ramon: Yeah.

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

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

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

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

Joe: It was tough for sure.

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

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

Ramon: Those were the longest weeks of my life.

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

Ramon: Exactly.

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

Ramon: Yeah.

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

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

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

Ramon: Yeah.

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

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

Joe: Okay.

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

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

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

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

Ramon: Yes.

Joe: Am I embarrassing you by the way?

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

Joe: Not quite everything.

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

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

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

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

Ramon: Same here Joe, thanks a lot.

Joe: Talk to you soon.

Links and Resources:

Ramon’s Email

How To Buy Multiple Businesses Without Going Insane

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

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

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

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

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

Episode Highlights:

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

Resources:

Transcript of Interview

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

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

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

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

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

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

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

The Interview with Shakil Prasla

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Shakil: Sure.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mark: All right, we’ll talk soon.

Shakil: Take care.

Resources for Buying and Selling Online Businesses

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The Interview with Shakil Prasla

Thinking of Selling Now or Later?