Podcast Archive | Page 2 of 17

Supercharge Your Marketing With Amazing Ads

Pat Grady is the Founder of Amazing Ads, an international advertising agency focusing on PPC management and optimization on Amazon, Walmart, Target, Google Ads, YouTube, and other mainline advertising platforms. He also founded print-on-demand companies RhinoFish Media, Just So Posh, and Regalo Marketing, which are involved in wholesale, retail, and print preview and visualization technology. Pat has a reputation of driving results with analytical skills focused on optimization problem solving, tracking, attribution, and tool-building.

Sal Conca is the CEO of Amazing Ads, with 20+ years of expertise in digital marketing and video development for performance-based advertising. He is an inbound marketing specialist who helps businesses build, grow, and solidify their potential by creating content and marketing campaigns that speak to their customers and core audiences at every step of the customer journey. Sal started his career as an affiliate relationship specialist and expanded his skill set to plan and manage integrated marketing campaigns, including Google Ads, YouTube, email marketing, content marketing, and social media. He is also an adjunct professor at Stony Brook University, where he teaches a comprehensive Digital Marketing course in their MBA program.

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

[02:12] Pat Grady and Sal Conca share their professional backgrounds in marketing
[04:25] The philosophy behind the start of Amazing Ads
[07:07] Video marketing and targeted advertising
[11:06] Techniques for hiring and training marketing talent
[13:31] Using data and analytics for effective advertising
[17:45] What’s the value of working with an advertising agency?
[21:08] Sal and Pat talk about Amazing Ads’ ideal client
[26:48] Amazing Ads’ business model and services

In this episode…

In today’s digital age, marketing is more critical than ever for the success of any ecommerce business. However, executing effective marketing strategies without the proper expertise can be challenging — and that’s where a professional marketing agency comes in.

Marketing experts Pat Grady and Sal Conca say that by partnering with marketing agencies, you gain a wealth of knowledge and experience to help you develop dynamic strategies that propel your brand forward. Whether it’s video marketing, content marketing, targeted marketing, or PPC management and optimization, these professionals can help you navigate the complex world of digital marketing. They share their journey running an internet marketing agency to help ecommerce brands create a comprehensive marketing plan calculated for maximum impact and ROI.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Pat Grady, Founder of Amazing Ads, and Sal Conca, CEO of Amazing Ads, to discuss how ecommerce brands can thrive through marketing. They talk about the philosophy behind the start of Amazing Ads, video and targeted advertising, using data and analytics for effective advertising, and Amazing Ads’ business model.

Resources mentioned in this episode:

Pat Grady on LinkedIn
Pat Grady’s Email: [email protected]
Sal Conca on LinkedIn
Sal Conca’s Email: [email protected]
Amazing Ads
Windfall Media
Quiet Light
Quiet Light Podcast on YouTube
Joe Valley on LinkedIn
Pat Yates on LinkedIn
Mark Daoust on LinkedIn
Quiet Light Podcast email: [email protected]
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Episode Transcript

Intro 0:07

Hey 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.

Pat Yates 0:32

Hello, and welcome to the Quiet Light Podcast. Again, I’m Pat Yates. I have a great episode today, we actually have the Quiet Light marketing company of record who works with our group Quiet Light as well as works with me a little bit in the ecomm brands that I have. And they’re just amazing dudes, I tell you what, every time I go in and talk to Pat Grady with Amazing Ads, I just find out something new about marketing, I didn’t know and if not, it’s a great conversation about where your business is going. I think in this day and time everybody gets blown up on their inbox and people who want to do your marketing or send you the email, I saw a bad thing about one of your ads, let us talk to you and tell you how to make it better, it’s a way to lead to be able to go in. This is the lowest-pressure group that I’ve ever seen. Not only are they low pressure, they probably add more value in other areas, they don’t bill by talking to you about where your marketing can be some philosophies. We actually had them work with my wife on a brand where they started a brand new to be able to get the right reviews go slowly to make sure you’re doing the right things. I think their advice they can give you as always actionable. And these guys are always willing to help with marketing. Amazing Ads itself pretty much covers about anything that you could market to. So whether it’s just one segment of your company or something else, I think these guys can really help you. So I’m really excited to talk to Sal and Pat about this today. So let’s get right to it. Sal and Pat, welcome to the Quiet Light Podcast. It’s awesome to have you here today.

Pat Grady 1:51

Thank you.

Sal Conca 1:52

Glad to be here.

Pat Yates 1:53

Yeah, Pat, I’ll start with you. I know that you have a lot of people that you work with, especially one of our best buyers, Mike Nunez, who I talked to passionately about your business. I want to talk today about Amazing Ads, you have just an unbelievable business. I think people always go in and out of agencies. But before we do that, why don’t you guys introduce yourselves, Pat, if you want to go first where you’re from, and maybe a little bit of background.

Pat Grady 2:12

All right. Well, I grew up in Florida. I live in Florida now. But in between my two Florida stops. I was in the Navy, I lived all around the country. I’ve traveled throughout Europe quite a bit. I work for a couple of European companies. I live at the beach now, which has always been a lifelong goal of mine. When I wake up in the morning, I can see the sun rising over the ocean. I think that’s fantastic. I’ve been doing PPC for more than 20 years, I predate Google ads. In the beginning, I was an affiliate marketer using Overture and Yahoo and some other engines that no longer exist. So I am definitely a PPC dinosaur. Still alive and kicking.

Pat Yates 3:01

That’s really amazing. So you have an unbelievable perspective going all the way back to the very beginning. That’s awesome. So Sal, what about you tell everyone about you?

Sal Conca 3:07

Yeah, so thanks again for letting me be here. I’ve got 20-plus years in digital marketing. I’ve been doing this for a long time too. Pat and I have developed a great relationship over the years, we met through the affiliate industry, which both of us still hold very near and dear to our hearts, we’ve got a lot of relationships in the affiliate space that we continue to have today with our business and so I have a background in music, I have a love for food, I have a background in film and video, as well. So and then marketing I’ve been doing forever. I have an MBA in marketing that I don’t mention very often. But I also teach MBA students in marketing as well now, serendipitously, two of my students work for us at Amazing Ads. And so it’s been a great way to come full circle in my career and everything like that.

Pat Yates 3:59

Education is a great background in my family. My mother I’ve talked about many times on here was a principal and teacher as well. My wife retired from the school system, it’s amazing people that sink themselves in education. That’s really awesome. Pat, you and I spent a lot of time together in the last year talking about marketing philosophy, getting new clients over through Quiet Light to need to improve those things. Tell us a little bit about the beginning of Amazing Ads and what your philosophy was behind the company.

Pat Grady 4:25

Yeah, I guess, about seven years ago, I just saw marketplaces emerging onto the ecosystem. And I saw a lot of people moving that way. And I’ve always been an optimizer of PPC. I consider myself not a marketing genius, like someone who would be really creative and create ads that are just stunning. I’m more of a spreadsheet analytical numbers guy and that optimization techniques, a lot of the things that I cut my teeth on in the affiliate marketing world and then on Google ads, they cross over onto multiple marketplaces, when you’re talking about using bids instead of budget automation, rules-based systems, budget allocation goals like row as an a cause and just making sure that you always eliminate wasted spend. I always think many of our clients, they have an overall goal of “I want to spend X and sell Y.” That means if I waste $1, somewhere, I kind of necessarily have to take it from someplace productive to waste it. So we think of a wasted dollar as our enemy. And we just have to go turn over every stone and every leaf and look for wasted dollars. And today, there are so many smart people competing against us, right, not only from inside of the United States, but so many direct sellers, from China, from Asia, from Mexico, and they have a different cost of living a different cost structure and perhaps a different supply chain perspective, if you are not relentlessly optimizing your advertising, you will lose. So we have a saying around here to starve the losers and feed the winners. And you need to really be cold about things like that and say like, I can’t waste advertising dollars. If I waste $1 someplace, I take it from someplace that’s a winner. And that’s nonsense, right? So I guess that’s the key, no matter what we do video advertising, upper-funnel, everything has to be measured and excruciatingly dissected to figure out how we can get more for less.

Pat Yates 6:47

That’s a great way to approach it. Sal, I know that sometimes companies can get too metric-driven, you know, I think that Pat does a great job looking at those spreadsheets, but he’s got such great instincts. That’s one thing I’ve found from him. So as you guys have evolved, Sal I know you work on some different areas in there. What are some of the top areas that you’re working on right now in Amazing Ads? How can pay off for clients?

Sal Conca 7:07

Yeah, I think that’s one of the things and you know, I’ve been working with Pat for the last two years, but that was through another agency. And recently this year, we merged so the two agencies have now come together. The former agency was Windfall Media, we’re now fully merged as Amazing Ads, and the Windfall Media side, we were engaged in a lot of like top of funnel activities, we’re on the soft skills, right? I have a background in performance. But I also have this love for video and audience marketing and all that type of stuff. So we’re doing a lot on YouTube and connected TV platforms like Mountain. So with that, we’re now finding ways to target programmatic audiences creating contextual advertising that speaks directly to a person. If you’ve ever been on YouTube, we’ve all seen those ads, the pre roll ads, you’re on, skip this ad and all that stuff, right? We run a lot of those skippable In Stream Ads. Have you ever seen one that feels like it’s just speaking directly to you? And you sit there and wonder, how did they know that about me? Right? Well, the guys like us, we know that stuff about you. Right? And that you specifically Pat Yates, but we know your persona, and who you are based on your behaviors and the video you’re about to watch, potentially, or what you’ve done on Google previously. And so we can put an ad right in front of you, that speaks to you directly. And that’s really part of the fun, right? And how many different personas we can carve up and make the creative sing. Because as Google takes more and more of our controls away, the creative is what’s going to stand out more and more. And that hasn’t been the way to write creative agencies. They’ll look at this and say, of course, the creative means something. But in the digital space where performance was King, always and it still should be, we need to rely on the creative more and more as Google and the AI takes over the performance aspects of the digital marketing space.

Pat Yates 8:59

Sal, that’s a great point. I’m gonna stick with you on this question. You and I talked a little bit about video and how things have changed. Like it’s weird because, like Pat, I’ve had the same ecommerce business for over 20 years. So I’ve watched it go from when I was doing basic Google PPC to other things to grow with and, and I think guys like me are sort of jaded a little bit to the old-school way of doing it. And as you get into new video, TikTok, Instagram, Facebook, you can really upgrade what you’re doing but what kind of things in video do you think are super important other than YouTube? Are there things out there that people need to be leveraging?

Sal Conca 9:29

Yeah, we’re really in love with the connected TV platforms like a mountain. So imagine you’re watching a show on your big screen and you’re watching it through an app like your Paramount app, or, I mean, I would say Netflix but Netflix is still like a walled garden or Amazon even now has its own video advertising you could run in there. So with platforms like Mountain you’re now buying audiences so as opposed to the old days where you bought TV advertising and I wanted to buy an ad spot at primetime at eight o’clock, on Thursday night when Seinfeld was on, I’m dating myself, or buying a Superbowl ad. Instead, I’m now buying that audience. I’m following the person. So whether they’re watching daytime TV, their favorite show like The Walking Dead, wherever they’re streaming, it doesn’t matter. I’m going after that person, that person based on the data that I have inside platforms like Mountain, which is programmatic advertising, it’s not something totally new. But it used to be only used for display advertising.

Pat Yates 10:28

Right. I agree with that, too. It’s really interesting, because you and I discussed how YouTube TV is becoming an interesting opportunity, even Hulu TV for a lot of people, because that ad follows. And then you get that television semi-television preference, presence, it seems like you’re going national, sometimes you’re not. And it’s not as big a spin. So I think those kind of opportunities are really, really growing. That’s amazing. So Pat, looking back, I mean, you have an amazing team. One of the things I’m sort of amazed at your company, as I work with you, obviously, is how great your team has been, what’s been the key to being able to find some of the best marketing people that you can find in the industry to go out and work for your clients.

Pat Grady 11:06

We almost always hire people that have not run campaigns before, we train them in-house. We have a series of interviews that we have figured out like what makes somebody good at running campaigns, we tend to hire introverts, we look for high IQ people who excel at problem solving. We look for people that have a level of skepticism and curiosity that is well above average. And we just really love it, we’d like to have a background in anything analytical. Running a campaign is not that difficult today, there’s a lot of tools that you have that will help you find keywords and do day parting and just all sorts of research that you can do on competitive terms. What we need is someone who is a really good thinker, right? And so we don’t see your past experience. You don’t have to have managed campaigns for a bunch of years to be good at it, you need to be an analytical problem solver with a penchant for skepticism and testing. Our environment here, Sal and I, we’ve known each other for a long time, as I said, we worked in the affiliate industry. And we have been wrong so many times in our career, that we know that it’s more important to test and challenge the status quo than it is to have a list of best practices that everyone on the team must follow. Best practices are important, no doubt, because in some lessons, we find they are sticky, and they are semi-permanent. And they do apply to most situations. And Amazing Ads, we often hand out bonuses though, to people who tried something different, who found a new way. If I had taught them a certain way to build a campaign, and they tried something new, and their idea works better, we celebrate it, we reward it, we acknowledge it, and we shift to it as our status quo, our new status quo. This is important because the ground that we stand on is constantly moving underneath us. The technology, the pace of change in technology is probably the hardest element of our jobs, keeping up with the things that change where people shop, how they shop, how they behave, how we collect information, how we target them. A minute ago when Sal was talking about videos, I remember when the most important thing was targeting a placement targeting a keyword. Today, when you think about what Google or Amazon or Mountain knows about your location, the sites you’ve been to, in the last 90 days, the things you’ve searched for the videos you’ve consumed, the amount of information they know about the person who is about to see the ad is so much more than the simplistic view of keywords and bids attached to them. This new era of information, they can’t give us the information because of privacy reasons. Another reason they couldn’t give it to us, it would be in such volume that we couldn’t digest it or derive anything actionable from it. Today, the new era is using AI. So if you’re gonna collect this information, Sal was saying how important creative is going to be here. If you think of Google as a big black box, there’s going to be a feedback loop. And that’s half of the puzzle. The other one is what does the creative inspire and who do you aim at? You want the creative elements that are going to become more important than ever, agencies in the future will work on those two things, improving the feedback loop and improving the creatives. Why is the feedback loop so important? If Google knows all of the searches you’ve done, they know exactly where you’re standing right now, because of your phone. You’re logged into their Google Maps and Gmail all the time. And they know your history, the targeting that we used to use, the momentary keyword that I’m bidding on is such a microscopically small picture of the overall targeting mechanism that we’re doing. So with a good feedback loop, if you sold somebody something, sold them something else, and then they registered and maybe they subscribe to one of your lists or something, you actually know a lot more about them than that one purchase, assign different values to that, pump it back in and tell the AI what that customer is worth to you. Now, when you’ve piled up 500 customers, and each one of them has a profile of activities that they’ve done on the internet, and the value that they are to you. Google’s algorithms are doing 10s of 1000s of correlation studies. And they start to understand the likelihood that someone clicking on the next ad looks like one of your many customers. And remember, these customers are no longer monolithic stereotype images, right? You can’t say today that my customer is this age, and this gender and lives in this city. BS, they’re all over the place, you have multiple personas, and they overlap to a degree that is completely confusing. Give up on that, let the AI figure out thousands of correlation factors and the way that you do that let Google collect the information, they don’t have to hand it to us have a very powerful feedback loop where you’re telling the AI, what each person who transacted with you is worth to your business. This will let the AI find more customers more ad clickers. As you do this, you will watch your ad clicks. If it finds a bot, for instance, they’ll know the behavior of that bot doesn’t look like the profile, we’re looking for it and drives the cost down. If it’s someone that looks a lot like the stable of clients that you’ve acquired already, it’ll drive the costs up. None of that requires human control at all. What it requires is a very sophisticated feedback loop.

Pat Yates 17:03

Yeah, that’s really incredible. The more that I think about that and apply to what you’ve been doing, I mean, you’ve got to have really talented people to be able to mind that information out. There’s no question about that. So Pat, when you have people come in you like them, obviously said about your employees, hiring people that have not necessarily on campaigns before says you can mold them exactly like you want. Is it the same with clients? Do you find clients that will come in and they have this predetermined idea of the problems or the good things about their business? And they don’t allow it to grow well enough by listening to that feedback? Is that really kind of, because I see so many people to get so many calls from marketing agents like every day. So at some point, they distrust it, would you like those customers to come in sort of green and let you bold it is that the idea?

Pat Grady 17:45

You can be green or you can be well on your way, you’re still going to have a lot of inefficiency in your advertising. There’s just so many mistakes that can be made today on so many fronts in so many ways. That if you think about a client, and let’s say they have three years of experience advertising their own product, to me, that’s actually a very narrow view of how the advertising world works. They only know the channels that they had taken the risk to play in. In an agency, we see so many clients, so many platforms, so many experiments, that our breadth of testing is incredibly larger than any client that walks in the door, even the ones who are sophisticated and advanced. If you’re hiring in-house for a building a team like that, you better be very, very large. Because the advantage of having an agency that has seen all these different problems, Sal mentioned Mountain, as we turn through Mountain and we’ve learned how to optimize this. I’ve mentioned Google ads, Amazon, we do Walmart, Target social media, we run ads at Lowe’s and Home Depot and Wayfair. Any marketplace today, it has parts of its system that influenced the way you optimize the campaigns. Walmart, for instance, has a lack of negative keywords and some minimum bids, you have to find your way through these optimizations. If you don’t have experience with a bunch of clients at that platform, you will not have the same kind of discovery that we have. Yeah, so the idea that we have analytical problem solvers who are skeptics who challenge the status quo, they also we encourage entrepreneurial activities here. We don’t mind if people work outside of our company, they just have to disclose it with us. So we don’t have conflicts with our client. When we start having people like Sal has two Amazon brands that I know of and maybe others I don’t, many of the people on our team sell and have their own brands. They walk the walk right and they have learned a lot of this from working here. It is unusual that we train from within, we also promote from within, of our directors. Most of the people, they work their way up to T-manager, Team Leader, what have you. And when they’re promoted to a director, they have been with us for a couple of years. And they have proven themselves through and through. And again, from an efficiency standpoint, if you have worked on 20 different accounts and found success for each of those different ones, you’re well prepared for the 21st time.

Pat Yates 20:32

Yeah, I tell you what, having worked with you guys, let’s say your team is absolutely amazing. It’s just, I think sometimes it’s really important to have that kind of relationship situation. So Sal, let me ask you this, is there an ideal type of client for video, like I think a lot of people because I know that’s really and I don’t mean to just pigeonhole you on video, if there are other things you want to talk about, but I know that you’re really kind of an expert there. Are people out there that are scared to death of video, maybe they think they won’t look good, or they don’t know how to decide how to do it in a day where you can pick up your cell phone now and do a lot of videos that really work for your business. How do you really approach that? What’s the perfect client for you in that aspect?

Sal Conca 21:08

Yeah, TikTok changed the world and the pandemic changed people’s mindsets of how they perceive video, the rapid growth, right? We’ve seen this over and over again, the adoption rate of new technologies or platforms, right? It happens faster and faster now, with video specifically, I think there’s two kinds of brands, two types of companies, right? There’s the entrepreneur that doesn’t want to like be on their cell phone because they’re like, either I don’t have time for it. I’m not sure what to say I don’t think I look good on camera. All the excuses that they make about that. But for brands, right, Pat, you own brands, I own brands, our clients own brands. There’s not a person per se on camera, some of them will go hire somebody to be their brand ambassador, they’ll hire influencers, they’ll work with platforms like below to create UGC-style videos, right? That type of thing. We could find a spokesperson for a brand, right? I mean, if we think about Nike, right? There’s no face of Nike, it’s all the athletes that use Nike, right? So in the same way, as we think about creating video for platforms, if we’re trying to grow an organic YouTube channel, that’s different than trying to create ads for an ad space like YouTube advertising or Mountain. So like in Mountain, it’s connected TV, this is has to be a tight 15 Second 30 second spot professionally shot it needs to feel and look like a TV ad as opposed to a YouTube ad a TikTok app, a Facebook video ad that feels vertical more UGC style big captions needs to have a hook up front so people understand that what they’re going to communicate or the value they’re going to get from that video. So there’s different tactics for different platforms, right? So it’s very brand-dependent, depending on your goals, the nature of the brand, and what type of personality that brand wants to have in the marketplace.

Pat Yates 23:09

Such a great answer.

Pat Grady 23:10

It’s possible on a very small budget and a very small scale quick story, you know that I mean, printed on demand. This cup has my name and nautical flags. We have a line of mugs that have grandma on there, our crew went to below and they scripted out this video of this young lady talking about this grandma mug, and the story that she tells it chokes me up even thinking about her video. I own the company. I’m pretty cold about things. I use a repressor to make sure I’m efficiently entering the marketplace. I use all kinds of automation and AI to re-price things, but her talking about my grandma mug brings tears to my eyes. It’s so authentic. And that’s intricacy. That’s something that brands crave, right, Sal and his crew told me Pat, just give us a tiny budget for one of the brands I own. Let us make a couple of videos on below, which is a UGC platform where you have a high degree of control over the content curation. I would like to meet the woman in that video someday and let her know that she brings me to tears just thinking about what she said about my grandma mug.

Sal Conca 24:18

And I think the important thing about these things like platforms like below that we talked about, so a lot of people, brands, entrepreneurs, they’ll look at that and go, oh, I can just use below and create a video ad for 100 bucks. But if you don’t put the right creative brief, if you don’t take the time to search for the creator, right, like that was what we brought to the table on that project. It’s like we had to go find the right person. We created the right script, we ideated that entire journey for this person to be able to create that video, right without that creative input. You’re just what you send them up to somebody and hope for the best. Right.

Pat Grady 24:56

That’s ridiculous what he just said right? You just packing up one of your products and sending it out the door for free. And you didn’t vet them, you don’t know their audience, you don’t know their followers, you don’t know the nature of their posts on social media, you haven’t seen the videos that they have produced in the past, you’re just throwing crap against the wall and hoping for the best. That kind of strategy is the opposite of the efficiency I was talking about. You cannot waste money like that today, you cannot just without any regard to research and filtering and vetting right in this scenario, Sal and his team, they came up with a couple of different scenarios and said, What do you think about this script? Let’s go find someone who will do that the amount of pre-work they did before the UGC happened is why the quality coming out the other end is not sausage, it’s sirloin.

Pat Yates 25:49

I think it’s an amazing point. And what’s funny is the way that I hear you all talking I think the overriding thing here, even if you have a new business, and it’s growing, you could spend a lot of money figuring this out before you actually have any success, and go to someone with some knowledge makes a lot more sense. And that sort of leads me to my next question, Pat, my wife, Sandy has a small brand that we were doing as a startup as she retired, just, for her to go out and do this. And we came to you after me being an Amazon seller for like 20 years or 15 years, whatever it’s been that I’ve been on Amazon, and you gave me a whole different perspective how to launch a brand. And some of it really didn’t have to do with monetizing your old side of this. It was how do you start the business the best? How do you make the best presents, go out and get the right reviews? Do you look at it from an analytical standpoint where someone is and then say let’s set a plan that doesn’t necessarily have to involve PPC advertising immediately. But these things can have an impact? How far do you go with that when you’re working people are Amazing Ads?

Pat Grady 26:48

Pretty deep at first, many of the marketplaces they are momentum plays, because of reviews and the nature of the feedback loop and social awareness, you can’t just jump in the deep end of the pool and find success right away, you have to plan for it, you have to take advantage of timing with inventory. Pat in your business, we actually consulted with you on logistics and shipping from overseas. Now, most PPC companies are just going to optimize your campaigns and leave it at that we don’t stop there. Right? We make videos for our clients, we want to make sure if you can trim money out of your logistics pipe and you can sell your product at a little bit lower price, you can compete a lot better, right? Anything that helps us when we want to talk about? Yeah, so it’s just incredible how many different topics we will talk about, even on our marketplace is you know, we actually have two teams advertising and then everything that isn’t marketplace services, and they’ll do everything for you file trademarks, there’ll be with compliance help you get things through import taxes, situation, even we do consulting, sometimes on company structure, financing, I mean, things that most agencies won’t touch. And that’s because we are all entrepreneurs here. We’re just walking it, talking it, living it breathing it, I currently have 12 companies, one of which is Amazing Ads right? I love this stuff. I love talking to our customers, I don’t care if they’re talking about PPC or any other aspect of winning, I want to win.

Sal Conca 28:27

I was gonna say Pat and I were having this conversation the other day, I was like, well, we position this Amazing Ads and we’re this performance marketing agency, but it’s like, boy, we really need some sort of like business consultancy fractional side of the business that gets carved out because we are offering clients so much more we’ve been down this Pat. I’ve had a food brand before, right a CPG food brand in the past like Pat has 12 businesses like we’ve walked and done all this stuff before where you understand exactly what it takes. And so the advertising when somebody comes to us for the advertising, it’s like yes, I can drive traffic to your page all day long. But is your business ready to compete in the marketplace? Do you have a value proposition like the things that make it a business because some people jump in the deep end is Pat put it because they think about shows like Shark Tank are amazing, right? They make the American Dream thrive. But there’s people that watch that without the context sometimes you just think well I need to. I could start that business without any business knowledge and that’s why so many startups fail. We know this — so many startups fail.

Pat Yates 29:40

It does seem like it’s so easy in theory and different in practice. It’s really incredible. I know we again I’m with Sal Conca and Pat Grady with Amazing Ads. Pat, can you tell me a little bit maybe tell the listeners the scope of services and you don’t have to get too deep into it. But if you want to give them an overview of all the things that Amazing Ads can do, because I’m sure I’d leave some things off the list if I gave to them.

Pat Grady 30:02

Yes. Trying to figure out we could just start naming channels, but it’s really the type of person that we serve. So if you’re an ecommerce and you sell and marketplaces easy, we do that. If you are brand building, and you’re doing lead generation, we do that. If you are throwing webinars and events, we do that if you are selling educational services, or info products, if you are on the financial services side legal services side, if you’re selling big products, customized products, we do that. I’m trying to think of the things we don’t do, I guess we don’t do porn or casinos. No problem with that. I just think like, I don’t like regulated industries. That’s one reason, right? But we don’t really put limits like that Pat, people call me and they’ll say I’m trying something different, I have a new idea. And I’m wondering if you’ll engage with me if it requires advertising and promotion, if it requires modeling, if you’re spending money on services to drive your company, and that includes a lot of them, I think that we would want to take a look at your advertising aspects first, by the way, some of the services we provide, we only engage with people on these other services when we are managing their advertising. So there is a limit to what companies can do and be to all people, we cannot be like a listing company on Amazon, we don’t just build lists. If you want to engage with us to optimize every aspect of your ecommerce business, then we can work with you on your listings, if that makes sense. Sal did you have anything else to add there? Who do we not serve? Or who did I leave out of what we do?

Sal Conca 31:54

I think it’s the performance-based aspect of what we do. And also taking risk and going along for the ride. So if we identify businesses that like I said before, that don’t really have their value prop straightened out or other things, there’s a lot of investment there to help somebody build that, like if they’re assuming that the advertising is going to fix their business, it won’t fix the fundamentals of their business, right. So you need to have a fire built and understand there’s a proof of concept we’re the gasoline.

Pat Grady 32:25

I will say, though, that I often tell prospective clients that when I review your PPC, I’m hoping that it’s a train wreck.

Pat Yates 32:35

You want it to come in bad. So you can make it look really good.

Pat Grady 32:38

I mean, there’s so and frankly, if it’s good already, we’re probably better served to just hey, on my 18-point checklist, you’re missing this one thing, go do that have a nice life, whatever agency you’re with, think about what it takes to interact with an agency to grow trust with an agency. I don’t like people who are just changing agencies because it’s a new year or something like that, once you find people that you can communicate and trust in, you should check once in a while to make sure they got all their bases covered. But if someone is largely, serving your needs, you know, that’s why I say I think if I was going to do one thing for our customer, and the results were gonna only marginally change, just stick with who you have, and go do this one change thing. So this does happen. I can remember a very good friend of mine, named Dale, he had me review as PPC and he was like, you’re not gonna take me on as a client. And I was like, no, you don’t need me. And he was like, I always thought that thing you said about turning clients away. I always thought that was BS. I’m the one you’re gonna say no to. I was like, dude, your PPC is perfect. There’s nothing wrong with it. Go look at the other parts of your business, but it does happen. Sal I feel like we’re leaving somebody out.

Sal Conca 33:55

There’s, we do SEO and we do email.

Pat Grady 33:59

The channels. Social media…

Sal Conca 34:02

Outside of advertising. But yeah, so I mean, you know, listen all in if you’re looking for an agency that can understand the full customer journey of a business, we can fill those parts of the journey with different channels and traffic.

Pat Grady 34:17

And how your channels interact with one another right? One advantage to having an agency looking at these things or an agency that is performance-based is they’re looking to maximize the performance of every channel, not just their channel. We don’t look at things in a silo, we look at things holistically and then we break them down into silo goals and budgets, but that is a critical part of who we are for sure.

Pat Yates 34:43

Having watched it from a low level, starting out with a business literally started at zero we threw to you to say hey, how do we do it? And I check my ego at the door and said hey, tell us what we — what I don’t know because maybe there are better ways to do it. You did some giveaways. We did a lot of things to be able to build reviews and all of this stuff tended work so I’ll be honest, I can talk all day about marketing. I know you guys could, but you know, the listeners out there may get bored with us chatting all the time. But so Sal and Pat, tell everyone how they can get in touch with you. Sal if you want to go first give me your contact information where they can find you.

Sal Conca 35:13

Real simple [email protected]. You can visit our website, which is amazingads.com you can find me on LinkedIn at Sal Conca happy to answer any marketing business questions. As always, I give a lot of free advice to people all the time. So anybody that if you just have a question, I’m happy to answer it about Mountain YouTube, etc.

Pat Yates 35:34

Pat, before you do yours, I really think that people need to understand philosophy too, how you talked about it being sort of like a little different. And you guys are entrepreneurs. That’s exactly how Quiet Light is. That’s exactly why I think that it’s such a great thing. So Pat, tell everyone how they can reach out and get in touch with you.

Pat Grady 35:49

Yeah, [email protected]. And if you misspell it, it’ll come to me anyway, Pat, Patrick, Pat to all sorts of versions. Just so you know, Pat, our tagline is dare to be different. So we realized that we are different, hiring people and training them to be who we want, we often don’t have contracts and durations with our clients. We’re very performance oriented. You won’t hear many agencies say the things that we say, here’s an example, hey, your branded traffic, probably not the area you should spend heaviest on. It’s partially incremental, where we really want to compete is on the unbranded traffic, let’s make sure we never mix those two things together. And let’s make sure we put budgets and goals on each of those and treat them like they’re two separate advertising mediums which they are right. A lot of agencies will just ring up the cash on your brand name traffic, and they’re happy to do so and not much more. To us, brand name traffic is like shooting fish in a barrel. It doesn’t take long to build that doesn’t take long to manage it. In any case, the interesting part for us if you’re someone who has type A and likes to win, you’re going to spend most of your time on unbranded traffic acquisition. And that’s what grows a business. That’s what powers it for. And that’s what makes sure in good times and bad that you pull ahead of your competitors.

Pat Yates 37:20

I think the great thing about your agency first of all I was it’s such a calm when I’m talking to your people it’s really everyone we do a meeting there’s six or seven people in there it’s not like one person you’re talking directly to because you’re getting perspectives on everything. I think the job you guys do at Amazing Ads is just incredible. I keep using the word amazing. I can’t use it too many times. But I think if you listeners are out there thinking about your marketing, these guys will take you top to bottom and take and make sure everything is branded the same all these things little things that matter add up but guys, I really appreciate you taking time to come in here. I hope everyone reaches out to you and Amazing Ads and if you need any information on Pat and Sal you can always email me too at [email protected] guys appreciate you taking the time to come in the Quiet Light Podcast.

Pat Grady 38:01

Thank you.

Outro 38:04

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.

Quiet Light Client Kills It on Shark Tank!!

Ramon Van Meer is the Founder and CEO of Genius Litter, a health-monitoring, odor-fighting, environmentally friendly cat litter. Featured on Shark Tank, it's a color-changing litter formula that catches signs...

Ramon Van Meer is the Founder and CEO of Genius Litter, a health-monitoring, odor-fighting, environmentally friendly cat litter. Featured on Shark Tank, it’s a color-changing litter formula that catches signs of illness, keeping you and your pet happy and healthy. Ramon is also the CEO and Founder of Alpha Paw, a leading pet wellness brand that has grown into an eight-figure empire. Alpha Paw has also been featured on FOX, NBC, Allure, and many other popular sources.

As a serial entrepreneur, Ramon has started and built multiple successful companies, including Soap Hub, a multimillion-dollar content site, Toodledo, a set of organizational tools, and Growth Hacker TV, a video site for start-ups. His life goals are to become the Marcus Lemonis for tech companies and to finally beat his son at chess.

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

[02:27] Ramon Van Meer shares his professional background
[03:24] The experience of selling a business through Quiet Light
[08:18] Life after the business exit
[10:17] Ramon explains his motives for applying to be featured on Shark Tank
[17:29] Ramon talks about his experience pitching to the Shark Tank investors
[24:59] How Ramon used humor to get in the show in the audition
[27:53] Shark Tank negotiation strategies and deal-making
[37:03] What is Genius Litter and what does it do?

In this episode…

Are you an entrepreneur with a brilliant business idea but lacking the capital to bring it to life? If so, you’re not alone. Many business owners face this challenge, which can be a huge obstacle to success. However, there is a solution that could change everything: Shark Tank.

Shark Tank is a popular TV show that features a panel of successful entrepreneurs and investors who hear pitches from up-and-coming businesses. If you can make it onto the show and pitch your idea to the “sharks,” you have the opportunity to secure the funding you need to scale your business. The sharks will offer you a percentage of equity in exchange for their investment. However, serial entrepreneur Ramon Van Meer says that getting onto Shark Tank is no easy feat. The application process can be lengthy and complex, but by putting in the effort and making a robust case for your business, you could be one step closer to achieving your dreams. He shares how he killed it on Shark Tank.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Ramon Van Meer, Founder and CEO of Genius Litter, to discuss his journey and experience on Shark Tank. Ramon shares his professional background, why he wanted to get to Shark Tank, the application process, and his experience pitching to the Shark Tank investors, as well as negotiation strategies and deal-making.

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

Hey 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

Pat Yates 0:32

Hello, and welcome to the Quiet Light Podcast again, I’m Pat Yates. Man, I have a great conversation today. Ramon Van Meer with Genius Litter. He’s traveled an interestingly similar path to me through Shark Tank and we work together for like, talk six to nine months ago about process and things he needed to do to prepare and his episode just went on TV of man was it incredible He did such an amazing job. He added humor. He had a lot of positives he talked about he had people go in and out, back in and then ended up with three of the five sharks making an offer on his business really just amazing episode. This guy is such an amazing dude. He’s sold one of his businesses through Quiet Light has worked on other multiple ones with Quiet Light. He’s a friend of Quiet Light and will be going to the Shark Tank reunion with us this year, and probably helping Ethan and I talk to some people about the Quiet Light experience. This guy has taken every step you can imagine in business. He’s come to the United States from the Netherlands. He’s built a company they sold he built another company he put on Shark Tank that he’s hoping to scale and sell. He’s just an unbelievable entrepreneur smart guy. Amazing conversation. Oddly, he worked with Joe in the past, which is crazy, because I’m not sure why that is always have to put in some little shot to Joe. But hopefully, in the future, he’s going to continue to work with Quiet Light and do a lot of things. He’s one of our favorite guys. I’m excited to talk to Ramon Van Meer about his Shark Tank experience today. So let’s get right to it. Ramon, welcome to Quiet Light Podcast again man, it’s great to see you.

Ramon Van Meer 2:03

Yes, I’m very happy to be back.

Pat Yates 2:06

Man, I tell you what, we waited to do this episode until after your Shark Tank air because both of us now been on. So this is gonna be such a fun conversation. And I think a lot of the people out there will really find some really actionable stuff. And if they’re trying to apply for Shark Tank, they’re going to understand some stuff. But before we get going with that, tell the audience about yourself. Introduce yourself where you’re from and what you’ve done in the past.

Ramon Van Meer 2:27

Okay. 30-second pitch, where do you go from the Netherlands, I moved to the States 13 years ago. Since then, I’ve been buying and selling mainly very small websites and blogs, sold a bunch through Quite Lights. One the most famous one is a soap opera blog years ago that I sold through you guys. And now I’m selling cat litter and I was just on Shark Tank a couple of weeks ago.

Pat Yates 2:57

It’s really amazing. It’s so funny to sit there and watch that episode and you talk about a business you’ve sold and knowing that came through Quiet Light. It’s really incredible. I know you’re a big friend of the business. Joe knows you really well obviously, we were so excited quite like to put stuff out on social about you being a client being on Shark Tank. That’s awesome. So maybe tell, let’s do this. Let’s rewind a little bit. Tell us about that business and who you worked with and maybe how that whole transaction went? I’m curious on that.

Ramon Van Meer 3:24

Okay, yeah, I launched that website in 2015. It was a blog about daytime TV. And it started growing. I was pretty successful building online communities mainly on Facebook, daytime fans, and was able to drive that traffic to a website and then on their website or monetize through Google Ads. And I already knew about Quiet Light because I was working I had another business before that. And so I got introduced to Amanda was the first broker she worked with even before this one and I was ready to sell ready to move on after two and a half years three years. And I reached out to I think I reached out to Joe because I got to know him as well through some common friends and meeting him at conferences. And I found like oh, I’m not sure if my websites because at that time it was already doing couple million dollars in revenue and you know high profit margin. I thought maybe this is too big, at that time I thought oh Quiet Light is you know between 100,000 and million or 2 million. But Joe said like no, we can find you a buyer. Let’s just list it. See what happens. And yeah, it was a great, great experience because We lifted it. Within one week, I got not one, not two, but three offers. Same actually what happened in the Shark Tank. But yeah, it was a great, great experience.

Pat Yates 4:11

I tell you what working with Joe had to be amazing. I know that Joe’s been on sabbatical, he hasn’t really done a lot other than working in the corporate side for a long time. But such an amazing broker we look at his numbers and the people he was getting businesses sold for is absolutely amazing. I’m sure he did a great job with that. That’s awesome. So tell us a little bit about where you’re headed now. I know that we wanted to talk about the Shark Tank process. But since that point up to when you got on Shark Tank, what are the things have you done? Is this it?

Ramon Van Meer 5:44

No. And by the way, very quick about Joe. I really, in that transaction, I really saw that he really cared for me as a person, because what happened between the day we listed and the day we got offers a couple of months passed by and mainly because it took some time for me to pull some stuff. And the revenue started exploding on my end. So my multiple was suddenly extremely low. So I called Joe, and I was so scared of calling him I was like, man, I don’t know, I think we should pull the listing and relist it in a couple of months. And I was so afraid that Joe would be afraid, like mad at me, like, no, we’ve already done all this work, you have to pull through. But he said, like, no, you’re totally right. You have to do what’s best for you. And I’m on your side. Let’s just do this. We’re gonna take it back. And, you know, what happened was that we got much more out of it a couple months later. So since then, I’m a big fan for Joe. And I will be forever grateful.

Pat Yates 7:07

Actually, not to interject. But that’s kind of an interesting point. We talk a lot about entrepreneurs, we don’t talk as much about Quiet Light on this oddly, because we don’t really talk about our process or anything like that. But I think it’s amazing that you say that, because Mark and Joe both believe as the guys at the top of the organization for the longest time that we should be judged by the quality of our conversations. And Joe was my mentor starting out. And he was really clear about one thing. This is not about me, it’s not about Quiet Light, it’s about the entrepreneurs. So as someone comes in, we’re not fishing for commissions. If we look at the business and say, for instance, the first three months of the trailing 12 are bad and the last nine are really good. We’re not going to list it because of that, we’re going to wait 90 to 120 days to make sure the maximum value can be there, even if that’s a year, which he’s applying exactly what we believe as advisors, we aren’t in a hurry to get you to market. Most people that want to list right away usually aren’t ready, the people that wait and then make sure that they have a calculated plan are the ones that are successful. And clearly Joe applied that on that, that’s absolutely amazing. So go ahead into what you’ve been doing since that sale.

Ramon Van Meer 8:18

Yeah, so after the exit, I made a mistake not taking a sabbatical, I should have listened to Joe. He also advised me to take a breather and just enjoy but I bought a couple businesses online businesses. I bought a SaaS one, I bought a YouTube channel and an ecommerce business. And a big mistake hindsight because it’s like there are so totally different businesses to run that you need different type of people and talents and processes. But I still sold the SaaS business. I flipped that one, the YouTube channel I still have but it’s basically on autopilot and then the ecommerce business that I bought started doing really well. And then I basically bought other smaller pet brands, it’s an ecommerce business into pet space. I bought other smaller brands and roll them up into one and then two and a half years ago I came up with the idea actually, I didn’t come up with idea I saw another brands launching and helping cat litter, started doing some research and then we decided to also go into that market and that little brand has been doing really, really well in the last couple years.

Pat Yates 9:48

It really has. I mean I was amazed watching the episode so I didn’t really know as much about the business till I got into that which is incredible. So the one reason that we’re talking today is because Joe not only did he help you sell a business, he helped link you with me which not that I had anything really to do with it. But what was it nine months or a year ago, we started talking about this with you getting on Shark Tank and talking about my experience and what things you need to do. How did that come about? How did you end up starting the Shark Tank process for Genius Litter?

Ramon Van Meer 10:17

Yeah. So I came to the States 13 years ago, and I think Shark Tank started the year before or two years before that. But I remember coming here to this country, I was obsessed by Shark Tank for some reason, because for me, Shark Tank really stood for the American dream, right. And I moved here because we wanted to achieve the American dream. So I was really obsessed by the show, I even made my friends listen to me pitching fake product ideas that I had, like, oh, this could be a great structuring product, they had to suffer through these horrible pitches of mine. But anyways, but I never really at that time, I only had like, very like online businesses, not no products or physical things that could be a shock thing product up to a couple years ago, when I bought my first ecommerce business, so I started applying the first time I applied was four years ago. So I applied four times until last year I finally got on. And every year I got a little further, but never made it to the last step. Until last year, I actually knew the casting because a cold director or casting person that helped me to three other times. She actually emailed me, like, “Hey, I see you’re doing Genius Litter, you should apply again.” And it’s okay. Yeah, let’s do it. So actually I have to give her a lot of credits, because she actually reached out to me. And I applied and as you know, that was the start of the million rounds and steps you have to do to finally get on the show. So at last April, so it’s like, nine months’ worth of work not constantly, but it’s like sprints, right, like you have to do some stuff for them and then you wait, and then you have to, it’s really a hurry and wait, again.

Pat Yates 12:36

That’s incredible. See, I think a lot of people don’t realize how difficult the process really is, and especially to get on. See what’s interesting about the two of us is we actually have a decade between our earrings, which is an unbelievable testament to the show. I was on season five, Episode 23. You were on 15. What is it, 10? What is yours? 15 and what?

Ramon Van Meer 12:58

15 and 12?

Pat Yates 13:00

Okay, so I was season five 23, you’re 15, 10. This shows just a monster when it gets to it. But people don’t really realize how difficult it is to actually get on and what the steps you have to go there. So I remember back to mine, like you I applied in season two, which was really early, and I got completely turned down. It wasn’t even close. So I just sort of dropped it. And then season five, the show was blowing up so much. They actually called me after they were going back through old application. So I had the opportunity to get back. But I was like I wasn’t even sure if I wanted to do it because the application process is so detailed. So tell me about your applicant. I know the application is just unbelievable. And the due diligence you have to do to get in it may have changed since I was in there. So tell us about that process.

Ramon Van Meer 13:44

No, I don’t think it has changed. If anything probably even got worse. I know that the application. So first you do the casting call, right? Like a casting producer, like will talk to you about your business and you explain and then basically, that’s step one. But then the application, we have to fill out these, like hundreds pages of questions of like from all the way like why are you an entrepreneur to your business to why you’re doing what you’re doing, your most successful things, your biggest fear, like it’s a very detailed application. That is still the case. And it takes like a lot of out because you want to do your best give them the best answers possible. So it’s a very detailed application process and then that’s where I fell out. The other times was the audition video. So you have to record a 10-minute video with your pitch and talk a little bit about yourself. And the three other times that’s where I basically fell off because my understanding is that they get over 20 or 25,000 applications a year. And then all the way to the end, I don’t know, like 100-ish, I end up going to LA to pitch the sharks. So it’s a very long process.

Pat Yates 15:20

There’s no question when I remember back to my mind was actually I think the taping was September of 2013, and actually aired in April of 2014. But I was down to the very last they called me and said, look, we’re full, we need two or three more spots. Here’s what we’ll do, we’ll fly you out, we’ll let you pitch in front of the producers and on the soundstage. And if we’d like you, we’ll keep you if not, we’ll fly you home. So it’s kind of a free roll to pitch in front of them to have to get on TV. Long story short, I killed the pitch I stayed on, and I taped the next day and mine ended up great. But were you in the same position? Or did you have a spot and you just came out and taped? Or did you have to go out and show what you were going to do before?

Ramon Van Meer 15:56

My case, I had a spot. So I had a date where I needed to get out there basically, I did a pre, they do like a pre-tape or I forgot how it’s called. But what you basically do your pitch in front of all the whole team, all the producers, but they do that over zoom nowadays. Before I think my understanding was people do it there in LA in person. Now, at least in my case, they did it over Zoom, but it was still intimidating because she can see 20, 30 I don’t know even — have like small Zoom videos of people watching you while you do the pitch. But yeah.

Pat Yates 16:43

That’s incredible. You know what’s funny is this changed during COVID I actually have a good friend of mine that I’ve traveled around speaking with named Chris Carrera, who also does a lot of mentoring of entrepreneurs. He was on during COVID, when they were taping at the Wynn. And based on COVID, he had to sit in his room for 10 days, if he walked out of the door, they sent him home. He said the fourth or fifth day he almost left he couldn’t take it. So it’s like some people go through way worse process than what we were able to do. But it’s still sort of worth its weight in gold. So let’s move on to when you actually taped. I mean, obviously I remember that day I was sitting there as nervous that you stand in front of the doors and saw that anxiety. Tell us about that feeling well, how did it feel when you’re getting ready to go?

Ramon Van Meer 17:29

I’ve been not as nervous as that in my life? Because before, so I was in the afternoon slots. So all the sharks are having lunch, and then you with a couple other intrapreneurs that will also take an afternoon, we’ll walk through the sets, right? Like a producer will just tell like, okay, this is where you’re going to stand. These are the doors that can be closed, he goes really in detail. And in my mind, I was just like, I should not forget, please don’t forget to pitch. Please don’t forget to pitch because sometimes you have a blackout Right? And they tell you like hey, there’s no redo. If you screw up, you just have to put yourself through it, we’re not going to reshoot if you screw up your pitch. And they tell you like walk up. So there’s a bunch of things you have to think about like, okay, you have to stand up, you have to stop at the indicator on the carpet. And on top of that you’re still also like, my pitch, and yeah, I was very nervous. And then also, like, you told me that actually like, when you walk on the carpet, it’s nothing to ride away, start you have to wait. And that’s felt like hours, because you’re just standing there in my case, I’m standing there with a stuffed animal and dressed up like Einstein, and just waiting for the producer to give the cue and then out of nowhere, you have to then go from being silent to give energy, 100% energy, right like, “hey, sharks, my name is Ramon Van Meer.” But luckily, I practiced the pitch so many times that I was able to, even if I was nervous, I was able to push through.

Pat Yates 19:34

You know what, I think the people out there really can’t get a perspective of what that’s really like, like, it’s such an interesting thing. You go up to your taping and you think you know everything is gonna go on. And really it’s kind of interesting because I could walk you through what’s going to happen. I never spoke to anyone that was season five, I was sort of like I had no idea what to expect. And for the listeners out there and we’re not giving anything away from Shark Tank. It’s a great show. We know some of the producers I still talk to some of them. But when you walk through those doors and walk up, you don’t just start talking, you stand on an X, and they take cameras in front behind beside in front of the sharks for 45 seconds. And it seems like three hours. Because you’re trying to keep a straight face, you’re trying to remember your pitch. And all of a sudden, there’s this pause that if you’re ready to roll, you’re definitely a stop. So, did you feel good through that process? And then started outright? I would assume because they edit it? I’m not sure.

Ramon Van Meer 20:26

Yeah, because I was able, I knew what to expect. That helped me a lot. If I didn’t know that. And then on the day, they’re like, hey, you have to stand there for a minute and just awkwardly look to the sharks. I will be even. But yeah, in my mind, I was like, you have to sort of smile. And I think they do it to take B roll so they can edit that in other parts of your episode. But I was just like, trying to, okay, the first sentence of my pitch, the first thing that went through my mind, but yeah, to your point, because you put so much effort in getting to the point getting there. It’s months’ worth of work and emotional rollercoaster, like, do I get to the next round? No, yes, amazing. Shifts, so much work. And then when you’re there, you just, it was very nerve-wracking. And on top of that, it’s like you have to sharks that are celebrities, and they have the cameras and the lights. And even though I didn’t see the people, but I know there were tons of people in the backstage looking, and it was intimidating.

Pat Yates 21:45

Yeah, for the listeners out there, they don’t really understand this process, myself was in there about an hour and 15 minutes. I don’t know how long you were in there. But there are no drink breaks, no bathroom breaks, you’re on the carpet, and you’re talking the whole time and it’s you against them with like 50 to 100 producers and hundreds of cameras sitting around you. It’s not the least intimidating spot. So how did you feel that your pitch went? Did you roll through pretty good? Or did you eliminate some things and miss it? Or did you hit it all?

Ramon Van Meer 22:12

Well, so the pitch was great, like the 90-second, two-minute pitch that everyone does in the beginning, that wasn’t great. And then you go to the question parts, and you don’t know what questions they’re gonna ask, you also don’t know where they’re going to hammer on or which not like, for example, when I told the story that I had an accent before, I didn’t know how they would respond, would they actually get mad because sometimes they’ve done where the entrepreneur and an accent before and then they the sharks were like, well, what are you doing? Are you already have money? Why are you asking money for your blah, blah, blah, but so you don’t know anything? They actually also don’t know anything about you besides your name, or the company name, because they see the setup, but they don’t know your background, they don’t know anything. So it’s very hard to really prepare what to expect. And to your point, I think I was there over an hour. I don’t know because it was like, sort of once I walked out was like, so. But after that I did think like, oh, man, I should have said, yeah, good more days. So a little bit more that but it’s very hectic, because the sharks also talk over each other, or you’re answering one question and then another shark right away ask you another so sometimes you’re like, wait, who do I need to answer?

Pat Yates 23:52

I think one of the things that I found out after taping that was most disappointing to me and most nerve-wracking is that I wasn’t able to see my episode until it aired. I don’t know if that’s still the same. But I was really nervous because mine went awful for about 50 minutes to that hour. Or went out quickly. Robert went out quickly. I had a BS royalty offer from the same people you did. We’ll talk about that a minute and then luckily got Mark to really make some amazing comments that brought people back in but it’s one of those things that is you get going in that your questions can either dictate your attitude and sometimes it can. I think you did an amazing thing by introducing humor early because it lighten the situation and I think it became more welcoming. So tell me about that process because I thought your pitch was amazing coming out in the Einstein outfit with Kevin O. Perry and stuff like that. If people haven’t seen it, you’ve got to watch it. It’s really awesome in the ending is even better. So tell us about the idea of coming in and in the outfit was it calculated to make it a little lighter?

Ramon Van Meer 24:59

Yeah, so the first three times that I didn’t get on, I did not do anything funny. But then I started thinking of, okay, the producers or the casting people, they’re getting thousands of audition videos, right? So I assume they don’t even watch the full 10 minutes. It’s like, I think it’s similar, like an employer going through resumes. They just like the first 30 seconds, that dictates so I thought, okay. All these videos, audition videos didn’t work before. Maybe I should do something that at least make a producer or a casting person stopped, like, Hey, what is this? What’s going on? Right? So that’s why I said, like, okay, let me try to do something funny, like an Einstein outfit with a real cat. And really try to sprinkle humor, humor is very tricky, because it could be, you can very easily overdo it. And, yeah, it worked. The casting people loved it, the producers that were assigned to me, also loved it. Because at the end of the day, it’s not a board meeting. It’s a TV show, right? So the producers, their job is to make sure this is the best TV and not a boring product presentation. So to prepare, I definitely prepared some of like, pawns that I could use, or like, funny thing and all the time, like, but it’s also like my product is also easy to use funny puns, right? Like Mark scooped up the deal, and I had this prop, right to Kevin O’Leary. And so Kevin made a royalty deal. And then I look to my co-founder, he’s like, no, my co-founder is not happy with that deal, right? Like, the product. And the setup was also a little bit easy to keep the mood lights, and funny.

Pat Yates 27:17

That’s incredible. I mean, the funny thing is, I walked through my barber went out quick, Robert actually went out quick. I had a royalty deal from Laurie and Kevin. And then Mark gave a speech. And then Robert came back in who I did a deal with. So walk us through what was happening with relation to the sharks because it changes your focus, if people go out, you really have to adjust your plan. It’s like anything else. Everyone says you have a plan to get hit in the mouth, and then you change exactly how your approach is going to be. So tell me going in maybe who you targeted how it happened, and maybe how you pivoted during that time?

Ramon Van Meer 27:53

Yeah. And that’s a good point, because you don’t know who’s going out. And they tell you like, Hey, make sure you have a bottom line? Like how much are you willing to give up before. And I came in asking $250,000 for 4% of equity. And because we are already established brands, we already retail and do have some decent size revenue, and so was willing to negotiate like, you have to go in there like you negotiate, that’s part of the deal, right? But you don’t know how much they’re gonna ask, like, Kevin is known for a role to the US but also being want to have a big chunk of equity. So you don’t know how it’s gonna go. In my case, my guest shark was Emma. I cannot pronounce her last name properly, probably agree. Ready. The Skins founder, she was very, like, I loved her. But it was not a product for her. So she went out first. And then Mark Cuban went out pretty quickly after. I did not try to really hard to convince the person instead of I just focus back on the three people that were still in and try to, because if you try to persuade a person, like, this rarely happens, and apparently a shark is out. Say I’m out. It’s not like you can say that the shark goes, oh, okay. Well, I’m back in right. So instead of doing it just focusing on who is still interested, Make your pitch there, but the other sharks are still listening. Right? So that’s what happened with me that I was talking with the three other sharks and we’re still a and then suddenly, I said something that piqued Mark’s interest again, and then he went back in. But it was a very tough negotiation. And the toughest part is, it’s not like, in real life, if you get an offer from a Quiet Light, potential buyer, you can sit for minutes, you can think for five minutes, you can call a co-worker or ask advice and let it process, but there’s no time to process you’re literally there. The sharks are looking at you. And it’s like, Roberts, they had an offer for $250,000 for 15%. And it’s like, yeah, I want to make a deal with this. I was trying to calculate what will be the valuation of this offer. And so I’m like trying to calculate, still responding to questions. Still rebuttal like, no, that’s too much like, because we have this and this going. So it’s very, you don’t have time to think basically.

Pat Yates 31:05

That’s a great point. Because people don’t realize this is a reality show, but it is your business, it’s on the line here. So you have to make the right decision. And it’s such an amped up, you obviously get in there and you get adrenaline running, and you may do things you don’t want to do, which is kind of interesting. So I want you to go into tell me a little bit. So I’m gonna go through it. I know that you said she was quickly out, then Mark was out. And then it sort of moved around. And it seemed like you did a really good job doing that. So I was astounded how great the end was. So maybe tell the listeners about exactly how all that worked out?

Ramon Van Meer 31:38

Yeah. If you haven’t seen it, you still see it. But these are a couple spoilers, but not like to your point is like the producers did the really pressed to use like, hey, do not accept a deal that you don’t want to do. That’s the worst thing, right? Like, just really make sure. But it’s hard because you’re there in the moment. But for me, I want it. I love all the sharks, but I fought especially for this product. I love Laurie a lot. I think she’s amazing. Also, her experience in retail and QVC and all that stuff, I think this product would be perfect for her portfolio. So regardless of who I definitely wanted Laurie in it as well. Second, I thought, okay, more sharks better. So it wasn’t like I want to target one shark, I wanted to actually have a deal with multiple sharks. So when Mark came back in, I did tell to Laura, like, “hey, Laurie, get in that same deal.” And try to persuade her to just go with Mark. And leave Kevin behind, basically.

Pat Yates 33:02

Yeah, that’s interesting, because you and I both had offers from Laurie and Kevin at the same time that included equity and royalty. It’s amazing how many times they end up sticking up. But at the end of the day, you go through this and you got Mark back in you got Laurie and you got Robert to all make an offer you got 60% of the sharks to come in on one deal, which is amazing. I mean, how did that feel when you were doing it? Right, then it had to be like a rush.

Ramon Van Meer 33:27

Yes. And they edit it amazing and they have to edit to make it a little bit more, but the reality was as soon as Mark set to 250,000 for 8% but you have to say yes. Between that and me saying we have a deal was very short. It was very like because as soon as he said that Lloyd jumped up and said like, we’ll match it and then Kevin was not feeling it, okay Laurie then go with Mark let’s all do it together. And then she said short and then she negotiated for the advisory shares, right? So it’s 8% equity 2% advisory shares. And then it’s like, yes, let’s have a deal. And then we jumped up and that was yeah, it felt great. When a while back, the producers and people backstage were like, you almost lost the deal was so it was very I think it was very close up losing the whole deal.

Pat Yates 34:34

Yeah, those things change in a minute look at Kevin. Kevin looked exhausted it’s like he must have been tired or something he laid back in his chair his head was up and he was just sort I think he knew when Mark came back he knew it was gonna kind of happen. Well that’s amazing and I know you guys are working through this, your show just aired so I’m sure you’re gonna be talking to Mark, Laurie, and Robert quite a bit. So post show now you had all this anticipation how’d you feel afterward? Regardless of whether the deal how the deal happens, or what happens, how did you feel about the whole process?

Ramon Van Meer 35:06

Amazing, I felt like everyone backstage super nice, the whole process the experience. And again, for me, it was also a bucket list item to have this experience where I really was there, not just for my business, not just to get an investment I was there for really for experiences, like I watched a show 10 years ago, and now I am on it. And it was well worth all the hard work the blood, sweat and tears. And everybody was really nice. But then even in the back of your mind, okay, we taped, but there’s no guarantee that it’s gonna get aired, right? Like, you never know, if you actually don’t get aired until they let you know later, months later, basically. So that was another emotional roller case there for like, how can we know? Should we buy inventory? Should we change the web? Like, you go through that roller coaster?

Pat Yates 36:15

And many times you don’t know, to really short notice. So buying products stocking things, you almost have to anticipate that it’s going to happen, but I have known people that stocked inventory and then didn’t air, like it’s really tough. I have another client that I work with it I travel around and do some speaking with. It has an unbelievable subscription box business. And they never got on it was amazing. And their business is astoundingly good. So it’s really tough to get on that show. It’s such an amazing thing. I mean, you just killed it. I mean, I don’t want to give all of it up. People go watch this episode. It’s really kind of the most recent one or a couple of weeks ago, right? So people can go watch that. So tell us a little bit about this. I know we haven’t talked and that’s kind of enough on the Shark Tank thing. I think it’s awesome, obviously was a great process. But tell us about Genius Litter and what’s going on in 24. I mean, I want people to know about your product and your business.

Ramon Van Meer 37:03

Yeah, let’s do some pitching. Hey, sharks, my name No. So Genius Litter. It’s a health-indicating litter, it changes color if your cat is sick. So cats are known to hide their illnesses, it’s very difficult to see if their behavior changes if they’re sick. It’s not like dogs, dogs, you can see a little bit better if they’re not feeling well. And a test out for UTIs bladder issues cancer issue like specific types of cancer. And if it changes color, and wants you to go to events who have it, double check. Exciting things is that we launched two new products. One is a health indicating topper, this little bag that you can sprinkle on top of your existing litter if you or your cat really likes our clay litter and we don’t want to change, you can still use our like topper. And that will change color if your cat is sick, similar as our litter itself. And then we have a doggy health indicating doggy pee pad, same concept your dog pees on the pads hopefully not on the carpet, but it’s on the pad. And it changes color if your dog has potential health issues. So we are really pivoting Genius Litter and more of a health monitoring product company versus just a litter brand? And yes, going well we are in targets pet smarts. We’re talking to a couple other retailers available online. And yes, it’s grown really well. And it’s also amazing, because we get tons of emails of people of like, thank you so much. I didn’t know like I saw the litter, you know, change color and then went to the bat and our cat turned out to have a UTI and then didn’t know. So it’s also like very good to see and hear the stories of our customers.

Pat Yates 39:17

I think it’s really amazing. And truthfully, I knew a little bit about the product. But until I watched it in practice on the show, I never really realized the scope of it. And what’s interesting is my wife and I, we had two cats, both of which are now gone. And one we just found out four or five months ago we put asleep had a tumor that we didn’t detect and had we had that. I don’t know whether it would obviously wouldn’t have fixed it, it might have been able to intervene. But worst case, we sort of felt terrible that we might have let the cat suffer for a while before we really found out what was going on, which we sort of regretted so once I saw this I’m like wow, if I’d have known that it might have saved the cat or it might have saved us a little bit of shame in our minds. I’m sure you get a lot of people to come in and tell you that correct?

Ramon Van Meer 39:59

Yeah, and it’s to your point, with the letter. It’s really like detecting issues earlier, it doesn’t really prevent the issue, but it detects earlier so that the cat is not walking around with kidney stone or a painful UTI for weeks until it gets so bad that you really start seeing behavior change. And it’s really just almost like a stoplight, like, hey, there’s a potential issue. Go to the vet, and especially all our cats, any cat above 10 years old, sooner or later is going to have kidney issues. So this litter will help you detect it early on, so you can go to the vet sooner.

Pat Yates 40:49

It’s absolutely incredible. I mean, I think the product is so amazing. I mean, it’s like, so let’s rewind it, you sold a business through Quiet Light, you were able to build another business that’s absolutely scaling and is helping people which is incredible. It’s not only a great business, it’s helping people in their pets who people are fanatical about. You got on Shark Tank, you have this great stuff going what’s next for Ramon, I mean, what else you’re going to be doing in 24, anything.

Ramon Van Meer 41:14

I’m focusing on Genius, first I’m going to enjoy my 15 minutes of fame, it’s almost done, I have a couple of minutes left of this 50 minutes, and focusing on building Genius Litter. And then my goal is to sell the business to strategic ideally, I think it’s a great acquisition for strategic. I don’t know when, but in the meantime, I’m gonna keep building. And but like with any business, I want to sell like, I consider myself a serial entrepreneur, I love to work on different projects, and you know, move on to the next thing. So the goal is to sell Genius Litter.

Pat Yates 42:06

I’ll send you over the engagement letter now, because I did that deal since Joe interactive, and I’m just messing with you. I think, Ramon, it’s really amazing. I think that the great thing is like everyone it Quiet Light this is just how big a community and I’ll brag on Quiet Light a little bit because we have so many great advisors, great people involved in this company. Everyone was engaged. When we had someone that was successful to quiet like they got on Shark Tank, man, you killed it, I’ll be honest with you, it’s one of the best episodes I’ve watched in a long time. So regardless of anything that turns out, you’re gonna find the growth, I know you’re getting involved in our Shark Tank Group now with Jake Xander. And I go to that show every year and speak, we’re excited to get out there and work with those entrepreneurs, I think what you’re gonna find is that you’ll become educational, and you’ll add so much value to other entrepreneurs via this TV show. It’s something that’s happened to me and I’m super excited about working with all these people. Have you had people reach out and ask you questions or wanting to work with you and otherwise?

Ramon Van Meer 43:03

Yeah, across the whole board, I got two people that want to apply to Shark Tank and wanted to ask them questions. And yeah, it’s very great to help other entrepreneurs that are starting that journey, all the way to retailers. And yeah, we have reached out. But I’m very happy that the sharks, but also the editing, I think they’ve did a good job of making it a really good episode basically, there was also a little bit of my fear is like, you have no control, how they, what the questions they’re gonna ask you, you also have no control how they’re going to edit it. Right? Like, are they gonna make me look like an idiot or like, are they gonna make you have no control over it?

Pat Yates 43:57

Well, the thing that I know is they don’t put I mean, looking at your business the way you pitched it, the reactions to questions. You’ve done an amazing job building this company. Some of that doesn’t come through on the show. I think also entrepreneurs up there look like at times like hey, I need — really need help. I haven’t done a great job. You did an amazing job building this business before you even got in there. I thought you position the price great, because it gave nothing but upside. It wasn’t an egregious amount of money. They could get involved and be engaged. I think you did an amazing job. But again, remote it’s always amazing to have you on the Quiet Light Podcast. You pumped Joe up early, which I hate doing. I don’t want to inflate his ego any other than that. I think everything we talked about so awesome. Well, man, I appreciate you coming on the Quiet Light Podcast today again, man. It’s always great to have you in place. Maybe we’ll follow up and see how it was six or nine months from now and all the change. I’d love to have you back. We’ll get a chance. Appreciate you today.

Ramon Van Meer 44:50

All right, thank you.

Outro 44:53

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.

Make Seller Fulfilled Prime Work Harder For You

Manish Chowdhary is the Founder and CEO of Cahoot, a peer-to-peer order fulfillment network of ecommerce merchants working together to expedite shipping at a lower cost. He is also...

Manish Chowdhary is the Founder and CEO of Cahoot, a peer-to-peer order fulfillment network of ecommerce merchants working together to expedite shipping at a lower cost. He is also the Founder and CEO of Pulse Commerce, the leading enterprise cloud platform for order and inventory management.

Manish is an innovator, thought leader, and highly sought-after speaker for all facets of ecommerce, business methods innovation, and omnichannel supply chain and logistics optimization. Insights Success magazine recognized him as one of the 30 Most Innovative Business Leaders and has been featured in The New York Times, Forbes, Internet Retailer, and other leading publications.

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

[01:50] Manish Chowdhary shares his professional background
[02:31] The genesis stories of Cahoot and Pulse Commerce and their offerings
[05:34] How Cahoot streamlines order fulfillment for ecommerce brands
[08:37] Manish talks about Cahoot’s business model
[11:40] How Cahoot differentiates itself from the traditional 3PL
[14:46] Cahoot’s ideal clients
[19:59] Manish discusses the Seller Fulfilled Prime program and how it’s different from the Amazon FBA
[23:47] The benefits of leveraging the Seller Fulfilled Prime at Cahoot as an ecommerce brand
[30:47] Cahoot’s data security measures and operational efficiency for ecommerce businesses
[34:43] Manish’s advice for ecommerce brands selling on Amazon

In this episode…

Distributing products to customers quickly is one of the rudimentary factors for success as an ecommerce business. It helps you satisfy your customers, retain them, and acquire more as they receive their orders as promised. Where can you find the most cost-efficient method to successfully and consistently deliver customer orders?

Ecommerce expert Manish Chowdhary says Seller Fulfilled Prime could be a game-changer for your ecommerce brand. The program allows you to deliver directly to domestic Prime customers from your warehouse, committing to fulfill orders with one-day and two-day delivery. He shares how Cahoot is helping brands leverage the Seller Fulfilled Prime program to grow.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Manish Chowdhary, Founder and CEO of Cahoot, to discuss how ecommerce brands can thrive through the Seller Fulfilled Prime program. Manish talks about Cahoot and Pulse Commerce, how Cahoot streamlines order fulfillment for ecommerce brands, the Seller Fulfilled Prime program, its benefits, and the ways it differs from Amazon FBA.

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

Hey 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.

Pat Yates 0:32

Hello, and welcome to the Quiet Light Podcast. I’m Pat Yates. Today we have another conversation we’ve had him on before but he’s so dynamic does such a great job announcing what his business does we have Manish Chowdhry with Cahoot.ai. He is such a knowledgeable guy and how to order manage he has a company called Pulse Commerce. He has a company called Cahoot.ai is what we’re talking about mainly, but he is really tied in to the distribution network hundreds of warehouses across the country that you can utilize your products in and be able to distribute them out. Seller Fulfilled Prime it really helps people that have that kind of program to be able to have this spread across the whole country. So how he’s trying to approach businesses taking warehousing, distribution, label creation and everything and putting it in one bucket so you have an easier opportunity to be able to run your business. He is so great at this and every time I send to find out new things about distribution. So I’m excited to talk to Manish again, let’s get right to it. Manish it’s great to have you in the Quiet Light Podcast today. How are you doing?

Manish Chowdhary 1:32

I’m doing great, Pat, thank you again, for having me.

Pat Yates 1:35

It’s always great to have you. I know you’re such a knowledgeable guy. We talk a lot about distribution, and your company Cahoot.ai. I’m sure the listeners out here may have heard of you before talk to you. But tell us all about where you’re from, and maybe a little bit of your background.

Manish Chowdhary 1:48

Yeah, awesome. So my name is Manish Chowdhary. I’m the founder and CEO of Cahoot. I also run a ecommerce platform and order inventory management platform called Pulse Commerce. So I’ve been involved in ecommerce since the early, early days. So I’ve seen it all. Having worked with SMBs for a very long time. So I’m excited to be here. Happy to chat about logistics, ecommerce, just everything that’s happening in the online world.

Pat Yates 2:20

I know we talked about a bunch of things we’re going to talk about, you really want to talk a lot about Seller Fulfilled Prime, because it’s a great thing. But tell us a little bit about the inventory management, the other company as well. I’d love to hear more about that.

Manish Chowdhary 2:31

Yeah, certainly. So we started originally, we built one of the first ecommerce platform, before the word ecommerce platform was really invented. This is late 90s, early 2000, when we used to call them shopping cart software, the turnkey shopping cart software. And, Pat, I know you were involved in a business that was a client of ours for a long time company feed. So Cahoot go, go way back. And so having worked with we start with the ecommerce platform, and then we quickly realized about a few years later that sellers, brands and retailers are struggling with making their back office efficient, meaning there would be stuff like they would end up selling items that did not exist in stock because the back office wasn’t talking to the front end. And I know all this sounds archaic today, perhaps in the Shopify awards. However, in those days, there was a real challenge into keeping the back office and front office. So for example, you took an order on the front end, how do you refund the customer? This a lot of those things. So we built Pulse Commerce to close that gap so that the customers have the same identical visibility into when the inventory is arriving? When can you take back orders when you’re not going to have to wait excessive periods of time? How do you communicate the status, alpha live inventory, on the storefront, all of those things were a real big challenge. And that’s what Pulse Commerce was solving for. And we took it all the way to creating fulfillment WMS warehouse management system. And what Cahoot what Pulse Commerce did not have is the order fulfillment services or a shipping software. And that is where Cahoot comes in. Who takes over where Pulse Commerce leads which is you create your factory, get your packing list. And now how do I efficiently ship the goods to the end customer and in many, many cases within one or two days without losing your shirt and do it profitably. So the two solutions and products are very symbiotic in nature, and they help complete the stack for an online seller. So that is why I’m so excited about even the integration that exists between those two tools that an SMB can compete with the likes of somebody who is much larger and has far more resources. But it’s all the power of tools and technology.

Pat Yates 5:03

It’s really incredible. I think in these days when people are trying to get product to people faster, some of these services are really needed. But it’s an interesting pivot because in the past a lot of people would have their own 3PL and maybe have Amazon shipped stuff all over the United States. But it seems to me like both businesses allow you to sort of have that Amazon Prime feel no matter what, what channel you’re in, is that kind of correct how the system sort of work together to where you can get things all over the country and manage warehouse and inventory fulfillment? Is that the idea?

Manish Chowdhary 5:33

That’s exactly it. And Cahoot is super flexible. So we wildly provide the cutting edge, the most modern shipping software, which eliminates the need for human to do rate shopping, say hey, should I ship this USPS Priority Mail should I ship it UPS ground? What services to use? Am I picking the right service. And so it will help you within your warehouse. But also, if you have a warehouse, let’s say which is not geographically close to your customers, you’re paying more in shipping costs because you may be shipping zone seven zone eight shipments which costs a lot more. And also they take a long time to have them delivered. So you’re losing on both sides, the customers are not super happy, because your products are taking much longer to be received. And that creates a window for the customer to cancel, they will go to somebody else who can offer foster delivery, free shipping. So this is a way for the brand, the retailer to also reduce the shipping span the shipping costs, in addition to delighting the customer. And our technology is so open and flexible that if you have a 3PL that you really liked, that you enjoy working with Cahoot will not impede that, Cahoot will simply enable them through the technology solution. And you can choose to augment additional locations in the Cahoot network. But we’re not looking to disrupt great relationships that are brand that our clients already have.

Pat Yates 7:04

Well, that’s really interesting. That’s a lot of flexibility. So if someone out there already has a 3PL they like and they’re selling, say an Amazon and Walmart, Amazon Prime and things like that, the system and Cahoot can just tie into their systems and you can still manage the same things without the warehouse change. Is that correct? That what you’re saying?

Manish Chowdhary 7:22

That is exactly right, we invite the other 3PL or the partner to come basically plug into the Cahoot network and they can start fulfilling orders without and then the brand the seller if they need an additional location and many cases, some brands some sellers that we speak with are winding down operations is very expensive to manage and maintain a warehouse leases, everything is quite expensive. So it is really whatever strategy our client wishes to execute insource or outsource or any combination thereof, can be achieved using our intelligent software stack.

Pat Yates 8:02

That’s really incredible. See the thing about it is now so what you’re saying is let’s talk about that base you can tie into their 3PL or you can be the 3PL and then they have the software that ties in to be able to manage it after that is the step to look at where across the United States inside your 3PL network they can start putting products so is it basically that’s where you start rolling it out across the country and your best areas maybe that you’re like if you’re cold weather oriented, the northeast, you got warehouse if your warm weather, maybe it’s in the west coast in California, is that kind of the next step for people to work with you.

Manish Chowdhary 8:37

Yeah, the way we like to go about recommending outlines should be solving for this is start with the business goals in mind. What are you trying to achieve? You know, is your goal trying to reduce cost? Or are you trying to improve transit time or speed of delivery? Or both possibly? And also looking at your sales data? How many orders are you receiving, and going granular by the SKU level, so there is, if you’re going to widely distribute your same inventory and you maintain very low or just in time inventory, so you have to take those things into account as well. Because how many days of inventory do you have? Do you have an FBA strategy? Are these standard sized items, these oversized items? So there’s a lot of depth of these. And we highly recommend brands and retailers to really work with somebody who understands this at the data level, not just gut feel and gut reaction because you could win the battle and lose the war. I see this all the time where a brand that might be looking for a 3PL for some reason, maybe certain brands certain folks are more comfortable having a 3PL located in their backyard, but the customers are located out across the country. So you could win the battle meeting you, you could go visit that warehouse. However, every one of those shipments or 60% of your shipments are going zone eight, zone seven. So it does not really solve the real problem. Meaning your customers are waiting. So it is a very, very data driven approach. And the folks that make our best customers believe in that they’re open, they’re transparent. And then you make your final decision based on all that. So we look at the data, we look at where the customers are located, what SKUs are shipping to what zones, and then we make a recommendation, which leads to a better total cost of ownership. And that’s it’s all about the total cost of ownership, just follow the same thread that you know, because your containers coming into California doesn’t mean that that’s where you should be storing all your inventory if your customers are located in New York. So it just requires you to analyze all the legs and all the cost centers, not just one individual piece.

Pat Yates 11:02

It’s really incredible, because you’re right. I mean, it used to be that people could piece a lot of different software together and other things like I have an inventory management system, and I use an external shipping system, I really should talk to you in my econ business about using Cahoot and your system. But I noticed on there, you talked about shipping and how labels could come out quicker and in bulk. And then you had some ability, I think a lot of people go out looking for separate shipping systems. But this one’s integrated. So tell us how this might be different than some of the national brands people would tie into their Shopify store, whatever it is, I’m not going to mention them. Because I’m not going to tell about your competitors. But how is this different? How better?

Manish Chowdhary 11:40

Yeah, that’s a great question. So we have migrated sellers, customers from nearly all the popular shipping software out there. Most of these tools, if not all of these tools were designed and built at least a decade ago, decade ago, Amazon Prime had just been introduced, there wasn’t that fierce expectation from the consumer for two day delivery. There wasn’t the amount of carrier even the carrier GRI general rate increases that have just happened at a very ferocious pace, about 5.96% is the headline compounded and inflation all of these things have really taken a toll on sellers and brands because they need to cut out every possible cost. These tools were built when hiring warehouse labor was easy and cheap. And none of that is true anymore. It is very difficult to find warehouse workers and experienced warehouse workers, the minimum wage has gone up, which means you could in the past just an order comes in, you would not put that on a scale, the person at the packing station, the user would simply use his imagination or her imagination, eyeballing the item to figure out what packaging to use, you’ll weigh the item, and then you will click on the UPS filter or you will look at the UPS rate, memorize that in your head. And then from the drop down, you will not select USPS. And you will choose okay, which one is cheaper, and you have no idea what the expectation is from the consumer meaning when should this order be delivered, that is not even available in the shopping and in the shipping software. So you’ll just make a best guess that I’m going to pick the cheapest label. And in the middle if your flow got disturbed, you know God help you and that’s the way how these labels are being generated one at a time being weighed one at a time. And Maverick decision making on packaging, were now the deadweight, you can tell. Now, when you look at the box dimension, either you’re entering the box dimension by hand or you’re picking the box. And if that puts a under one pound item to over one pound item, you’ve just already paid a lot more even though you pick the cheapest label, but you’ve picked the wrong cheapest label. But this is an example of what happens every single day Pat. And we have eliminated all of that in Cahoot.

Pat Yates 14:18

It’s really kind of incredible, because there’s a lot of money that can leak out that way. It’s like if you’re really not paying attention, so you get busy one day and you don’t compare those rates, you can easily lose 50-100 a couple hundred bucks a day. And that money starts to add up if people aren’t doing their distribution, right. What’s interesting about this, is there a client that is a certain, do you need a certain size of client? How big does a business need to be to be able to work with these systems? I mean, do you need a ton of SKUs are small or what is it?

Manish Chowdhary 14:46

I don’t think anyone who is doing at least I would say just 30, 40 orders a day could benefit from this because there is no obviously the more number of orders, the more the greater the value you’re gonna get because automation begins to really kick in, like, for example, it is a known common fact that Mondays are busy orders from the weekend accumulates on Mondays. So you need to get those orders out the same day, if you don’t get them out the same day, you’ve lost one day of shipping. So imagine if it’s a five day transit time, and you don’t ship the order out on Monday, the customer won’t receive it till the following Monday, as opposed to getting it on Friday. And that makes a world of difference and the consumers had that, is this shipper is this seller taking a long time to have these orders delivered. So you need the technology in case of Cahoot you come in. And when you log into our shipping software, all the labels already ready. It in fact even tells you what boxes to use or what mailers to use for each of them, that decision has already been made. And you can just simply focus on going picking the right item putting it in the box and putting the label and then our system starts tracking the transit or the delivery of the order. And if there is any mismatch between when we expect that shipment to be delivered versus when it’s actually got delivered. So if there was a problem, if there was weather related delays, I know we expecting a storm tomorrow and the Northeast, so you can get ahead of the problems and informing your customers that, hey, because of this weather related issues, your order may be delayed, but it’s not our fault. It’s because of UPS or the carrier. And the customers are very understanding. Whereas if you look at the legacy solution, or the traditional software, you’re just waiting for the customers to complain. And that’s just not the right way to build a long term relationship, especially if you’re trying to compete against the bigger, more established competitors.

Pat Yates 16:47

It’s really, really interesting. I mean, I think that you get such complex answers from a lot of places in warehousing. And sometimes people just get nervous, like, I have a business has a lot of SKUs. So for me to spread it around to a lot of warehouses, not top sellers, it’s difficult plus, I’m seasonal, do you need someone that’s kind of flat throughout the year, the amount of sales they’re doing are to seasonal businesses work well in this because it’s harder to predict the inventory, the ordering cycle, and some of it becomes a little bit more difficult is that a perfect kind of client too?

Manish Chowdhary 17:16

So there are two parts, we have the shipping software that people use fulfillment execution software that our clients use within their own warehouse. And then the second part is outsourcing. You can choose either one with Cahoot, or you can choose to do both. So just imagine that home and garden season is spring, those folks are not doing those many hours in Cyber Monday Black Friday, because that’s winter, so Cahoot because of its very large network, we have warehouses that have different peak cycles. So if you can identify your top moving SKUs, and this was the conversation I was having, just before we got on the Zoom call that, this is particular is an apparel brand, they have lots of SKUs. So it’s generally an 80/40 rule, you would take your top sellers and move them to another location, they go bicoastal or three locations, and then you can reduce your shipping spend that way. So the network is quite flexible. And the way to think of it is not either or it’s really taking smartly about what’s used make sense. And are your customers would you have a distinct advantage and conversion or customer satisfaction or ratings or reviews or sales rank as a result of faster shipping as a result of reducing your shipping span? And if it’s shipping span is that meaningful for you to get involved in and outsourcing relationships? So it really depends on, most of the time the answer is yes, I think the sellers may have been conditioned because of their past experience. If FBA, FBA distributes your inventory quite widely, so technically, it is feasible, you just need to do it in a smarter fashion.

Pat Yates 19:16

That’s incredible. So I know the main thing that you wanted to talk about you have an amazing network like I was astounded to look and say you have 100-plus warehouses that you utilize. A lot of that is really interesting, but sometimes overwhelming for infrastructure were people to think about. Seller Fulfilled Prime is what you really wanted to talk a lot about which I’m really super interested in because I’m a prime seller. There’s a lot of things that maybe I would put into Seller Fulfilled Prime, but it’s hard to get it to people you might have to air it if you don’t have that warehouse distribution all over the country. So tell us a little bit about when you talk to your clients, how you maybe have them pivot from so much FBA into maybe Seller Fulfilled Prime, maybe it’s both but how do you approach that as a company?

Manish Chowdhary 19:58

It’s a great question Pat, we have this conversations here at Cahoot with sellers every day about how do you strategically choose between SFP, which is Seller Fulfilled Prime, and FBA, it’s no surprise that FBA fees have continued to go up consistently. I was looking at some data back in November, that Amazon used to capture somewhat on 27% and please don’t quote me on these numbers. But directionally speaking, Amazon used to take with all its fees about 27% 10 years ago. And now that number is nearly 55% 54% of every, so 54 cents on the dollar of the GMV goes to Amazon, which is comprised of your listing fee, your sales commission, or the bonus, the Commission on the sale, then you’ve got the advertising, which is now in order to sell on Amazon, you have to do a lot of advertising, then you’ve got all these other fees, which are storage fees, and FBA, and are very recently introduced, which will be going into effect on March one, the inbound placement fee. And then not to mention that Amazon has now introduced a new fee, if you don’t maintain 30 days of inventory, at these regional warehouses, they’re going to start charging you even more. So that has not even been baked in. So the short version is Amazon is taking almost 54 to 55 cents of every dollar of the GMV. And it only really benefits Amazon for the most part. So if you are a multi-channel seller, you’re selling on other on your Shopify website on eBay, Walmart and other places, how do you take advantage of all that inventory? Now you’re between a rock and a hard place, if you send too much inventory to Amazon, you get hit by the long term storage fees. If you send too little inventory to Amazon, you will now get hit by the low inventory fees, then you have no control over the listing. So that means you have no predictability on how much sales you’re gonna get. And for whatever reason, if your listing gets temporarily suspended, or what have you, there is no recourse. So, which is why Amazon has this was a major point of dissatisfaction for a lot of sellers worldwide, including in the UK, the Amazon reopened Seller Fulfilled Prime Program, back in October last year, October of 2023. Because Amazon had a settlement in the European Union, where in Europe, Amazon has, in order to avoid some very excessive fines, Amazon has allowed sellers to still get the prime badge without requiring the inventory to be an FBA, which is the Seller Fulfilled Prime program. I can go into detail, but I’ll take a pause here in case you have a question.

Pat Yates 20:38

No, it’s unbelievable information. It’s really good. I think, sellers out there, they’re selling on Amazon on their own site, I can tell you that I know that sometimes your site feels like it’s got a disadvantage to Amazon because of their infrastructure. What you’re doing is providing that infrastructure for everything outside of Amazon, which is incredible. So let’s say there’s a listener out there thinking about buying an Amazon business or doing this, they don’t really know the numbers, you gave an overview. Is there a practical example of what you say, hey, if you’re selling something for 50 bucks, we know that if your cost is 10 bucks on that item, you probably have $20 or $25 in Amazon expense, how much can Seller Fulfill Prime raise your margin in those kinds of situations? Do you have any idea of that? I mean, a rough idea.

Manish Chowdhary 23:47

Yeah, so Amazon, so if this particular seller were to come to Cahoot, the process that we would follow is, we would look at all the Amazon fees, we would look at each of the Amazon SKU, and we would classify them just the way Amazon does into standard oversize, large extra-large, and then compute, what would it cost to have this item shipped through merchant fulfilled warehouses or to the Cahoot network, and then we can do a very detailed comparison into what’s key is more profitable to be outside of FBA. And still, so you literally do a SKU by SKU comparison. And then you account for other things like the placement fee, which Amazon has just introduced the storage fees, or there are certain SKUs, certain products like hazmat, so these are dangerous goods that Amazon does not even accept in their warehouse, then you also must look into other costs when I say that’s why I keep referring going back to the store total cost. And that’s super hard to compute because most people are just looking at top line, your rate of return. We routinely hear that damages and returns are significantly higher in FBA, also, Amazon FBA heard from several sellers that they tend to lose a lot more inventory. And so the seller ends up absorbing all of that cost. So when you look at all of those and do a SKU level analysis, we got a pretty good picture as to, you know, what would be more profitable and the savings could be as much as 30% or more, especially on the larger scale items. FBA to be fair, FBA is very competitive and the small, what we call smaller and lighter items, because that’s what FBA really wants. But on the large or oversized items, the savings can be very significant and very meaningful.

Pat Yates 25:49

That’s amazing, my wife started a small Amazon brand. And has one item that’s really big, it’s kind of an interesting opportunity. So tell me a little bit about when people come in to work with Cahoot, you have over 100 warehouses, I would have thought just in my mind would have been a lot less because if two day connects to two day connects, the two day connects the two day, it seems it’d be less, how do you decide where someone’s product is positioned? You actually look at where they sell into where their best states are, where their best times based on seasonality? How do you figure that network out? Because I figure at the end of the day, if you do Seller Fulfilled Prime at Cahoot, you’re gonna have these connections all over the country where everything is going to get there in two days, right?

Manish Chowdhary 26:30

Yeah, yeah. So we have a very large network, and that number has grown and continues to grow quite significantly, there are warehouses that specialize in larger, bulkier products, right. I mean, if you have products that are over 50 pounds, they are handled differently than if you had cell phone cases, then you also have products that require certain temperature control. So for example, anything that has alcohol in it, like perfumes and colognes, and health and beauty products, vitamins, nutraceutical, those products, in order to store them safely, the warehouse has to meet certain conditions, or if it is a food item, we may need FDA certification. So there are many, many attributes and specialties off these warehouses. That is why we have such a large network so that when a seller comes to us, and they have need for hey, I need to so batteries that dangerous goods, obviously, we will not store food next to batteries because they can cause potential contamination. So all of that is taken into account so that Cahoot can service the needs of the myriads of clients that have a unique needs. And then, as far as geographic distribution is concerned, we look at where your customers are, you know, if you’re doing wholesale in a b2b as well as retail. And also, where’s your inventory coming from? If your inventory is coming from China, it’s cheaper and faster to ship it to the West Coast of the US, as opposed to bringing that container to the east coast or even going to Texas. So it is a complex undertaking. I wish there was a simple answer Pat, we obviously make it super easy and simple for our clients. So Cahoot is like, think of it Cahoot as many FBA many Amazon. But without all the hassles, you have a human to talk to, you know, there’s some great folks in our network that provide outstanding service, we operate six days a week, Monday through Saturday, unlike the traditional 3PL that does Monday through Friday, lay cut-offs, and amazing software that gives you the visibility that you need, so that you could be operating in a different time zone, you could be operating at a different time and still be fully functional and be operational. So that’s generally been our approach.

Pat Yates 28:58

That’s really incredible. So let’s say there’s someone out there that’s had a business for 10 years, they’ve had the same 3PL for 10 years, and their regimen into what they do. But they want to take advantage of your ability to do Seller Fulfilled Prime, you already mentioned you can bring your 3PL and do that. Is that the process for someone? Is it that simple. And then they start distributing it out and they keep their one main hub and then you operate all the stuff that would be all over the country for SFP. Is that correct?

Manish Chowdhary 29:22

Yeah, that is definitely an option, that is an option. What we would typically do is we would request some data, because again, we want to make decisions, if there are savings to be had, we would love to, for all parties should know that upfront rather than guessing it, changing 3PL changing fulfillment and shipping is disruptive. Nobody wants to make that change, without knowing what the upside is going to be. So Cahoot takes away all that mystery. And, frankly, when we come across clients that are simply just saying, hey, give me a rate card, give me a rate card, that’s the way our traditional 3PL operates because they’re simply operating on rates as opposed to solving the real, providing a real solution, what is the right solution, and that requires a bit of collaboration that requires going under the hood, looking at the data, and making the right choices.

Pat Yates 30:24

Looking on your site, you state that there’s a 30% less costs with it, which is kind of amazing, because that’s a significant number for a lot of people’s business. The other thing that I found really, really interesting, so that’s a great thing. But you also talk about data security, which a lot of people are really sensitive to anymore, tell me how Cahoot is trying to address that, and making customers feel more comfortable.

Manish Chowdhary 30:47

So we already talked about distributed fulfillment, meaning an order comes in and then let’s say the same inventory is available at three warehouses, three locations. Right now, if the seller is using whatever tool or technology that they might be using, and they decide that this order should we fulfill, let’s say, buy a 3PL, they literally transfer all the content of that order to that 3PL, which includes the customer name, their personal information, there’s a lot of maybe they’re not sending them email and telephone number, but still, that other third party, all they need to do is they need to pick the right item, and apply the right shipping label, which is what Cahoot enables them to do. So they don’t even get access to a lot of the data that generally is available and by any other means. So we redact that information, so that the 3PL or the fulfillment company or the partner, even if that is powered by Cahoot, they only have just the right amount of information that’s absolutely necessary for data fulfillment. The best way to secure the data Pat is not to share it, if you don’t share, there’s nothing that will leak. And if I share it, and I tell you keep it a secret, that doesn’t work, once the information just leaves your enterprise and goes into some other third party systems then that system is exposed, and that system was vulnerable. So we take all of that and tightly control that because the data belongs to the seller, and we have a responsibility to secure that.

Pat Yates 32:32

Everything you talk about is such a value add in most ways, not only does it make you more efficient, if it saves you money, it’s even better. What’s interesting about what you do, I think a lot of people when they’re sitting there running their ecomm business, let’s talk about a solopreneur, for example, they’re always concentrating, how can I raise my sales dollars? How can I do this? How can I invest in marketing, the interesting thing is something like this becomes a value add to the customer makes your company look better, which is organically going to grow your sales, even overtop of the savings is that something you think goes on, because they see such a great customer satisfaction jumping in those things?

Manish Chowdhary 33:10

100%. Anybody you mentioned somebody who may be using a traditional 3PL or using one of the legacy or traditional shipping software in their warehouse, I think they owe it to themselves to come in at least speak with Cahoot as to what the upside is. And that is obviously situational. It depends on somebody, some folks have operations pretty tight. But without a doubt, Cahoot can either create efficiency in their own warehouse, or help them reduce their shipping span by better allocation or other better smarter placement of inventory, or simply through the operational excellence. So I believe that everyone should be at least exploring annually. I would say even if you have a great relationship with 3PL, it is important to do this annual check to make sure that you’re still on the cutting edge. And more often than not, and if we cannot find you hard savings, which is in terms of dollars and cents, and you’re not fully satisfied with the operational efficiency game that might be that’s at least something to keep in the back of your mind. But eight out of 10 times nine out of 10 times there are hard savings in addition to a great room for operational excellence that Cahoot can bring.

Pat Yates 34:30

That’s incredible. We covered so many great topics. You’re so knowledgeable in this space. Are there things either with Pulse Commerce or Cahoot.ai that we haven’t discussed today that you think would be important for the listeners to know.

Manish Chowdhary 34:43

I think the one piece that we may have covered in our last podcast Pat that if there are brands or merchants that do their own fulfillment, and they have a warehouse that they are running efficiently and they’ve got good practices in place and they have excess capacity, I invite them to apply to join the Cahoot network. So you can make money from your existing warehouse. If you’ve got spare 10,000, 15,000, 20,000 square feet, that’s just sitting idle, because your rent doesn’t change your utilities are the same, then you have an opportunity to apply to join the Cahoot network and make money that way. So that is one thing that I would cover this one of the pieces just Seller Fulfilled Prime, for anyone who is an experienced Amazon seller, or, you know, especially if you’re doing the larger, bulkier heavier items, come to Cahoot, let us do an analysis for you. It won’t cost you anything, it’s a no obligation. So at least you know that is this an avenue, because Amazon has opened up this program, I would encourage every seller, every Amazon seller to get that SSP status approved. It’s a process, you just don’t get it by clicking a button, you have to demonstrate to Amazon that you are SSP-capable, and you need to apply if you don’t have that status already, because you never know what may happen with the Amazon, this program was close for a very long time, it was just recently reopened. And during that time, I cannot tell you Pat, I must have spoken with hundreds of sellers who said I wish I had applied. I wish I had gotten this badge. Because when Amazon was running into inventory receiving issues, and they didn’t have enough space, only those people that had the SSP badge could actually continue operating, even with the Amazon constraints. So it basically requires them to apply for the Prime Trial. But in order to do that, you will need to fulfill at least 100 orders in the first 30 days as if they were prime. So you need an infrastructure in place. So even if you don’t have long term plans to utilize the SSP status, take advantage of it while you have it. And then, as part of this exercise, you may discover that yes, it makes sense to go prime on certain SKUs, maybe all SKUs. And if that can help you put an additional 10-15% on your pocket, that is money gained. And so I would highly encourage any Amazon seller who has at least decent volume to explore these options that are available to them now.

Pat Yates 37:32

It’s really incredible because anyone out there listening that says okay, maybe I have a problem, my inventory management system, or a lot of people that I talk to at Quiet Light that don’t even have one, they could come in and really learn how to be able to do that and tie it into your distribution network. There’s nothing but upside, at least having the conversation like we say at Quiet Light, we judge ourselves by the quality and number of conversations. It’s not about necessarily closings or listings, it’s helping entrepreneurs understand. And I think you’re well aligned in that, that if people come in, they could get an analysis of their entire supply chain and how to make it better. I think that’s really an amazing thing, because you can take from start to finish from that entire fulfillment process. So let’s say someone wanted to reach out to you and Cahoot and get a demo, how do they get in touch with you?

Manish Chowdhary 38:13

It’s super easy, just hop over to our website www.cahoot.ai and fill out the contact us form super easy. And a member of my team will get in touch and we will work with you. Again, we believe in data driven decision making. So if we don’t see savings, and if that’s your primary objective, or if you’re looking to upgrade the quality of service, whatever your business objectives are, Cahoot is perhaps the most flexible solution, in addition to being most cost effective out there. So I would highly encourage any seller, whether they are shipping from their own warehouse to check out the latest technology what they can that can do for you and your warehouse. Or if you have a 3PL, just do an annual assessment to make sure you’re still competitive. Or if you would like to explore other programs like Amazon Seller Fulfilled Prime or even adding a second location without trying what that can do to your top and bottom line. I think it is worth the exercise. It won’t cost you anything.

Pat Yates 39:27

That’s really amazing. And I think people easily can go there and sign up for that free demo and I’m sure they can find you on LinkedIn, correct. You have LinkedIn page in case some wants to reach out to you.

Manish Chowdhary 39:39

100%. I’m very active on LinkedIn. Please look me up Manish Chowdhary Cahoot. Yeah, please. I published a lot of information, a lot of content, deep content. So left anyone who was interested, welcome, please connect.

Pat Yates 39:57

It’s always amazing to talk to you Manish, and everyone out there, I would encourage you to reach out this is a really cool system. And the more that distribution continues to evolve, this is something that’s going to get bigger and bigger Manish, I really appreciate you coming on the Quiet Light Podcast again today. It’s always fun having you.

Manish Chowdhary 40:13

Pat, thanks again for having me.

Outro 40:17

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

How and When To Leverage AI To Grow Your Chat Funnels

Liziana (Liz) Carter is the Founder and CEO of GROW AI. This innovative chatbot agency leverages conversational AI technology to instantly connect consumers to ecommerce businesses via Facebook Messenger, Instagram DM, and WhatsApp automation. As a trailblazer in the AI industry, she has received widespread recognition for her expertise and thought leadership. Her contributions have been featured in esteemed publications such as Entrepreneur, Business Insider, and Tech Times. Liz’s professional background includes stints at leading organizations, including Triple2 Digital, Vinergy, and Dynamic 365 Group.

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

[02:21] Liz Carter explains how GROW AI evolved into a business
[05:33] How GROW AI is using the full potential of AI automated chat funnels
[08:25] Educating clients to overcome their aversion to using AI automated chatbots
[10:13] How automation engages your audience and multiplies organic reach
[13:17] Liz talks about who her ideal ecommerce clients are
[13:59] Can AI automation increase conversions and scale a brand?
[15:57] The benefits of automation: 24/7 personalized customer engagement interaction
[18:27] How Liz plans to scale GROW AI and her aspirations for the business
[20:00] Liz discusses how GROW AI handles objections, personalizes funnels, and maximizes conversions
[25:57] Does AI automation work with CRM systems?

In this episode…

In today’s fast-paced digital world, social media platforms like Facebook and Instagram have become essential tools for businesses to reach their potential customers. However, with technology enhancements and the number of followers increasing, staying relevant and efficiently running the business becomes challenging. How can you take advantage of AI automation to grow your business?

AI expert Liz Carter says businesses can save time, effort, and money and engage with customers by leveraging AI automated chat funnel strategies. Systems can use advanced AI algorithms to provide personalized responses to customers’ queries, helping businesses build stronger relationships with their clients. Through Facebook Messenger, Instagram DM, and WhatsApp automation, brands can educate their customers about their products and services, convert them into clients, and ultimately grow their business. She shares how these chat funnel systems are the perfect solution for companies looking to enhance customer engagement and retention rates.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Liz Carter, Founder and CEO of GROW AI, to discuss how to monetize socials through AI automated chat funnel systems. Liz explains how she maximizes the full potential of automated chat funnels, what the benefits of 24/7 automation are, how AI automations engage your audience and multiply organic reach, and what the impact of automation is on growing a business.

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.

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

Episode Transcript

Intro 0:07

Hey 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.

Pat Yates 0:32

Hello, and welcome to the Quiet Light Podcast. I’m Pat Yates. Thank you for joining me again, today I have a great conversation with someone from the other side of the Earth, she puts another shrimp on the barbie as they would say, Liz Carter from Australia. And she’s a fascinating lady, because she took AI immediately and turned it into a business that she could scale. So grow.ai, if you’re thinking about doing AI is something that everyone would want to look at. It’s a fascinating space to get into the AI. Some people are a little bit intimidated by it. But if you’re looking at chat funnels, and you work on Facebook and Instagram, this is a place to talk to her. Because so if you’re spending a lot of time replying to customers, or if overnight, you’re not being able to get to people, building these chat funnels, to where people can get things done, it’s going to make you more efficient, it’s also going to make your business look better. So it has a chance to not only engage with customers, grow your sales, make your customer services here and automate a lot of things that become painful. It’s one of those things that you could really learn from as well as you can obviously scale your business and gain time. I think that this was sort of foreign to me a couple of years ago. And as I’ve started to learn more about AI and what it can do, these are the kinds of uses that small business and ecomm people should really be concentrating on. I think Liz is an expert in this and she’s right on the cutting edge of understanding it. So I think there’s gonna be a lot of actionable tips come from this today. She’s a fascinating lady. I can’t wait to talk to her. So Liz Carter from GROW AI. Liz, welcome to the Quiet Light Podcast. It’s great to see you today.

Liz Carter 2:00

Thanks, Pat. Thanks for having me. You too.

Pat Yates 2:02

Absolutely. I’m so excited about this, it’s like AI is coming to people’s minds so much here recently on a lot of ways, some good, some bad, some indifferent, but it’s something that everyone’s kind of dealing with. So I’m really excited about this conversation. So I know your businesses GROW AI but tell us about you where you’re from, and maybe a little overview of the business.

Liz Carter 2:21

Yeah, I’m Romanian, you can probably tell by my accent. I live in Australia. I’ve been living here seven years now with my daughter. And I started GROW AI in 2019 following an idea that I had even earlier than that. During 2016 2018 I started learning chatbots I started building chatbots playing around with them. And I was doing that mainly for my online fitness business. And so in 2019, I kept thinking about having my own business. And I came up with this. So I started GROW AI in 2019. And it was right before COVID. I went after local businesses as my target market, which wasn’t the best approach at that time. Because right at the time when I was getting my very first client COVID hit. And so I had to pivot really fast during COVID. And at the same time because I was only building chatbots like automation back and forth automation, rule based job was not AI. That was a good opportunity for me during COVID to start learning AI and how AI would work with Facebook Messenger. At that point, Instagram DM was not Meta approved Instagram DM automation, it was just Facebook Messenger. So around COVID, I started pivoting and going after ecommerce brands, which was really the only thing that was working at that point. And I got my first clients took me about six months to start getting clients. But once I did, I started getting them very good results like I was driving sales for them many sales leads at the same time with everybody who has a business or only would always look at what an extra revenue stream for me like, what’s an extra sales channel that I can tap into that nobody else knows. Like, if you’re the first to do something, then you’re capitalizing on that channel. So that’s how I started GROW AI and over the last four years, we’ve had some incredible growth to the point of where in March next month, we were accepted to go to an in-person workshop with Alex Hormozi and his team. So that’s exciting because I’ve been following him for a very long time. And I just didn’t have the numbers to qualify to go and work one on one with him and his team. So we’ve been growing really fast mainly working with ecommerce businesses. That’s where we shine that’s literally been 95% of our clientele. But past that point, we’re getting a lot of interest from coaches course creators who also want to automate their Instagram DMs and do it the right way and kind of take the shortcut.

Pat Yates 5:09

That’s amazing. So I mean, obviously being in Australia, it’s fun because you get to work with United States companies and a lot of international probably too. So let’s jump into what you said the business about some people understand what a chat funnel is, you’re trying to automate that through AI and be able to increase people’s chat engagement. So tell us a little bit about the chat funnel and why you’re focused stay there.

Liz Carter 5:33

Almost nobody’s using it at its full potential right now. So when you’re seeing massive accounts on Instagram, try to DM them, it takes a while to get a response. And all of these are low hanging fruit. So when you’re looking at a brand that has an established social presence, them not having an automation that a minimum inside of their DMS, cost them money. And so when we look at a chart funnel is not just a one back and forth, let’s say I send something and I get something in return. It’s a guided experience that has a purpose, either to capture leads and buy leads, I mean, emails or phone numbers, or to drive sales. With close to no human support, there is an element of where the human may step in. And that usually happens if this user has a question or two, they ask the question, the AI would kick in based on a knowledge base that we fed it previously. If it understands the question, it will answer it. If it doesn’t understand the question, then it will open a conversation with the human team. So it’s about starting more conversations with followers, even non-followers, even people who don’t follow, you could land in your DMs and guiding that conversation to a predetermined path. So think about it. Just like you’d have a marketing funnel, you have a Facebook ad that leads to a landing page, people opt in, get something, buy something as they drop off, you retarget them with page, Facebook ads, right? In this example, you do the same thing. People start a conversation, you lead them through a path. So for example, hey, we have 30% of today, type your email below and I’ll send it to you right now. Then they get the email. And then they get the deal in the DMs. And if they don’t purchase, you will be something along the lines of them. Browsing your website not purchasing dropping off, then you have to pay for retargeting ads to bring them back. In the case of them being in a chat funnel. If they do get an offer, and they don’t purchase, then that automation is programmed or scheduled to start new conversations with these people to start to educate, ask the Frequently Asked Questions understand what they’re not buying. And that can go over weeks, sometimes even months until they place an order. So think about retargeting, but it’s for free.

Pat Yates 7:59

Yeah, that makes a lot of sense. What’s interesting about it is I think this is so new that a lot of people may have a little aversion to trying to do this or like, well, I don’t want to automate something. Because what if they say something wrong? Or it doesn’t represent my brand? Like I do? I think entrepreneurs are a little nervous sometimes to turn that over to what would be sort of automation. So how do you get past that reservation with people if they’re trying to make the decision of whether they go ahead and try to automate this?

Liz Carter 8:25

You make a great point. I think in my first two to three years of running the Chatbot agency, I ran into a lot of aversion towards automation and chat bots, people who just didn’t get it to understand what they are. AI wasn’t even a thing back then, although we were doing it. And so I feel like from we’re seeing from the sales calls that we have a lot of people who come and they actually see the potential of this technology, they have that aha moment where they understand how much they can actually do. So, for example, they can literally be capturing people into conversations, from them replying to stories from them commenting on their posts, from them, clicking on one of their Facebook ads, which is huge, because everybody struggles with Facebook ads right now. And imagine them clicking on a Facebook ad and starting an automatic conversation on the spot that takes them through a path. And so what we’re seeing is that when people are educated enough and understand the true power, and by true power is simply looking at the conversion rate. So an ecommerce website converts anywhere between one to 5% maybe if they’re lucky, a chat funnel from our data converts anywhere between seven to 39%. And by that I mean sales.

Pat Yates 9:50

Yes, that’s definitely me. So the impact that you can have on sales or something this small because it’s catching people that all the time because like live chat is not usually available for some people there and bed from midnight to say, 6am. So definitely fill some gaps. Is that part of it? Is it to have a consistent 24 hour presence? Or is it to have less work on you? Which one is or is it both?

Liz Carter 10:13

It’s both, but also pushing more people into these conversations. Because it’s not just people DMing organically like people, I just had this idea, I’m gonna DM this page, you’re telling them, hey, comment 30 below, and our thing I’ll send you 30% off, today only. So you’re literally getting them to engage. Whereas a lot of the brands out there do not engage people in this way on their Instagram, for example, more so what we see is that the brands that use the type of technology on their Instagram stories, and posts or reels, get on average, anywhere between four to six times more organic reach. And like we have clients that see anywhere between 10 to 20. So whereas previously, they used to get maybe three to four clients, three to 400 views on the reels, now they’re getting 10,000. Just because they create all of that engagement, the more people comment and then interact in the DMs, the more the algorithm shows that piece of content to more and more people. So, it is a win-win-win.

Pat Yates 11:16

That’s definitely the case. As I read through your site, it became like, one of the biggest questions is how long does it take for people to actually engage and get results? So tell us a little bit about that. I don’t know if it starts out where just because it’s there, people engage or if people are standoffish to it not understanding it yet, as customers, how long does it take to actually get good traction?

Liz Carter 11:37

it can literally be overnight. So I have a done for you agency, where we go in and we pretty much do everything, we build out one of the platforms usually takes about seven, seven days to build it out. Once we launch it, it’s just a matter of traffic. So if you only have one person engaging with your content, I mean, you might get their email address, but the whole thing is to create traffic inside of the DMs. So getting people to comment, reply to stories. And that can literally be overnight, you can literally engage 2000 people overnight. And then from there, it just blows up, you get their email addresses, and you start leading them to a purchase. And that purchase may not happen immediately. But like I said, if they don’t make a purchase, then the Chatbot will start new conversations over the next few weeks, and ultimately drive into a purchase.

Pat Yates 12:30

Right? So to understand right now, this is only available on Facebook and Instagram. Do you see that expanding? What other market places and things would you be looking at in the future to be able to utilize?

Liz Carter 12:39

It’s also available on WhatsApp and Telegram, I think meta will keep expanding on this. But for now, the most functionality we have is on Facebook, and Instagram DM, but you can also do it on WhatsApp and Telegram. We haven’t seen that much interest in the other two channels so far.

Pat Yates 12:59

Right? So this technology is really just starting because you’re sort of on the infancy of where things will actually expand. So what kind of client is perfect for you? I mean, is there a certain size of business that needs to work with you? Or is there a time when someone needs to think oh, this may not be for me or is it doesn’t matter?

Liz Carter 13:17

Ideally, the type of client that has some website traffic and some social engagement by that I mean, what we’ve seen is that ecommerce brands that do at least 50k could be even less if they have a massive social presence, that they’re not just not monetizing. So ideally, they will do maybe at least 50k a month through the shop, and have maybe five to 10,000 followers on Instagram that we can start getting into to get the ball rolling with. Yeah.

Pat Yates 13:46

That’s awesome. So tell me a little bit about the growth of the company. I know you started it recently. Have you seen a lot of traction and success stories with clients? I mean, what are some of the best results that you’ve seen so far.

Liz Carter 13:59

And one of the best results, and that’s what usually attracts people to work with us is capturing emails at a very high rate. By high rate I mean, 92 to 99%, like a website pop up will do a 2% maybe. Whereas in the DMs we managed to get emails from anywhere between like above 90% of these people, which is huge, because these brands are list building at the same time, but then it’s the conversion rate. So people actually purchasing from an automated chat funnel, which is anywhere between seven to 39%. And that’s huge, because we have ecommerce brands that come to us. And they’re doing 1%, 2%, 3% and then they launch this and they instantly get seven, 10, 11 they will start low, slow, lower. And then based on how the optimization has funnel, it’s going to start doing more and more and past this point, it’s scalable. So it is scalable with messenger ads and Instagram, DMS So once you have a conversation that converts people, let’s say 10%, then you’re going to put some money behind it and pay for traffic to get people to start these conversations from an ad.

Pat Yates 15:12

Sure, that makes a lot of sense. So me Is this, like my econ business that I have was on Shark Tank in 2015. A lot of people we come in have a lot of traffic. So Are there limitations to how much you can handle? Let’s say that you get at a TV appearance, and you have 5000 people that come in the site, you have 1000 people that can currently try to talk to you? Is it scalable to that level for ecomm? Yes, yes. Because I think that it’s always important to get quick feedback to customers, because if not, they’re going to look other places. So tell us a little bit about what you think. I mean, to me, the most important part of this is being 24/7 available, like it’s me, is that the best thing here? Is it to be able to market back to undo promotions. What other things can you do with it?

Liz Carter 15:57

I think it’s both. So you want to give both market. And when I say promotions, and I give an example. It’s not just about leading with giving a discount, it’s also understanding them. So educating them, asking them questions, maybe quizzes, understanding what their interests are. And then based on that, map out new conversation experiences, to cater to what they said they were interested in. So it gets more personalized with each future interaction. But at the same time, the nonstop round the clock, live chat or just support is super important, because people just don’t have the patience to wait for live chat. And you said something very interesting to speak to them as if it were you actually in the States, at least, you have to tell people that they’re talking to about by law. You can’t say hey, it’s Pat is like or it’s Pat bots. So it’s Pat’s virtual assistant. And people are actually very comfortable engaging with an automation back and forth, and sometimes share a lot more with an automation than they share with their spouses, or friends. It’s like going to Google and looking at something that you don’t want anybody else to find is the exactly the same thing.

Pat Yates 17:12

Yeah, that’s really good. So sitting back in 2020, people are home, the pandemic, a lot of things around the world were crazy. What makes you focus on this because it’s like, it’s so progressive. Now, a couple years ago, people had ideas of this, but didn’t have the ability to implement, what led you to do this?

Liz Carter 17:29

I did a lot of research. So I had a job in the Microsoft space, late 2019, which I quit. And then I started doing research. And based on my research, I landed back on these chatbots that I had built previously. And I felt that this was going somewhere. Honestly, I couldn’t tell you what made me it good. But from following all sorts of different people and seeing what they are doing, and then AI came up. And I’m like, That’s interesting. Let me look more into this. And it was just I had nothing better to do with COVID.

Pat Yates 18:05

Some of the best ideas are born out of that. There’s no question about that. So tell us about what is the plan for you in 2024, you’ve obviously got a great system a great business, and it’s something people need, are there alliterations of this that will go into say Shopify and other places, what the plan for the future for GROW AI?

Liz Carter 18:27

Caillat that’s ongoing to the workshop with Hormozi, I want to understand what’s the best and fastest way to take this to a million a month and beyond. And do it in the right way where I don’t scale a sales team faster, too fast. And then the fulfillment team breaks because they can’t handle it. That’s one main objective. And the second one is, we’ve actually built our mini SaaS on top of the main chatbot platform that we build these chat bots on. And so it’s very important for us to package at mini SaaS that’s, that’s a tracking system that allows us to understand how people buy when they buy what makes them buy, and kind of give back this all of this Intel back to our clients. So we need to package that into a less a user friendly version that our clients can handle on their own. And they don’t need potentially my team to kind of tell them everything that’s happening in the backend or just be afraid of touching something that it because it breaks. So this will be my main focus is over the next 12 months.

Pat Yates 19:34

That’s really interesting. So I think that where the rubber meets the road with a lot of people and I noticed on your blog, you’d written an article about five techniques of sales benefits for DTC brands that you can do using AI. Do you mind giving an overview to people that have ecommerce businesses of maybe how it can impact your sales and in what ways I know answering questions quick makes people more engaged. But there are actual techniques to increase your sales inside of this. If so what are they?

Liz Carter 20:00

Yes. So first of all, is when you look at a chat funnel, before we even launch any of these, we always ask our clients, what are the main reasons why people don’t buy from you immediately. So they’re going to come to us and say, hey, they don’t buy because of this, they don’t understand shipping, will this work for me? How does this work? What’s the best product for me? And so they give us three to five reasons that we build back into the chat one. And those are ways of less handling objections if these people do not purchase. And so that allows us to basically get those high purchase rates, like anywhere between seven to 39. So that’s one thing. The second thing is the personalization behind these chat funnels. So when people engage with a chatbot, they’re asked questions about their interests, and allowing us to understand what to recommend to them. That makes sense for their current needs. And that brings the personalization level to such a level that when they get a recommendation, that is exactly what they were looking for. And we tell them because he told me this, I’m recommending this for you. So all of these are like pieces of the puzzle that leads to higher conversion rates. Any ecommerce brand that doesn’t do this right now will likely have to catch up in a few years. Because we get people on the phone call with us sometimes. And they say, Yeah, this is not just not the right time for me, or everybody else is doing it ahead of time. And that’s where you kind of draw the lucky ticket when you get ahead of what’s going to happen when everybody does it. It’s a little bit late.

Pat Yates 20:01

So let me ask you this. I’m sure people come in they’re skeptical, because I think a lot of people think about machine learning and AI and there’s a little bit there’s a lot of people that really embrace it. But there are a lot that say, you know what this may not be for me, here’s some of the bad things. How do you get over the aversions of people looking at this saying, hey, I may or may not need this? How do you connect with them to make them feel more comfortable about where machine learning and AI is going?

Liz Carter 22:11

I think initially, it’s just a matter of crunching the numbers. And we have how are you driving sales now? And if that number, the 2% conversion rate that your website had changed? What is our double? What would that do to your business and your total turnover? And more than that, we have a lot eight video testimonials, I don’t think they’re on the website. So I know you’re looking at well, on the website, we have a lot of video testimonials that we send to them. And that just proves the impact that this has on an ecommerce brand. And not just numbers wise, it’s just about building relationships with an audience that you previously were not building. So, you weren’t understanding your audience. You weren’t creating a connection. And that matters a lot on the long term in terms of how do you actually treat those people before they become a client? And also after that.

Pat Yates 23:09

That’s great. So I know we’ve touched on a lot of things that obviously you have a great business, I think this is really fascinating, because I’ve seen some of it I’ve thought about doing in my ecommerce business. What are the things inside GROW AI do you think people should know about in your business? I know we’ve touched on most of it. But are there other facets to it that you would want them to know go?

Liz Carter 23:28

I think one of the most important things, and this is probably one of the main, the first objection that we get is like, I wouldn’t know how to do this. So if somebody comes to me, like, I get this, this looks amazing. I just, I have no idea how to do it. I don’t have the bandwidth to learn it or to do anything for that matter. And the thing about GROW AI is that we pretty much do everything. It is 100% Done For You agency where we come in, we understand your brand, your process, the way that you sell your customer, and then we build out everything in the back end. And not only we build it, we launch it, we optimize it, and then it’s yours. So we’re pretty much building something that then becomes your IP and you retain it, it keeps working inside of your DMs as an evergreen structure.

Pat Yates 24:15

That’s really incredible. So if the people out here in the audience, and obviously we’re talking come to you and want to say, Hey, I’d like to learn about this. Do you have an ability to do a meeting with them and tell them about it? Have you assessed their needs to be able to get them on boarded?

Liz Carter 24:30

Yeah, absolutely. They can get on a call with one of my strategists and they look at their business and they understand exactly where they’re at, how much traffic they have, what’s the potential to them, and then they’re able to map out a game plan for them.

Pat Yates 24:46

I think that’s really amazing. Because the more that I talk to entrepreneurs, the more that I see they’re trying to automate systems to get leaner if they can save two hours a week by doing something like this. The value is really incredible, right? Because their savings in both directions. I mean, when you do your case studies, is it better that two people see the sales trajectory of growth better? Or do they look at the time savings and ability to? Or is it both?

Liz Carter 25:10

That is a very good question. Now that I think about it, they focus a lot, they don’t focus at all on savings, if I’m being honest, or they just haven’t mentioned it. Inside of our testimonials, they are just mind blown by the potential by how many emails are capturing at such a high rate, and all automated by how many sales, they’re driving, how this has changed the way that they communicate with their audience and how they’re building relationships, I feel like they’re focused a lot on this other side of generating results that they have not so far more so than saving, but they are saying as well at the same time. And they just don’t focus on that side.

Pat Yates 25:49

It’s really fascinating. And I think you even say that you can tie it into your CRM systems, right? Or there, can you name any of those that you work with what kind of system.

Liz Carter 25:57

Mainly Klavio, MailChimp, Active Campaign we like most of our clients, because they’re ecommerce, they use Klavio. That works seamlessly. So at the point where somebody opts in to a chat funnel, they give us their email address, then they’re immediately and instantly flows to klavio and potentially triggers an email sequence that complements the same conversation in the chat. So it’s gonna send something, hey, here are your quiz results. Come back to me when you want to shop or something like that. So it complements the same conversation, they took a quiz, and they got this recommendation, because of what they said they’re interested in, then the email would pull the data from the DMs and send an email that complements the same chat they had.

Pat Yates 26:43

That’s amazing. So this has been an awesome conversation. I think people should look at this more because I think automation really helps people get leaner and be able to do a good job and other faster business, I think you have no idea how much this could benefit. Because if you’re saving time in one direction, you might make it in the other one, if you’re working on it, not to mention the fact that the system itself can help you increase your sales. So let’s assume that our people out there our listeners want to get in touch with you or GROW AI. How do they do? How do they get in touch with you, Liz?

Liz Carter 27:10

Yeah, they go to our website, getgrowia.com and they can schedule a call with us there are a few freebies if they want to read more before jumping on a call with us, we have a free guide the seven install automation, money secrets that kind of breaks down all of the ways that they can use this technology to make more money and have happier clients. And then from there, at the end of that guide, they can also schedule a call with us. And if they want more freebies, they can go to my Instagram Liziana Carter and if they comment on my reels they will get an automated DM.

Pat Yates 27:44

There they go. Now they can come online and find you and be able to get a little bit of a bonus. Liz this has been an amazing conversation obviously, you’ve done an amazing job getting ahead of technology. I really am fascinated by people that take the new technologies and apply them and then just grow it because you’re way ahead of the curve on this. So few listeners out there again this is grow, the website is getgrowai.com the business itself is GROW AI, Liz Carter, it’s been amazing to talk to you today. Thanks for coming on the Quiet Light Podcast.

Liz Carter 28:12

Thank you for having me.

Outro 28:16

Comprehensive Tax, Exit and Family Planning for Exceptional Business Owners & Families

Sean Duncan is the Founder and President of SMD Consulting & Accounting, LLC, a firm using a multifaceted approach to helping people and businesses build and preserve life-long wealth...

Sean Duncan is the Founder and President of SMD Consulting & Accounting, LLC, a firm using a multifaceted approach to helping people and businesses build and preserve life-long wealth by focusing on financial planning, asset preservation, and investment management through strategic tax planning. He is a CPA who has established his reputation as a thought leader in the accounting industry by focusing on advising, teaching, and helping clients with proactive strategy and planning.

Over the last 25-plus years, Sean has accumulated a diverse and unique set of credentials and knowledge that he shares through speaking at conferences and events, in private seminars, and one-on-one with clients. He also founded Chief Proactive Advisor, LLC, which provides training, coaching, and systems for CPAs and accounting professionals to support them in transforming their firms and building stronger client relationships.

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

[01:45] Sean Duncan explains how SMD Consulting & Accounting, LLC is unique
[03:22] How SMD focuses on its ideal clients
[06:45] The value of professional accounting advice — before bookkeeping gets messy
[11:24] Preparing accurate financial statements to help make management decisions
[14:18] Sean’s comprehensive consulting approach
[17:31] Why SMD brings accounting, investments, and strategy under one roof
[23:05] How Sean collaborates with clients to analyze and plan mergers or acquisitions
[25:43] Sean’s love of teaching — advisory work through the Chief Proactive Advisor program
[29:44] Sean explains how identifying his WHY maintains balance in his life

In this episode…

Many entrepreneurs struggle to balance financial and bookkeeping responsibilities while managing a business. Getting help to navigate your obligations and make solid decisions is essential to grow a business effectively. Should you hire a CPA, a tax advisor, a financial planner, and an investment consultant? What’s the best course of action to get the guidance you need?

According to Sean Duncan, a seasoned strategic consultant and CPA, the benefits of a comprehensive and collaborative approach to the financial aspects of a business are many. Rather than separating functions, bringing accounting, investment strategies, and significant business objectives together provides a holistic view for making sound decisions. Using this method helps to identify areas that need improvement and allows the consultant to pinpoint places that should be refined, thereby customizing solutions for each client. Businesses can save time, money, and resources and make informed management decisions when they enlist the help of a professional strategist who blends their services into a collective package.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Sean Duncan, Founder and President of SMD Consulting & Accounting, LLC, to discuss how he works with small businesses. Sean talks about how SMD is unique, why a comprehensive consulting approach eliminates redundancy, how financial statements aid in making management decisions, and what strategies he uses to prepare businesses to sell, merge, or acquire a new business.

Resources mentioned in this episode:

Sean Duncan on LinkedIn | Facebook
SMD Consulting & Accounting, LLC
SMD Consulting & Accounting, LLC’s Email: [email protected]
Quiet Light
Quiet Light Podcast on YouTube
Joe Valley on LinkedIn
Pat Yates on LinkedIn
Mark Daoust on LinkedIn
Quiet Light Podcast email: [email protected]
The EXITpreneur’s Playbook: How to Sell Your Online Business for Top Dollar by Reverse Engineering Your Pathway to Success by Joe Valley
EOS Worldwide

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.

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

Episode Transcript

Intro 0:07

Hey 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.

Pat Yates 0:32

Hello, and welcome again to the Quiet Light Podcast. I’m Pat Yates. Today’s guest is Sean Duncan and man, this was an unbelievable conversation. This guy has so many things between business tax strategy, accounting, bookkeeping consulting, he’s with SMD Consulting and Accounting, LLC, but he has multiple businesses, he ties into this. I think one of the biggest struggles that Quiet Light for a lot of our people is coming in with the right books, the right set of books that have the right things and then tax that’s going to come out of that planning what you do with that money when you exit your business is really a big part of what they do. This is a great conversation. And if you’re thinking about bookkeeping, accounting, Sean is an incredibly actionable guy. I can’t wait to talk to him about all these things. So let’s get right to it. Sean. Good morning. It’s great to meet you. It’s great to see you. I’m looking forward to talking to you welcome to the Quiet Light Podcast.

Sean Duncan 1:23

Good morning to you, sir. I’m looking forward to it. I’ve heard lots of great things about you Pat.

Pat Yates 1:27

That’s great. Yeah, we were excited to have this discussion with you today. I think there’s a lot of things that we can learn from you, obviously accounts or something people need. It’s a little bit foreign to me, but you’ve got a lot of things that you cover. So give us an overview of SMD Consulting and Accounting LLC, tell us all the things you do.

Sean Duncan 1:45

So we’re not your typical CPA firm. And that’s on purpose. In fact, even in the name, it’s SMD Consulting and Accounting. A lot of people can find accountants, there’s lots of accountants that are amazing and talented. But what we’ve discovered over the years is clients need help. They need advice, they need strategy, need planning. In fact, clients created the tagline if we do what you wish your CPA would do. And that’s the advice, its business strategy, tax strategy, cash flow management, we fold it in other services, we bring in wealth management, estate planning and law through affiliations and other organizations, which we’ll talk about more later if you’re interested. But it centers around how do we help the successful business owner with strategy and do that in a subscription based recurring model? So we’re helping you as the years going, as opposed to April comes around, you owe some money on taxes, and you ask your CPA, how can I reduce that? Well, I can’t go back and fix that. It’s managing things as they go and giving them guidance. And that’s, quite frankly, our unfair competitive advantage is we’re giving advice as they go. And we’re giving wealth management and building and estate planning stuff and business law. It’s really wrapping our arms around everything a client needs as a business owner.

Pat Yates 2:57

That is amazing. Use the word, how did you call it your unseen…

Sean Duncan 3:02

Unfair competitive advantage.

Pat Yates 3:04

That’s interesting that a service is an unfair competitive advantage, something that most people could probably leverage. But you’re doing a much better job of this. Tell us about that. So let’s ask this, what’s your perfect kind of client? Probably not starting out bookkeeping. It’s more post Bookkeeping Tax, tell us who your perfect client is.

Sean Duncan 3:22

It’s actually the underserved segments. So people start businesses, and we can help people starting businesses, there’s lots of questions about entities and taxes. But a lot of times they don’t have a budget, right? We’re trying to be very cognizant of cash flow, because if you don’t make it the first year, you won’t be a client for the next 10 years. Most of our clients when we think about it, if we look at the household, so this is an important distinction. We help people with businesses, not businesses, because we’re always centered on what are you trying to accomplish the business is a tool for you to accomplish your goals. So a lot of times our clients have households that make between a quarter million and say three, four, five million bucks a year of take home income, that’s the small and micro business segment of the world. If you made 50 million bucks, there’s consultants falling out of the sky, they’re all over the place. In fact, there’s a concept called the family office model, the family office model is for people with 50 million in assets and above, and there’s amazing firms that help them. But what happens if you only have a few million dollars in your retirement account, and you’re only making $800,000? That’s successful. But a lot of folks don’t have the tax preparer, the lawyer and the financial advisor collaborating, and that’s what we’re trying to solve for. So it’s really about our perfect client. They make a certain amount of income because that’s where we can get huge impact. I mean, you’re in a 37% bracket. Everything we do is a little more powerful than if you’re under 15. But then they’re trying to do something they’re goal oriented. We want to have them retire early. We want to have them put their kids through college, whatever their purpose is. We have a niche that builds with this we can say niche if you want to say we have niches or niches we can be pinky up, pinky down, whatever helps you out with that. All right, the clients we end up crushing it with have tend to be self-employed physicians, typically three or fewer owners in a practice, because when you get beyond that, so different, there’s different complexities. Software developers, we have done an amazing job of software developers, and particularly video game developers, I’m a big gamer, so actually have an immediate report. And most of our crew does. So we get along with those folks as well. Folks that want to invest in real estate, and that actually tends to dovetail into it. We don’t exclude other types of industries with certain exceptions. We don’t help lawyers, we don’t do nonprofits, we don’t do international. So but most of our client base is physicians, software developers, professional services. That’s the vast majority of it, we have restaurants, manufacturing and other things. That’s who we tend to help. And then a lot of times they have a big transaction. I mean, how many times and you know this, well, how many times is somebody selling a business or buying a business, and yet, their CPA doesn’t advise on that deal. And either version, or the lawyer is not collaborating on how they’re going to draft the document. That’s where we really come in and sing as well. Even if it’s just a one off. We’ve helped a lot with that.

Pat Yates 6:10

That makes a ton of sense. And I was reviewing the site, and I know that you do, it shows like this is like the most basic level, it shows you how bookkeeping services, then you have tax planning all these things. So you’re like a one stop shop for a lot of people, I guess the question that I would have, for a lot of our people, let’s say they’re starting a business out there, and they don’t know where to turn. And maybe they don’t have a huge budget. So they’re afraid to have an accountant or a bookkeeper come in, and then that’s kind of where they make mistakes, is it sort of like an ounce of prevention is worth a pound of cure type thing to start with you guys at the base and then let it expand or is it they have to be at a certain level to come in and work with you.

Sean Duncan 6:45

It’s a judgment call. It’s actually a professional judgment call. And when we do is when we assess that that’s what we’re looking at. If you are so early stage, that you don’t need QuickBooks, there are times when Excel is perfectly fine to doing a record keeping, because you’re so early stage, but I don’t want to come in three years later, and your books are a disaster. Because if I have bad books, I can’t even give you advice, because I don’t know, basically. So it is better to get early professional advice so that you don’t have this multi $1,000 cleanup 10,000, I got a quote right now it’s $25,000 to clean this person’s books up, because they’ve let it go. Messes are more expensive than just doing it right the first time. And this is true on so many levels. So it never hurts to ask. The beauty of it is and this actually may tie to my securities license, I’m a fiduciary. Now we take our fiduciary responsibility very, very seriously. Which means we’re obligated to give you advice based on your best interest, not ours, this may sound bad, I’m not hurting for referrals. I want to make sure that we’re helping people and we’re helping people grow their businesses and be successful. So I’m not going to talk into anything that doesn’t make sense. If it doesn’t help you, I’m going to tell you, it doesn’t help you. That’s the key is. So if you’re early enough, and I say we’re too expensive. I’ll tell you why. And then what the next triggers are for when it’s time to call us again. So I’d never encourage anybody to discourage anybody from talking to a professional. Just be aware that, what are they trying to do? Are they trying to close a deal? Are they trying to help me. That’s a hard thing to gauge. But that’s what we try to do.

Pat Yates 8:24

That makes a lot of sense. And I think what a lot of people, you have a lot of people that have done exactly what you’re talking about. I’ll give a great example. I wouldn’t know that guy named Clay Copeland I hope please listen to the podcast right now. He had a book, he had a business doing Magnet Fishing. Do you have any idea what Magnet Fishing is?

Sean Duncan 8:38

Oh, I’ve heard of it. I have never done that. I’ve heard of it for sure.

Pat Yates 8:43

How do you catch a fish with a magnet? There’s no way that works. So of course, I had no idea what it was that you drop in and you pull up artifacts, a lot of times they find guns that are thrown off bridges World War Two over in Europe. No clue what it was. The guy came in, he gave me his books. They seem trustworthy. But at the last minute, I said something doesn’t add up with your cost of goods sold. We spent four months with him rewinding that and we sold the business for probably about a million dollars more than he had thought he could sell it for. So in those examples, this is exactly what you’re talking about to start right instead of a garbage in garbage out type of approach, correct?

Sean Duncan 9:20

Absolutely. And also it comes back to goals. Why did I say we help families that have businesses, if you’re building a business to sell, we need to do things differently with the books we need to give you different strategies. That’s a different business model than building the business to create mail boxing. Prospect I just got off a meeting with just now, they want to acquire other companies. They’re not worried about being bought out. They’re gonna keep doing this and they have no designs on selling well, that’s changing what we’re going to do in the books, the strategy, the investments, everything that we’re doing, it changes so knowing what you’re trying to accomplish changes how that works. And so the sooner you get on that, the more runway we have to create the optimal strategy now do we clean things up all the time and react, of course. But in your example, if your guy’s books are a mess, and then he sells it next week, that immediately screws up the valuation. And I have a light background and valuation work. So I know how a lot of the discounting works, that I don’t want to decrease your valuation by 25%. Just because we can’t present reasonable financials. That’s a big deal. So there’s a lot of aspects and running a business is tough. I mean, there are so many things we have to keep track of managing your books should not be the priority of the owner, it should be delegated to somebody else that knows what they’re doing. And you’re focusing on the strategy component, the books are there to support you not be the thing you spend your time on.

Pat Yates 10:45

Yeah, that makes sense. So I think a lot of people out there like when entrepreneurs get busy, and I know I’ve been a solopreneur, I’ve had businesses that have multiple people. And inevitably, they work on the day to day and say, you know what, I’ll catch that accounting up later this month, or next month, or the third month or quarterly, and then they end up with this mess, they hand you over. So it’s one of those things that I mean, you have looked at people probably that didn’t do business with you may have come back a year later, and it was a mess and other people that started right away that were in a better position. So is there a better time to come in and do this? I know we talked about the size of the business. But do you think, is it consistent all the time? Or is it picking it up quarterly? Or how do you usually structure your customers on booking is based on size?

Sean Duncan 11:24

It is based on size? And actually I want to touch on one thing you said there’s the catching up the books thing. Our profession has not done and we’re talking about bookkeeping, but I mean, we’re talking about tax prep and advice and lots of other aspects of the accounting industry. I will say the tax preparers have done a real disservice as it relates to the books. Too often the clients don’t see the books having any value other than, like, I just need to get my tax return prepared. Well, then they hand it to the book that prepare, they get it close enough to get the return done. And then they move on with their lives. What too many business owners don’t understand is and I preach this when I’m teaching seminars and webinars and all the things that I do. The purpose of your financial statements is not for your accountant, not for your banker. It’s not even for the investors, if they’re talking about selling or investing or whatever it is, it is for you to make management decisions. And if they’re junk, you are making bad decisions, you’re guessing. And we don’t have to be fancy and get KPIs and stuff. So back to your question is if a CPA is just focusing on getting a tax return done, and they don’t care about the books being financially useful, that holds you back. So when you want to come in is when you want to know what’s going on, so you can make better decisions. That’s how soon it is if you want to start from the get go is like I need good books, because I have dreams that I want to accomplish, then let’s do it right away at the start. I need to see if this thing takes off, before I spend a bunch of time, I just need to sell a few things. Let’s see, Excel will work just fine. It’s a judgment call. And that’s where we come in a lot of times is deciding but sooner than later, at least to enquire up the value is the way to go. And the other trigger point is, when you’re too dang busy. When you say that I got to get around to it, and I’m gonna play catch up, immediately reach out to somebody. Because your time is worth so much more than just sitting there catching up the books, because that’s hours and hours and hours you can be selling or spending with your family, the moment you fall behind is the moment to start saying it’s time to hand it off to somebody because I’m gonna tell you, you’re just gonna keep procrastinating and it’s gonna get worse. And remember, it’s more expensive to clean up a mess, just to get it right going forward every single time.

Pat Yates 13:47

I 100% agree with that. So when I was looking over it, you know, you do accounting, but you also put consulting on there because accounting inevitably leads to how do I fix this? What do I do better? Where do I go? Obviously, you get a comprehensive approach. And I know you have a place where you do actual special projects. I was really impressed by that. Because if people come in to do the bookkeeping and tax, you support them on audits, if there are things and helping them minimize the tax, tell us about the scope of things that you can do as far as consulting and accounting help with them.

Sean Duncan 14:18

It’s pretty wide ranging and a lot of times we tell clients if you’re not sure if we do it ask anyways because if we don’t, I network and one of my other businesses, I do a lot of professional speaking and I speak to a count they counted communion for the most part at this stage in the medical community for the other if I don’t do it, dude, I know so many talented professionals across the nation that are specialists in other niche. So just ask Anyways, now the scope of work that we do. It starts with tax. The books are there obviously to give us the management reports so we can make decisions. It often starts with tax because quite frankly, if I can save you $50,000 in taxes I’ve already more than paid for myself. And now I know we’re free because we do a subscription based business So if we’re doing subscription based work, and I saved you, 50k, and you’re paying us 24k, congratulations, your books are free your tax returns for free. And now all the rest of the advice is for free. That’s pretty dang cool. So the advice, it’s tax, it’s cash flow, it’s entities, it’s transaction, should I be should I buy? Should I sell my business? Should I not? What am I worth? What would the tax implications be? If I sell my business, how do I restructure that? Can I minimize tax on this event? Can I 1031 exchange this business building? What does that mean? And sometimes it’s purely teaching, I, again, probably use the prospect from this morning. There seek S Corp. They don’t know why they’re in this corporation. They’ve been an S corp. For years. Well, my CPA said I was posting, I just stopped and explained and quantified. This is why you do it. This is what you saved. And this is the pros and cons of this particular entity. This is what you want to stay with. And he said, I’ve never had anybody actually just break this down and explain it. That makes so much sense. Thanks. Now I know what decision I can make. Sometimes it is stepping back and saying wait, what are we assuming you know, what my classes I teach is called the pillars of business mastery. And it’s really teaching clients about entities, the financial statements themselves, the five categories of taxes you’re responsible for, as a business. If you don’t know those three things, and how your business works, how can you make a decision that relates to your financials and your tax, the world assumes that you, as a business owner, understand your entity type how the financials are read, and what taxes you’re responsible for. If you don’t, there’s nothing wrong with you. It’s not what you were trained in, how do we step back, and make sure you know what you need to know, as a business owner, then we get back into the strategy. So a little bit of its professional judgment, navigating that minefield, and there’s more of it, that’s where it starts, we’d like said, we do wealth management and other stuff as well.

Pat Yates 16:58

Well see, that’s interesting, because as I looked at your site and reviewed all your information, I was really impressed by a lot of things. Number one, you work with a base size client, that’s going to help them get into a business or manage it. But let’s say that everything goes great, they pay their taxes, business makes a lot of money, then they take it on personally, and they may have to go to someone else. But you actually have the ability to help them with wealth planning and things, insurance things that they would need. It’s like a full service operation to where you can take that money and get it real time back into some other things. Tell us how you try to work with clients on that, that’s really exciting.

Sean Duncan 17:31

So we started this because quite frankly, we got frustrated, we got frustrated that I would work with a client, we would save them 50 100 $200,000 In Texas, whatever the number is, and then they’d say that Sean will talk to your guy, and they will go to their investment guy or gal and they would do something that blew up my strategy, I’m gonna give you something really simple. Hey, I think that we should set up a 401k. And your business because of this, this, this, this, this. And the financial adviser and a separate company says, you know what, let’s set up a SEP, those are cheap. Well, that might mess up the payroll and related strategies I have in mind, but they don’t communicate with us. The lawyer goes and sets up a C Corp when I wanted a partnership or whatever I decided I want to do. If they’re not collaborating with us, they could be screwing up the business attack strategies. They’re not giving the wrong advice, but they’re giving the wrong advice in consideration. They’re giving good advice, or legal or wealth for that little silo. But they’re looking through a keyhole, they haven’t opened the door to look at the entire room to figure out what the choice is. I got frustrated. So I said to the heck with it, I’m going to create my own dang team. And so we pulled that together. Licensing and everything being what it is, is technically an affiliation of entities. But again, I’m a securities license and insurance license and a CPA so I can handle and own portions of things. But we turned it into a quarterback situation where we will just lead the charge for you, we will make sure that we get an idea of strategy that considers tax and law with the legal team happening behind the scenes. So you don’t have to go set the dang meeting. We then bring ideas to you at that point. And maybe you need to be part of the decision making process. But we try to feel that before you have to schedule any appointments. I mean, if you’re a business owner, how many times have you had to wrangle all the parties that were related to it to get something done? And then you paying by the hour for every single time somebody talks and it just becomes a nuisance as opposed to advocates working on your behalf. I just got frustrated, it was a mess. Small business owners need the same resources the ultra-wealthy get why can’t they have that collaboration, and that comes back to the unfair competitive advantage.

Pat Yates 19:42

It’s really incredibly awesome. I mean, I think one thing that also struck me you obviously you’re very big on your team because you say the difference is your team. Tell us about that philosophy because a lot of people would think my services are what’s going to make the difference from you. You leave with quality in your team.

Sean Duncan 19:59

Oh yeah. One they’re much smarter than I am. I’m just some weirdo Foosball that tells funny stories.

Pat Yates 20:04

I have a wife like that she’s been smarter than me since mid-late 80s, by the way.

Sean Duncan 20:09

Yeah. And sometimes it takes us longer to figure that out about our wives, because suddenly, she is right. And once she’s realized she’s right, everything gets a whole lot easier. And if I’m not sure, I let her tell me how sure I am. I just keep it simple. We actually, in fact, I have, I’m a big fan of EOS Traction in the Entrepreneurial Operating System. I’m the visionary I have an integrator I have the. But the key to it is our core values. We hire people that really get the way we’re trying to do things. And then I let them just go be awesome. We have to hire unique people, we hire purple unicorns, not every single accountant out there is suited to go sit there and have consulting meetings for clients. And we’ve met us we CPAs are not the most fascinating people in the world, a lot of us are not trained to talk to clients, doesn’t mean they’re bad people, it just means that’s not there. So we hire specifically for you got to have the technical skills, but you’ve also got to be a communicate a core value, you have to be able to do that. And by having those people that hate other core values, they’ve got to be problem solvers. They’ve got to embrace equality and inclusion, they’ve got to have all these different traits. It’s them that the team is the reason we’re successful. Do we step processes and consistency and training and automation? Of course we have, we’re still a business. But they’re the heartbeat of whether or not we help a client or not. And I would rather have fewer clients, if I can’t find the right employees to service it. And I want to give that quality service that really helps as opposed to just throwing bodies at it. We’ve been there how many times if you go somewhere, and they just got a whole bunch of people, but only 2% of them know what I think we call that the IRS, that bunch of people that are filling a position but not actually bringing into service. That’s what it has to start with. And we invest a lot of time.

Pat Yates 21:58

I mean, that’s really awesome. I think just like you were it’s kind of funny when you were laughing about it. It’s like accountants get the joke of being completely boring. I don’t know where that ever started. But it’s like, I guess maybe Monday numbers, people think that’s the case. So here’s one thing, I really want to get into at Quiet Light, obviously, the biggest thing with us, we are a lot like you. We’re very similar as a lot of M&A brokerages out there that, they want to get you in and sell. That’s pretty much what they do. But I think Mark Tao, Star founder, he put it really, really well we judge ourselves by the quality of conversations, how much we can help people exit their business, it’s not something they have to list with us. We want to be actionable for them to be able to improve the business they’re going along. And that seems to be very similar to your philosophy of how you just help people along the way. And you stay out of the way while they’re able to make better earnings. So tell me from a standpoint of M&A, let’s say someone’s coming in, in their in their first year and they say, hey, I’m planning on three years from now I want to be able to sell, are there ways that you look at their business over that period of time and help them position to be there may not be things you do now, it might be stuff that through six months, a year from now, but how do you approach that portion?

Sean Duncan 23:03

We want to know why. What are they shooting for what is their gut goal if they want to sell but they need a certain dollar amount to protect. Because even on the why, you know, I want to sell this for $50 million. Your revenues 600,000. Explain to me how we get there. Now, I’ve had meetings with those people. Actually, the this afternoon I’m meeting with a client that I’m helping him analyze the acquisition of a potential company. And the seller has revenue of $800,000 and pass for roughly the last three years. And even during COVID they had a dip and COVID. And they came back. And they said in the next year, they’re going to make 1.4 million, and by the end of 24 months, they’re going to get 1.8 million. Now, I don’t know about you, unless I have a clear roadmap. How in the world are you going to more than double your revenue in 24 months? Tell me how that’s gonna happen? Well, we just believe our reputation is good. That’s not a plan. That’s just me throwing out a number because some broker wants to close a deal at a higher multiple. Well, that’s the type of stuff if I was advising the seller, we would have had a conversation about are you going to achieve the 1.8? What do we need to do to get that? What do we do internally? To put you on that path? How do we make the numbers show and tell that story that has an upslope? And quite frankly, we can tinker with the numbers? You guys know if somebody’s buying a business, what are they going to go look at the last three to five years of financials. And then what somebody’s going to do, they’re going to look at a trend line. They’re going to see what the slope is. If I can tinker with that slope, I can show an upward trend to revenue I can show an upward trend of net income. I’m increasing the selling price by 10, 20 30 50%. By the actions I start today, a lot of it’s why, what are you trying to do? How do we communicate this message? We’re building a plan. Simple things like procedure documents, helping them build procedure documents can increase valuations 20 to 50%, depending on the type of procedures, the more transferrable, we make this company, we increase the valuation. So it’s all about understanding, what are we trying to achieve? And then what can we realistically pull off in that window of topic?

Pat Yates 23:18

Yeah, that’s really amazing. So again, we’re talking with Sean Duncan with SMD Consulting and Accounting LLC. I know you have other businesses. It’s interesting because I clicked on one of your things on seminars, because I was very, very curious. So not only are you doing accounting work, and you have people tax plan, you’re actually doing seminars to teach all this to it’s like super educational. Tell us a little bit about how that ties in.

Sean Duncan 25:43

So, I’ve loved teaching what I just I have a heart of a teacher, which is why I’m a consultant to consulting just pays more than teaching. So congratulations. I originally started teaching seminars to the business owners. And I still do that, like I said, pillars of business mastery course, I teach these different courses. Then I had accountants keep approaching it just randomly, I won’t be walking through scaling new heights, and somebody run over to me and say, oh, my God, three years ago, you changed my life. Well I didn’t speak three years ago, we have lunch, and I gave him tips and advice. And quite frankly, it just kept happening. And I was talking with a friend of mine, and I started discussing, Sean, how did you come to the decision to turn down the FBI and start to go and start your own firm? Sean, how did you make the decision to file your tax returns to focus on advisory? Like every time I have these decisions, these decisions? I have a process. And she pointed out you realize you have a repeatable process. That process is actually the Chief Proactive Advisor program. It’s the process, I teach people for change management, largely focused on moving to advisory work. There are not enough of us out there. So two years ago, I said, you know what, I’m gonna go ahead and formalize the stuff that I kind of just been shooting from the hip chatting with people over lunch and whatnot. And so I formalize that process into the six steps of the MasterClass and then said, hey, if anybody wants me to speak at this, I’d be happy to teach on it. Next thing you know, I’m speaking at AICPA engage and then QuickBooks connect and scaling and various different conferences. I’m working with Canopy different things. And so and this is actually ironic that so depending on when this podcast comes out, but just this morning, Canopy released their top 10 influencers for 2024, I’m on there, which blows my mind, because we’re talking about, like, Doug Sleater, and Amy Vetter and Jody Podar. Like, legitimate Jason stats, legitimate influencers. So for the last two years, all I’ve been trying to do is let me see how many accountants I can help. Because every accountant I helped move into advisory services, I’m helping hundreds of business owners. That’s my pay it forward legacy, if I can teach the accountants to fish, they can teach their clients to fish because I cannot land every point. It honestly took off a life of its own. I wasn’t expecting it to be a thing. And I got published last year on I’m writing a chapter of a book, you’re just fun little stuff that really starts with a heart of how can I help more accountants be advisors? Now I do webinars, I do conferences, I do workshops, I fly out to accounting firms and work with the leadership team sometimes to go over the MasterClass and program because so many accountants are stuck. Yeah, that’s fine. I’m supposed to do advisory, what the heck is advisory anyway? And how do I make the transition because this is the firm I have. That’s what I helped with. I’ve done it, I’ve coached people to do it. And so it truly was one of those, I just thought I’d help a few folks out and next thing you know, dang, and I’m traveling to a dozen different events and doing webinars and like I said, just took literally this morning, blew my mind that I was included in that top 10 influencers.

Pat Yates 28:56

I disagree with that because just having spent a little bit of time with you I can tell not only are you educated in what you sell a sort of quote unquote sell and teach like you said, your actionable from a teaching standpoint, which really resonates with me, because my mother was a prince, I talked about this several months, and my mother was a principal and teacher. My wife was a teacher, she retired and started a business. And I think that I always try to lead with education. My business, our my econ business on Shark Tank I’ve done about every license, you can imagine. I’ve had everything that you could imagine from retail to e-comm that I’ve done before. And I feel like a lot of times I can really add value in ways why do you know that I should do way more consulting, I do a ton of free consulting and Quite Light, obviously, working with people in their businesses, but I think that it’s so important to be able to add that value and it seems as if you lead with that value, correct?

Sean Duncan 29:44

Absolutely. Now I will say and this is something that’s really important for me, and maybe it’s just wedging it in there. There’s an infinite number of opportunities to help. But we always have to come back to your why. If you go look at my LinkedIn, my first two things is husband, dad. Those are that’s my job, husband, a dad first. Those are my jobs. Everything else comes after them. And so what are the challenges is you go do advice, we can help people all the time. Yeah, but we times are the constant without the shoes we forget to help ourselves. And so one of my big missions is as this honestly took off, like a rocket, I had to pause and say, Well, wait a second. Why am I doing? It’s just like I say, why are we trying to sell a business? Or why are you starting this company, I want to be present and successful with my family, and also do all the cool things to help other people out. And so, once I got that centered, a lot of other things just clicked correctly in place. But yeah, it starts with helping, but it starts with helping, not at my own detriment, I have to actually take my own medicine. And I’ll give you a funny example. So I’m not speaking at AICPA engage that’s going to heights this year, which I hate, because I love those two events, I stand in front of a room of 400 people and watching them scribble feverishly because you gave them a tip that you know is going to help I love that I’m fulfilled, my cup is filled. But I’m not going this year, because well, I’m going to spend a month in Egypt, Greece with my family instead. And my wife said, we can move our vacation. It’s cool. No, my purpose is husband and dad. That’s it. I want to help other people, but not at the sacrifice. And this is what happens in our profession. How many of us are pulling 14 hour days right now? Because well, that’s what I got to do. It’s what I signed up for. Look, ya’ll, we’re not saving anyone’s lives, given those tax returns done. The only people that know that you work till 2am are your kids and your spouse, stop and think about what you’re trying to do here. And that’s why advisory services is so powerful, is it can start pulling you back into your own life and getting a better balance. Sorry, I went on a soapbox there.

Pat Yates 31:51

Oh, it’s really amazing. So it’s like we’re extremely aligned, I have three sons of married longtime, doing all those things are really, really important. And they all tie into what you do as an actual individual anyway. So it’s like a means to an end. I think what you’re talking about is exactly the way that I wouldn’t approach me, we’re same way at Quiet Light, we try to add more value than we do on a sale. The funny thing about you the more that I’ve listened to this, you may spend money to do the services you have but the at the end, you’re probably gonna save way more than you ever spent. It’s a value proposition in many ways.

Sean Duncan 32:21

Yes, in fact, actually, I have a saying that I want to point out, nothing on your p&l should ever be an expense. Everything should be an investment. If you’re spending money on something or somebody, what are you getting from it, the ROI can be joy. Like, I don’t know if everyone’s watching this on video. Instead of just audio. I have a Captain America shield the Thor hammer on my wall. SMD purchased those now, what’s the ROI of Captain America shield? I think it’s hilarious and fun. That’s it. That’s the joy. I can’t quantify tax state. Well, I can’t quantify the tax savings. But sometimes joy is the reason. But too many people don’t hire their accountant. They don’t hire the CPA, they don’t hire a broker that understands the deal. Because they’re, oh, they’re too expensive. Are they? What’s the return on that investment? So I have a doctor virus for consulting? We saved him 90,000 bucks last year. And he’s like, yeah, but I can’t justify this $900 month consulting fee. We quantify it and point to that the 90,000 we save that he missed the previous year, as money he saved to put in his pocket. Yeah, but you’re just too expensive. That’s a scarcity.

Pat Yates 33:38

That’s the mind for some people?

Sean Duncan 33:40

Yeah, it’s a scarcity mindset that we can’t always be. So if you are a business owner, stop and think, am I being cheap? Or am I being prudent, and that’s it, there’s a distinction there, you cannot spend money because it’s not a good ROI, or you just being cheap, because it sounds expensive. You we’ve all heard, nothing’s expensive when there’s value, and so on. There’s various versions of that.

Pat Yates 34:07

That’s really cool. So again, when we’re Sean Duncan with SMD Consulting and Accounting. Sean, we’ve covered a lot of things. I feel like we could talk for a couple hours, I really think we’re very aligned. And some of the things that you have are just amazing. I think our clients are Quiet Light to reach out to you and try to make sure that their accounting is up to date and caught up. We have vendor partners that we do this is just an awesome system. So I know we didn’t cover everything. Are there things that you’d like to tell the audience about at SMD that we didn’t touch on?

Sean Duncan 34:33

Well, I will point out for anybody that mentions Quiet Light or knows quiet light, we do a one hour no charge intro. So if you want to come in and just bounce ideas around, maybe you have a technical question you want me to try to answer to the best of my ability, but really, it’s let’s get to know each other to answer some questions. And then we’ll tell you what the next steps would look like if you’re interested and if not, no harm, no foul. So one thing is, look, it doesn’t hurt to reach out to the professional when now you know, I’m not going to get charged for it. Because I would rather talk with you and then tell you not yet call us in six months, or heaven forbid, oh my gosh, you got a disaster, please let me fix this, it can take different flavors and different shapes.

Pat Yates 35:10

That’s really amazing. Yeah, I mean, we do the same thing. And just to touch on that we try to get people to come in and just let us do evaluation, see where you’re get a baseline, even if you list with someone else, you need the right information. So that’s what you’re talking about. Correct?

Sean Duncan 35:24

Absolutely. And what we’ve actually found is, there’s amazing and wonderful CPAs out there. And I’m not saying anything bad about their freakin amazing talent that’s out there. Maybe you need somebody that’s proactive. Maybe you need somebody that holds multiple things under one roof. We work with people that have other preparers, we come in only as the consultant because they love they’re preparers. That’s fine, too. There’s nothing wrong with it. But understanding your choice is always the key, making sure you’re making the right decision. We’re not the fit for everyone. If you have a giant nonprofit, and that is your entire business, I am not your guide. But you know what I know somebody that is, I know this girl that does amazing. Compliance and Bookkeeping and Tax Prep. That’s who I put you in touch with. That’s just because it’s not our specialty. We do what we do, and we do it really, really well. That’s what we focus on. And so sometimes, I can’t even anticipate the questions. But it’s fun to have those meetings and people ask the question, we try our best to give advice. But really, if you’re a business owner, your take home income is sub 3 million. By the way, we have clients that make 10, 20 and 50 million bucks a year. So we help outliers. Our sweet spot is half a million to three ish million bucks in revenue, typically service based professionals. And we have a unique niche and medical practitioners and software developers. And the last little thing I’d point out is the one of the most common mistakes we see that closes deals for us all the time, if somebody says, oh, I’m just a 1099, contractor, I’m sorry, I’m just a 1099 employee is the word. There is no such thing as a 1099. employee. If you receive a 1099, you’re a business owner, that immediately changes everything. ER doc making $500,000 a year is not an employee, they’re a business owner. And immediately I can do more tax strategies for you than I could for the W two. If you’re a 1099 and you’re making six figures or more, you should immediately be just looking at, should I have an entity should I have an accountant and tax deductions. Good, great call someone it does not have to be us call someone I am seeing so many messages, and 10s of 1000s of dollars that could have been saved just because of one dinky little thing, bad bookkeeping, and no tax planning. And they just didn’t understand how the rules work. So if you want a little low-hanging fruit, that’s one to call a CPA for sure.

Pat Yates 37:53

I actually know someone that’s going to need that advice, and I’m going to put them with you for sure. That’s really amazing. All this stuff is proactive advice. It’s like so actionable and so good to have. I mean, you guys do an amazing job over there. So Sean, tell everyone how they can get in touch with you if they want to reach out?

Sean Duncan 38:09

Sure. So we have the website it is smdaccounting.com. That’s the easiest way to do it. You can email [email protected] or you can check me out on Facebook, LinkedIn, and all that stuff, definitely waiting to grab it. If all else fails, there’s a phone number 469-252-4547. But that’s also on the website. That’s the easiest way. And if you want to reach out to me directly in Facebook or LinkedIn, I’m happy to answer there too.

Pat Yates 38:36

As you said, if they mentioned the Quiet Light Podcasts, you can do a one-hour consultation with them. So it’s like a free roll to find out how to help your business right? Yeah, listeners out there. If you’re thinking about accounting or bookkeeping or tax planning or anything, Sean can give you some advice, even if it’s something actionable that you could do on the end. Sean, this has been really amazing, man. I really appreciate you joining the Quiet Light Podcast today, buddy.

Sean Duncan 39:00

I appreciate you taking the time. I really enjoyed it.

Pat Yates 39:02

All right, buddy. Have a good day.

Sean Duncan 39:04

Thanks.

Outro 39:06

Today’s podcast was produced by Rise25 and the Quiet Light content team. If you have a suggestion for future podcasts, 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.

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The Interview with Shakil Prasla

Thinking of Selling Now or Later?