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Adaptable Logistics for Your Business

Nick Bartlett is the Co-founder and the Director of Marketing and Sales at CBIP Logistics. Using its global network of partners, CBIP provides supply chain strategies and logistics services to...

Nick Bartlett is the Co-founder and the Director of Marketing and Sales at CBIP Logistics. Using its global network of partners, CBIP provides supply chain strategies and logistics services to create an easier and more adaptable way for any sized business to streamline the process. With a central office in Hong Kong, CBIP has expanded its network from the Asia Pacific region to North America to the UK to secure the most optimized and efficient logistics and fulfillment options available.

Nick has over 12 years of experience in logistics, e-commerce, marketing, supply chain management, and the traditional retail space across multiple regions. At CBIP, Nick closely monitors new markets and believes successful business operations come through value-based relationships. Before CBIP Logistics, he was the Owner and Head of Sales at InXpress and served as a Sales and Marketing Management Consultant for Royal Dutch Shell.

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

[01:53] Nick Bartlett talks about CBIP Logistics and the services it offers
[08:36] Logistic options for businesses
[14:06] CBIP Logistics’ business model and success stories
[21:20] Nick speaks about their 4PL approach
[23:39] Logistic challenges entrepreneurs face
[32:38] CBIP Logistics’ pricing model

In this episode…

Running a successful e-commerce brand requires more than a good product and an attractive website — you must be able to handle the logistics process efficiently. In the wake of rising e-commerce and global manufacturing, logistics has become a complicated industry with supply chains spread across multiple regions and countries. Is your business equipped to source logistics partners at a moment’s notice?

From managing inventory to shipping products and handling returns, logistics can be challenging for e-commerce entrepreneurs. Fortunately, there is a solution that can help streamline your logistics operations while complying with global regulations so you can take your business to the next level. Nick Bartlett recommends hiring a fourth-party logistics service provider to help you navigate this complex landscape, including dealing with unexpected shipping delays, managing your inventory more efficiently, and handling returns and customer service issues.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Nick Bartlett, Co-founder and the Director of Marketing and Sales at CBIP Logistics, to discuss logistics solutions for your business. Nick talks about logistic options, CBIP’s business model and success stories, its 4PL approach, and how it solves the logistics challenges entrepreneurs face.

Resources mentioned in this episode:

Nick Bartlett on LinkedIn | Twitter
CBIP Logistics
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 again to the Quiet Light Podcast. This is Pat Yates sitting in for Joe Valley. Today we have a great conversation more of a vendor-driven thing. If you’re an entrepreneur out there, a lot of people have gone through some really tough times with import shipping, rates a couple of years ago went up, four times the amount that you had sometimes logistics of direct ship from China’s is challenging if some people are doing that. Otherwise, import sometimes just seems like this thing that no one wants to mess with. So today, we’re talking with Nick Bartlett at CBIP Logistics. And he’s going to talk a little bit about how you can direct shipping to Amazon. Let’s say that you have an Amazon-only business, you’re looking to trim some of your costs, as costs are rising. There’s always an opportunity to terminate it and maybe get it into your Amazon warehouses quicker, more efficiently and hopefully more cost-efficient. So Nick Bartlett is the director at CBIP Logistics, and I know he’s an expert on this. So I can’t wait to get to him. I’m looking forward to talking to Nick, let’s get right to it. Nick, it’s great to have you on the Quiet Light Podcast today. How are we doing?

Nick Bartlett 1:30

Good. Thanks, Pat. Thanks so much for having me. Good to be here.

Pat Yates 1:33

Oh, of course, man. It’s great to talk to you. I mean, I’m sort of logistics guy. Having 20 years in econ business. I’ve done every single part of it. But it’s sometimes it’s great to talk to people to understand what’s going on in the industry right now. But before we get going, maybe tell everybody about CBIP Logistics yourself and maybe your background. We’d love to hear about it.

Nick Bartlett 1:53

Yeah, thanks, Pat. Well, first and foremost, you might hear my accent that I come from a small country in the South Pacific, in New Zealand. But I left a small island nation about 10 years ago and relocated to Hong Kong, where I have resided for the last decade or so with my wife and with my two kids. And since being here about eight years ago, we built a business called CBIP Logistics, which was a fourth-party logistics provider. And the whole point of our business model really was to try and bridge the gap between sort of what we saw in the Asia hub was sort of a real lot lots of great infrastructure, but a real lack of kind of e-commerce connection. And the ability to help brands that were considering already operationally producing in the east and wanting to ship globally through a cross-border transaction or whether it be through a multi-market warehouse, sort of strategy from an e-comm logistics perspective. So over the last eight years or so we’re slowly building out CBIP Logistics to be a leading for PL logistics right out of Asia, but servicing Western customers and servicing Western brands. And the whole idea with that is that we have operations here in the East. And we also have operations in all of the key destination markets like the US, UK, Europe, throughout the Pacific, where we’re servicing customers, both at the origin, and the destination end and sort of trying to build a unique and variable or agile logistics model that enables customers to have options when it comes to the logistics, but most importantly, sort of gather as much control and influence over how they run their logistics, particularly when they’re operating it at a distance where it’s really hard right American brands that produce in China that are like how do we do this, having guys like us on the ground with Western experience, as well as local connections is sort of been the basis for our business. And we’ve had some good fun with it. But here we are eight years old, and still working. So I haven’t quite nailed it completely. But really enjoying working with such a wide variety of brands and seeing how much growth we’ve had in the industry across e-commerce has been has been awesome. Right? COVID was a friend to us rather than for a lot of people where it was very hard. And so we feel fortunate that we’re in a position where we can continue to help brands grow globally.

Pat Yates 4:10

Yeah, it’s interesting. And I think that your industry is really interesting to me, because entrepreneurs find ways through everything, but I have conversations with people about customs bonds and import, and they start losing their mind. I’m not sure why it is that people are so intimidated about ocean freight and import things. Maybe you could talk about like, what’s interesting about CBIP Logistics, as you’re talking through it, is you’re not just doing import, you’re not just doing customs duty containers coming in, you’re looking to logistics inside their country, ways to warehouse ways to distribute, because I really feel like there’s an intimidation point for a lot of entrepreneurs that don’t really understand this and they feel like maybe a full-service company like you. Maybe that’s perfect for them. Is that kind of the mentality of your company.

Nick Bartlett 4:51

Yes, absolutely cherry-picking. I think the big thing we try and say to people is we’re not a commodity. We’re a value-based business. And the whole point of that is that we want to bring value to the brands and individuals that we work with. And by doing that, one part of that is education. In the biggest conspiracy, there is all the biggest smoke and mirror there is around logistics, it’s the fact that there is so much smoke. And when you look at things like importation, customs clearance bonds, haulage all the port disaster that was happening during COVID, this so much bullshit, if you don’t mind me saying that sitting inside the industry that becomes really problematic for brands to navigate. So a big part of what we do is try and educate our partner collaborate, and really work with people in a real sort of full service capacity. But the biggest thing with the industry is that it’s actually really, really simple. And if you strip it all back, and you say, what is it that we do? What is it that customers need us to provide? It’s the movement of goods from A to B. But the level of complexity, the number of partners, the number of hands in the industry has become densely fragmented. And that fragmentation has caused rising costs, it has caused dysfunction in terms of operation. It’s created confusion. And this level of perception of things being tough. But an actual fact, it’s about having basic understanding, working with partners that can navigate the smoke and mirrors, so to speak, as well as being with a partner that actually educates you about how to do these things. And for a lot of entrepreneurs that I whether they be product-based or not product base, they’re always going to have some, there’s always potentially going to be some logistics-related influence that will occur during their business life. And the idea with our business model is we certainly try and be that value-based partner to make things different and easier for the people we work with. And we just go back to can we create value, does it add value, and we don’t want to be commoditized. And if those two things can be answered that we can add value to the brand, then we’re a good partner. But if someone’s just looking for the nastiest, cheapest, roughest price point, and that’s all they care about, then you know what that digging their own hole with that one, because what happens in those situations is they end up calling us for help. Because they end up in a situation where oh, my containers stuck, or I’ve got issues with my courier or I don’t know what’s happening with my freight forwarder with my container on the water, whatever it might be. And so you’re absolutely right. There’s a huge amount of smoke and mirrors, but our business model tries to break that down and, and offer real transparency and value-based consulting very basic management of those of those challenges.

Pat Yates 7:48

So I would assume like you’re saying, there’s no one option for anyone, the great news is, is people have different business models. So you may have an opportunity to plug and play a couple of different opportunities for them. And maybe things they don’t even necessarily realize, because I think there’s a real push. I see a lot of people that are doing direct logistics, they’re shipping directly to customers from China, just eliminating container shipping, things like that, which is kind of an odd model to some people, but it works for other companies, depending on if they own their product or not white labeling or anything, maybe talk a little bit about, let’s say, start to finish one of those options. I mean, people understand containers, if you order them, they come to say Shanghai port, if we’re dealing with China, maybe other places, then they come to the US through California somewhere and they get on the rail. That’s the tradition. So maybe talk about some creative things that people might not think about that could actually improve their business you might be able to do logistically.

Nick Bartlett 8:36

Yeah, sure. So, I think you did, right, there’s this sort of the traditional route, which is the bricks-and-mortar type model, we produce lots of stock. And we sell it to our retailers FOB. And the retailer facilitates and organizes the freight, out of the origin market. So for example, let’s take Walmart, for example, Walmart buy from new Pat, and they buy a whole bunch of bed sheets or whatever it might be. And they buy that in bulk. They shipped that into their distribution centers, and they put that on the shelf. For a lot of brands, that’s particularly in FMCG space, that’s always been the most productive and most efficient method, right? Because they’re not involved in the freight. They just produce it and they FOB seller out of China directly to the customer. The way that that has evolved over time, and the options that we’re seeing that customers are now exploring, are quite varied to that. And this one model that we call a domestic supply model. And a domestic supply model is where you are selling as a brand. You may be selling online or you may be selling to a traditional retailer or a marketplace. And you’re bringing those goods into the domestic market. So into the destination market, you’re selling and you’re holding enough stock, maybe 90 days, 190 days’ worth of inventory. You’re rolling that stock and you’re replenishing locally. Now this has become an increasingly popular method or option because a lot of buyers like retailers are actually expecting you to be able to supply locally versus the old FOB terms. So this domestic supply has become quite a big sort of option that a lot of brands have worked on. And then the other third big option that a lot of brands are working on now is more of a direct injection model. So working either on a just in time, so bringing freight and just in time as it’s needed, not having any real major of inventory holds in the market that they’re selling to and just distributing directly to the customer. So, for example, that might be a direct injection of ocean freight container or a freight shipment directly into LA, bring it in cross-docking and shipping it to the retailer or to the customers wherever they may be. And that has some massive benefits in terms of one, your storage, your domestic storage obligations become next to nothing. So you’re not paying anything ridiculous for that. In addition to that, you’ve got a much lower costs on the Chinese side, if you’re holding stuff, for example, or any origin market for that matter, whether it be Taiwan, Vietnam, Malaysia, whatever, it’s always gonna be cheaper than charging for West Coast, warehousing in the States, for example. And to be honest speed, there’s a big benefit to a direct injection model speed is relative, it’s actually relatively the same as if you did an air freight direct injection versus if you held stock locally, and then did the delivery, you might be talking about maybe a one to two-day difference. So there are some big changes in the way that brands are getting their products to their customers. One is the old way, which is as you mentioned, second is a domestic supplier model. And the third is more of a direct injection, which we’re seeing a lot more of, particularly for brands that can afford the direct injection model. The direct injection model doesn’t work for all brands, because the value base might be too low, like the GMV might only be 40 US dollars, or 80 US dollars, right? It’s not enough to justify warranting a direct injection unless you’re paying cheap prices for your freight out of China, whether it be like a single parcel delivery or whatever. But generally speaking that there’s a big shift towards those latter two options. And it’s nice to see that customers now are getting more creative. But I’d say the most common and most popular thing we’re seeing more of now is that just in time model, people bringing freight and just in time holding what they need to being really smart about how they forecast and plan. But I think also on the flip side of COVID taught us anything, it’s that you we need to expect the unexpected. And we need to build contingency. And we need to build mitigation against some external macro factors that that may or may not influence us. And part of that is having diverse supply chains. Part of its being agile, part of its being smart about how you manage your supply chain in the future. And that’s what our business model is really trying to do is to help businesses to be more professional and how they manage their logistics programs, not just for this quarter or this year, but for the next two, three, four, five years as they look to change and scale their own businesses.

Pat Yates 13:09

It is really amazing because I don’t think people think enough about how they can reverse engineer their logistics, if someone’s doing 100%, Amazon FBA and they have the ability to do just-in-time inventory like you’re talking about. I mean, your costs can plummet if you find a way to be able to either store it efficiently where you don’t have to touch it, or you actually send it straight into FBA, maybe give the listeners out there an example like let’s use a small business, and I just want you to walk them through, let’s say that they have a small business with 20 some items that they bought from one vendor in China, and they decide they’re only going to sell on Amazon, or they’re going to fulfill orders just through Amazon, if they do on their direct site. How can you start to finish tell the steps to the entrepreneurs out there of exactly how you do this, and what it would look like to them. And maybe I’m not talking exact tangible savings, but maybe expand on it and talk about how you can save time and money in that because I would assume that’s really the goal here in this kind of situation for the entrepreneur. So I know that’s a service that you provide, and I’d love for them to hear how you do it.

Nick Bartlett 14:06

Yeah, so first thing we do is we look at the profile of the FBA shipper or the FBA merchant. And part of looking at that as we try and understand what were they producing to where did their sales go? FBA can be a little bit of a tricky one right? Because the way that FBA operates is obviously a multi-DC type in injection program right. So, depending on the profile of your business that may or may not suit this just-in-time model may or may not suit you but from a smaller merchant perspective, the first thing we do is we have a look at the profile of the merchant themselves. Second things we do is we have a look at the nature of the profile of their production where they shipping from, what the sort of accessibility and frequency of freight that we can get from that market from that particular area may look like. So if it’s somewhere like Shinjin, or Hangzhou, or somewhere in Shanghai or North China, whatever, generally speaking, it’s going to be generally excessively pretty, pretty good. Then we look at sort of the supply side. So how frequently can the brain get stock? Can they get stock once a week and get stopped once a month? What’s the replenishment cycle look like? What are the throughputs look like on the other side? And then effectively, what we do is, once we take all that information, and we say okay, and then we look at a forecast and a buffer on either side of the forecast, and we say, okay, we think that we can bring in a certain amount with a direct injection model into FBA, which means that we load a number of containers, or maybe a number of LCL shipments like less than container load shipments, we put those in maybe on a weekly or bi-weekly replenishment. So we’ve got this revolving door, right? No matter what’s happening, we’ve always got stock just kind of either on the water coming in or sitting at the DC to go out. And we try and build this nice sort of flow of activity happening in every line of the state. So activity happening and production activity at the port activity on the water activity at the DC and activity for the last mile delivery. And if we can help them achieve that now, obviously, everything is based on sales, right? So if you have a really great period where you sell lots, and then you have a bad period where you don’t sell lots that can get a little bit jaded quickly. But we try and be agile in the way that we manage it. But if you’re a small merchant, and you didn’t want to be holding too much inventory and you wanted to be running as much of a just in time model as you can, then certainly we can help you facilitate that process. And more importantly, once it kicks in, we then take care of it once it arrives, we prefer if it needs prepping for FBA, because they may not prep it and China. And then from there, we send it into the either nominated one or nominated several Amazon FBA locations. So it is possible, but it doesn’t just to be clear, doesn’t always work for all different profiles, right? It will work for some profiles really, really well. But it won’t work for everyone. And I think you may have seen in the US of recent times, Amazon have cut the how much stock you can hold with them. So once upon a time, you could just drop whatever you wanted right? Now they’re saying, hey, guys, rein it in. We don’t have the space anymore. Please go away, and send us exactly what you need. Don’t send us too much.

Pat Yates 17:23

Yeah. So with the understanding that many products gets sent to different warehouses, because the size, whatever it is, however, Amazon, their algorithm decides where you send products. So would you think that it’s a blended model, let’s say someone’s doing that, that’s probably the best setup for them is to find you for the import that gets to your main warehouse, and then you distribute it out from there, ie maybe half of it goes into FBA, because of storage limits, like you talked about, and the other half gets warehouse with you. Or let’s say that, for instance, one of your items is housed in Wisconsin, I’m just making that up. Maybe you have a warehouse in northern Chicago, where you put that item. So when it needs to be replenished on FBA? Is that a complexity that happens in this? Or do you find one warehouse that you stage everything out? And then get it into FBA? What’s the process here? And maybe it all doesn’t go in?

Nick Bartlett 18:11

Yeah, and that’s exactly where I was, it’s great you’ve asked that question, because that’s exactly where I was gonna get to with these limits is that what happens is, what these limits is that you can’t necessarily run that efficient just in time, because you just run out quicker than you can get it. Right. So it makes it really difficult. So that’s what we call this sort of staging environment or crosstalk-type environment as a secondary warehouse. And because Amazon’s brought these limits down, it means that more of these secondary locations have actually popped up. So we can certainly do that. We do that frequently for a number of customers where we hold, like, I’ll give you an example. We’ve got an Australian customer that sells on Amazon does really well on Amazon, US, and they do a bed linen product. And they effectively are doing about 60% of just in time and 40% sitting in inventory with us. So effectively, every time we replenish the stock holding that what goes from the stock holding goes into Amazon FBA. So it’s like this nice little loop if you like. And it’s a really efficient way of running, they run very consistent sales cycles. Very good. We planned for promotional periods, such as like Black Friday and whatnot. But that jewel is becoming increasingly popular. It’s actually what’s driven up a lot of the costs, particularly on the secondary warehousing. So like, these overflow sites or whatever you want to call them, the cost of these overflow sites has actually become more and more expensive because Amazon said, no, no, no, no, no. And everyone’s had way too much sitting in the market. So my view is that any FBA sellers should be running either a just in time completely or should be running at the secondary flow that I’ve just talked through. Because that will help reduce your costs will make you more efficient. And to be honest, I think a big chunk of merchants job on FBA or whatever the sales channel was, is to also hold your production as accountable as was possible for readily available supply as well, right. So if you have a good production point, you have people on the ground, you have resources that are monitoring and actually managing the stuff effectively, then, really, there should be no reason why you should ever have too much-working capital tied up in too much inventory at any given time. Well, and I know that sounds like the perfect story, but like, that’s really what everyone should be aiming for.

Pat Yates 20:23

Sure. I think one of the things I’ve talked with a lot of entrepreneurs at Quite Light and some people that I speak to about logistics, and it’s weird, because this is one of those odd things that shouldn’t be as difficult, but people are so intimidated by so many different ways, because like, people just don’t realize that if you spend, let’s say, 1000 bucks moving something one extra time, you just added probably 10% to your product costs for anything that you currently have. So some of these efficiency become really, really important to your landed cost. Talk a little bit about maybe how you guys, and maybe you talk about a four PL approach that you guys have talk a little bit about that and how they can do a start-to-finish thing that not only can be more operationally effective, it can probably be financially affected by turning over all the logistics and maybe what that entails.

Nick Bartlett 21:10

Yeah, so the biggest benefit of a four PL. And sometimes there’s misconceptions about four PLs, which is always hard to listen to. But I think it’s all about the positioning of the four PL more importantly, but for us, as a four PL we give customers options, that’s the best way for me to describe it. And what I mean by options is that if a customer comes to us and gives us a problem, or gives us a scenario, we present options back to them, these are the options available to it’s not glued. I’m not trying to sell Pat Yates transport, or button that transport. I’m trying to sell the best solution based on the network of providers that we have. And so if you are a cost, if you are a business or a brand or product owner looking to expand or looking to consolidate and get efficiency of your logistics, then working with a four PL will enable three things that will enable the ability to get options, the ability to definitely reduce cost, but more importantly, it’s the internal cost. It’s your own costs, it’s your people’s cost. It’s all the cafe, if all the back and forth all the freight forwarding does that does that, I think anyone that’s had any touch points with logistics can see how inefficient communication can be at the best of times, you should be working with one provider that centralizing and for you bringing it together for you offering you internal efficiency, cost efficiency and options. So what happens when DHL goes down to what happens when mercy stop shipping? What happens when CMA run into the next Suez Canal? What happens? What are your options. And so if anything, in the last few years has taught us it’s that giving yourself having contingency in your business is important from a logistics perspective, but also having options is really important. And a provider like us as that’s what we enable, I guess as these options. And that’s, if we’re working for someone from A to B, we’re very, very transparent. Like we don’t own the trucks. We don’t own the warehouse. We don’t own the ships, right? Like, we’re very honest about that. But we’re also not a broker, we create the value, we build the program, and then we deliver it for you. And the idea with that is that it creates value. And value creates long-term relationships. And that’s really what everyone wants.

Pat Yates 23:22

It’s really amazing. So I’m looking through some of your e-commerce solutions. I mean, there are things that I haven’t touched on, because most of our listeners are e-commerce entrepreneurs and all of them struggle a little bit with logistics. What other parts of this do people sort of miss that you will find is a common mistake for everyone in logistics.

Nick Bartlett 23:39

One, one big mistake that we see a lot of is a real lack of p&l understanding for logistics. So total cost contribution of logistics. I think a lot of the time, a lot of early-stage businesses, they think, oh, that looks good. And they don’t model it out. They don’t really identify what the problems may be. So that would be one really common thing is just a real sort of lack, I guess of p&l understanding of when you take it down to like the unit level. The second thing would be just a complete. Not lack of understanding, but like a real underestimation of the importance of logistics. A lot of people think, oh, it’s easy. Just whack it in a plane, put it on a truck, put it in a warehouse, it’ll get delivered. You spent I think, Pat, you’ve been running your econ business for 20 years Right? You know firsthand the amount of mistakes and operational headaches and unhappy customers and disasters that can come from operations right from logistics operations. So the underestimation is a really common thing. And so what we often do is like we’re educating customers about hey, these are the things you need to think about, if you’re going to like our most common customer is someone that’s looking to expand. So someone that’s in a market, looking to go to another market or wants help to regenerate their existing market? And quite often the first place we start is tell us everything there is about you, your current operation, tell us everything about your business about your customers. What do they say about you? What are your reviews online look like? And we try and literally look at all of that and work backwards. And so okay, well, most of you, people say that you’ve got good delivery, they like fast, whatever it might be. But by doing that, we actually educate brands that the logistics, we try and bring the logistics up to the same level as the marketing or the product or the brand, right? We trying to elevate it. Because if we elevate it, then it gets more eyeballs. Now, sometimes it goes against us, because then we have all the business owners asking us 1000 questions, right. But that’s not a bad thing. So probably the most common things are commercial, sort of a real commercial gap sometimes underestimating the importance of logistics, in terms of the total business. But most importantly, I think, even though they’re two quite big things, they are surprisingly common, even in bigger enterprise businesses as well. Not just a small brands, but we also see it with the bigger. And so that’d be a couple things. But I think if you look at some of the trends across e-comm, logistics, returns is a big headache for a lot of brands now, how do they manage returns? How do they get the right returns infrastructure in place? So that’s a big one is an emerging sort of area. And another one, I guess, is really on delivery options, we see a lot. I was actually having a conversation today with a partner that specializes in localization of stores, online stores. So if you go, if you in Hong Kong, you go onto your website, it automatically converts everything to Hong Kong, and then Chinese and all the rest of that. And one of the big things that that they were saying to me on the call was that it’s just a mess of the amount of gaps that get created, when you start actually exploring the expansion that some of these brands are going on, particularly when it comes to sort of managing returns managing the customer experience in managing multiple delivery options. There’s a real lack of influence on those particular key items that really drive the customer experience and whether or not a customer comes back and purchases from you or not. Because a customer may don’t have a good experience the first time around, then, good chance, they are not coming back.

Pat Yates 27:27

I agree with that. I think that logistics is so important. And I think people have so much. I don’t want to use the word anxiety. But it’s probably true about logistics anymore. We went through a tough two or three years where containers were sitting in the water, if you could get them you were lucky. And then it comes right on the top of going from 6000 to 26,000 when I call the biggest money-grabbing in the history of logistics, which I’m sure you were part of, but I’m not going to complain about you. But here’s my real question about do you have contracts when you’re importing like this can help people avoid costs, things like that? Were the people that were really in trouble not working with the right people that can help them to hedge those costs? In hindsight, maybe not. Maybe there was very little savings, or maybe you could help them in some way get it quicker, whatever it’s going to be rewind when everyone was having that stress, and tell us why working with your company might have helped that if it did.

Nick Bartlett 28:15

Yeah, well, first thing I can tell you that that time was so stressed, I probably aged about 10 years that time. Because, yes, we made some good money. To be perfectly honest, we did. But it came at a big cost and a big stress cost and operational pressure, as well. So to answer your question, first of all, I would say that the COVID time was super stressful. So whilst we made some good money and all of that, certainly it was didn’t cut, it came at a pretty good cost in terms of operational pressure, and stress and all the rest of it. And I think, the optics of it being stressful were very, very true. I had guys on the phone every day 4 am, 5 am asking me why the container was parked at Long Beach 400 kilometers off the shoreline. And when the hell it was going to arrive? And I was like, how can I know? I mean, do you want me to go get my speed boat and pull it off the boat myself? Like, I don’t know. So it was a shitshow there’s no doubt about that. But in terms of kind of whether or not you could have avoided it, certainly it was very unprecedented time. So that price point of 20,000 North or 20,000 like that was crazy, right? But could you have avoided it? Could you have built protection? I think the best advice I would say is that if you work with someone that can give you options, then I think you can alleviate that pressure cooker but, if you’re working just contracted with one carrier, then I think you were always going to be nice deep in trouble. Whereas at least with us, you would have had some options now not desperately not to say we could have avoided it because we were at the mercy of the carriers like everyone else. So the carriers put 10 grand was 10 grand but I think if you work with someone that can give you options that certainly helps as the first point, and then probably the second point on that is protecting yourself against potential future scenarios where there may happen again. And what I mean by that is, we’ve talked a little bit about the different options that you can have when you’re looking at building your e-commerce business, or maybe looking to make changes in your e-commerce business. And one of them is around holding some stock in the destination, some changes to your current business model may be required, in order to protect yourself in the circumstances at a future event, like COVID were to proceed itself, because I think we’ve seen firsthand now what the carriers will do when the going gets good, is they will milk it till the cows come home. And that’s what’s going to happen. So we’ve got to be prepared for that. But I think you can be smart, you can build contingency in your business, you can look at different ways of servicing your customers, you could look at different production points don’t be so much reliance on one should be looking at multiple potentially holding some stock and market not overstocking yourself, of course. So there are options. And I think COVID has taught us lots of good lessons. And we should be looking at these lessons as we go forward with certainly comes into most of our conversations with brands, which is, hey, why are we doing all the production in China still? Should we be looking to diversify? Should we be looking to, you know, hold more stock and some of your other countries where demand is growing? Should we be looking at alternative production markets with you? Whether that be Vietnam, or Taiwan or somewhere different. So certainly a very tricky time to say the least. But I think if you work with the right people, and you have the right relationships with the right levels of trust, then hopefully you wouldn’t have got taken advantage of as we saw, as much as we saw some customers that did. I mean, we had customers just bleeding, shipping 20, 40, 60 containers a month that 20 grand and they normally shipping 1500 bucks. I mean, talk about bleeding cash. I don’t think I’ve admired short, relatively short careers, 20 years or whatever it is, I don’t think I’ve ever seen something quite as drastically obvious as that.

Pat Yates 32:15

Yeah, it was definitely a tough time. So as we go forward, again, we’re talking with Nick Bartlett at CBIP Logistics, Nick, tell us a little bit about CBIP and how they structure their clients. How do you come up with quotes to be able to do these certain things? So does business need to be a certain size tell us about your pricing model and how you bring on clients?

Nick Bartlett 32:38

Sure. So from a business structure perspective, we have three core products, we have e-commerce logistics products, which is all about helping brands build logistics programs for their brands globally. We do currently have 15 warehouses operating globally 10 different jurisdictions, and e-commerce logistics for us is all about warehousing, fulfillment, and delivery, and returns and with a nice wrap of technology that sits around that. In terms of pricing for that product, or most of the time, it’s just a standard rate card universal globally. We don’t overcomplicate it, we try and keep it really, really simple, as much as we can based on the different jurisdiction, seeking product we have as a full-service logistics product, which is really helping customers in that full-service area. So that includes all your air freight, your ocean freight, your customs clearance, your brokerage haulage, et cetera. So that product is more of a traditional product, our full service, but a lot of our brands actually we that we do the e-comm logistics product for also use our full-service product because it’s complimentary, right? Like if you’re working with us in four countries for warehousing and fulfillment, it makes sense to work with us on your air and ocean freight from origin. Because we can do all the facilitation the AC means we can work with the factories etc. and makes it nice and nice and easy. Then the third product we have as a debt also sorry, full services also just quoted on a product by product basis. So like if it’s the air freight, ocean freight, brokerage haulage, whatever it might be, we quote that on a very simple level, but quite similar to probably how a freight forwarder would sort of quote, that type of work. And then we have a consulting product, which is really just about helping brands to build programs and design programs, and you may not choose to work with us. But the idea with the consulting product is that, we really, really deep dive into your business, we look at all the nooks and crannies, we provide you with a whole bunch of recommendations and support around what you can and can’t do or shouldn’t do. And then from there, it’s sort of up to you if you want to use us to execute it or you’d like us to help you find someone else. We do have a really cool catch without consulting products, which is we charge a fee upfront to do the consultant. And then we have a catch that if you actually do the work with us, we’ll give you the consultancy back. Because to be honest, the consulting fee back doesn’t really mean much to us. It’s not that important to us. The most important thing that’s important to us is long-term residual quality relationships, that’s really what we’re after. But from a structure perspective, that’s sort of the 3 core products, we have people and each one jurisdictions that we have, we have account minute we our account management team. So we have a very hands-on sort of team operating day to day, as well as having a management team for escalation of finance, HR functions, etc., that supports the business across the 10 jurisdictions that we’re operating in at the moment. Commercially, we’re very simple, and we try and be as transparent as possible with commercials. So we always talk about wanting to be a different and agile type of provider. Our pricing is a big way of showing how we’re different and how we’re agile. If customers want us to price a certain way, then to be honest, we’re quite open to that. We’ve got a number of different pricing mechanisms in place that we have we sometimes we have like a fixed price, sometimes we have a variable price, sometimes we have a cost plus price. So we do have a real range of different pricing methodologies that we follow as well.

Pat Yates 35:54

It’s really incredible. I mean, Nick, obviously, you have a ton of diverse services, I mean, e-commerce entrepreneurs out there, please reach out to Nick, and be able to talk to you about your lizard. I think people just need good information around them, even though they may have some reservations. I’ve worked with the same import people, I’ve done the same thing for 10 or 15 years. So that doesn’t mean it hasn’t changed. So I would encourage people to reach out Nick, is there anything else? Tell everyone how to get in touch with you at CBIP Logistics or anything else that you would like to add that we haven’t gone over?

Nick Bartlett 36:22

Yeah, sure. I think, if you came for a chat, we’re always keen to have a chat, you can reach us at CBIPlogistics.com. Just drop us a line on our contact form there. Alternatively, you can reach out to me personally, Nick Bartlett on LinkedIn, or Nick_CBIP on Twitter, we’re on quite actively talking about direct-to-consumer trends and different pieces of news and insights that the economic and in terms of additional information, look, I think, if you’re looking for an agile, different type of religious experience away from the transactional, more heavily commoditized industry that we’re so, that most of us are probably quite used to, then we could be a good fit for you. We’re not necessarily good fit for everyone. And that’s okay. But most importantly, we’re always up for a chat. We’re very open, we’re very, sort of down to us caring people, we care about getting the best for your brand, and your product and hopefully that shows up in the way that you interact with us whether or not you choose to work with us or not. So my best piece of advice is just if you want to chat just come and have a chat, easiest.

Pat Yates 37:24

I agree with that. 100%. And I think, especially in last couple years has made me even think in my business a lot more about logistics. So I’d encourage people to reach out to you. Nick, this has been a great conversation. I really appreciate you. You taking the time. So listeners out there if you need to get in touch with Nick Bartlett at CBIP Logistics do that. Want to make sure that if you’re importing product, you know all the options, whether you shipped directly from China or bringing the United States and how you get it spread out through there Nick, I really appreciate you coming on the Quiet Light Podcast today. I think everybody’s gonna get a lot of good information out of this.

Nick Bartlett 37:54

Cool. Well, thanks so much Pat. I really appreciate you guys having me on. Thank you.

Pat Yates 37:58

Thanks, Nick.

Outro 38:01

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

Building Subscription Experiences You Can Be Proud Of

Andriy Rudnyk is the Founder of Good Subscription Agency, a brand that assists entrepreneurs in building world-class subscription-based businesses. As a Shopify CRO expert who likes to experiment with the design of DTC stores and email marketing, he helps brands create and grow recurring revenue. Andriy is also a digital marketing and e-commerce mentor at North Forge Technology Exchange and holds a bachelor’s degree in entrepreneurship and small business management from the Asper School of Business.

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

[02:08] Andriy Rudnyk talks about the genesis of Good Subscription Agency and what it does for businesses
[03:38] The Good Subscription Agency’s ideal client profile
[05:38] The value of hiring an agency to create a subscription-based business model
[06:49] Andriy shares customer retention tips for subscriptions
[17:00] Reasons for specializing in subscription-based businesses
[22:33] How can you reduce your churn rate?
[25:49] Good Subscription Agency’s business and pricing structure
[28:22] Andriy explains how to maximize subscriptions during Black Friday, Cyber Monday, and over the holiday season

In this episode…

Do you want your business to have a steady stream of revenue, predictable cash flow, and cultivate solid customer relationships? Building a subscription-based business could be the solution, but do you have what it takes to thrive using this model?

Subscription-based businesses are becoming increasingly popular, and for good reason. However, there’s an art for attracting, converting, and retaining subscribers. According to Andriy Rudnyk, building and growing a successful subscription-based business requires unique skills and expertise. He recommends hiring an agency that specializes in this area to help you develop a winning strategy, optimize your marketing and retention efforts, and reduce the churn rate to achieve sustainable long-term growth.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Andriy Rudnyk, Founder of Good Subscription Agency, to discuss how entrepreneurs can flourish through a subscription-based business model. Andriy talks about the value of hiring an agency, customer retention and churn rate reduction tips, and how to maximize subscription income over the holiday season.

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 sitting in for Joe Valley. We have a fun conversation today a little bit different. if you have a business that you’re doing Subscribe and Save or any kind of subscription income, we have Andriy Rudnyk. And Andriy is such a great expert in this he’s with Good Subscription Agency. And they only concentrate on subscription income not only they have the ability to help you with churn onboarding, and making sure customer experiences are right, they actually have an app that you can tie into your site that’s going to help you implement this. I think that my predetermined idea was that subscribe and save is pretty easy. Put your name up there have your product, if it’s successful, they’re gonna buy if it’s not, it’s not, but there’s a lot more nuances to it. And I think finding an agency that can help you be able to do these things will at least springboard you in understanding this kind of stuff. I really honestly thought it was an easy part of a business. But the more that I talked to Andriy, I realize it’s really complex. I think everyone’s gonna get something from this conversation today. So I’m anxious to talk to him. And again, if you have any information you need from Quiet Light on your business or want to buy a business, you can go to quietlight.com. Or you can always email me Pat Yates is [email protected]. I’m excited for this conversation with Andriy. So let’s get right to it. Hey, Andriy, it’s great to have you in the Quiet Light Podcast today. How you doing?

Andriy Rudnyk 1:44

I’m doing great. Thanks for having me on Pat.

Pat Yates 1:47

I’m really excited about this, we got a lot of people and actually have a Shark Tank company that I’m really close to that is actually a subscription-based business. So having this conversation is really kind of exciting to me, because I want to learn a lot more about how that’s changed. I know the market has changed for it. But I know everyone would like to sort of understand what you do at the Good Subscription Agency, maybe introduce yourself where you’re from and tell us a little bit of your background.

Andriy Rudnyk 2:08

Yeah, I would love to so as you mentioned, so I run the Good Subscription Agency, we started at the very, very beginning of the pandemic. I got introduced to e-commerce, I worked in both commerce before their large app developer on the Shopify space. And I just saw a niche that really was for subscription-specific agency. So essentially, we only service recurring revenue clients, businesses that have a subscription or a Subscribe and Save or a box or the month or a meal plan on Shopify. And when I say we’re an agency, we help with website design. The subscription strategy overall kind of wraps it all up by website design, development, email marketing, and subscription app optimization and development as well. So that’s essentially what it is. And what makes us a little different than anybody else is that we understand the importance of customer lifetime value. And we always kind of look at that first and foremost. And that’s really the KPI metric we work with our brands to move forward.

Pat Yates 3:13

That’s really great. So tell me a little bit. Let’s say someone comes into you and lets you shoot up the hypothetical. I don’t know what it is. Actually I talked to a company recently that did cat litter. Let’s use that as an example. Let’s say someone wants to build a business subscription around something like that. How do you analyze whether their product is actually right for that? Because some people may think they can get subscription income on anything, but it’s not something that’s really tailored to that yet they want to build it. How do you analyze what clients you work with?

Andriy Rudnyk 3:38

Yeah. So whenever we have a brand that’s just super fresh to subscriptions. One easy metric to look at is your returning customer rate is are you getting at least 30 to 40% of your repeat customers to come back within a certain timeframe. So for example, if you have 40% of customers buy twice in 90 days, you’re probably in a pretty good spot for a replenishment program are Subscribe and Save. And yes, I’m not going to pretend like every single business can start a recurring revenue model. However, there are other things than Subscribe and Save that you could do like a membership program, we’ve actually seen this work pretty well. For example, think about Amazon. Amazon’s the greatest example of a membership program with Amazon Prime. You don’t think about Amazon as a subscription business. But Amazon Prime makes up I don’t remember the exact number. But I remember something around 30% of sales is Amazon Prime revenue for their profit, obviously because all of that membership and access and free shipping is pretty heavily and pretty profitable for them, a lot more profitable than the products they resell. So a membership program like that has been also really, really effective for a lot of brands because it’s a one-time setup cost. So for example, you could say something like, hey, our brand is offering free shipping for all of our members and you get a $10 insert or credit on every single month every time your membership renews. So you have this cash-back element, you have this free shipping element. And that really incentivizes your diehard customers to spend more with you, which is really what you want.

Pat Yates 5:13

That’s a really good point. So I guess when I think about this, when I think about subscription income, let’s say someone’s doing on Amazon, I think everybody seems like, well, my product is a success, I know what I’m doing. Why would someone reach out to have another company help them with that subscription? What’s the thing they learned coming into you that maybe that this breaks down a barrier of what people think about being concerned about starting it? What are the biggest hurdles to get over to decide to work with you?

Andriy Rudnyk 5:38

I think the biggest question is, do you want to work with somebody who’s specifically an expert in this brand, in this field, specifically recurring revenue. So a lot of agencies work and implement a subscription program every now and again, our agency does that every single day. So we’re a vanilla Shopify agency would implement maybe three, four subscription programs in a year, we do that many every single month. So we just have a lot more time on stick. And what that means is, when we do projects, they’re generally very effective. And you can see 50% increase in customer lifetime value in like the first 90 days, you can see 2x growth for your subscription program within the first two, three months that we work together, because we kind of already know what the tech limitations are, we’ve basically made all the mistakes already.

Pat Yates 6:29

Right? Yeah. I think that when I was reading and checking on the website, you had one thing that you really hammered to people right away, which is you have to have a retention strategy. Tell us a little bit about why that’s important. Because I found that interesting that, a lot of times people want to think about how do I get people coming in and subscribe, but the real widget is how do you keep them around. So talk about that.

Andriy Rudnyk 6:49

Yeah. So that’s a real tricky piece for some people to wrap around. Because it’s so counterintuitive to how e-commerce worked in the last five, 10 years, when ads were really cheap, you could drive first customer really profitably and maybe get breakeven on your first sale, maybe make a little money on the first sale. Now with app, customer acquisition costs increasing, you really have to think about not just selling to them for the first time, but selling to them for the second order, third order, fourth order, fifth order, I keep banging on about that your subscribers were three to five times more than one time customer. Why? Because on average, that’s basically what the math shakes out to be a subscriber generally places three orders on average between all the brands we work with. And what that means is your profit margin actually on the second third order is so much higher. So you really have to think about it that way. So you’re not just trying to get somebody through the door, just through the checkout screen, and the thank you page, it really is about that post-purchase experience, the email onboarding, the expectations you build in the post-purchase experience, that unboxing experience, the upcoming order notification, the customer portal, and the second order coming through in the second box, and the third box. So I’m really in requires almost a mental shift from oh, we only care about traffic and conversion and average order value where we really want to take care of the post-purchase experience overall afterwards. And that generally just requires looking at different KPIs, looking at your churn rate and your onboarding and your activation period, and your activation period spent. This is actually something I’m trying to coin as APS is the amount of money a customer spends on their first two orders. Because actually, somebody might opt into your subscription program, but until they placed their second order, they’re not a subscriber, they are on trial, they’ve signed up, they might be getting a port, they might get access to their portal, they might get an upcoming order notification. But until that second order is placed, they’re not really a subscriber.

Pat Yates 8:58

That’s a great point. Because I think the one thing, I had a conversation recently about subscription and being able to retain people. Isn’t it more important probably what you do post-purchase first time to second purchase on the recurring that really sets in whether the customer is going to stay or does it build over time? Do they find that confidence later? Is it about that? For instance, I don’t know, if you send early emails of it’s about to send again, and they have a chance to cancel or whatever. Tell me a little bit about how after the first purchase, someone has to really be that attentive to a customer and make sure it continues.

Andriy Rudnyk 9:32

So great question. And the way I tend to think about it is, this is really about churn management. And so as soon as so let’s say somebody opted in to become a subscriber and have the second order automatically be placed. What you’re really trying to do here is they have an expectation that you’ve created for them on their purchase flow and in their post-purchase flow. And the expectation is, hey, we’re a reputable brand And we’ve got a great product, and you should be spending money with us. Anything that tells them differently, if you just charge their card randomly without a notification, if the second order arrives when they don’t need it, if they haven’t even gotten through half of the first product, and maybe it’s a supplement, or maybe it’s something that’s stacking up on their shelf, it’s a mismanagement of that. And basically churn really happens when expectations don’t meet reality. And then you start thinking, okay, you make promises you can’t keep. So I can’t really trust this brand, with my credit card, a sense of especially, but also to even how do I know that their product or their supplement or the gummies, or whatever they are promoting to me is actually on point. So a subscription is an additional promise you give to them that you have to maintain because if you miss manage that expectation, basically the customer loses hope, or basically trust in your brand. And good luck with that.

Pat Yates 11:01

So let me ask this, you mentioned something that’s kind of interesting there. Some people might get overlap, maybe it’s a product they didn’t use as much I have no idea what the product is, what supplements, maybe the person didn’t take them for a month and ends up with an extra bottle. How does that really affect the long term? Because I mean, do most people that get stacked up like that change the date? Do they have the ability with you, what happens from a customer level to mitigate that problem?

Andriy Rudnyk 11:22

Totally. So on the customer level, what we found is that subscriptions and actually, this is very easy to understand with things like Subscribe and Save programs and with replenishment, as good as you try to predict the customer’s consumption habits, even with daily supplements. People are not robots, it’s very hard to predict when they will need their second order. So it’s essentially key to let them so when it comes time to the upcoming order, and they get a reminder, it’s essential for them to have every single option that’s better than canceling, because the initial knee jerk reaction is oh, I don’t want this order right now. And if you can give them an easy access to the customer portal with one click in their email or through SMS, and they just click no password to remember. And then instead of seeing canceled, they’re seeing hey, change date skip snooze. That is what you want, because you want to educate them on every single action that’s better than cancel. And what we find consistently is that customer portal actions, let’s call it skips news downgrade, upgrade your plan or your amount, or change your size, your SKU, all of those are correlated with high 20 to 30% higher customer lifetime value. So the easier it is to manage your subscription, the more customers are likely to stick around and personalize it for them.

Pat Yates 12:49

That’s really great. I mean, I think the thing that when I look at subscription income, I’m always worried about that. When I think about if I’m gonna subscribe to something I’m like, how do I really know how quickly I use this versus anything else? And I think being able to be flexible is incredible. You talk a lot on the site about the customer lifetime spin and how this affects it. And do you feel like and maybe you can go into that a little bit and talk about the effects that you end up getting this long term if you’re able to get that income, but also, sort of from a standpoint if you have people that you identify that are dipping their toes, maybe they buy every seven weeks, and you’re normally set up on a monthly thing? How do you identify clients that might be candidates that aren’t really taking advantage of the savings too, maybe talk a little bit about both of those and those two different questions?

Andriy Rudnyk 13:30

Yeah, totally. So for example, we can talk about, well, I really like this idea that not all subscribers are made equally, first and foremost. So some people are really just signing up to get a trial on your order on your product at a discount. That’s really what they want. And they’re likely to cancel after the first order. If your onboarding emails are really good. So basically think about an onboarding emails from a customer level. It’s those three, four emails you get right after you place the purchase. They’re not transactional, they’re basically educational. They’re here to take care of buyer’s remorse. They’re here to educate you on how basically build expectation of what you’re about to receive. So this is something like welcome to your community, Athletic Greens has a great example of this, they welcome you to a new movement community, your gut health is going to thank you, you’re gonna have just more better energy so on and so forth. They’re building or the expectations of what you’ll get once you take this on a recurring basis. So recurring benefits of use and then they’ll tell you hey, you can manage your subscription here if you want an order sooner if you want to order later, just click here and they will teach you all of this in the first couple of emails. Now the onboarding process is essential for building a good habit of consumption and really outlining like the ideal subscriber experience for a customer same thing with the unboxing, Mod Water, I don’t know if you ever heard of them, make direct-to-consumer brand kind of an alternative to coffee. And what I really like is their starter pack is the thing you buy first when you subscribe come. So the unboxing experience becomes a big part of this, comes with a milk frother. And as soon as you open the box, and I’ve yet to ask Shane, the founder, whether this came through user research, or how do they figure and so when you open the box for the first time, it doesn’t tell you, hey, just make mud water out of water. And here’s a latte recipe. And what they found is 70% of our subscribers enjoy Mod Water as a latte. So you really have to explain that ideal customer experience to the new subscriber and try to replicate that as best as you can. So here’s why we include a frother, it probably cost them a couple of dollars, maybe $1 or two to include this frother in but it will get them three four 10 orders over that same thing with printing that recipe on the unboxing page. And then everything after that the upcoming order notifications are upselling you on creamers and other flavors of the things you’d might want to try and add to your upcoming order. So I’m a big fan of that. And yeah, Mod Water is a great example there too.

Pat Yates 16:19

You’re sort of just walking customers, right where they want to go and they don’t realize it and then you’re in a position where they have everything they need. So talking with Andriy Rudnyk with Good Subscription Agency is kind of fascinating, because, I look at your company, and I come in and talk to a lot of marketing agencies, and we have to pare down the nine things they want to talk about, you only do one thing, it’s really exciting because like, I think that a lot of times people lose faith in agencies that try to be all things to all people, it’s do everything you can possibly have done and some may do it average, what made you decide to just concentrate on this, because I’m sure that when people talk about subscription, they have other things they’d like to talk about, but you keep it very tight. What was the decision around that? And how did you implement it to be so successful at it?

Andriy Rudnyk 17:00

Well, I’m a big fan of diving into one particular subject really deeply and I would say it’s like, we’re really just starting to scratch the surface of what it feels like to be a specialist in something. And I really liked this idea like to be really good at something, you have to say no to many things. And I really do believe that good design, like the way we designed our service offering for agency is we have to say no to a lot of other projects and a lot of other clients. Just to say it’s like, no, we only work with recurring revenue brands. And as a result, we just have so many more again, time on stick, we do four to six projects every single month where other agencies do that many in a year. And it’s always the same team for us too. But the way I decided to work on this is, initially I saw through the pandemic, I saw that subscription businesses were really growing and that industry was exploding, even more than the rest of the e-commerce space. And I really had to ask myself, it’s like, okay, hold on, is this a fad? Or is there something more to this? And then what I think what hit me with this subscription economy, and I started reading a couple of books on it, too, I really liked The Membership Economy by Robbie Kellman Baxter, probably one of my all-time favorites. Same thing for your listeners, The Automatic Customer by John Warrillow. I don’t know this specifically talks about recurring revenue as a tool for hire business valuations. But general I was like, No, subscriptions are just a more natural way to deal with a brand. Because at the end of the day, I want to have a relationship with a long-term brand that will have my back for a long time. And instead of trying to pick the lowest cost or trying to decide what kind of toothpaste do I want, or toilet paper brand do I want? Or what shaving razors do I want, I just want to be with one brand for a long time and know that they have my back and I can trust them with yes, like simplifying my life. And that’s really what it comes down to. So I just think it’s a more natural way to do business. And also it builds the incentives for the business to be a better business long term because you have to have a great product and this is something that I think agencies don’t emphasize enough on it’s like you can try to market a terrible product but unless you have a great product that people actually want to buy over and over and over, there’s no lipstick on a pig like there’s not much you can do if again if customers don’t want to buy a second time.

Pat Yates 19:47

That’s exactly right. The product has to perform to a level people are gonna want to continue to buy it. As I was going through and looking at your stuff, it’s really fascinating you concentrated only on this because even broke down to where you’ll go in and help with the Shopify theme or landing pages and things like that talk a little bit about why that part is important because I feel like there’s some people think, well, I can just turn this on and off, and I don’t need a whole lot of thought to it, people are gonna buy or they’re not. But there clearly is a specific process to this, tell us about that step and how it really helps your subscription income.

Andriy Rudnyk 20:18

Well, the way I try to explain it to people is that your subscribers are categorically much more valuable than one-time purchasers. And there are many things you could be doing as a business to try to grow your revenue to try to grow your profitability. However, we know that the most profitable customers are subscribers, and that we know that the ROI on a subscriber is generally three to 5x, higher than a one-time purchaser. That’s why we tried to steer everybody to, hey, trust me, the subscription program is the best way to build compounding recurring revenue. And it sounds like buzzwords, but like your bank account will thank you later. So and in that case, it’s like, it really makes sense to try to hire an expert because I mean, one thing we have very, like businesses have limited resources, limited time limited capital. So could you go and try to grow it with better ads and landing? Like just spend a bunch of money on ads, spend a little bit of money on landing pages and see what happens? Or should you be really focusing on real bottom of the funnel, which is your customer churn? Why our customers are buying from you multiple times, leaving? Why are your most profitable customers leaving your brand left, right and center while you’re trying to chase new customers every single month, and that’s generally how, like a lot of direct consumer businesses spend basically a budget things out, here’s our ad budget, here’s our website budget, and we’re just going to try to do that. And then nobody’s really thinking about that post-purchase experience, which is actually where most profit is made.

Pat Yates 21:57

That’s really good. So again, folks, we’re talking with an Andriy Rudnyk with Good Subscription Agency. So one of the biggest things you see in this is everyone invest work. And the last thing you want to have his turn, you talked about it a little bit earlier. But I look at you have a churn optimization opportunity, you help people keep that churn down, I think most people would look at it and say, well, as long as my products good, it shouldn’t drop, because people are gonna like it. But that really may not be the case. So tell the listeners a little bit about what can create that churn. And maybe before they come into you, how do they help avoid that to become a much better agent, a much better seller on subscription?

Andriy Rudnyk 22:33

Great question. And again, it all comes back to getting good data, and understanding why people are leaving. So first and foremost, I always say look at your top churn reasons. So whatever tool you’re currently using, will likely give you some breakdown of churn causes. And people basically, this is self-reported. And you should absolutely have this as a mandatory step on your cancellation flow, and collect that data and say, okay, well, why are people leaving, what we’re seeing a lot of is people are leaving, the most common reason for churn is I have too much product, especially if it’s a replenishment brand. First of all, if it’s too much product, if that’s a genuine concern, that’s not a reason to cancel. If you have too much product, you should be able to skip, pause, snooze, postpone, size it a down downgrade, and all of that, that’s essentially one of the big things that we help with is make that process be better. But it’s basically it’s preventing that the second piece is passive churn. So that’s an easy way. So passive and active churn is two categories that we generally help with. And on the passive churn, it’s exactly that like too much product I’m moving, I just need a break, all of that should not be resulting in canceling, we should be educating them with onboarding emails, and on the customer portal on every single option that’s better than that, pause, snooze, skip, and you should be offering all of those. On the passive side when customers credit card expires, or they’ve marked it as lost and they just simply need to update their credit card, you have to have done in processes and credit card recovery processes, because these could be actually your most profitable, happiest customers, but they simply forgot that to update their credit card. And this is actually what we found the passive churn causes generally 40 to 50% of your highest loyal customer churn. Because if somebody’s placed order, like on orders 10 to 20, like these people have been ordering from you for a while. The most likely reason that they’re canceling is because the credit card didn’t go through. So we want to facilitate that as best as we can to recover a lot of that. So that’s another piece on the term, but generally speaking, and really about is about data and understanding where does your term come from? And what is it that sometimes if it’s, for example, if the reason is too much product, or if it’s product quality, you can find really good valuable feedback or product feedback that you can then take and implement and improve your product as a result. So, that’s essentially it.

Pat Yates 25:20

It’s great. So I know that a lot of people out there may or may not think, look, my business may be too small, I may not be able to support this at this point, what kind of levels of inventory? Sure, there’s all kinds of reservations. Maybe tell us a little bit about, I’m looking at your pricing, it seems as if you have something that’s flexible for anyone, if someone is just starting their business, say they’re six months in, and they’re trying to grow, do they feel like they’re ready is there a certain time or level you need to be to work with the Good Subscription Agency.

Andriy Rudnyk 25:49

So ideally, what we generally work with everybody, first of all, I love working with small businesses, we are a small team or a niche team. And I love talking directly to the business owner. As soon as the business becomes about I, we have an e-commerce manager and we have a marketing manager and we have this, it just doesn’t it’s not a small fun of the running this agency is I get to talk to other small business owners directly and get to know them, because it takes a certain kind of person to be a business owner. And that’s just a fun crowd to be with first, so we help anybody from just starting their Shopify store to businesses that are multimillion-dollar subscription or subscription businesses. And our sweet spot, I would say, to work with us as an agency is somewhere between half a million to a million dollars in sales. So you can spend a little bit of money into investing for two three four months into a subscription program that really pays off. But even then, the return on investment is two three four x, okay? I can’t promise these things nobody can. But we do. Like we have processes that now work. On the other side, though, we have also we’ve recently launched an app that is basically the $20 a month app that helps you self-serve a lot of the things that we do on the agency design side, the good subscription upsell app, it basically is designed, if you have no time, no money or no coding skills, it’s essentially designed to better upsell your Subscribe and Save program. So that’s a really easy way to take a poke at that when it essentially so it works with your any existing subscription apps. And it’s designed to just properly promote your subscription program.

Pat Yates 27:40

And if you’re listening on the radio, if you get a chance to look at the video on this, I’m showing the page that they have on there for the upsell app, this is really cool. So you develop something that actually helps them implement it. Sometimes that makes it even easier for an individual and looking at the interface of what you do. It’s obviously very clean. Very awesome. This is great stuff. I have to order some of this full-spectrum CBD. Yeah. So I guess as we’re going through, and we’re continuing to talk about subscription, I think you and I talked a little bit about a Black Friday and holiday stuff coming up just a few weeks away now. What is it that you would like to tell people they’re looking at working on their subscription income? How do they prepare to make sure they maximize and hit the ground running with that?

Andriy Rudnyk 28:22

Yeah. So, what I try to remind people especially around Black Friday, Cyber Monday, is the importance of building recurring revenue through this period, because what we see generally is people and brands gravitate to promoting one-time purchases and like kind of stocking stuffer-type things. Maybe it is maybe they run with a big promotion of their main core product. But what I would recommend is promote a subscription but bill of subscription promo. So for example, for this Black Friday, Cyber Monday, this weekend, save 25% on all future orders only available and then as opposed to 15. So and this is only for five, only runs for five days or four days. So this that or you can do a stacking discount. So say 15 on your first order and save 25 on every order after. So some apps will allow you to do that. And this is again, you’re not sacrificing profit margin on your first purchase. And then you’re getting them to purchase the second, third, fourth and fifth time. So again, generally, what a lot of businesses see is what will what happens after Black Friday, Cyber Monday stock sales slump well, what’s why? Well, obviously because everybody you’ve promoted you’ve exhausted your email list, you can’t really drive as much revenue through email. However, if you promote them a recurring purchase that January, February, March all of a sudden seems a lot healthier cash flow wise and you can actually reinvest all that money back into oh, listen, we need to make a better upsell flow for our subject. fibers and a better customer portal and a better account. And maybe we need to throw in some digital products that they can download as soon as they purchase before their first box arrives. So all of that stuff to me is really key to growing your business year over year is how you play your Black Friday, Cyber Monday. And if you can get recurring purchases incentivized through this season, you will have so much more dry powder to spend in the first in q1 of the next year to really, really again injustice for good growth next year.

Pat Yates 30:34

Yeah, that’s extremely interesting. When I think about the recurring revenue and subscription, I think in my mind, if anyone would have asked me what period would you like to see one sign up for? I would have probably just shouted out three months semiannual or annual one full payment but it seems to me you’re saying that probably if someone has an extra one they may end up canceling the whole thing and then you got a problem how to rewind a year is that suggested anymore because I used to see that as the standard now it’s something where it looks like it’s only monthly so you don’t feel like someone’s really hamstring and has to stay there. What’s the best philosophy?

Andriy Rudnyk 31:08

So, it really is actually we recommend both it really depends on your model, and how well can you fulfill so for example, if your Subscribe and Save program, it’s really tricky to build a prepayment for the whole year. So for example, like buy a bulk of your next year supplements. First of all, yes, it wouldn’t be great for the business model to get all of that cash upfront and reduce that churn. However, the hurdle rate for that like because now you have to sell somebody 12 orders, and that average order value is like it’s not a $10 purchase or a $20 purchase now it’s 100 or 200 or $300 purchase. So that conversion is tricky to handle. And that only generally works with repeat loyal customers. So you could say hey, prepay for the whole year if you’ve bought with us for last three months, you know you want to save or maybe not even a saving maybe he’s like hey prepay for the whole year and get a free gift I like that instead of a discount. Because a free gift is a much better for your margins. So if you’re a subscriber, so for example, if you sell Subscribe and Save the one-time purchases, promote Subscribe and Save as a Black Friday thing if you sell subscriptions, exclusively promote a prepaid package. So instead of going monthly, promote a three-month or six-month or 12-month pre-payment with a free gift. Same thing with subscription, gifting, send a three, six, 12 month plan as a gift. So all of those are really, really key for sales.

Pat Yates 32:44

That’s great, I think we’ve touched on so many great points today, like subscription income seems on the surface, like it’s easy, just put it up there and people subscribe, but it’s really not there’s obviously nuances to it, there’s way to market it, there’s a way to interact with a customer that makes a difference. And obviously, as you guys go through this, you guys continue to make them even leaner and you’re in a position to where as it grows, the customers are only gonna make much more money. So good subscription is obviously in a great position to help them. I know we’ve hit on a lot of things. Are there other things that you’d like the listeners to know about Good Subscription Agency?

Andriy Rudnyk 33:16

One thing so about us, it’s like, yeah, the Black Friday, Cyber Monday is generally the busiest time of the year. We’re pretty much like if people are looking for agency work, I’d say reach out sooner than later. Because first of all, if your site needs big overhauls, don’t leave it to last week, don’t leave it to the week up, reach out to us sooner. However, we are always offering a couple of free things. The first of all, we do free tear-downs, which is a 15-minute video that I always do as a teardown of your existing website. I’ll just simply record a user session, you’ll get it for free. And you’ll just get my opinion on how you can improve in actionable ways your current subscription, signup flow. We also offer audits start to finish on your Shopify and set up your subscription app setup and your claim to setup. And all of those are our full potential customers who want to end up who are interested in working together and a good brand fit. And also our app is another one that you can pretty much I mean, the sound takes 15 minutes. So yes, you could set it up for the night of Black Friday, Cyber Monday to Friday, or Thursday night. But I would highly recommend doing that sooner. But generally speaking, never hesitate to reach out to us. And find I think that’s…

Pat Yates 34:36

I think that’s a great suggestion. And even if people are not ready yet to that level of revenue, it’s good to plan at least you’re trying to think about your customer experience that will set them up for that. So Andriy, be sure to tell everyone how they can get in touch with you.

Andriy Rudnyk 34:49

That’s where to find me is on LinkedIn. Andriy Rudnyk Good Subscription Agency. Just look up Good Subscription Agency and find me there. And that’s primarily where I live. Also just check out our website, goodsubscription.agency, the free tear-downs for the websites are on there. So that’s again, a 15-minute user session, you’ll find it on our website. And generally I’m able to turn those around in a week or so. And that’s just a little bit of yep, free advice. And take it forward have it

Pat Yates 35:20

Right. And for all our listeners we’ll have the information of his LinkedIn and his email here on the web on the page for the subscription or for subscription. I got it all on my mind for the podcast. So Andriy has been amazing having you in today. I appreciate all the time. It’s been a great conversation. I appreciate you joining us on the Quiet Light Podcast today.

Andriy Rudnyk 35:36

Thanks for having me on Pat. It was a real pleasure.

Outro 35:40

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

Using Virtual Assistants and Processes To Optimize Your People Strategy and Scale Your Business

Barbara Turley is the Founder and CEO of The Virtual Hub, a firm providing fully managed, trained, and dedicated virtual assistants to business owners and operators to help them scale....

Barbara Turley is the Founder and CEO of The Virtual Hub, a firm providing fully managed, trained, and dedicated virtual assistants to business owners and operators to help them scale. Before becoming an entrepreneur, she spent 15 years in the corporate world as an account manager and an equity trader for various brands. Additionally, Barbara is a speaker, podcast host, and operational efficiency enthusiast who passionately helps businesses remove bottlenecks and scale.

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

[02:48] Barbara Turley talks about her professional background and transitioning to entrepreneurship
[06:33] The genesis of The Virtual Hub and what it offers
[11:17] The virtual assistant culture-building and onboarding process
[18:44] Barbara explains how they help entrepreneurs come up with operational frameworks, systems, and processes
[23:45] Why business leaders struggle with delegating tasks
[28:38] What’s The Virtual Hub’s pricing model?
[33:03] The three-step operational efficiency blueprint for a scalable business
[36:20] Barbara discusses how having systems, processes, and VAs in place impact selling a business
[41:52] The Virtual Hub’s customer success stories

In this episode…

As a business grows, the workload increases — and managing it alone can be overwhelming. Where can you get the much-needed support you want to help you keep up with the demands of running your business, avoid burnout, and ensure that your business continues to thrive?

Barbara Turley believes VAs are an essential resource for business owners looking to scale. They help manage your workload and free up your time so you can focus on growing your brand. However, not all VAs are created equally. Hiring an expert VA who specializes in providing valuable insights and suggestions for improving your systems and processes is crucial to help you streamline your workflow and increase efficiency. So why wait? Start exploring the benefits of working with a VA today!

In this episode of the Quiet Light Podcast, Pat Yates sits down with Barbara Turley, Founder and CEO of The Virtual Hub, to discuss her journey running a VA company. Barbara talks about the genesis of The Virtual Hub and what it does, its virtual assistant culture-building and onboarding strategy, and the three-step operational efficiency blueprint for a scalable business. She also explains how she helps entrepreneurs with operational frameworks, systems, and processes.

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, again, and welcome to the Quiet Light Podcast. I’m Pat Yates sitting in for Joe Valley, we have a great conversation today, man, I, one of the things that I hear a lot of sellers struggling with at times is how they structure their business find enough time to be able to do the things they want to do. So virtual assistants are becoming really, really big in every industry. And actually people that are either overseas or not necessarily your office, really exciting situation. But sometimes I think there are barriers that have to be broken down on who you get, how you vet them, how you keep them focused, and how your systems are safe, or whatever. Well, we’re going to talk today with Barbara Turley with The Virtual Hub who really has a great way of doing this, they bring in their own VAs, they train them in-house, and they actually are employees of that company. And they employ you via that company. So they’re vetting them, they’re working on the things that you need to understand from systems and processes as well as culture. It’s really incredible. So Barbara is an investor and entrepreneur and founder and CEO of The Virtual Hub, a business she started by accident that scale quickly to become one of the leading company that integrates in-house trained virtual assistants, into clients businesses, this strategy frees up time and energy, so the business can focus on optimizing their operations further to achieve their business growth goals. It’s something that I think every person is starting to really understand is an opportunity for you not only from a saving standpoint, but from a consistency and system standpoint. She also had some amazing points about systems that they can set up that will keep you leaner, not even having to live, to be able to lean on a VA, I’m really excited about this. And I think everyone’s really going to enjoy the conversation. Again, if you need to get in touch with me about your business or you want to buy a business or list one, you can always reach out to me at [email protected] or go to quietlight.com really hyped about this conversation with Barbara today. So let’s get right to it. Barbara, welcome to the Quiet Light Podcast. It’s great to have you here today.

Barbara Turley 2:26

Thanks so much for having me. I’m very excited to be here.

Pat Yates 2:30

I am too. I’m so excited for this conversation. I think that you have so many strengths in your business that I’m weak at. So I’m anxious to really dive into this and see what people can learn about processes VA’s, things like that. But why don’t you tell the audience a little bit about yourself your background where you’re from the book on Barbara, what would that be?

Barbara Turley 2:49

Sure well, in case anyone hasn’t picked it up. Yes, my accent is Irish. So I was born and bred Irish purebred Irish, nothing else in my DNA really. And obviously I grew up there, I had a what I would describe as a blessed childhood, I lived in the country, and all the beautiful things that we reminisce about in our own childhoods, being brought up and running around forests and playing games in the country. But as I progress through school, I originally wanted to be an ER doctor, I wanted to work in the emergency rooms. And weirdly, I didn’t end up taking that path, right? I didn’t end up taking that path. Because quite frankly, I didn’t get the points to actually get into that course at university. And I decided to take an economics degree. And that led me down such an interesting path. I just absolutely loved it. And to cut a long story short, I ended up working in a trading floor as an equity trader. Now, if you think about this for a second, it’s not exactly life and death. But it’s quite fast and dynamic, life the way and ER might be right. So I liked the kind of environment that it was. And I became an equity trader for like 10 years. I did that for 10 years. So there was no real entrepreneurial background there. Or people always asked me did I have the lemonade stand? I did not. I always wanted to work in big corporates. And I wanted to work in the city and the big offices, and I was really attracted to that for a very long time. And after my trading days, I started at the end of that period to get a sense of wanting to maybe do something different. But I didn’t know what different was at the time. It’s those beginnings of kind of wanting to do something new. So I did change tack I ended up in a sales role. So I spent five years in asset management sales. And I got an opportunity to invest in a company at that time that I worked in as well. And it sort of took me on a journey of learning how great companies get built. And that was where my appetite got sort of whetted for the entrepreneurial journey, I guess and it took me a long time to kind of make a jump and think about what I wanted to do. But I really wanted to kind of build I wanted to have the impact or create something, and that was really the essence of where that all started and rolling forward today. I mean, I run a 350-employee, fully remote company, I get to live on two different continents, I spent 20 years living in Australia, I forgot that bit. I went to Australia for 20 years. And these days, I live between Australia and Europe, and thoroughly enjoy that. And I run the business completely remotely, our team are all remote as well. So I’ve a lot of experience a lot of war wounds in trying to do remote, but I think I’ve been doing it very well for a very long time. And long before the remote work debates that’s raging today sort of came along, so I have a lot to share on that topic too.

Pat Yates 5:42

That’s really amazing. You were sort of there before it was there. Like when people pivoted, they were moving right into your market. That’s really amazing. And we actually have something in common that I didn’t realize, and we talked before that. I’m very deep Irish as well. So I still have family actually in Sligo, Ireland I just found out about three months ago because the Irish side of my family was Patrick Francis Murphy, who was my grandfather, who died in World War Two. So we never really knew that side of our family, we just recently reconnected. Found out there’s a lot of people still in Sligo, Ireland. So I’m excited to get to Sligo, Ireland at some time soon and meet some of my family as well. So that’s amazing. So let’s jump into your business. I think I’m really fascinated by this, because I told you, you do everything that I really stink at, which is to be able to find someone that’s a VA to help me, solopreneurs sometimes are very protected, maybe give an overview of The Virtual Hub and tell us exactly what this is all about and what you try to achieve with your clients.

Barbara Turley 6:33

Sure. So just starting with today, The Virtual Hub, we are a virtual assistant company in the Philippines at our core right now, as I say at our core, because we do a lot more today than just that. But at our core, we run virtual assistants in the Philippines, we have clients in the US, Australia, Canada, UK, all over the world. So we cut across all time zones. But what I learned very early on, when I first left corporate, I became a business coach, as many corporate people do, they start doing consulting, when you first leave corporate, that’s the kind of natural fit for you. And I noticed that all of the businesses that I was working with at the time, they all thought they had different problems. But the real root problem that they all had was that they were doing everything themselves. They were the classic solopreneur. And even some of them had team members, but they weren’t delegating effectively enough. They were still, I guess, trying to hold on to a lot of things. And the first things I started working with them on was trying to help them to systemize get some processes moving. And also, I had read Tim Ferriss 4-Hour Workweek like everybody else at the time, 15 years ago, and I had gotten myself a VA in the Philippines to help me in my business, which was coaching at the time. So I started recruiting purely friends of my VA, honestly, it was not a business. Because I knew that if these businesses I was working with if they didn’t start to delegate more effectively. And if they didn’t start to bring in systems and some form of platforms and processes and automation, they were never really going to get out of the plateau, they had already plateaued really badly. And if they didn’t get out of the plateau, there was nothing really I could work with them on to get them out of the weeds because their time was so crunched. So step one was to free up their time, so that then I could move on and work on strategy with them. Now that worked so well, for a lot of the clients I was working with that I started getting phone calls from friends of theirs looking for, can you get me one of those VAs? And can you give me some of these systems. So I literally found myself in a VA business before I knew it. I was running kind of 10 VAs going this is weird. I’m kind of enjoying this. But I saw a lot of problems. So the first iteration of the business was very shaky. I had these VAs working for clients and what transpired was, I realized one of the big fundamental problems is people don’t know how to delegate, which is what you just said like the things you suck at were things I found myself being naturally good at. So I’m very good at operations. I’m very good at systems processes and delegation to people be there VAs or whoever. And the other fundamental problem was that a lot of VAs, particularly in the Philippines, now this is rolling back 10 years ago, a lot of them had kind of picked up their experience from working with clients online bits and pieces here and there a couple of YouTube videos, they weren’t really trained in a way that was going to make them super successful. Even in the soft skills, they didn’t understand what we need, what do we need as entrepreneurs in order to be supported by a VA they didn’t know how to communicate effectively, and all of these problems or report back on results or even focus on results. So I took those two problems. And stage two of the business turned us from recruiting VAs into actually manufacturing our own VAs and really placing ourselves into the middle of the relations to ship. So today, we actually hire, we don’t recruit for clients at all, we actually hire for ourselves, which makes us very different from other companies. Every month, we are hiring from all walks of life, we know what we’re looking for. And we’re hiring them to come and work for The Virtual Hub. And in the first month or two, they’re actually in our training programs on full salaries, full benefits, and we putting them through our training programs, and training them in our way that we know our clients need. And only after that time, are we starting to say we think these two may be a fit on this account. And like our hit rate is very high. So very rarely do we have clients say, I’d like to see two more people or three more people. Usually, it’s oh, I don’t know who to pick. And that’s because we fundamentally understand what the client wants and needs. And then we manufacture that in a VA that we then place into that account.

Pat Yates 6:34

It’s really incredible, because I guess I didn’t envision that part. So let’s back up a step. So you go through and you’re adding people every month, let’s say this month, you’re adding another person this week, you onboard that person, they train in your company, when the client actually on board, let’s say that you bring someone in a month later, they go to a client, are they still working for The Virtual Hub? Are they working directly to the client? How does this get billed? So is it through the actual VA or through you?

Barbara Turley 11:17

No, it’s through us. So the engagement is ongoing thereafter. So we manage culture, we were talking off air about culture, culture is really, really important. So we have built a massive culture in the Philippines, we have, obviously a Philippine company, where everyone is an employee of our local entity, they have all the benefits and all of the needs, we sort of cover all of the needs that they would have in the Philippines, we also run ongoing training programs. So once we get a VA into a client account, we have a personalized training roadmap for that VA based on that client count needs. Because you can’t train every VA on everything, there’s no point you’ve got to train on certain tools, certain things that they’re doing. And then we also train clients. So some of our clients today don’t need much training, but others do. Like we have process map libraries they can use. We help them to get better with delegation and the operational frameworks that are required to make that really successful. And then everyone, we stay in the middle of the relationship and partner with that client. We’re like a bolt-on solution. For support.

Pat Yates 12:22

It’s actually really amazing. Because let’s do this, let me ask you, because the first thing that jumps to my mind is, when I’m thinking about hiring a VA, let’s say that I don’t know Virtual Hub, I don’t know you and I’m just going out and I’m going on Fiverr or something, I’m emailing people, there’s a lot of nervousness to that, because some of these e-comm entrepreneurs, and I’m going only from e-comm. And I know that you could do different things. The systems are so important. There’s so much sensitive information that when you allow someone to come in there, I think that to me, is the biggest thing that I worry about, who am I turning this information over to? Do I really know them? And how do I know that they’re not going to copy everything I have, and then be a ghost? I think that some people probably have that barrier. But you obviously get them past that very quickly by being the company that’s responsible for this not only training, but managing and manage that culture. Is that the biggest thing that people worry about when they come in working with you? Or what is it?

Barbara Turley 13:14

A few years ago, that’s an interesting one. Several years ago, I think trust was something that came up a lot. But I think the pandemic era almost blew that out of the water because everybody went remote and kind of everyone got over it. Everyone just kind of got over it. So it’s not that you shouldn’t trust, so on the trust thing, it doesn’t come up as an issue so much anymore. But I think that’s because we’ve built a sort of a platform that is it slightly trust less. Now, that doesn’t mean that we don’t trust people, it means that we’ve built an operational framework in our business at The Virtual Hub, where it’s sort of irrelevant, because we’ve built all the systems to make sure that we can hire the right people, but it’s still people, though, you could still get that wrong. Like you could think that you hired the right person. And then it could all go wrong. Because it’s people it’s not a widget, right? But after that it’s kind of the framework that you put someone into in order to work successfully. And then tracking and monitoring and performance management, staying close to the client and hearing feedback and then working we’ve got a lot of coaching programs that go on and culture. I think the central point there is really culture. You want to hire people who burningly want to be part of your culture, and then they actually protect your culture. If that makes sense. You want to have people who come in, and what we do for the smaller clients in particular is we have that cultural strength. We do team buildings, we run dinners, we have events, fun nights out all that kind of thing we’re doing and I feel like that bridges a lot of those gaps that maybe that however, the one thing I think people asked today more than trust. I think If people are worried about the time to onboard, so, I’m not going to spend four months training this person and bringing them in and trying to integrate them into my business, and how do I do all of that, that was a problem I saw early on, and we’ve built like, we will get somebody literally 75% of the way there before they start on the client account. And that’s really valuable. Between training, we do all of that outside the client’s time, we do it on our time. And the clients find that really valuable. Or if they’re having a problem and something’s not working, all they have to do is send the results coach and email, like, they just email us and say, they can give us feedback. They don’t even have to say if they can just give a rating. And we will deal with it. And we will performance manage that situation for them.

Pat Yates 15:46

Let me ask this. So you deal pretty much in one kind of culture? Are there things that you can tell people like I’m curious what the culture differences might be? Maybe they’re more thankful to have work in a certain industry where maybe the United States they don’t care as much about the industry? What are the things that people need to be conscious of, let’s say, for instance, that they aren’t working with The Virtual Hub, they just want understand the type of culture there is to work with Filipino VAs, what would those top things be the United States people may need to understand?

Barbara Turley 16:14

That’s a great question. There are a few things and it’s changing rapidly. Because the Philippine culture has been working with international clients for a long, like well over a decade or two now. So the culture is expanding into this. But I think a few of the things, there is still a yes, culture in the Philippines. Now, what I mean about that is, and it is culturally ingrained, that they have a fear of saying, I don’t quite understand what you mean. Or they might say yes to something, and then scramble around trying to figure out how to do it so that they want to save face. Now, we have to hire people who are not afraid to use their voice, right. So we have built this into our recruiting system. And we train as well on how to do this. And that’s one of the hardest culture blocks to get over. People who cannot seem to be open and transparent. And transparency breeds trust, right. So lack of transparency, breeds lack of trust. So you need to kind of hire for it. But understanding also that in the Philippines, there is this cultural barrier helps you as the entrepreneur to go, well, what kinds of questions could I ask my VA, to help them to open up more? Or how could I use my communication style to help them to open up more, and not everyone can do that. It can be tiring.

Pat Yates 17:44

You know what, we get a lot of clients that come into Quiet Light, and I want to kind of pivot a little bit. And whenever we see someone coming in to sell their company, it’s interesting to see how it’s run, whether they’re a solopreneur, where they have three or four employees in a warehouse, where they have five virtual assistants, are they a mixture of those things, when I was looking at your information or website, what you do, it’s really amazing because like, I’m one of those guys that walk around says if I can just create myself for another hour, that’s really kind of your specialty, right? I mean, I don’t have to recreate myself, if I can delegate better, which is really a weakness of me, I’m gonna be honest, because I wish that I had more ability to trust some of those things. But you also talk about processes you do. So not only do you have assistants, that you feel that can really help you, you’re also putting processes in place that you might not need them even as much at the time that you bring in the assistants, I would assume. So tell us a little bit about how you analyze processes, maybe from an e-comm standpoint, that’s most of our listeners are or content or SaaS businesses. Maybe give us an example of that how you can make them leaner pre-assistant.

Barbara Turley 18:44

Yes, so it is important to have the right, I call it operational framework in place. And of course, in an ideal world, you would like to have all of that in place before you bring on a VA so that they can hit the ground running. Usually, that’s not what happens. Usually people sort of stumble around trying to get a VA and then a VA can actually help you with a lot of that to a lot of building of that sort of stuff. So initially, I think the mistakes I guess people make are first verbalizing what they want done. Right. And that’s okay. But I think the way I always tried to simplify things with operations, right, and delegation, is saying that in every business, there are departments, it doesn’t matter if you’re a solopreneur, or you’re 100 person company, there are departments, there’s marketing and sales, and then there’s legal and product development and customer success and all these things. And within each department, if you break down each department into what are the recurring tasks, and what are the project tasks within these departments, recurring ones, tend to keep the engine of the business running day to day, week to week, month to month. They’re usually quite process-driven. They’re usually trainable to be honest when something can be processed though you can train it, you can develop it and you can delegate. Not always 100% of it. But this is where people get caught as well. If you can’t delegate 100% of it 80, or 90% is pretty good too, maybe you still only have to do the 10%. So you don’t have to think in absolutes. And then the other bucket of tasks within every department are projects that will drive the business forward. So they’re usually things like, oh, we want to, it could be bringing on a new product, it could be a new tech tool build, it could be an outreach program, or whatever. But within those projects, there are multiple tasks that need to be done to drive that forward. And you’ve got to figure out, what are the ones a VA can do? And what are the ones that somebody else needs to do. And when you break any business down in that simplicity, it’s actually quite easy to go, okay, now, what are the things that we can now delegate, and anything that can be processed up is the first thing that you should delegate, process and train, process mapping. So that’s the next layer down. Within the recurring tasks, you do need process maps, and you need processes for each thing. Now, in the days before AI came along, nobody was interested in process mapping, they’re all like, oh, I just want to have A players that know what to do. But the reality is, if you want to build a scalable business, that is, the asset value of it is high, you want to have a machine, and part of a machine is having the right platform architecture, the right process, systems and processes there. And then being able to delegate to the most cost-effective people that you can possibly get, right, it doesn’t have to always be high-paid A players, you can have some of those, and then some of the offshore team strategy. So with process mapping, the deeper the process, the better. Because what we find when we do a process is that often we’re doing it from our own heads. So the solopreneurs are doing things by rote because you know how to do it. And then you write a five-step process, and that’s okay. And then you delegate that to a VA, and it goes wrong. And usually people blame the VA or blame their lack of delegation ability and run a mile and go back to doing it themselves. Really, what you want to see there is where did the mistakes occur. And the mistakes are like gifts, because they’re going to show you where there are holes in your process. Because sometimes a step is easy for you to do. But there’s thinking that happens in your head, while you’re doing that step that you need to know teach somebody else, or you need to add a step that breaks that out. So you got to iterate the process, and you got to go deeper with processes, and be as descriptive as possible. It is painful, but when you do it once the dividends it pays later go on and on into perpetuity right once you can delegate that. And I’m living proof of this. Because I mean, I only have I mean, we’ve only got about three people who are not Filipino. I’ve grown an enormous company and part of it is internal team. So, I do look, my own talk,

Pat Yates 23:06

I find it quite incredible. Because like, do you think that like I think, talking to a lot of entrepreneurs, I get to do that a whole lot. A lot of them sort of have predetermined ideas of what they should be doing or what businesses like or how to run it. And they are very rigid in their beliefs. Do you find that that that’s one of the biggest problems to break down is that they find a virtual assistant and maybe don’t give them things as quickly? How do entrepreneurs break down their predetermined ideas of them being able to be the main thing in their business and still give it give this VA their do is that a struggle? Do you find that once they own board, it’s harder to give away things? And you have to sort of force that or is it fairly easy you think?

Barbara Turley 23:45

Okay, there’s two parts to that question. The first part is about control. Everybody always says to me, oh, well, it’s the people who are able to give up control and aren’t control freaks. I go completely against that and go all entrepreneurs are control freaks. That’s why we’re really good at what it is that we do, right? Because we want to control the outcomes. We’re very good at this kind of thing. So I have a philosophy that the deeper your processes are, and the better your systems are, and the better that you do your operational frameworks and reporting lines and all that sort of thing that I’m talking about, the easier it is for you to delegate to somebody else without losing any control. So I don’t actually do any processes in my business. But yet I have my finger on the pulse of everything I can’t. And people will say to me, how do you know everything, you know everything that’s going on? It’s because I’ve actually built it that way. And I know when a process is not working or when something’s not working, I can tell immediately. So I don’t really give up control but control doesn’t mean you have to be the person doing the task or doing the process. Control means that you need to delegate that process and have full oversight and an ability to get reporting back on results to know what’s happening. So for example, I’m a big fan of Asana as a platform. I treat Asana like a central, it’s almost like what the office is in the physical world. For me in the virtual world. A place like Asana is where everyone shows up to work, shows up to do work, collaborates on work and reports on work. That’s how we operated. And that maintains your control. Now, the second part of the question is, how do you decide every day what to give? One of the biggest problems I see is people getting a VA and then waking up with the anxiety every morning of going now, anyone listening is going to recognize this, you wake up every morning and you think, what am I going to go to VA? What am I going to give the VA to do today? And then you panic, and you’re like, I don’t have time to do this. So the problem there is that you have not done the step I just spoke about previously, which is breaking down the company into departments into recurring tasks into processes and then delegating, which processes daily, weekly, monthly, is this VA going to be doing so that you don’t have to wake up every morning and be like, what am I going to give them to do today? So that’s key, and then using a tool like Asana to map that out, and make sure that you know what this VA is doing every day, without having to look at it every day.

Pat Yates 26:13

Again, folks, we’re talking with Barbara Turley with Virtual Hub, this is really kind of an amazing conversation, not only am I getting a lot of information out, it’s making me feel really dumb. Like, I’ve realized that I even need this like, I am so unprepared as far as processes. So let me ask this question about processes, because so when you find let’s say, you use me as an example, and I have an e-comm business, I’m obviously an advisor, Quite Light, I carry a couple of hats really, really busy. Lot of zoom meetings, a lot of stuff online, would you rather come in and say, Pat, let me look at your business from the 30,000-foot view and tell you what you need versus you telling me, how do you go about the process of figuring out how you help someone? Because I’ll be honest, I don’t know what I don’t know. So that means that even telling you what processes I might need may not be right. So how do you get to the bottom of what the client really needs?

Barbara Turley 27:04

Yeah, well, I mean, when you’re looking at, usually clients come to us looking for a VA, but that’s kind of the doorway into us is client comes looking for a VA, they may have heard this podcast or whatever. And that’s great. And usually at the point, they arrive on our doorstep, they’re already they usually kind of need a VA yesterday, that’s a problem. But that’s okay. And they need help. So they’re now overloaded. And usually, the quickest thing that we can do for that business, or that business owner, is to say, let’s get rid of the low-hanging fruit we run and on the discovery calls, the team are great, they’re running through, like, tell me about this, tell me about this, tell me about this. And we’re actually isolating, we already know the tasks, we can take off your list. And we can create a sort of a base task list to get started with. Now once a client comes into us, this is the current way we operate. Usually they come in, they get a VA, we get the VA up and running, get their time freed up of it. And then we offer them an operational efficiency call, which is free. And it is literally like a 90-minute session with our operational efficiency consultant, who’s in Australia, actually. And he’s amazing. He’s an X e-commerce guy. Interestingly, he ran a big e-commerce business for a long time. And he’s really good at this. He had VAs with us. And then he came and joined our team. And essentially, then what we’re trying to do is go okay, now that you’ve freed up some time, now let’s look at your platforms, your processes, let’s talk about where the weeds are. And then we can create a sort of roadmap of what we think we can rip out for you. And you can either go and implement that yourself, you can use us to implement it. And invariably, we will find more places to put VAs more places to free up time. But that engagement requires consulting, to be honest, that needs us to go in. And that’s stage two. So we do offer that for all of our clients. We only offer that for clients right now.

Pat Yates 27:31

So that’s really amazing. So to understand, if I come in and I’m looking for a VA, and we talk about the processes I need, you may be able to scratch off four or five of them prior to getting a VA just by the right operational practices, you’re saying correct, yes. And it might be that the VA enhances that going forward, which is really incredible. Because I think when people are, like, I think the people, especially solopreneurs running their business are always very reluctant to turn over the keys, whether it’s just creatively or in any way in any processes. I think that’s a great way to go about it. So let me ask this when you’re working with The Virtual Hub, obviously, some people think well, is it gonna cost me a lot? How do you do your fees? How do you work with clients and how is all that structured?

Barbara Turley 29:38

Yep. So obviously there’s a range of pricing in the market. The cheapest way to get a VA is to jump on Upwork and hire one right obviously that is the cheapest way to do it. Then they go the whole way up the chain, our pricing is somewhere in the middle where sort of middle of the pack maybe a little bit more and but we have a more what I would call a more premium model. So for example, like I said, we already hire people, we take a lot of risk upfront. So often we’re carrying 20 30 40 VAs on the bench at any one time between the training, so that’s a lot a huge financial outlay for us. But I mean, that’s the risk that we take on. So our pricing ranges US dollars, we start at 750 US dollars per month for a part-time admin VA. Now that’s a, I wouldn’t say a lower level VA depends what you need done. But we run anywhere from 750 a month up to 2200 US a month for a full-time, more systems, like someone who can do some Zapier integrations, maybe run your CRM, build some automations in there, type VA right, so social media falls in the middle, put it that way. So from 750, for part-time, right up to 2200 for a full-time, VA. So that’s our pricing per month, we do charge, it’s like look, you’ve got some SaaS listeners here, I’m a big fan of the SaaS model. And we do run it like that. It’s like a subscription model where it’s one fee per month. But you can scale up and scale us down, same sort of thing. 30 days’ notice we have no lock-in contracts. And the reason we do that is because we want people to stay because they’re getting success with us. And not because they’re tied into some big annual contract or, I don’t like those big models that do that. So we like to back ourselves. And some businesses might cancel, because it’s nothing to do with us. So they just need to have that ability to be nimble, you can’t do that if you hire someone directly, it’s very difficult to do that, that person. The other thing is that person, clients love this bit. If you cancel on us, that person does not lose their job, because their employment is not linked to the client account, the client accounts ebb and flow. When we employ them. It’s up to us, again, we take risk on, I’m an ex-trader, so I’m used to taking risk on it’s our job to try to bring in client flow to push that VA onto another account. And we do that we match supply and demand that way.

Pat Yates 32:08

It’s really great. So the funny thing about it is I think once people get into the situation, they probably realize, hey, here’s another process I didn’t even realize I need because you’re training these VAs to know things we already don’t know. So while we’re given them process of they’re probably analyzing and say hey, by the way, Pat we’re doing this with another company, here’s something that might really help you. To me, that training portion is really incredible. And plus you’re not talking a price that’s super expensive for anything, even your top in price is a very inexpensive full-time employee for United States situation. Plus you’re vetting them you’re handling them. And it’s a very clean situations really amazing. When I read your sheet you there was one thing on there that I was curious about and it may be too long-winded to go into. But you had the three-step operational efficiency blueprint for a scalable business success. I found that to be an amazing thing to say, what are the three things if you can give us, very curious?

Barbara Turley 33:03

Yep, I’ll give you as quick a synopsis as I can. So I believe in having a platform architecture in any company, where you have a central place like an Asana, for example, this how I run the company, the central place where everyone comes to work shows up to our collaborates on work, even process, I put process maps and everything in there, I don’t think they should be over on Google Drive, I think they should be living breathing inside the virtual office space. And then you have other tools that come in from the outside. You may have slack, for example. But slack is for chat. It’s not for project management. It’s not for collaboration, really, it’s for chit-chat back and forth. It feeds in, you might have a CRM tool that’s used for marketing automation. But if you can imagine a central, I’m on video here just showing a central platform. And then the other platforms you want to have keep it simple. They need to feed into the central place. And there’s ways of doing that with API integrations and Zapier and stuff like that, but I won’t get into that but right platform architecture, then what you need is the process. The first big process in any company is the process around how we as a company use the platform architecture. For example, we use Slack for chit-chat, we do not use Slack for instructions. Once this is in our company, for example, once we decide something, the instruction goes into Asana at the site of where the work is happening, that’s just an example of how a process across a company might work. For example, we run objectives and key results from top-down and connect all the bottom of work moving into what where we’re going as a company, again, that is a big process that could unpack that but we won’t hear and then the third piece is continuously systemizing and a system of course is your platforms and your processes and working out how are we going to systemize this and then constantly taking your big A player maybe your onshore people or your A players and consistently going what part Is there workflow? Can we take off them and delegate to our offshore teams, so that we optimize our human capital budgets within a company, because one of the most expensive assets that you have is your people now that we’re not doing real estate anymore in office space. So those three things are platform, process, people, and it’s the integration of those three things together, and how we optimize them holistically and working together, that I think raises the asset value of any company dramatically.

Pat Yates 35:25

I don’t disagree with that. I think it’s amazing because, I look at this. And it’s weird, because until we really talk, I sort of thought the VA thing was something I have to go directly on your app to learn yourself. And I think even entrepreneurs find that processes as difficult. One other thing is we’re talking about this, I’m thinking in M&A. So a lot of the people that listen to Quite Light Podcasts are either buyers, you’re gonna buy a business or sellers who are going to clearly sell one. Coming in to work with you, we always talk about them building SOPs and having processes when they hand over and sell the business, it’s much easier from a standpoint of understanding the business. Do you see this as an advantage in that to where, let’s say, just like you said, if a VA is moved out of a thing, you have another one is it opportunity here where if you have someone that’s buying, having the consistency of a good VA, and those processes already set up, give strength to buyers, in their minds, because it’s their. Is that something you think would be an asset to a seller?

Barbara Turley 36:20

So here’s two things, it depends whether you’re the buyer or the seller, if you’re the seller, and you want the highest amount of money that you possibly can get for your company, you want to have it as a machine. So that buyer just walks in and the machine is running the machine and not really that connected to you. Right? And that they can go oh, wow, here’s the map of this thing. It just works. Right? Right. If you are sorry, that’s for the seller, if you’re the buyer, and you’re good at ops, like I would probably go and buy a business that if it was me, the buyer, I would want to buy a business that was a mess, that had a good product that people want to buy, but I can see the ops as a mess, because then I can pay less for it, and I can clean it up. So that’s interesting. If you’re a buyer that is not very good at ops, then you will have to pay more for a highly, optimized operationally fit business, but it will run, it’s better. It’s lean, and it’s running as optimized as possible. I hope that makes sense. So yeah, if you want to get a cheap purchase of a great business, you want to buy one that’s a mess, and then fix it. And if you do that, by the way, call us. We’ll come in and partner with you. And we’ll fix the atmosphere.

Pat Yates 37:29

I think this is even a bigger point for sellers because I look at businesses and sometimes I think that when I look at businesses say that are purchased in a year later, they’re struggling, for instance, like we’ve gone through the time, when aggregators, if you followed our industry, bought up a ton of companies that had problems, you got consolidation, all these things now, and I think one of the things I look back on that was unfortunate for some of the aggregator buyers is they didn’t take sellers forward, they didn’t bring them into the company because they don’t know what that person knows. And at times, you have to relearn that. So if you take nine months to a year to relearn it, you could lose the business in that period of time, I would tend to think that having a VA that touches everything, and you have the processes in the right systems would be something that would be a springboard for a buyer. So they actually would get things better starting out than they would if they didn’t have this kind of system. Do you see that with relation to processes you or am I overlain realizing that they’ll figure it out either way? Or do you think that’s a huge advantage?

Barbara Turley 38:25

I want to think about that for a second. I do think it’s a huge advantage. But here’s the thing, I think it’s, I mean that look, I’m in the business of selling VAs, right. So of course, I’m gonna say that’s a huge advantage. But if I take my VA hat off for a second, I actually think the biggest advantage is having a business where even if the VA left the process, and systems are so slick, that you could just slot another one in and within a week, they can boom they’re in, right you want to be able to move people in and out really quickly. So there’s somebody resigns or something happens or someone goes on maternity leave or whatever. It’s not such a destabilizing event because the machine is built. And I think it was Michael Gerber who said systems run your business people run your systems, right? So you kind of want to have that. That’s my philosophy, really. And I guess the follow on point from that is the stronger that your systems and your processes are, the more offshore team members and VAs, for example you can put in to run it cheaply. You don’t always have to pay the big A players to do everything, then if you’re a solopreneur, it means you don’t have to use your time for everything. You can actually claw your life back a bit because none of us went into business to work 15 hours a day, seven days a week. But if you’re a solopreneur it’s quite hard not to do that. If you don’t have anyone.

Pat Yates 39:40

I think it’s really amazing. Again, we’re with Barbara Turley in The Virtual Hub talking about virtual assistants. I think, for me, I think that a lot of times people that have come in and talk to you may not know how big of an advantage it would be to find someone some people look at it and say, well, I’m gonna have to spend $1,500 a month and I’m gonna do all this but the reality is your return on that is probably way higher if you’re leaner, especially if you have something that you can take on one more project a year, you can do one more sale a year. It unquestionably pays for itself. Do you feel like it’s an investment in your business when you do something like this?

Barbara Turley 40:14

Absolutely. I mean, I talked about it in terms of dividends, right? So the pain that you take today, because let’s be honest, delegating is hard. It’s a skill that I think every business owner needs to master. Because even though it’s painful, everyone wants to master marketing and sales and all this stuff. I’m like master delegation, because that is the gateway that is going to open your time and energy, which is the most expensive time and energy that your company has, and your creative space and what I do every day, the minute I find myself doing something a few times, I think I wonder, could I process this up and give it to a VA so that I can move on and do the next thing and take on the next client grow the next bit. Even if it’s I want to go and pick my kids up from school every day. And I’d be sitting there doing my social media posts, for example. How do you process it up and it does, it pays you dividends into perpetuity to get it right? But with the holistic thing VA, like delegating properly process maps, proper reporting lines, proper oversight, proper architecture.

Pat Yates 41:17

Yeah, I mean, there’s so many sides of this amazing Barbara, obviously, you guys are doing a great job. And actually, it’s interesting, I don’t know that I’ve talked to anyone, even including myself that can’t use what you do. I just don’t think people have, they have to break down the predetermined ideas, the old-school way of doing business that you had your secretary right outside your office. And that’s kind of how you have to operate or you have to operate with someone in your city and in wherever you are. So Barbara, any other things that you might mention about The Virtual Hub? I know there are so many sides to your business that entrepreneurs can learn from I feel like we touched on a lot of Is there anything else that you would like people to know about The Virtual Hub?

Barbara Turley 41:52

Well, I will share one little story. So one of our clients that we’re very proud to have this client is a guy called Vern Harnish. Vern Harnish was one of the founders of the Entrepreneurs Organization, globally. EO, he wrote the book Scaling Up, which used to be the Rockefeller habits, he is the mastermind behind the methodology of the scaling up methodology. And they’re working with companies all over the world that are doing hundreds of millions and scaling up fast. He’s one of our clients, he’s a huge advocate for what it is that we do. He has VAs with us. And I mean, if he’s doing it, like he just thinks it’s a no-brainer, anyone he speaks to, he’s like, you have to have an offshore team strategy. So if I can share him, and he’s the one who this is scaling up companies, right. So they have 280 scaling of coaches all around the world, as part of their business model. And all of those coaches in our talking to some of their clients about what it is that we do, there is no business that you can show me that I couldn’t put a VA and systemize this thing, really to be honest.

Pat Yates 42:55

It’s really incredible. It’s amazing, I was reading your one pager and there was a quote there that sort of struck me from Sean Van Dyke, the owner CEO of Build To Build Academy says, there’s at least 60 hours a week of stuff that I don’t have time to do anymore, I get six hours of productivity out of one-hour meeting, I feel like my time has been multiplied times five. What’s interesting when I read that, is I think that’s a mental relaxation. I think that entrepreneurs are so stressed about everything that’s going on since COVID. And then shipping things have gone up. It’s stressful to run a business now, is this something that for your own personal mental health, is that important to make sure that you have someone else that’s helping you out and not grinding to where you have to work that 60, 80, 100 hours in different shifts? I mean, how does that affect you mentally, I would have to think greatly.

Barbara Turley 43:42

Oh, incredibly, I mean, I will share another story. So Arnold Le Rutte, our efficiency consultant in Sydney. He’s an ex-e-commerce guy. He first came this is years ago, when I first started, he first came to us. And one of the things he said to me was I’m just so tired of like staying up till midnight answering customer support tickets. And I was like, why would you do that yourself? Like, why would you not hire a VA to do that now he got to a team of six. And he got to a point where he even had VAs in the Philippines, hitting a button and they had connected to the warehouse for the ticket. The actual docket that goes on the box would print out for the guys in the in the in the in the warehouse to just pick it up off the printer and bang it on the box and send it out. So, he became really good at it. But it was me saying like, why would you do that? Why would you do that when you can? Why would you sit up on Canva creating social media images when you really don’t have to do that. I mean, it’s not a good use of your time. Does it have to be done? Yes. Is it a good use of your time no, even if you’re really good at it, to be honest, just because you’re good at it doesn’t mean you should do it. Because you need to have the mental space as an entrepreneur. Like I said to you, I think I said it to you off-air. I actually have built this company working part-time and I put that in inverted commas because I kind of the hours I put in every day on the computer actually working is low. But of course we know I’m thinking about it all the time. But if I was eight nine 10 hours a day doing the work, I would have no space left to actually think about where am I going with this business? And what do I want to achieve with this business? Are What about one achieve in my personal life. So even if you don’t want to grow a business, and you just want a lifestyle business? Well, a lifestyle business means that you shouldn’t be working all the time. So it’s a lot to think about. But yeah, the mental capacity, being an entrepreneur is already very hard and very tiring. So I do think people need to really think this through and create space and emotional well-being for yourself.

Pat Yates 45:43

I don’t disagree. And it’s amazing. So what you’re basically saying is, you’re not only an owner, you’re a customer, and that really makes your business even go bigger, that you can find these processes, then you find a new one. And all of a sudden, there’s 10 clients that find out about it, once you put it through your people. It’s really amazing, because there’s also a collaboration opportunity between all your VA since they work only at Virtual Hub, right? Because maybe if they find a new process, and they say, hey, your client can use this, there may be things proactively throughout the company that they share, correct?

Barbara Turley 46:10

That is correct. We’d like to be better that if I could just share openly and honestly, that’s actually a hard nut to crack. We need a process for rolling that out across clients. Yeah, they do collaborate a bit. But we’d like if that happened a bit more. But that’s actually a program we have internally at the moment as a project. And again, this is sharing like, so we identified this is a an opportunity, we identified as a challenge with it. So I was like, well, let’s create a system that makes it automatic for them to do that. Right now. We’re not there yet. I’ll be honest, but this year, hopefully, we will nail that one.

Pat Yates 46:44

That’s all right. Maybe you should do an interview with yourself and figure out what you need, no I’m kidding. Actually, Barbara, this has been amazing, because it’s odd to me, the culture thing people get nervous about the having someone remote they don’t know is nervous about you guys have the ability to break all that down. So tell everyone, all the listeners how they can get in touch with you in case they want to reach out to Virtual Hub.

Barbara Turley 47:06

Sure. So first of all, if you’d like to delve deeper into some of the things I’ve been talking about today, I am on LinkedIn quite a lot. These days sharing some of my insights over there so you can connect with me personally, Barbara Turley on LinkedIn, I do have processes running over there. And I am the one writing the content, but I don’t do a lot of the other stuff. So just FYI, it is me, but there’s a lot of help there. And to keep otherwise I wouldn’t keep it going to be honest. And then if you feel ready to come and talk with us, please go to thevirtualhub.com. Come on over book a call. There’s actually loads of content on our website as well. Helping you with all of the topics that we’ve spoken about if you want to peruse some podcasts, shows over there that I’ve done on everything to do with delegating and hiring VAs or come and chat with our sales team. They’re really good at figuring out if you’re ready for us if we’re the right fit for you. And if you are if we are then we can help and yeah, come and have a chat.

Pat Yates 48:07

That’s amazing, Barbara. It’s been great having you in today. I think this is really actionable for a lot of listeners, please reach out to Barbara at The Virtual Hub if you need help with VAs processes. And I can promise you if you’re sitting in your car sitting at home listening this right now you know you have one so reach out to Barbara, see if The Virtual Hub can help you and I just appreciate you being in the Quiet Light Podcast today. Thanks a lot, Barbara.

Barbara Turley 48:26

Thanks for having me.

Outro 48:29

Entrepreneur Spotlight – Create A Castle – Kevin and Laurie Lane

Kevin and Laurie Lane are the Co-founders of Create A Castle, a sand and snow castle-building toy line that captured the attention of the sharks on Shark Tank. Kevin...

Kevin and Laurie Lane are the Co-founders of Create A Castle, a sand and snow castle-building toy line that captured the attention of the sharks on Shark Tank. Kevin (an avid sculptor) and Laurie wanted to create a more efficient and less time-consuming method for constructing imaginative sand creations. Now, families can use their molds to enjoy a fun and frustration-free way of building elaborate castles, towers, and whatever else they can dream of in the sand or snow. Create A Castle’s toys have garnered awards in indoor and outdoor categories, including the prestigious 2020 Outdoor Toy of the Year accolade.

They have made a name for themselves in the toy space, selling in stores worldwide, and have generated double-digit sales increases year-over-year, even during the pandemic, with sales of $3 million in 2022. Kevin and Laurie also hold numerous patents on their products in the US, Australia, Canada, and China.

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

[02:48] Kevin and Laurie Lane share their personal and professional backgrounds
[08:59] How Create A Castle came to be
[11:21] Kevin and Laurie’s products and how they differentiate themselves in the marketplace
[12:35] Kevin and Laurie talk about marketing their products
[16:20] The Shark Tank experience and how it impacted their business
[28:36] Entrepreneurial advice for achieving success

In this episode…

Creating sand and snow castles is an entertaining way for families to bond, but it can sometimes be time-consuming and frustrating. When you embark on the quest to create your awe-inspiring castles, is there a better way to get to the finale?

After seeing a dad and his son struggling to build a sand castle using traditional methods, avid sculptor Kelvin Lane felt compelled to create an innovative and revolutionary castle-building approach. Together with his wife, Laurie, they developed a split mold technology to assist people in creating impressive sand and snow sculptures in minutes. Despite the many obstacles they faced in the crowded toy product category, they scaled the business and realized substantial success.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Kevin and Laurie Lane, the Co-founders of Create A Castle, to discuss how families can easily and happily build sand and snow castles quickly. They share the genesis story of Create A Castle, their product line, marketing strategies, the Shark Tank experience, and entrepreneurial advice.

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 sitting in for Joe Valley. Today we have an amazing conversation. I think the exciting part about this is I’m opening it up to a lot more entrepreneur spotlights along with our sellers and our partners that we have a Quiet Light. This is just going to be a fantastic conversation. I did several trips this year with a group called United Inventors Association and Chris Guerrera, where we Shark Tank companies went around and we became very actionable for entrepreneurs trying to bring new products to the market, we would go out and help them we do pitch panels like we’re sharks to give actionable tips on how to grow it. And I happened to meet a couple Kevin and Laurie Lane who have a business called Create A Castle and I was just taken by them. They are just such great people. They talked family, they talked their experiences more than they talked in brag about anything they done in business. And the more we talked, the more we just became friends and their philosophy towards approaching their business was not only great, but their business itself was awesome. They have forms that you can build these castles it becomes something that kids can do hands-on and not have a device they don’t have to do it and you can do it in snow. You can do it in sand. It’s a really versatile product, they cut a deal with Kendra Scott, really incredible company getting ready to go a lot of places but just more tremendous people. Really excited to get this conversation today. So let’s get right to it Kevin and Laurie Lane from Creative A Castle. And again, if you need any information for me or you’re looking to work with Quiet Light, you can email me at [email protected] or check out all our listings on quietlight.com. So let’s get right to the show. I can’t wait to talk to Laurie and Kevin here we go. Kevin and Laurie. It’s great to have you in the Quiet Light Podcast. How you doing today?

Laurie Lane 2:10

We’re good.

Kevin Lane 2:11

Thanks Pat. Nice to be here.

Pat Yates 2:13

Really, really excited about this on people that are out there listening today. Kevin and Laurie have an amazing business we’re going to jump into but they just so happened to travel with me in a Shark Tank Group and do pitch panels and help entrepreneurs for a nonprofit really just passionate, awesome people and I love their product and business so much I just want to have you in so maybe tell everybody about a little bit about your background where you’re from family all that give us all the skinny on you two. Oh let’s go beauty before age. So Laurie, go ahead. Maybe you lost him both out on okay.

Laurie Lane 2:48

So we’re a couple we live in Connecticut. We’ve been married this year it’ll be 25 years. And so we’ve worked together with Create A Castle since 2017 2018. But we actually owned a different business together that we still run in the background, a web design business that we started in 2010. So we’ve worked together besides being married for a very long time. We have two kids that are both in college down in Florida so we’re not empty nesters so not really.

Pat Yates 3:20

I’m gonna give the raise the roof on the empty nester thing I love it too. What’s college?

Laurie Lane 3:26

One is at Eastern College in Melbourne and one is in Seminole State in Orlando.

Pat Yates 3:31

That’s really well, my wife’s grandmother lived in Melbourne so I’ve been there a bunch time.

Laurie Lane 3:36

Yeah, we have a lot of family down there all near them so which is good so they’re not alone. That’s awesome. Yeah. I worked for Disney. So I was a stay-at-home mom when we had our son in what 2001 but before that I had graduated from the University of Connecticut in stores and I had a degree in retail management. So I worked for the gap I worked for Express but my main retail career was with the Disney Stores. So I worked for Disney for almost 10 years, which is great because that’s where we have a lot of our connections a lot of my friends that I was a district manager with work for universal for Hershey, different companies, so still lots of connections. We had a wonderful time, like being able to experience Disney as an employee too. And I got the best customer service background you could ever get working for a company like Disney so that’s really benefited us.

Pat Yates 4:36

Funny you say that because I spent about a year going back and forth building a Disney license and I swore the last time that I walked out office up never go again. It’s like they haven’t such an amazing campus but it got so old going for a year trying to build a license. That was incredible. So and Kevin, what about you? I mean obviously other than marrying up, what about your background?

Kevin Lane 4:57

Well, she said we’re empty nesters. Are you really an empty nester when you own a business, I mean, that’s like your new baby. Right? That’s a great point. Yeah, my background is. So I grew up really passionate about design, doing anything design related graphic design specifically got a degree in graphic design from Western Connecticut State University, graduated in 1994. I believe it was, while it goes way back.

Pat Yates 5:29

Just stop that because I graduated college before you, you’re not going to make me feel any older than I am, go ahead, though.

Kevin Lane 5:38

So yeah, and then I quickly got a job in print publication that lasted about a year or two. And then I got an offer to move down to New York City for a startup company called Digital madness, which was in the forefront of web design and web development. So I quickly left the print publication space and saw the writing on the wall. I was like, wow, this is just an incredible opportunity. I moved down to New York City for about what two years was it? And right next to the Flatiron Building, Flatiron District in New York City, had a little elf studio got to see Godzilla being filmed. And I’m sorry about that. And basically, it was just an incredible path to learning all about tech. And I’m glad I made that move when I did, because it literally changed my life. I quickly got a job after two years being in New York City, I married up like I said, and decided to make the move back home to Connecticut to start a family and everything. New York City is great, but not a great place to start a family. So I got job with a company called internet.com. And I was in charge of about 150 websites give or take with hundreds of millions of views monthly and had to basically answer to all the higher-ups and manage my own team of about four to five people on a daily basis. And then from there after 10 years of doing that I moved over to information architecture, where I had to basically configure server configs layouts diagram things out Visio and a lot of corporate board meetings which drove me to really looking forward to my vacation time with my family. Laurie, always loved to plan out beach vacations. So I needed to take my time and spend time with my kids and build awesome sandcastles so I turned a hobby into a full-time career in a sense with Create A Castle, turned a passion into a career.

Pat Yates 7:51

That’s really amazing because the one thing that it sort of stands out to me that you guys are saying it’s interestingly enough is you came from a tech and web design background and Laurie came from a consumer products background is really not very shocking to me now when I look at this why you’re in the E-commerce business. It’s one of those things that sometimes what you know you find a way to merge those two things together and here comes something amazing. So I really would like to jump into the business because when we first met started talking I told you I just said this product is awesome. I looked at it and thought there are so many options, so many great things. It’s a great demo item. Tell us a little bit about Create A Castle, maybe start from the beginning of what your vision was and what you wanted out of this business when you first started it.

Laurie Lane 8:35

You want to start tell them the backstory.

Pat Yates 8:39

What do you mean does he want to start? Not starting with him Laurie? You’re the talent in this deal, you start.

Laurie Lane 8:44

I am the brains too.

Kevin Lane 8:47

Brains and look.

Pat Yates 8:48

Just like to mess with him.

Laurie Lane 8:53

You got a shovel the sandy of the beach, Pat, you know.

Kevin Lane 9:00

I told the backstory on Shark Tank it did not air but the backstory is wild. The backstory goes back to my youth. So I didn’t think you know this. I don’t think I’ve told many people this story. I used to grew up in a bakery with my twin brother and my older brother. My mom and grandma started a bakery business called Heidi’s Cake and Cookie shop out of their house. So she’s got three kids running around their table while they’re making the stack-tiered wedding cakes. So to quiet all those they found everything all of our passions my passion happened to be drawing. So my mom was like well I’m gonna get him these books called draw 50 these draw 50 books taught me how to draw castles of all things, castles, Eiffel Towers, building structures, but primarily I felt always homed in on castle. So as I’m drawing my little castles from this draw 50 book, I’m watching them bake their cakes with split mold, right so do the math. They had these pants called springform pans where the pan would kind of spring open, and they would lift it off. It’s the same exact premise of what we have now. I remember those. Yeah.

Laurie Lane 10:12

And so many people when we’re like demoing everything, like, oh, it’s like baking. Oh, it’s like baking, like resonates with people, because that is it’s used in baking. And his mom actually found a picture. I think it’s on our website to have a castle he had drawn when he was like, 10 years old. And it looks like Create A Castle.

Kevin Lane 10:32

Yeah, we actually, again, we had that on Shark Tank as part of our pitch.

Laurie Lane 10:35

Kind of crazy, it’s like one of those, it was in the best of his mind for 40 years. And so you never know what’s gonna come back from an experience you had as a child as a teen.

Kevin Lane 10:47

So now, that’s my passion, right? My passion is to have other people explore their creativity and have fun with a product that was born out of my mind from my youth. That’s the real power here is who knows what else could be born from Create A Castle from just, we could have future engineers and architects and everything. It’s endless.

Pat Yates 11:11

One thing if someone’s in their car, and we know what the product is, they may or may not. So can you from its basic level, explain exactly what Create A Castle is.

Laurie Lane 11:21

So basically, it’s new it we call it revolutionary. It’s a new twist on like an old task that people used to do, we have molds that instead of filling and flipping a mold to make a sandcastle, they split apart. So it takes away the frustration. And it actually works, the sand doesn’t stick in the bucket. So

Kevin Lane 11:46

Yeah, it’s hyper, hyper-detailed, versus what you can get out of a flip mold much, much larger. You don’t have to stack not all sands are created equal. So if you can’t stack, use the parts independently and create a little kingdom, on your beach, or in the snow to these also work in the snow as well.

Pat Yates 12:05

That’s really amazing. And I’m trying in these occasionally to be able to show my screen a little bit. Let me kind of as I’m doing this, so people can see this, as they’re watching the video version, you can see some of the things that Create A Castle makes these forms that you could do in snow, as well as is sand and stuff. Tell me a little bit because the coolest part about this, I think is the marketing. The way that you can go to the beach is Kevin, I know you go a lot. Tell us a little bit about how you engage with people and get them using the product in your hands. It’s really an amazing part of this company.

Kevin Lane 12:35

Yeah, that was a huge part of our invention process. In the prototype phase, we would go beach, the beach instead of door to door, and we will get feedback.

Laurie Lane 12:44

Like through great marketing, like they always tell you and I know I think Mark Cuban someone says you have to you know, hit the ground, and like just boots on the ground and figure out who’s gonna like your product, if it’s gonna work and that kind of stuff. And that’s what we did instead of door to door did beach to beach and went everywhere.

Kevin Lane 13:03

And we got an incredible response every time we went. So now you’re looking at some of the customer photos from the stuff that people have built. It’s incredible to see the creativity blossom. If you go back up real quick there Pat. Right there. Yeah, the one on the left, right there in the bottom left is a veteran down in Florida, who is yeah, the one down one more down where their kid is standing. Okay, yep, right there. That’s a veteran down in Florida who is legally blind. And she uses our product, he feels it, he splits it he can feel by the sense, and that’s part of the construction of our product actually, our daughter has visual disability. So we thought I’ll everything can be done by feel as well. And that was part of my job as an information architect going back to my career and my past life. It all ties in I had to build websites for visually impaired hearing impaired people. And it had to be done by law. So we applied all of those thought processes to the actual technology that were built out.

Pat Yates 14:17

It’s really, really amazing. So one of the questions I have let’s go to a few business questions on this. I look at this and I see that you have a regular form and there’s other things you add to it. I know there are kids do you find that people as they start getting involved in this actually gets so much more creative than buy several the kids to be able to do even more expensive does it become something that people just get super passionate about buying every one they have to see what they can make of it?

Laurie Lane 14:40

Well our top seller so we have like the different levels of kits that just basically are more pieces as you go up in our top kit, the Pro Kit is $50 and that is our number one selling kit for outdoor and I think that’s like what you’re saying is like people want to go big with it. So if you buy that pro kit, you can just use the pieces over and over on the beach, and so forth. And yeah, people want to be the rock star on the beach. And they can be.

Kevin Lane 15:12

And again, we’d like to stress that not in all situations in every beach, depending on the beach you’re on, because not all sands are created equal. You can only stack but if you look at some of our gallery of images, you don’t need to stack this product, it doesn’t matter. You can use the parts independently and still build a complete work of art.

Laurie Lane 15:33

We call it a sprawling kingdom instead of a high kingdom, you can still do a sprawling kingdom. And it’s still just as impressive.

Pat Yates 15:41

Yeah, I guess, one of the things I’m kind of interested, I know that the listeners will we both have one thing really in common. That’s kind of huge. Both companies is the ability to air on ABC Shark Tank. So tell us a little bit about I think the listeners hear me talk about it occasionally a little bit. But maybe talk a little bit about because I mean, you think about this, you started a business after having careers and all sudden you take to the level where you get on Shark Tank, and some people think that’s impossible. But I think it’s a lot about perseverance and the ability to continue to push to ask them to get on but you got to be really diligent really hard. Tell us about that process going up to it and what made you decide to go ahead and do it?

Laurie Lane 16:20

Well, if that was we said, we would be billionaires if we counted every time someone said, oh, this is a great Shark Tank product, you should be on Shark Tank, like what we did all of our consumer shows, trade shows whatever it was, we could coin make money on everybody’s saying that to us. So finally it was the summer I mean, the winter was at 20. Now we’re going back as 20 to 21. And we just said, okay, well apply, we had been going for a couple of years.

Kevin Lane 16:53

I think we need to step back and tell Pat and his audience about the toy of the year or two and that’s a huge accomplishment before that.

Pat Yates 17:00

And then the listeners not to interject but the listeners out there, their season 14 episode three of Shark Tanks, look it up, check out Create A Castle. See Kevin there? He’s got a shirt tucked into. I’m surprised at that, because I thought he might look a little sloppy. But go ahead, tell it tell us about the process. And what was good, bad or indifferent about it. I always talk about it. I’m curious to other people.

Laurie Lane 17:21

Yeah, so we decided to that October, we just said, you know what, everybody always says it to us. We had been in business for a couple of years. When people were saying it to us, we were like we’re too green. You see people go on there, and some are just starving. And there’s all different levels of people that go on Shark Tank. But I felt like if we were going to go on, we needed to have our ducks in a row. We needed to have sales, we needed to have our books in order, all that kind of stuff we wanted to feel comfortable with. So that when we went on the show, we could go on with a bang, and like Kevin said, we had won 2020 Outdoor Toy of the Year, which was in 2020, we had just started selling the product in 2018. And that was a huge it’s like the Oscars of the toy industry. He literally had to accept the award right after the owner of Little Tykes got inducted into the Hall of Fame. Like that’s how big it is. So, we had these accomplishments. So that’s why we kind of decided the time was right to apply for Shark Tank. We applied in October and then we were at his birthday dinner in March 3, we were sitting there and we got the email saying, hey, let’s go to the next steps. So that’s what we did. We started the whole process then and it’s definitely a process and I’m sure you’ve talked about this, it’s a lot of work. You have to have your business in order to be able to answer the questions that they asked give them the information that they need to move forward. And by having all of that definitely increases your chance of getting a deal.

Pat Yates 19:02

That’s a great point. So stepping from that after you take the episode Kevin, maybe you give us some idea of the kinds of things that come from Shark Tank after I mean did you get opportunities and retail and other places right away? We don’t necessarily have to talk numbers of the dealer who it was if you feel you want to you can discuss that with the listeners but tell us a little bit about post Shark Tank. That kind of things are awesome. I always tell people shark tanks the best worst thing that ever happened to me because it’s mixed bag of some things. The most of it best some of it you know you have to deal with and it becomes an issue but tell us about post that how you viewed the whole experience.

Kevin Lane 19:46

It was incredible. Primarily because we were trying to pivot the business to more, because of the Toy of the Year we were very heavy in retail sector already. Big box down to specialty. And we wanted to pivot the business away from retail, because we saw post-COVID what was happening and retail is taking a hit. So Shark Tank accelerated that whole concept of direct-to-consumer by leaps and bounds. I mean, it was just 30 500% growth year over year, compared to the prior year. So it was just…

Laurie Lane 20:24

The best advertising. Absolutely. That was the best part of it.

Kevin Lane 20:28

Yeah. Huge. I mean, where else can you see that kind of growth on your website, direct to consumer to capture that many new customers in your database. It’s an incredible opportunity.

Pat Yates 20:41

I definitely agree with you in that I think it opens so many doors and the folks out there listening, Kevin, and Laurie, a lot like me, I think are people that use that opportunity to be philanthropic to give back, we traveled with a group called United Inventors Association with Chris Carrera. And we do actionable tips to entrepreneurs that are starting brand-new products. So if you have a brand new product out there, and you’re thinking about trying to bring it to market, that kind of thing can help you look up United Inventors Association, you may find us at a trade show or sitting there helping people learn how to build their products, don’t think that that’s not a great thing to be able to do. So let’s talk a little bit more about the business. Kevin, I think you told me something one time that I was kind of astounded at, but I thought it was amazing that you had salespeople actually on the beach selling these, people walking around, and maybe I forget that, or maybe that was in the early days when you’re trying to prove concept. I mean, but again, that’s a hustling thing. So tell me if that happened? And if so what was that story.

Kevin Lane 21:35

Yeah, we still did that. We did that for what, four years, three or four years, I was traveling everywhere. Everywhere. I went up and down the coast, we did Virginia Beach, we did for one month straight was it over a month, I was down in Florida. This is when the kids are still in high school. But I was down in Florida for a full month doing the full circuit of sandcastle events. That was in 2019. And it was perfect timing. Because it was like that one month window, I could announce, Hey, go and vote for us for the Toy of the Year. Because that’s when we could do all that it was in the fall of 2019. Hundreds and hundreds of 1000s of people saw our brand saw our product. And it’s a target audience, right. I mean, we’re talking sandcastle events, and I’m hustling and slinging sandcastle products in front of them, literally, like some of the people in the sand castle events will come over and be like, dude, you can’t ever do that, again, because you’re making us look bad. Like, I can literally build sand castles in minutes. And I would have an odd people around me a circle of 5200 people around me. And they would like I would split it for the first time in front of them and you get an applause and my buddy who was with me, who’s a professional sand sculptor said, my God, I can’t believe that just happened. I’ve been building sand castles and sculptures for, you know, a decade now. And I never get an applause. So that’s the power of bringing a product to life is that guerilla marketing, there’s real, real raw power to it. Social media is incredible. Because you could put your product in front of people in a digital space very quickly, very efficiently targeting the right people. But I mean, come on, I’m on a beach at a sandcastle event making sandcastles with a brand-new product. It doesn’t get any better than that. And it’s raw. And it’s powerful. And you can converse with people and they’re excited, they feel your passion. And they want to be part of that. So I think it’s really important to touch the consumer at that level.

Laurie Lane 23:46

And that’s something that we’re actually, our big focus right now is like the shift with the direct to consumer as well as we’re starting an affiliate program where we’re going to clone people like Kevin on different beaches, so that since he can’t and it’s getting very tiring, beach to beach, but seriously, to have those affiliates that are the salespeople on the beach, they have QR codes and they’ll be helping us sell the product because that’s the best way we sell it. Yep. And the great thing is, is I’m not sure if your listeners know but we did get a deal with Kendra Scott, who is a jewelry. We also got Daymond too. But Kendra Scott, she is a master of affiliate marketing. She has all of her people that sell her jewelry for her. So that’s something that we’re working on with her right now. She’s gonna help us guide us through the process of really setting up a really good and beneficial affiliate program.

Pat Yates 24:49

I don’t know very many people that have had her on the panel. It’s really amazing because she hasn’t been on a ton of episodes. It’s amazing that you got to deal with I find her quite lovely so I could sit in on your next meeting if you get time I’ll go with you just so I can meet her if you need to, you can put me in that meeting. So I mentioned she’s awesome. So tell us a little bit about Kendra. Go ahead and tell us I mean, how’s it been to work with her?

Laurie Lane 25:13

It’s good. It’s in the beginning stages. So we don’t have a ton of work with her yet.

Kevin Lane 25:20

Just so everybody knows, all your listeners know, like, they see Shark Tank air. And then they think all of it just happens. No, there’s 98 due diligence that goes back and forth.

Laurie Lane 25:32

Yeah, so much craziness. So we literally have just had a couple of phone calls with her. But she’s very excited about the product. And the one thing I can say about her is she is so lovely and down to earth. She’s just real. And that’s what I love best. So she’s excited about the company, how she can help us and so we’re kind of just figuring out, okay, so this, like affiliate, the program is really a crazy strength of hers. So that’s what we’re gonna focus on right now with her because she’s busy too, like.

Pat Yates 26:03

That’s exactly right. One thing I want to make sure the listeners realize too, and we don’t have to go too deep into it. We talked a lot about beach and selling all these things. This is a snow form too. So like if you’re in cold areas, like our owner, Mark Daoust our founder, Mark Daoust, he’s a Minneapolis snows air every day. He’s got legitimately like 50 Kids, I think he has 10 I lose track. But he could take these things to build some forms, like you wouldn’t believe in front of their house for the team he’s got but people that are in cold areas, obviously want to use this too, right?

Kevin Lane 26:03

Yeah, absolutely. And that and again, that hustle turned into me going to random, very big, very popular ski resorts wherever my forms, and I’ll find a direction and just the bones at the bottom of the mountain flats are right at the bottom of the mountain. And people come over to like, what is that? So it’s applying that same exact technique. It’s just not a beach. Now it’s a ski mountain where tons of people are eyeballs on your brand.

Laurie Lane 26:58

And then now we’ve taken it totally from the beach in the snow, and we shrunk our molds. And now we’re trying to get that year-round fun of building castles. And that’s what our indoor line comes in. I think. By the way,

Pat Yates 27:14

I’ll be a beach guy. I hate cold weather. I might do one on my deck while sitting in the hot tub watching people ski, other than that, I’m probably not in on that one.

Laurie Lane 27:22

Well, you can use Buildmaster from your hot tub, you can just get built.

Kevin Lane 27:27

Yeah, right. I don’t know if you heard me or not. But our indoor set is up for toy of the year this year. So our competitors are Lego Hot Wheels, Pokeyman, major, major. So if any of your listeners can vote, go to our website and go and vote for us. Because we need all the help we can get.

Pat Yates 27:45

I have a feeling that this will air like if anyone is dating us. We’re like in the late part of August right now I don’t think this will air till like the second week of October. But if that’s still going on, then we would love for you to go in and vote. But if you’re buying a Christmas gift, go look up Create A Castle, that’s for sure. But I definitely put it up on my Facebook, we got a few there, man, I’m hoping that you end up winning. It’s really an amazing opportunity. So as we start to close this up a little bit. You’re amazing entrepreneurs. Obviously you started back in 2010. Working on web stuff. You’ve been in Disney Stores, which is like being an entrepreneur or training in progress. You’ve done the business you did Shark Tank, you’re doing all the things you’re doing if there were a couple of things that you thought you would give entrepreneurs to tell them of things that you in your experience are really important traits or things that you’ve done, what would those be?

Laurie Lane 28:36

I would say you have to have perseverance. Like it’s exhausting. And a lot of people would be like, Oh, look, you got into Target. You guys must be rich, or you guys did this. That’s great. Like they think it’s like, you know what I mean? Target gives you a check. They don’t realize that they wait 120 days to pay you. There’s just so much. And like, we always say the entrepreneur is like the duck on the water that’s going really, it looks so beautiful going across the water and underneath the feet paddling, paddling like crazy. And that’s, you have to realize that it’s a lot of work. And it’s rewarding work. And especially like we’re bringing up stuff he had dreams of as a kid and all this stuff. So it’s very rewarding work. And like you said, if we can give back and that’s what our goal is, I would love to be able to give back to other entrepreneurs, we wouldn’t be where we are if we didn’t have help from so many people. It’s an incredible network. Yeah, just like, from past lives everywhere, willing to lend a hand and that’s one thing we always try and do. Other entrepreneurs are always like, oh my God, thank you for helping us and like, we wouldn’t be where we are if people didn’t help us.

Pat Yates 29:51

So, Laurie, before you go on to the next point. Would you think that entrepreneurs typically don’t like to admit failure? So sometimes they open up their network as big as they should, but once they break down that bet barrier we’ve learned especially with the Shark Tank Group or with and the reunion, everything that we do, that there’s a great group out there to be able to help you. That’s a great suggestion. Any other tips? What do you got Kevin?

Kevin Lane 30:09

Yeah, I’d say be prepared to be hit with hurdles that you never ever, ever saw coming. Prime example, 2020 Toy of the Year, right, like huge momentum, Walmart coming to our booth saying they want to carry gas and all their beach stores. Bum COVID happens, we all shut down. So we lost, probably million dollars. We lost millions of dollars with the PO’s. But we dealt with it right. There’s certain things that you just can’t see coming that you have to face as an entrepreneur, we didn’t expect the container crisis to happen to pay $25,000 to ship a product over every container. So these are the things that you need to prepare for as an entrepreneur, that there’s going to be hurdles in your way. And you need to be nimble enough to find workarounds. And basically, just like when we said perseverance.

Laurie Lane 31:12

And you have to pivot, you have to be prepared to pivot. There’s always something you’re going to be going down and you’re like, oh, I’m going this way. And then it’s like, oh, that’s a really big tree on the road, and you got to go this way. And then you got to go that way. And so, I mean, I know you know, you just got to keep figuring it out. Like, it’s always going to be something and it goes back to asking other people for help. And that is definitely something like you said, people think they’re either burdening people by asking for help, or they feel like, they don’t want to, like you said, admit failure.

Kevin Lane 31:48

I’ll just say, just put your ego aside as an entrepreneur, because you should have help you need help as an entrepreneur.

Pat Yates 31:56

It’s really interesting that you guys say that, because I will say this to the listeners, Kevin and Laurie and I met along with my wife at one point at a show when we were speaking and people just become fast friends that want to help each other and want to be invested in what people are learning and have their eyes open to be able to teach and learn in entrepreneurship, especially growing companies. I can’t tell you enough how much great it’s been to have you on the podcast, folks. Again, this is Create A Castle look it up online. It’s up for Toy of the Year. It’s an absolutely phenomenal business. Kevin and Laurie, you’ve just done nothing but have a long marriage, raise two great kids build a business go on Shark Tank. You had that much going on. But it’s great to have you on the Quiet Light Podcast. I appreciate you being here today.

Laurie Lane 32:37

Always so appreciate you Pat. Thank you so much for having us.

Outro 32:43

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.

Pivoting From a Walmart Corporate Employee to Online Entrepreneur

Garrett Peters is the Co-founder and CEO of Duncan & Stone Paper Co., a stationery company that combines timeless design with effortless journaling. In his role, he is a jack-of-all-trades...

Garrett Peters is the Co-founder and CEO of Duncan & Stone Paper Co., a stationery company that combines timeless design with effortless journaling. In his role, he is a jack-of-all-trades for the company, handling fulfillment, sales, online channel management, and customer service, to name a few. Before Duncan & Stone, he spent over 10 years working with brands at Walmart and Sam’s Club. Throughout his career, Garrett has managed a wide range of brands across multiple categories and is deeply committed to helping brands flourish.

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

[03:01] Garrett Peters shares his background working with brands at Walmart and Sam’s Club
[08:26] The genesis of Duncan & Stone Paper Co.
[10:29] The challenges of being an entrepreneur
[15:49] Garrett explains why he went into the paper goods and gifts business
[20:49] Why entrepreneurs should focus on slow and sustainable growth and self-care
[26:21] Tips for getting excellent customer reviews and ratings
[27:35] The future of Duncan & Stone
[29:14] Garrett’s advice for young entrepreneurs

In this episode…

Are you tired of the corporate grind and dreaming of becoming a full-time online entrepreneur? What can you learn from a corporate employee turned successful entrepreneur?

Working with brands at Walmart and Sam’s Club, Garrett Peters felt it was time for him to venture into entrepreneurship. He says that the leap can be challenging, but with determination and the right mindset, you can achieve success. However, it can also be tempting to do too much too quickly, but that approach can lead to burnout and mistakes. He recommends slow and sustainable growth — building a solid foundation for your business, focusing on providing value to your customers, and taking time for self-care. He shares his journey transitioning from the corporate world to building a company that offers products so people can easily capture their life stories through the art of journaling.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Garrett Peters, Co-founder and CEO of Duncan & Stone Paper Co., to share his insights for becoming a successful entrepreneur. Garrett shares his background working with brands at Walmart and Sam’s Club, the genesis of Duncan & Stone, the challenges he faced, and advice for young entrepreneurs.

Resources mentioned in this episode:

Sponsor for this episode

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

Episode Transcript

Intro 0:07

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, everyone, welcome to the Quiet Light Podcast. I’m Pat Yates sitting in for Joe Valley. We have a really exciting conversation to you today. It’s Garrett Peters. We actually want to open this up to entrepreneurial spotlights so Garrett has a company that just does really amazing work and Duncan & Stone he talks passionately about emotions and mental health inside owning a business, which is really incredible. And he’s turned it into a business where he actually has journals, whether you’re someone that is trying to talk about things you’ve done in the teaching industry, whether you’re doing a travel thing for one of your trips you took childhood books, recipe journals, things like that, that you can write on paper or remember. In day one, everybody wants everything on their iPhone, and they want stuff to all be digital, this gives you an opportunity to really think about the things that you’re doing in your business, and then be able to, hopefully, in your business and your personal life and hopefully helping those things. So Garrett spent over 10 years in the corporate world working for Walmart and Sam’s Club. He talks about jumping into the deep end in retail. He got the buzz to start his own business in 2019. And together with his wife and friends, they started Duncan & Stone Paper Company. Duncan & Stone officially launched in the spring of 2020. And he left his full-time job in 2021 to become the CEO of this business. As one of my mentors originally said he moved from a meal ticket to a soup line. But he’s definitely trying to forge through and be able to grow things. Garrett’s been married for 14 years has three sons 11, nine and six and lives in Fayetteville, Arkansas. He’s just a dynamic entrepreneur and a guy who really takes a lot of focus on making sure that customers are taken care of and giving a product that he thinks will be amazing. So I’m anxious to talk to Garrett and be sure again that you go to quietlight.com. Look at our listings. And if you need to reach out and talk to me, you can always email me at [email protected]. So I’m anxious to talk to Garrett. Let’s get right to it. Garrett, welcome to the Quiet Light Podcast. How are we doing today?

Garrett Peters 2:28

Hey, Pat, thanks for having me on, man. I’m doing great. How are you doing?

Pat Yates 2:31

I’m great. I’m really excited about this. And we’re gonna open up the podcast a lot to a lot of entrepreneurs. We talk to a lot of sellers. We talk a lot of vendors, but I like to get down to be able to let the listeners kind of get actionable tips with entrepreneur. So I’m super excited to talk to you about your business Duncan & Stone Paper Company as well as your journey. Because it’s kind of interesting because you decided to go the corporate route, then go the business route of owning it. And I want to jump into that. So maybe tell me where you’re from and maybe a little bit about your background and just intro yourself.

Garrett Peters 3:01

That sounds great, man. That sounds great. We live in Fayetteville, Arkansas. We’ve been here my wife and I for coming up on 15 years. I’m an Arkansas guy grew up not far from here. But when we got married, we moved to Fayetteville and kind of started our life. And so we’ve lived here ever since. And when we moved to Fayetteville I got plugged into the, there’s kind of a retail community in Northwest Arkansas because of Walmart Sam’s Club, home office is based here. And so I got connected with a couple different companies early on here to learn about what it looks like to work with Walmart Sam’s Club, and that’s really where I spent most of my career is working with vendors and brands selling to Walmart, Sam’s Club and so had a background working with brands and things like that, but we can get into some of the career happenings for sure. But we got three kiddos at home. We have three boys at the house. We have an 11-year-old, a nine-year-old, and a six-year-old, complete zoo at our house. I mean it’s just comical. But we have a lot of fun man so we got young boys and you know now we’re just working on growing our business and rocking and rolling man.

Pat Yates 4:13

You know what’s really amazing about that I don’t think you know this. I’m also a three-son guy, are you 30, 28, and 24. Amazing the house.

Garrett Peters 4:23

Listen, we’ll have to call later. We’ll have to talk later about tips and tricks.

Pat Yates 4:27

Wives should talk later about testosterone, you’re probably more apt than in that situation. So tell me a little bit Garrett. I think what’s really cool about this story when you and I talked is you started off in the corporate world. Maybe tell everybody a little bit about how it is to work for Sam’s Club and Walmart. You’re talking about huge conglomerate. Sometimes maybe get lost. Don’t feel like you’re valued. Is there anything you can give them and maybe they’re great things about it? To work in that environment.

Garrett Peters 4:53

Man there is. I valued my time working with Walmart Sam’s brands, and so I never worked directly at those big companies at Walmart Sam’s Club that work really closely with them got very familiar working with them in the buyers and merchandisers there. It’s amazing. I mean, literally transformative especially for startup brands I worked a lot with, with startups and, you know, kind of early-stage brands, amazing, man. I mean, what they can do for a business is pretty remarkable. But you’re talking about playing with the big dogs, you know what I’m saying? So there’s the expectation around delivering with Walmart, Sam’s Club, because we saw a lot of people come and they weren’t ready for it. And so, I think you’re gonna hear different stories about working with Walmart, but good and bad, I’m sure. But if you’re ready, I would say just have that expectation, like, yeah, I’m ready to go scale with Walmart, if you’ve never done it before. Just keeping that in mind.

Pat Yates 5:56

It’s really interesting story, because it kind of parallels with Quiet Light, probably 90% of the people that come in to sell their companies aren’t ready, not only from a preparation standpoint, but maybe a number standpoint, all kinds of different things. So it’s really interesting that you mentioned a lot of times probably what you were doing, they were managing expectations of companies that were trying to grow maybe too quickly, or not prepared in the right segment, how did you get them in a position to where they understood they’d have to put more time in? And maybe still, because I’m looking at it from a business standpoint, how does someone get all excited about that, and then find out from an expert, they’re not quite ready, and then they have to pivot? I mean, I’m sure that was tough.

Garrett Peters 6:34

It is. I mean, I think that setting the right expectation, you hit the nail on the head, like, I worked with a handful of brands that had this idea of, hey, I want to go get on the shelf at Walmart, or whatever it may be. And the reality is, sometimes it’s like, hey, you’re not ready for that. And I think that it’s really understanding the entire piece of where that brand may be. And Walmart and Sam’s might not be, you might not be ready for that. And that’s okay. Like, it’s really full and understanding like, what’s the vision where we’re going, kind of what is that play? And that’s what I love doing, especially with kind of younger startup brands was, was helping them through that journey of, hey, this is time, or hey, maybe just a test, or maybe you start out small with Walmart and scale and grow from there, which they were big fans of as well, especially for regional types of products and things like that. So it’s amazing. I mean, I feel like an MBA in business working with those buyers at Walmart, because I just learned so much about ins and outs of scaling a business, how to grow with a retailer, like Walmart is amazing. So gave me such, I had a really good time working with them.

Pat Yates 7:56

That’s amazing. What’s funny about that is, you actually are doing a service to these companies. If they go in and they fail in the wrong position, it actually could affect them even bigger, long term. So it’s really amazing that you took the time to do that. So in the world, nothing was happening in 2020 and 2021. News about any pandemic, but you decided to add some stress to it by saying, you know what, see Walmart thing? When do you wake up and just decide that, and how did you do it?

Garrett Peters 8:26

What a great question, man. So in 2019, actually, so my wife, her name, Stephanie, Stephanie and I had been good friends with Sarah and Garland are business partners, and just kind of, we’re doing life with them. They live close to us. And we’re just kind of processing through what’s going on. Well, long story short, Sarah, was running an Etsy business at the time. And so she was selling cards and things like that. And Stephanie and I got more and more interested in like, what she was doing, and just we’re dreaming and just talking about what this could be, what a potential product could be to sell online. And so in 2019, Stephanie and I and Sarah and Garland went into business together to start Duncan & Stone. And so when we started the business, we decided, hey, we want to create prompted keepsake journals and giftable items cards. And then we went and went down the path of trying to figure that out in 2019. I mean, obviously, like, we had no idea what was about to transpire in the years to come. But we went and sourced our first round of products and 2019 and started selling in February 2020. Literally, like we turned our website on and started selling products in 2020. And it was wild man wild time to start an online business. That’s for sure.

Pat Yates 9:54

That’s really amazing. So you took your knowledge that you had from Walmart, getting an MBA from businesses every single day. He basically, and then decided, you know what, I have all the knowledge, I want to go forward and move do it. It’s really an incredible leap for anyone to be able to do that. So I’m sure that in your entrepreneurial journey over three or four years, and really still working for Walmart’s common entrepreneurial journey, you’re working with entrepreneurs all time, I’m sure there have been highs and lows. I mean, I’m sure there were times when you doubted the decision, and you were confident in it, maybe give some idea of what it was like, and the emotions you had to go through when you decided to pull that string and actually do it?

Garrett Peters 10:29

That’s a great question. It was interesting, like, the process of starting, it was very exciting for us. And for me, because I have a full-time job, working for a corporate environment. But we have this new side hustle, basically, that we had started with some good friends. And we had no idea what the future look like for the business. But it was fun for us. Like, for me, the first like 2020 was, it was exciting. It’s like we’ve created products we’re selling, we’re, I’m shipping products out of my house, like it was just full-on startup mode for us in 2020. So there was this high of like, oh, this is really fun. This is exciting. Well, fast forward to the end of 2020 to 2021. I was beyond stress, Pat, I was like, the business was going I have a full-time job. Our kids were they’re young. And we got kids at the house. They’re doing school from home, it’s all this chaos of life. And I walked out in our house one day, I walked out at lunch to talk to Stephanie about something and she’s like, I was super stressed. And I was like, I don’t know what I’m going to do. Like there’s this new side hustle business that’s now going this demanding time and attention. I don’t know what’s about to happen. And she looked at me and she was like, you need to quit your job. And I was not expecting that. And I was like, well, I don’t know if that makes any sense. Because we as business hadn’t been going for a year. And so it took us on a path man, I left my job in January 2021. And started doing the business full-time. And I say all that to say what I thought was going to be an exciting kind of journey and ride turned out to be an extremely difficult year for me just the process of leaving a corporate job and all the resources available with that, to I’m the only one doing this now. It was just kind of like, what is going on. And it was very tough man, I think that I was not, I’d never run on business before or been in that sort of environment. So there was just tons of learnings for myself that I had to like, man, I had to figure out like what this new reality look like as a business owner, and trying to grow this, at the time a very small online brand. And so, man, it was a very long process for me to kind of figure out that new reality a new normal for me as a, what does my day look like? How do you manage? Like, what am I supposed to even work on? Like, I don’t know what’s happening with this thing. To over time getting some wins and getting some stability and beginning to grow the business in a way that was like, okay, this might be a fun thing, you know, so I’ve been doing it for two and a half years now. And it’s been a blast.

Pat Yates 13:37

I think it’s really amazing. Again, we’re talking with Garrett Stone with Duncan & Stone Paper Company. And I think, Garrett, when you get into this, I think that everybody can be great in the positive time. So when you’re doing sales, and you’re launching products, when everything seems positive, it’s great. You find that day when you lose money, or you get five returns, you get a bad call from a customer, it always resets you to a point where you sort of doubt where you’re at. I mean, were there times when you went through this, you say, what am I doing?

Garrett Peters 14:02

Oh, dude, so many times so many times, I’ll tell you a big one early on for us was the second product that we created. We sell prompted keepsake journals and giftable items. So, paper goods that we were sourcing, the second product, I should say that we created and brought over. We brought in which review in the product we’re looking at as a team and Sarah, one of our partners was looking at it and she was like, hmm, this doesn’t look right. The spine of the journal was misprinted. Okay, so finished goods already came, we missed it through the process for creating it. And basically we got it in and it was unusable. I mean, we decided as a team like listen, we can’t sell this. And so this was like, six or seven months into the business and as a team, we’re like, we can’t, we don’t want to tarnish the brand immediately, we just started. And so it was a major blow for us as a small business of like, what in the world? Like, how are we going to get past this? Very challenging season for us, just because we’re trying to grow this small little thing we’ve created. So every dollar we counted and made, it was really it was really tough.

Pat Yates 15:30

Yeah, I mean, I think that that’s what’s interesting, no matter if you run it, like my business, I’m over 20 years, I still have visions every single day that you have to deal with entrepreneurs have to be quick on their feet. So you made the decision to go well, what I’m kind of interested in how did you end up in a paper business? And what made you decide where you were gonna go? Was there a background in that?

Garrett Peters 15:49

Not really honest, the short answer is not really like, as we were kicking around the idea of starting a business with our partners, Sarah was already selling a set of cards on Etsy, actually, that was doing really well. And so we had a base of like, we think we can sell types of cards like this, and then create, really, the vision was from Sarah and Stephanie, as we’re discussing this as young moms, with thinking about baby books, and thinking about other sort of giftable types of items, there seemed to be a big gap in the marketplace, from what we could see around, really meaningful, but like, lifetime, heirloom quality type of stuff, just basically stuff that didn’t look cheesy, that you’d want to take to a baby shower, and things like that. So the more research we did out there, it was like, hey, I think there’s an opportunity here. So that’s kind of what sent us down that path of creating journals, I had no background in paper goods, or stationery, or anything like that. So we’ve learned all of those things along the way. But for me, I was always intrigued by the thought of running your own business was intriguing to me, I knew other entrepreneurs that are running different businesses and friends of mine, and I’m like, I’m intrigued by the idea. So it was less about the product for me personally, it was more about this could be a business opportunity for us to pursue. And so that’s kind of what led us down that path.

Pat Yates 17:27

It’s really incredible. When I was looking at the site, I was struck by something, it’s all stuff that you become passionate about. It’s not like a transactional item. It’s not like you buy it, and you just give it away you have to put your heart and soul into and it sometimes becomes something you decide. So tell us a little bit about Duncan & Stone and what your focus is on the journals. I see so many different things on here. They’re so cool. And I never really even thought about them. So I’m curious how you decided where you were going?

Garrett Peters 17:53

Yeah, I love that question, man. And early on when we were starting and 2020 2021 it was around, we’re in a life stage with young kiddos of weird, baby books and pregnancy journals and things like that. So we started in that space, pat of, you know, creating keepsakes for moms. And that’s kind of where we started. Well, we quickly found early on that customers were giving us great feedback and asking us to create different things. And so we started going, what are also we’re in a stage of life where we’re getting gifts for our parents and grandparents and who the heck knows what to get them most of the time. And so we’re like, what if we made items that were great giftable keepsakes for moms and dads to give to your parents and things like that. So we created our legacy journal, which is one of our top items that that is a family keepsake kind of generational story journal, which is awesome. We knew that we wanted to give something like create stuff that was a prompted item. And so that guides the customer through, you know, telling your story or keeping recipe family recipes and things like that. It was all under the umbrella of like generational keepsake type of items. And so what we’ve done over the years is just look for different kinds of opportunities out there. So I tell you, like, we spend a lot of time as a team talking through different journals, different sorts of things, customer feedback that we’ve gotten, all sorts of stuff, but it’s all under that umbrella of like, giving someone a meaningful gift, whether they’re engaged or they’re married or they had their first kiddo, like for us, as the as the brand owner means so much that it’s such a special time right now to your point about, you know, the types of stuff that we’ve created. It’s something about those special seasons, you know, in somebody’s life that we want to kind of be a part of. So that’s fun.

Pat Yates 20:07

It’s incredible. I think that when some people look at this, I mean, when you create memories and things like that, it really resonates. And it makes a company actually seem a little even more valuable that you can provide that kind of service to a person. So let’s pivot a little bit, we talked a little bit when I was prepping, of things that you thought might be important throughout your journey, you gave me a couple of points. One is, let’s go with the first one, take it slow growth steady is important and key and actually really agree with that. But tell me your thoughts on that. And why an entrepreneur, if they’re going into it should, because I think everyone goes in with this youthful exuberance, I’m gonna kill it, I’m gonna do this, that I’m gonna do this. And sometimes it’s too much. So tell me what you mean by take it slow. And slow growth?

Garrett Peters 20:49

That’s a good question, man. It’s really, for me come out of the first few years of doing it full time. So rewind to 2021 when I left my job to do full time, go do our business. Man, I just was so obsessed, and just like a maniac about the growth of the business. Like I thought that I was just obsessed with it. Like, we got to do this, we got to do this. I was just a madman. And for whatever reason, I just thought that like we had to grow, we had to get more sales, we had to get more customers, we had to do all this stuff. We had to launch more products. And it was out of a place of like, I wasn’t like I just thought that’s what you had to do. I’m like, we have to grow fast. We got to get to this number. And it was all arbitrary numbers. It was like no one on our teams, like, hey, we need to be doing this much in sales. It wasn’t that it was just like, that’s kind of what my mindset was going in, is like, if we’re going to have a successful brand, we need to just be hitting these milestones. Well, what happened was dude, I burned out in 2021. I was like, just completely running too hard in a way that was very unsustainable. And so through over the years, I’m looking like through that period of time, I’m going, whoa, like, I would rather have sustainable, healthy, ongoing growth that you’re not killing yourself along the way to get that, right. I’m just go in pay, I’d rather us be pushing the ball forward every month, every year. In a way that’s like, to me, it’s just kind of redefining, like, what your expectations are, you know, what are we trying to go for? For us, we run the businesses for two is two families. We have four owners and two families. And so we’re going, hey, what is this need to look like for us? And where I’ve landed is like sustainable, like, slow growth is pretty key. Now it doesn’t maybe fit every person situation or business, obviously. But that’s kind of for us, like been a key part.

Pat Yates 23:05

I think that’s a great point. And actually, your second one is the one that struck me the most, because I think one thing that entrepreneurs only think about they focus solely on business and not themselves. They think I’m an entrepreneur, I can take on anything. And your second one was take care of yourself very simply said, which I’m a big believer in and I think that I’ve been a victim of not doing that for myself probably putting more pressure on myself more anticipation of things, I got to do more things I want to put on my plate and then somehow miserable right after that’s the case. So talk a little bit about your view of that. Because I think mental health and things like that is so important in anything you’re doing in business, especially when you own the business. So tell us your thoughts.

Garrett Peters 23:45

Yeah, man, I’m definitely no expert in this space, because I’m right there with you. But along those same lines is what I was kind of describing and 2021 and into 2022. I just found myself being I just wasn’t taking care of myself when taking care of my body, had no space for decompression. For us we were running the business out of our house and still do but I woke up every day and went to bed every day looking at this is like this thing was all-encompassing. And I didn’t create any boundaries for me to have that space. And man, through my wife with good friends of just going hey, people around you saying you need to take care of yourself. I think that what I’ve learned over the years is really that’s so key. Like, I’m not going to be the best husband, leader, father, that I can be business owner unless I take care of myself. Same for everybody. It’s like we have to prioritize that. I believe it’s so key. It’s going to be key for not just the president but for the future, your future health. And so, I tell you what it looked like it just looked like me scheduling that time, whether that be going to play tennis with a friend going on a bike ride, taking off an afternoon, like, giving yourself freedom in that space to do it and to go, my business isn’t going to crumble, if I take off a few days, like, I need to do that, for the sake of my own sanity, and like just establishing some of those, like, key kind of habits are key, because it just gives you so much more balance and health and clarity. I think.

Pat Yates 25:32

I think it’s amazing that you say that, because I think that people in their lives, if they get big, older and start running businesses have families, they think there’s no limit to what I can take on the problem is they don’t see what they don’t see. And eventually that’s going to catch up with you. Again, we’re talking about Duncan & Stone, and I had a chance to go into your Amazon store and look around and first of all your imagery and photography stuff’s amazing. And one thing that struck me is you had products that may not have had a ton of reviews, but all five stars, like your products are so welcomed by customers. I mean, how does that feel when you can actually help someone? Because I think what’s interesting is your whole mindset of mental health or stability ties into the products you have, because it allows you to vent that allows you to write things down, that you’re challenging yourself on, how does that tie into it? And how do you get such good reviews from your customers,

Garrett Peters 26:21

We love our customers, man, we set out from day one to make great products. I mean, honestly, like, we weren’t trying to sell anything that was like, some piece of crap type of stuff. So we made it we set out early on to make really high-quality meaningful gifts. And thankfully, like our customers love them, and like that’s for us. Like, that’s huge. We value that feedback, we look at it all the time. And it’s a big deal. It’s helped us grow. And we love it. We love getting great feedback from customers, for sure. So it means a lot like I’m very proud of that like to use for you to say that, like we celebrate as a team, when we’re getting great feedback or see posts on Instagram or wherever it may be about people using our journals is huge. We love it.

Pat Yates 27:20

That’s incredible. So what’s the next thing for Duncan & Stone? If obviously, you manage your growth, you try to stay within your lane, you don’t want to get too far. But are there things going on? You don’t have to divulge what it is. There are things that you’re thinking of working on in the future for people.

Garrett Peters 27:35

Yeah, we have spent a lot of time the last year. So really starting to dissect the business, like what roles everyone’s playing. What does it look like for us as we’re continuing to grow? And I’ll tell you, we’re really focused right now on trying to set the business up in a way that continues to grow for years to come without us being like the primary one doing it. And so I’ve learned a lot from you guys with Quiet Light you, Joe, all the guys like, I want to create a business that somebody can look into it and go, okay, like it’s not all built on the founder, you know what I’m saying? And so for the first few years, I feel like our business was and we’re kind of now just taking our hands off slowly certain pieces of the business that we’re outsourcing more, we’re finding great partners to help us grow. That’s the focus, man. I mean, like, we’re not necessarily looking to go into retail, you know, go into big retailers or anything like that right now we’re focused on growing our, our business online.

Pat Yates 28:47

I see you as the guys I would normally term it that likes to hit singles. He’s not a guy that likes hit triples, and home runs all the time, because sometimes those don’t work out as easy.

Garrett Peters 28:55

Yeah. Yeah. That’s right, man.

Pat Yates 28:57

So we also talked about advice you might give other entrepreneurs. So if you had the 30 seconds to tell them and your journey from being a corporate with Walmart, which isn’t a small deal, and then going into entrepreneurship, I mean, what advice do you have for people about a current business or making that transition?

Garrett Peters 29:14

Man, the one big piece of advice that I would give is, be curious, be curious about your own sort of like wirings around what makes me Pat, what’s exciting to me what gets me fired up? Just personally like understanding yourself and being curious about yourself and then be curious about other people man, I think that that’s so key, like, find people that are successful or that have done something that you’re interested in and go ask them questions, go buy them lunch, get coffee, do something like engage with other people that are also entrepreneurs if that’s somebody’s like, kind of interest man, and just go spend time with them being around other people and truly being curious about how do they take what they did? What can you learn? I think there’s so much value in that. And I didn’t do that well, I would say like early on in my career, not to the level I would have liked, probably. But what I’ve learned over the years, especially starting our businesses, people love to talk about themselves and their business, right? Like, it’s easy to do. And there’s nothing wrong with that. It’s like, why not go spend time with people that are doing it, be curious about it, and ask a ton of questions, and then learn and do your own thing or figure it out?

Pat Yates 29:37

I agree with that. And it’s funny, because I think what you’re talking about Garrett is like people out there, find either peers that you have in your city, or masterminds or something like that, where people can teach you things like I’m involved in a shark tank speaking group, as well as Shark Tank pals group, I go to reunion every year with Shark Tank people. And all we do is exchange ideas of how to be able to improve yourself and your business. I think that’s incredibly key. So I think the last point you had was commit to developing emotional health. That’s a little different than what we said before of taking care of yourself. And I’m curious why you’ve worded it that way.

Garrett Peters 31:16

Yeah, the way I’ve worded it is, is on purpose. And it’s mainly because the older I’ve gotten, the more I’ve realized there’s certain gaps I have emotionally that I’ve really not developed like, and I’m not expert in this area, either. So don’t say that I am for sure. But as I’ve gotten a little older and more mature and gone through different seasons of like, you know, emotionally being unaware of how I was doing, what was going on with my life and things like that. I look back over it and go, I just didn’t spend any time developing that aspect of who I was. So I felt a little more like, as I looked back, I’m like, I’m kind of emotionally immature. You know what I’m saying I’m like, well, that’s not good. I’m looking at my eight nine 10 year old and the way they’re acting, I’m like, I actually kind of act like that a lot. So that’s not good. What’s going on? And it comes with self-awareness. I think it’s not something that’s like an overnight deal. But just committing to, it could look like a lot of different things. But for me, it was asking my wife and close friends like, hey, I want to grow in these areas like, you have freedom and rain to speak into that area of my life, or call me out if I’m acting a certain way. And then you go, what’s going on with that? I got to figure that out. And I think it applies to in every aspect of someone’s life, for sure. But especially for entrepreneurs or people starting their own business or running a business like man, knowing who you are is so key. So that would be another piece of advice that I would encourage anyone regardless or life stage, but for sure, like younger folks, like learn about yourself.

Pat Yates 33:17

Yeah, that’s great. I mean, I’ve been married 33 years, and my wife is the temperature control on me all the time. I think it’s really amazing. And folks, if you out there do us a favor and go to duncanandstone.com or go to Amazon they have some unbelievable all these journals that can help you think through things, write them down, improve your mental health. So what you’ve done is actually turned a goal into something.

Garrett Peters 33:44

I love it.

Pat Yates 33:45

Garrett, it’s been amazing. It’s been amazing having you on the podcast today, folks, please do go to Garrett Stone, check this out. It might be something that you would really enjoy. And honestly, Garrett, we’d love to hear updates about where the business is going. Is there anything else you want to let everybody know before you go?

Garrett Peters 33:59

Absolutely. No, it’s been a pleasure, Pat. It’s been fun to connect with you love what you guys are doing and glad to be a part man.

Pat Yates 34:06

Do me a favor, though. Tell everyone how they can get in touch with your site. Just getting that quick information.

Garrett Peters 34:10

Yeah, go to duncanandstone.com. That’s the easiest place to check us out for sure you can connect with us that way. Always. I’m on LinkedIn quite a bit, sharing our journey and posting craziness along the way I try to make it fun. And I’m light hearted man. So like, I’m just having a good time out there. But connect with me on LinkedIn. I’d love to hear from you.

Pat Yates 34:33

Well, man, this has been an amazing conversation. I so much enjoyed having you on today.

Garrett Peters 34:38

It’s been really fun. I appreciate it, Pat. Thanks so much.

Pat Yates 34:41

Thanks for joining us on the Quiet Light Podcast Garrett.

Garrett Peters 34:43

Thanks, buddy.

Outro 34:46

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

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What’s a Legitimate Add Back

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

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

Episode Highlights:

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

Transcription:

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

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

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

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

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

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

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

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

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

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

Mark: I would add both those back.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mark: It’s absolutely ridiculous.

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

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

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

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

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

Mark: No fights here, thank goodness.

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

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

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

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

Joe: What?

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

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

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

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

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

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

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

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

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

Joe: 100%.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Links and Resources:

ECom Crew Episode

Quiet Light Academy YouTube

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

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

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

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

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

[Download Our SBA Starter Kit PDF]

Episode Highlights:

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

Resources:

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

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

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

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

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

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

Episode Highlights:

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

Transcription:

Mark: Joe how are you?

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

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

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

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

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

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

Joe: Guaranteed.

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

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

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

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

Rochelle: Not a problem at all.

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

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

Joe: Excellent.

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

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

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

Joe: Okay.

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

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

Rochelle: Right.

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

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

Joe: Let’s talk about that-

Rochelle: You have to assess that.

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

Rochelle: Yeah.

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

Rochelle: Generally.

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

Rochelle: Of course.

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

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

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

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

Joe: That’s the sellers.

Rochelle: We want-

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

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

Joe: Okay.

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

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

Rochelle: Okay.

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

Rochelle: Right.

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

Rochelle: Exactly.

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

Rochelle: Right.

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

Rochelle: I mean the chats.

Joe: You mean the chats, okay.

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

Joe: Okay.

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

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

Rochelle: No, I have no idea.

Joe: Okay.

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

Joe: Okay same as phone call side too.

Rochelle: Exactly.

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

Rochelle: Right.

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

Rochelle: Right.

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

Rochelle: Exactly.

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

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

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

Rochelle: Right.

Joe: You should be doing-

Rochelle: Absolutely.

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

Rochelle: Right.

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

Rochelle: Right.

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

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

Joe: Got you.

Rochelle: And it’s been pretty seamless.

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

Rochelle: Excellent.

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

Rochelle: Right.

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

Rochelle: Right.

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

Rochelle: Perfect.

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

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

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

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

Joe: Yeah.

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

Joe: Exactly.

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

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

Rochelle: Separate VPN.

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

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

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

Rochelle: That’s right.

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

Rochelle: It makes no sense.

Joe: And it’s just risky.

Rochelle: Exactly.

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

Rochelle: Right.

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

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

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

Rochelle: Right.

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

Rochelle: Right.

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

Rochelle: Right.

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

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

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

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

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

Rochelle: We can talk about your fishing poles.

Joe: Sure.

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

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

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

Joe: True.

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

Joe: Right.

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

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

Rochelle: Yeah.

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

Rochelle: Get on a phone.

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

Rochelle: Absolutely.

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

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

Joe: Yup.

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

Joe: Right.

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

Joe: Let’s jump to the indemnification clause.

Rochelle: Yes.

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

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

Joe: Well in advance.

Rochelle: Well in advance.

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

Rochelle: Right.

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

Rochelle: Right.

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

Rochelle: Right.

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

Rochelle: Let me frame this a little differently.

Joe: Okay.

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

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

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

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

Rochelle: Right.

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

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

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

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

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

Rochelle: Thank you.

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

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

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

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

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

Rochelle: Thanks, Joe.

Links:

www.walklawfirm.com

Walk Law Firm, PA

The Wells Fargo Building

100 S. Ashley Dr., Ste. 620

Tamp. FL 33602

Phone: 813-999-0199

Fax: 813-839-4896

Is Buying an Amazon FBA Businesses a Good Investment?

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

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

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

Episode Highlights:

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

Transcription:

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

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

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

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

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

Carlos: Oh that was all good stuff.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mark: Yeah.

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

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

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

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

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

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

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

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

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

Mark: What is SPV?

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

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

Carlos: The advertising space.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Links and Resources:

Thrasio

Company Profile

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

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

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

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

Episode Highlights:

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

Transcription:

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

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

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

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

Ramon: Thank you so much Joe for having me.

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

Ramon: Yeah.

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

Ramon: Uh-oh, all right.

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

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

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

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

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

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

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

Ramon: Well.

Joe: Briefly.

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

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

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

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

Ramon: Yeah thank you, Joe.

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

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

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

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

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

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

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

Ramon: Okay.

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

Ramon: Yeah.

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

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

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

Ramon: I know.

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

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

Joe: Right.

Ramon: So it was a difficult decision.

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

Ramon: Yeah.

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

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

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

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

Joe: It was tough for sure.

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

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

Ramon: Those were the longest weeks of my life.

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

Ramon: Exactly.

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

Ramon: Yeah.

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

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

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

Ramon: Yeah.

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

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

Joe: Okay.

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

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

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

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

Ramon: Yes.

Joe: Am I embarrassing you by the way?

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

Joe: Not quite everything.

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

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

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

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

Ramon: Same here Joe, thanks a lot.

Joe: Talk to you soon.

Links and Resources:

Ramon’s Email

How To Buy Multiple Businesses Without Going Insane

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

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

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

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

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

Episode Highlights:

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

Resources:

Transcript of Interview

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

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

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

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

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

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

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

The Interview with Shakil Prasla

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Shakil: Sure.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mark: All right, we’ll talk soon.

Shakil: Take care.

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The Interview with Shakil Prasla

Thinking of Selling Now or Later?