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Crush Your Email and SMS Marketing!

Nikita Vakhrushev is the Founder, CEO, and CMO of ASPEKT, an agency that helps e-commerce brands increase their monthly revenue by 30% with performance-driven email and SMS marketing. He has...

Nikita Vakhrushev is the Founder, CEO, and CMO of ASPEKT, an agency that helps e-commerce brands increase their monthly revenue by 30% with performance-driven email and SMS marketing. He has helped brands achieve their e-commerce goals through Facebook ads, email marketing, website design, branding, and influencer marketing. Before ASPEKT, Nikita was the Founder and CEO of RPMmedia.com, where he helped businesses in all industries increase their profit through digital marketing strategies like social media, SEO, and Google Ads.

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

[03:12] Nikita Vakhrushev talks about ASPEKT and what it offers
[04:48] ASPEKT’s ideal client profile
[07:06] How ASPEKT helps its clients with their email marketing
[10:10] The perfect number of emails a company should send out
[12:01] How does ASPEKT differentiate itself in the marketplace?
[16:40] Nikita shares how he helps clients maximize SMS marketing
[24:59] The growth of email and SMS marketing
[27:41] The process of working with ASPEKT

In this episode…

As an e-commerce brand, are you looking to take your marketing to the next level? How can you do it through email and SMS marketing?

Nikita Vakhrushev says that email and SMS marketing are two of the most productive ways to reach potential customers. Both methods have proven successful in getting people to engage with brands, but most e-commerce brands don’t know how to leverage them. Creating a schedule from your customer list is essential. Automating emails and SMS messages to reach out at the right time without overwhelming them is an excellent way to maximize your reach and customer engagement. To boost effectiveness, it’s best to recruit an expert.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Nikita Vakhrushev, Founder and CEO of ASPEKT, to discuss how to thrive through email and SMS marketing. Nikita talks about ASPEKT’s ideal client profile, how it helps its clients with their email marketing strategies, how to maximize SMS marketing, and the process of working with ASPEKT.

Resources mentioned in this episode:

ASPEKT
Nikita Vakhrushev on LinkedIn | Twitter | Instagram
Nikita Vakhrushev’s email: [email protected]
Quiet Light
Quiet Light on YouTube
Joe Valley
Pat Yates on LinkedIn
Mark Daoust
Quiet Light Podcast email: [email protected]
The EXITpreneur’s Playbook: How to Sell Your Online Business for Top Dollar by Reverse Engineering Your Pathway to Success by Joe Valley
Klaviyo

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.

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

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

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

Episode Transcript

Intro 0:07

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 back to the Quiet Light Podcast. I’m Pat Yates sitting in for Joe Valley. We have a fun conversation for you today. Actually, it’s amazing being from an econ background, how much I like to hear about new things and companies and what they do talk to a lot of marketing agencies, digital agencies, people that help you grow your business, but this conversation today is really kind of actionable from only two standpoints. Sometimes you talk to marketing agents to do 20 things pretty good. So I’m doing great, but this company is trying to do two things really well for your business. So today we’re going to talk to Nikita Vakhrushev. And I know I butchered his name like nine times before I started, so hopefully I got that one, right. And he’s with ASPEKT agency and they concentrate only on SMS, and email marketing. So utilize your Klaviyo and do that. Our guest himself is just so smart at this because when I was listening to him, I realized that there are little nuances that can make a huge difference in revenue. And even if you’re sending four or five emails a month, if you get eight 900 1000 bucks extra on each one because their knowledge you’re more than paying for the service and actually creating engagement and long-term customer value. Nikita spent six years immersed in the digital marketing world started his own e-comm brand quickly pivoting to an agency model. He’s now worked with over 100 DTC brands having the knowledge behind all marketing channels. But sticking with email is his bread and butter. Nikita has a unique perspective on how to get the most out of a brand’s retention channels. This is a really interesting conversation because if you have an opportunity that you want to grow your email marketing or your SMS, they do a free audit of your Klaviyo. They will look at it and give you actionable tips. If nothing else, it’s giving you great information that can help you grow the business. I am so excited to hear about this today with Nikita. Let’s get right to it. Nikita, welcome to the Quiet Light Podcast. It’s great to have you here today.

Nikita Vakhrushev 2:22

Pat, it’s a pleasure, big fan of the podcast. And it’s a dream country to actually be on and be chatting with you today. All things email and SMS.

Pat Yates 2:31

Well, it’s the shame I don’t get to do autograph sessions after this because it’s really amazing podcast, no, kidding. It’s really great to have you in I think I tell you what I’m so excited about this conversation today really from two aspects. No ASPEKT, there’s another play on words right there. So ASPEKT is the company. So I’m so interested in this because SMS is becoming so big and some people either love it or absolutely hate it. And other people from email marketing, this is really what you specialize in. Like I talked to a lot of agencies that do tons of things so they don’t really hone in. But I know today we want to talk a little bit about SMS as well as email marketing. So maybe you could tell the listeners a little bit about your whole company sort of a 30,000 foot view, give us an idea of what all you do it ASPEKT?

Nikita Vakhrushev 3:12

Well, you actually brushed up on that, like every agency does everything. We actually used to be one of those agencies, we used to do Facebook ads landing pages, CRO, you name the service, we did it, I was just a yes, man. And it got to a point where we were trying to manage like eight to 10 different clients with five different services, each client and I simply got burnt out, the business was bloated, all my employees were burnt out. And about two years ago, I was like we need to make a pivot because this is not sustainable whatsoever. Like the more clients we got, the more money we were burning, not only on payroll software and just keeping up with it. So we pivoted into email and SMS mainly because it was just one of those services that we were really crushing it at, we had great designs, and I knew that we were able to like actually sustain the agency with that service. So about two years ago, we pivoted into that. And since then we were able to dig so deep into that specific, like retention channel that we were able to get so many great wins for our clients. Like just recently were able to generate our client, like we were able to take them from zero to 20k a month in email and SMS revenue purely because of the systems that we set up. Yeah, so that’s all we do. We only work with e-comm or e-comm brands. And we only handle their email and SMS purely because it’s just, that’s what we’re good at.

Pat Yates 4:30

Okay, so tell me a little bit about the people that might hire you. I know you basically do e-comm. But are you always let’s say someone out there as a solopreneur and they just run their own business? Is it? Is there a certain level you have to get to work with your agency or do you work with smaller companies? What are the people have to be like that you work with?

Nikita Vakhrushev 4:48

Yeah, so before actually, a few weeks ago, it used to be just all e-comm businesses that are doing at least 60k a month in revenue, mainly because that’s their right that revenue range where they can afford to work with us. But also, that’s where they’re going to see the biggest gains. Because there’s been countless of times where we started at 60k. And pretty much by month two or three, they’re at like 80 90 100k, purely through that email boost, giving them more cash flow, so they can dump more into ads. But now, I’ve actually been toying around with working with like solopreneurs local businesses and trying to offer a more accessible product, a low ticket offer, that still takes care of the entire fulfillment for them, like doing all the email design, sending out all the messages on their behalf, but something that’s more affordable for them, and something that is less hands-on for ourselves, but it’s still a really, really quality product.

Pat Yates 5:42

That’s really amazing. So when you’re dealing with these clients, like you just mentioned one, so let’s dive into one you just talked about, you said you have one that went from zero to 20,000, which obviously, that means they weren’t doing an email marketing, so there’s gonna be growth there. But when clients come into you do you would you rather them not have a predetermined idea about what they’ve done in the past, so you can sort of take that path or you’d like that they have some experience and say, let’s stick with email marketing first, you liked that they’ve done that before, and you can improve on there, do you want to start fresh with a whole new approach.

Nikita Vakhrushev 6:13

So if it was, like an ideal world, I would love to have 10 15 20 finds that have no idea that email marketing is so powerful, because when your reports done, like, hey, we meet you like an extra 5k, this month, eyes light up and all that. But that’s not ideal. It’s very, like, it’s a very rare case, we’ve only had like, over the last year, out of the 20 clients that we’ve worked with, you only had, I think like three or four of those that came on that we’re just not doing anything, but they were sitting on a big list. So we were just able to take advantage of that list and run with it, implement our strategies and see that initial, like huge spike in revenue. But that would be ideal, but we also work with clients that have worked with agencies in the past, and maybe the agencies that they were working with, the strategies are just not good. Or maybe the content was bad, or the designs were bad. So any, anytime a client has their email marketing set up, like they at least know what it is, they know that it’s powerful, but they feel like they’re not getting the most out of it. That is our ideal client, because that’s where we can come in and implement everything that we do. And give them those big gains and generate more revenue month over month.

Pat Yates 7:26

That’s amazing. So tell me a little bit about the process. So let’s say someone comes in on email marketing, we’ll stick with that at first, and we’ll talk about SMS a little bit. I mean, do you do a lot of AB testing? Do you split test? How do you all arrive at the way that you need to market? So I’m sure that entrepreneurs come in like with a predetermined idea, like my customers this and this is how we sell but they may not really understand it. So how do you go about breaking down maybe their predetermined ideas of what their market is? So maybe they can expand it and grow their business?

Nikita Vakhrushev 7:56

Yeah, so there’s a few things that we do as soon as we onboard the client. First off, we try to onboard them as quick as possible. I’m sure you’ve dealt with this in your e-comm. Where it’s like, yes, we’ll onboard you like the first month is purely onboarding, it’s like, no, we’re not doing that, it’s five business days after the sales call is closed, you pay the invoice, we actually like after those five business days, we send you out that first batch of emails to review, like we’re on top of it. After that, we try to handle the pop-up first, meaning we try to optimize the pop-up or the form submission that you have on your website. So that we get way more subscribers per like every 100 visitors. That’s number one, the more subscribers you have, the more you can monetize those subscribers. Number two, we do a very comprehensive audit of the exact emails that need to be implemented. A lot of the times, if anything, most of the time, the clients that come on, they don’t have a solid foundation on their flows, and automations, which are pretty much 50 to 60% of your email revenue. So those automated messages of like abandoned cart, the welcome series, the post-purchase flow, all of those are very important to generate that big chunk of revenue. So that is the secondary focus that we typically work on. And then third, we work on sending out more campaigns to your list, and cleaning up the deliverability side so that way more people actually getting the email into their inbox. And typically after that initial three months of like the foundation setup in the campaigns, we then start to do the AB testing, because what’s important for us is it’s not the $500 gains, it’s the $5,000 gains that are able to see those 5k gains by implementing the strategy first and then tweaking it to the were like okay, this flow can get an extra 500 to 1000 or this campaign can squeeze out an extra $200 percent, that sort of thing.

Pat Yates 9:49

That’s really incredible. So let’s say you have a company that’s in their busiest season, there maybe some companies that are seasonal, but is there an earmark of how many emails a month or week or day for that matter that you tend to think is good for engagement with a client, but not too spammy. I guess it’s terrible. I put it but, I mean, is there any earmark that you have of what you guys try to target?

Nikita Vakhrushev 10:10

Yeah. So it purely depends on the size of the company and the size of the list that they have. And I know the word it depends. It’s like such a no, no. But let me break this down for you, you shouldn’t send more than two emails per person per week. So what that means is like, let’s say you’re subscribed to my newsletter, you’re only going to get at most two emails a week, if you get more than that, you’re probably going to be bothered by it, and you’re probably going to unsubscribe. So the way that we do that is by segmenting the lists in our clients Klaviyo or whatever they’re using, we segment it to make sure that we don’t triple-send to them. So for example, we may have sent four emails this week, but only a certain amount of people got one of those emails, certain amount of people got to have those emails, or maybe some of those people didn’t even get an email because they weren’t part of those lists. So by segmenting those users, even if like, if the company has like a list of over 100,000, it’s a lot easier to do that, because you have way more pockets to play around with, like, you have like an audience that’s 5000 over here, or 30,000 over here. Whereas if you have a list of 10,000, it’s a lot harder to do that. And we typically stick to like, a one to two email a week cadence.

Pat Yates 11:23

Wow, I mean, that’s actually really interesting, because I would have thought that one to two would have been the right number, but I’ve seen people try to do 3 4 5. I mean, it seems like a lot. And I have some companies that we obviously get them from that sometimes you can just go too far with it sometimes. So, how important, what’s more important, your list? The quality of that list? Or the quality of the ad? I know, that’s a weird question. But I mean, like, I think some people think maybe they don’t need an agency to do something like that, because it’s so easy to drag and drop and design an email on Klaviyo. But it’s not that easy to get engagement and get purchases, maybe talk about a philosophy, is there a certain philosophy that you guys have to be able to get customers in better?

Nikita Vakhrushev 12:01

Yeah, so there’s actually a few things that we cover, that’s completely different than let’s say, you feel like I can get a MailChimp account, I can send an email tomorrow, like, trust me, I get that all the time. And I’m like, okay, sure, go ahead and try. But there’s a few things, different things that we do. So number one, there’s a lot of people think of email is just like a one-way send, which it technically is, but customers can understand the sentiment of the email that you send them, if you just keep reminding them that they abandon their cart, that’s just gonna get tiring really quickly. It’s like someone nagging you like, hey, you didn’t buy you didn’t buy, come on, please buy. So we don’t want to have that kind of bad taste in people’s mouth when we send it to them. So one thing that we do differently, specifically with the abandoned cart flow, is we want to give them as much information as possible to help them make a better buying decision. Like when was the last time you bought something that you were just nagged to death? And then you’re like, okay, fine I’ll buy, is probably never, if anything, you got pissed off and unsubscribed. So here, we send them more educational information of like, we obviously remind them that they forgot their cart, but the email is after that. It’s about the product, like use cases, testimonials, social proof. And one of the last emails that we actually send out is like, hey, what did we miss? Or like, how can we help you and we have a direct line to the Support Chat, sometimes even a direct line to the CEO’s email, so that way, if they do have any answers or questions, they can immediately reach out and get those questions and answers, or get those answers to those questions. A lot of people just, they know there’s friction to reaching out if they have a question. And unless they really, really want to buy, they’re not going to reach out. So we kind of open that dialogue for them to reach out if they’re still on the fence about something. Another thing that we cover in-depth, and a lot of people don’t even know this is a thing, but dark mode. So a lot of phones, my phone specifically has dark mode enabled. And when you send out an email without any specific optimizations on the design side, your email will look like trash. Because the way that light mode and dark mode are different. You see, like some images or some buttons or some text is visible on like just normal white background black text. But if you inverse those colors, if you don’t test for different light, or if you don’t test for light and dark mode, though, like maybe a call to action will look just blank and people won’t know what it is. So they’re not going to click on it. So those kinds of little things can mess up an email campaign that you think you can just do at home.

Pat Yates 14:27

I guess I never really thought about that. Because like, if you have a JPEG that has a white background picture, it’s going to look odd on a black setup. So you’re saying that each time when it goes through there, if it’s in dark mode, it adapts to that and actually makes the image appear better, obviously increasing your engagement, correct?

Nikita Vakhrushev 14:44

Yeah, so there’s a few things we do on the back end. And that’s another thing that we do. We don’t just drag and drop. There’s a lot of HTML and CSS that we implement on the back end of the design to make sure that it’s not only mobile optimized, it’s easy to and quick to load. You don’t want to slow loading email because then you get bounced users, and we want to make sure that the email is very well visible. And you can actually see all the elements, the text, the call to actions, the images on dark mode.

Pat Yates 15:10

That’s really incredible. Because I think one thing people, when solopreneurs, and entrepreneurs get really busy in their businesses, they probably do some of this a little quickly so they can get it to market. And I think that the design things are so much more important. Just talk a little bit about, I know you said you, you will do newsletters as well correct. And maybe explain a little bit about that. I saw that on the site that you can work on that. So explain what you guys do with those.

Nikita Vakhrushev 15:34

Yeah, so with the newsletters, it’s more so on a consultative basis, I’d say, we’ve helped a few newsletter, like some are in the real estate, some in the finance niche, it’s more so just a direct one on one consultation with me to help them with their best practices, more. So I’d say those newsletters or campaigns for our clients that we send out on like a bi-weekly basis. So we don’t necessarily work together with like, let’s say, with your email list for the podcast. Like we don’t work on that we more so work on just consulting you for best practices.

Pat Yates 16:06

Yeah, that makes sense. So let’s turn the page a little bit to SMS. This is because it’s growing every year people, I think there’s a lot of stigma to it, because people don’t like, you know, getting text messages, I especially if anyone calls my phone, I don’t know what they’re doing anymore. It’s like, why are you calling me, do people talk anymore. It’s kind of like other. So tell me a little bit about maybe how SMS has come into the market and grown because I see it getting more prevalent, a lot more people using it, but some people that are just sort of like weirdly against it, because they don’t want to be in their customer space. Tell me about how that side moves.

Nikita Vakhrushev 16:40

I’d say the mostly the business owners that are in the e-commerce space are like Go, Go, Go on the SMS side, because they want to take advantage of that channel before it gets regulated. For instance, just like there’s like spam filters on email, you don’t want the same thing. Like I’m sure you’ve gotten a ton of spam text messages, where that’s like, why is this even in my inbox? How did they get my number. So there might be more regulations like to come because more and more services are using text to like communicate with their customers. So a lot of them are very on top of it, it’s mostly the businesses that are like, oh, we’re fine, we don’t really need to do that. I don’t want to bother my customers. Or maybe when they have an older customer demographic, that’s when they’re a little hesitant to join SMS, I’d say the big thing is just test it out. Like, typically, we see with brands that are below $150 average order value do really, really well, because there’s a lot of impulse buying with like an SMS message. It’s like, oh, wow, discount, cool, I really want to buy a hoodie from them last week, let me just go ahead and buy, because they have a discount. But if it’s an average order value of above 150, that’s usually for most people, that’s a conversation you want to have with your wife, or husband where it’s like, I don’t know if I can impulse spent $700 on a cold plunge tub. So it’s like a little tough to sell them over SMS and I’d say SMS is more of a follow-up channel, if someone abandon their cart or something like that.

Pat Yates 18:07

It definitely gives you a response. It’s like a lot of tracking go that way. So you can actually mark it back a little bit that way. It’s really amazing. Because so when people come in and try to get a philosophy on SMS, same question, how often do you try to engage with customers? I mean, is it probably on a smaller rotation than twice a week? Correct. So what would the earmark be that you guys would like to see with that?

Nikita Vakhrushev 18:29

Two to four times a month at most, typically more, so four to six times per month, if it’s like Black Friday, Cyber Monday, or if it’s like Fourth of July weekend, or if it’s like a big holiday that has to do with your specific niche, like Mother’s Day is a big one, Valentine’s Day is a big one. When you have those big days, you want to let as many people know as possible. But on an off-season month or like a normal given month, you’d want to go with two to four messages a month. And we can talk a little bit more about the philosophy on SMS here as well. Because a lot of people think that, oh, it’s just another channel to mass blast, like about our discounts or sales or whatever. That’s true, you can use it in that regard. But at the same time, a lot of brands get SMS wrong, because they think it’s just a shorter version of email. It’s not, it is a lot more personality that goes into it. Because when you really think about it, your phone is the most, it’s like the most coveted thing that you own, aside from like, I don’t know, if you like your computer more, but like it’s the most like ideal technology to have. And it’s like your most personal thing. It has all your information it has all your contacts has everything you need. So when you just send a message to someone that’s like, very basic, very plain, and it’s like get 10% off that I don’t know, soapstore.com people are going to be less turned off unless they’re in that buying stage. So one thing that we do completely differently with our SMS is we want to number one, we add an image with every single SMS that we send. And that image has clear call to actions, clear discounts and clear information about the promo. Because a lot of people like even maybe you, for example, if you scroll through Instagram or Twitter or whatever, you look at the image first, and then you look at the text. So that’s number one thing that we do is like, we want to make sure that they see that image number two, they can quickly identify what brand is sending to them based off that image. So we want to make sure that image uses using like brand colors, brand fonts, so you can quickly identify like, oh, Nike sending me a text message, or like, or oh, like Apple was sending me a text message, instead of like, because you’re gonna get like a random number with like three different digits. And it’s like, who’s this number texting, you open the message, it’s like, okay, it’s this company that I subscribe to. And the other thing is, we personalize all of our text messages, we try to get the first name of every single person that’s subscribed to our SMS list. So that way, we can open like, hey, Pat, we got a great sale going on, or like keyboards this week. So that’s going to likely lead to a higher open rate, because you love your name. And when you see your name, like I’m gonna click that. So we tried to do all of those different things, among other things to maximize SMS.

Pat Yates 21:12

That’s really incredible. I mean, I think I’ll get fascinated about this. So you said you’d like to do a couple of emails a week, typically, but then, maybe SMS is about half that time, do you try to then come up with a philosophy that maybe on the 15th and 30th, I’m just making this up, that you do an email that has a branded campaign? And maybe the text message matches that? But are they independent? Do you try to mirror those promotions at the same times? Or do you come up with something different, so it feels more special to be on the text list, for instance?

Nikita Vakhrushev 21:44

I mean, you can do things a little bit differently, I’ve seen it work very well. But for the most part with our clients, we pretty much have the same exact strategy, like, for example, for launching a Big Black Friday, Cyber Monday sale like it’s going out to the full email list is going out to the full SMS list. Everyone is getting to know about it, it’s the same agle of the message, it’s just a different form. And it’s a little bit more personalized on the SMS rather than what most agencies are most e-comm founders do.

Pat Yates 22:14

Well, that makes a lot of sense. One thing to think about in this, I talked to a lot of entrepreneurs a Quiet Light to come in and talk about being a solopreneur or having to cut back maybe if they’re having a little tough time in a year. And maybe they don’t have the marketing collateral. And the time to put into doing this, is it easy to come in and work with ASPEKT and you guys and be able to say I want to do my six-month plan now I want to get the assets done, I want to set the campaigns. And then you sort of I don’t use the word set it and forget it, but you have it set to where you’re not putting a lot of work and just monitor the results. Do you encourage people to do that? Are you looking at market trends to do stuff at the current time when they’re running it?

Nikita Vakhrushev 22:53

I’d say there’s a few things that we try to do. Like we want to make sure that every brand that we bring on before November, I’d say like November, the second week of November is like usually are cut off time like that is like you get in so that would be right the holidays with you. So that way you don’t have to think about like trying to hire an agency mid-season or mid-peak season. But other than that, we try to get clients whenever they want to come on, like it’s very easy to work with us like the only time commitment that we require from them is number one, like a 45-minute onboarding call getting all their assets. And then after that is just five to 10 minutes a week just to review the emails that we’re going to send out to make sure that all the language is on brand. And all the imagery is on brand. And that’s pretty much it. And we report to them every week with all the stats and numbers and provide context of like, okay, numbers are down here, because of this popup was shut down because of a website error or like this is this because this, so we’re very communicative in that regard. And we try to give them the action plan almost immediately as soon as they sign on. So that way they at least know what we’re working towards. Instead of just like, yeah, no, well, we’re probably going to do this and then we’re probably going to do that. And like they don’t really have any clear guidance.

Pat Yates 24:07

That makes sense. So it’s as much trying to lean on the experience that you have and how to get to market is going to save people a lot of time and money generally. So sometimes it offsets it. Well, again, we’re talking with need Nikita Vakhrushev from I was close there, that was good. It’s tough next with ASPEKT. And I mean, this is really incredible, because I think some people when they think about marketing, they go traditionally to social to Amazon, if they’re on there, and then to Google AdWords, Google Shopping, but this to me, like I know, in our business, I have Klaviyo as well. And our engagement is really, really strong. When we do email marketing. It’s like some people are more willing to do that, because it’s not, that they’re scrolling all the time. They’re scrolling all the time, and they sometimes miss it. I mean, have you seen that open rates in the last few years have grown or shrunk? I mean, is there a stat in the industry that shows how people are engaging with SMS and email, is it growing?

Nikita Vakhrushev 24:59

Yeah. I’d say it’s growing by numbers, but I can’t necessarily give you a direct answer of its growing. Number one, because after Apple introduced like iOS 14, and iOS 15, it’s very hard to track open rates through like Klaviyo. So one big thing that we look for is the click-through rates as well as the place order rates. And when it comes down to it, like, there’s some companies that we’ve worked with that had like a normal open rate of like, 30%. And then the next week, it was like, 90% of the same list. And it’s like, I don’t even know what to trust the stats, huge number. So I can’t give you a definitive answer. I’d say SMS by far always has the biggest open rate of like, least 70 to 90%.

Pat Yates 25:43

70 to 90%. I would have guessed anywhere 50%, south of that, it’s hard to believe that that’s, I mean, it’s amazing. So I just tells people, if you have an e-comm business, you’re out there trying to engage with your customers, you need to get with ASPEKT and talk to Nikita about getting, this SMS going because that’s really incredible open rate. I mean, the fact that you can get as many customers in there, it’s worth its weight in gold. So let me ask this, when you’re trying to put together a campaign, let’s say that someone has a budget, should they concentrate on one or the other? Do you feel that you’ve mixed that budget? Because the consistency of both of them will grow it? Or is it one is better than the other? Or is it depend on the business?

Nikita Vakhrushev 26:24

It depends on the business. But for the most part, we try to implement emails first, because that is the foundation of your business for the most part, that is the most direct way that you can communicate aside from SMS. And then typically, once we have all the foundation’s set up for most brands automations, we then move on to SMS and trying that out. Unless they’ve already had an agency in the past that maybe they’re not happy with them, and they moved on and they want to work with us, and they already have SMS running, we can then easily integrate it into that same exact process. For the most part, if they just starting out with email, we just locked down email first as a revenue channel and then move on to SMS. And you got to think about it from like a business person’s perspective. They’re already paying us for email, it’s like, do they want to pay even more for SMS if we haven’t even started on anything on email side? So for them, it’s like, okay, let’s get a return on email first, and then let’s reinvest that into the SMS side.

Pat Yates 27:23

So you try to crawl before you can walk and let you guys see the results that you guys have. And obviously, you’re retaining customers, you got some big customer? So obviously, that’s working. Can you tell us maybe I’m sure the listeners out there, and you don’t have to get specific on the actual dollar amount. But how do you do your billing? How does someone work with you at ASPEKT? I mean, tell us how that works?

Nikita Vakhrushev 27:41

Yeah, good question. So we have, so the local side and like the more like solopreneur side, that’s still a work in progress. So if anything that if you have a question, just contact me, I can help break that down. But for the e-comm side, it’s very standardized, I’d say we have a set of base services that we cover. So number one that covers the pop up setup and optimization, segmentation, ab testing, reporting, as well as doing all the strategy, copy, design, and setup. So we do all of those different things under base services. And then what we do is we charge per number of emails that we do that month. So for example, if they’re doing, I don’t know, if they’re doing five emails that month, we charged them around 2k. If they’re doing 10 emails that month, we charged them around 4k. And those emails can be used for either automations or for campaigns. Some clients already have everything set up on automations. And we just fully focused on the campaign’s some have good campaigns, but they want to focus on automation. So we’ve used that budget there. Typically, were the number fluctuates is, for example, like, we do an audit, and we’re like, okay, for the next three months, you need 40 emails, okay, 40 divided by three is what like 13 and a half, or 13, and three repeating. So at that point, it’s like, okay, we’ll get you on a 14-email-a-month plan, and we customize that depending on our needs.

Pat Yates 29:08

I mean, that’s great. So when you’re coming in, obviously, when you’re putting it into those emails to be easy to quantify how someone’s return on their investments there. And obviously, as that gets there, and your return investment grows on the email, you run into SMS is that the price with the SMS, or is that separate?

Nikita Vakhrushev 29:25

So SMS is just a separate $1,000 add-on. That’s just something we add on to like our email price. And we handle I think, five messages a month for 1000. And then for 2000, we handle 10.

Pat Yates 29:37

And you handle the backend database where you keep the numbers and everything to make sure you go through their systems do that. How does that work? What do you mean by making sure. They provide the list to you and you send it out through there? Is there a system that they tie into in their systems?

Nikita Vakhrushev 29:51

Oh, we just get access we’re added on as a user to their Klaviyo account. Yeah, Klaviyo attentive, postscript whatever software stack If they’re using nine times out of 10, if any 10 times out of 10, they can just add our team email to their account. And then, I can log in my team members can log in to do the actual setup and scheduling of those emails or messages.

Pat Yates 30:14

That’s awesome. So I know one of the things we talked about that you wanted to help inform people were right now we’re recording this in August. And for all our listeners out there, and we think it’ll probably air sometime September, October, we want to talk about preview of q4, I mean, this is a great opportunity for you to tell people what they need to be doing, maybe they come in and do a checkup with you guys to understand what they need to be doing. If they’re not sure, tell us all about how you structure that if you were a potential client.

Nikita Vakhrushev 30:40

Yeah, absolutely. Like I’d say, number one, you’d want to make sure that you have your q4 plans locked down by the end of October, like I mentioned earlier, like we try to lock off any new clients coming in by the second like first or second week of November, depending on how well the clients doing. Like, if they need everything from the ground up built like that’s gonna have to wait till next year, for example, because there’s just a lot of work that we need to do on top of all the clients that we have to fulfill. But when it comes down to it, there’s a lot of how to put this, there’s a lot of teasing. In the month of November, it’s not so much as like, here’s our sale is going to happen in two weeks, that gets very boring very quickly. So typically, during the month of November, when we handle our clients email, we try to do a few teasers in the beginning. So like maybe the first week of November, it’s like something’s biggest happening. And it doesn’t have to be anything details, it could be just like a silhouette of maybe like their sale or discount, or maybe it’s a new product launch. Then slowly towards like, I think the second week is when you get into like Veterans Day territory, that’s when we start to do like another portion, maybe this time, it’s both email and SMS. And then pretty much the week before we do, like, every other day, if not every like three days, we try to send out an email of like, hey, we have this big thing coming up, don’t buy anything, don’t buy any product, you’re gonna have to wait till next week, because that’s when we’re our biggest discounts for the year is happening. And then the week of, we then basically push everything like either the day before Thanksgiving, either Thanksgiving, midnight, or Black Friday, depending on the client and how they want to do their promos. We then push heavy on the sales, the discounts, we send emails, sometimes like three times a day, one in the morning to get the morning crowd, one in the afternoon for all those people that ate too much Turkey, and one at night. Just to like, make sure that all of our times are covered.

Pat Yates 32:38

And people that wake up from their naps at seven o’clock. I know. That’s me.

Nikita Vakhrushev 32:42

Yeah, exactly. So you’ll probably get an email from us. And then Cyber Monday, we do that thing all over again, we tease Cyber Monday on actually Saturday after Black Friday. And then Cyber Monday comes out, send out another batch of emails in the morning time and then in the afternoon. And I think we give them like a last chance on that following Wednesday, like the month like the two days after Cyber Monday is like, hey, last chance of our biggest discounts get in now. And then after that, we just close it off. We sometimes do like we’re extending our sale. But that’s a very cheap shot that we try to avoid. Because you just lose customer trust with that one. It’s a call man already bought, but I didn’t know the discount was for another three days because you like arbitrarily put down like this timer. So after we send out like that last chance that that’s when like we send it out and maybe like send a thank you out afterwards. Like thank you for participating in like on Black Friday, this year or something like that.

Pat Yates 33:41

That’s really good. Because especially I think people don’t look hard enough. If you raise your engagement 1% on your email in the holiday season, what a huge difference that can make in revenue. I think going in and making sure that all your i’s are dotted and T’s are crossed. And this kind of segment is really, really important. So I mean, is there anything else? So obviously ASPEKT does a ton of things that helps your business email and SMS. We touched on a lot of that. Is there anything else you think we haven’t touched on that the people out there to listeners want to know about ASPEKT?

Nikita Vakhrushev 34:13

I’d say not necessarily about us, but I kind of wanted to touch on one little thing for Black Friday, Cyber Monday. So a lot of econ brands misconstrue that like okay, we’re gonna have a killer month or like, think about it like this. Every other econ brand is advertising during Black Friday, Cyber Monday, it’s gonna get really expensive for you to reach those same exact people that we were trying to reach in September. So build your email list as early as possible. So that way you have as many people to directly email at, like during those times, and you can take advantage of your email list and get as much sales as possible through this direct channel rather than paying Zack for his Facebook ad placement. But to answer your question for what ASPEKT does so the main thing is just email and SMS. We do some consultation here and there mainly myself, we do provide audits. So, for example, if someone needs a comprehensive audit, we do provide a free audit, that you can just go to our website and click free audit at the top, you can just sign up and we’ll get that taken care of for you. And lastly, if you just want to learn more about everything that we do, we have a newsletter that, we practice what we preach. So we send out an email every Wednesday, talking about all things email and SMS marketing.

Pat Yates 35:29

That’s really incredible. I mean, for the listeners out there, sometimes when you get to agencies that do eight or 10 things, they do eight or 10 things very average. I’ve seen that but there’s some that pull it off well, I like the agencies that really concentrate in the fact that ASPEKT jumps into two segments, and only says, hey, we’re gonna make the best out of this to me. Let someone really realize that you do what you do. I mean, it’s been great talking with you, Nikita, anything else you’d want to know, tell the people how to get in touch with you.

Nikita Vakhrushev 35:54

Yeah, best place is Twitter. Just look up Nikita Vakhrushev. It’s gonna be hard to spell that one out. I’m sure you like link it in the show notes Twitter, Instagram, LinkedIn, best place, I’d say visit agency website, if you want to take a look at some beautiful emails that we’ve designed. That’s aspektagency.com. And yeah, I mean, that’s pretty much it.

Pat Yates 36:19

Well, again, the kid has been great having you in the Quiet Light Podcast, I encourage everyone to go to aspektagency.com and check this out. It’s really cool ties into systems you already have. It can help your revenue grow and your business grow and nothing else you have a free opportunity to sit down and discuss it. If nothing ventured, nothing gained. You never know it could change your business. Nikita thanks for being in the Quiet Light Podcast today. I appreciate it.

Nikita Vakhrushev 36:41

Likewise, man, actually, I was gonna say one special. For Quiet Light listeners, if you email me [email protected] and you say if you type in the word blueprint, from Quiet Light, I’ll send you a special document that has everything that we know about email, I’ll send this to Pat as well just so that way you can get a sense of what it is.

Pat Yates 37:01

Yes, send it to me and we’ll make sure we link that on the site guys take advantage of that Nikita, that’s a great offer for allow people to come in. They’re Quite Light always likes to get a little bit of a shout-out. So it’s really exciting to have you in today. And we’ll definitely try to push some people your way and appreciate you doing the podcast.

Nikita Vakhrushev 37:17

Likewise Pat, thank you.

Outro 37:20

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

Repurposing Assets for a Six-Figure Exit – Shaina Weisinger

Shaina Weisinger is a recovering content marketing expert hell-bent on helping people live happier and healthier lives. She was the Founder and CEO of Repurpose House, an agency that...

Shaina Weisinger is a recovering content marketing expert hell-bent on helping people live happier and healthier lives. She was the Founder and CEO of Repurpose House, an agency that repurposes content for social media platforms — which she sold to Carbon6 Technologies. Before Repurpose House, Shaina founded WAKE brand media and has contributed insights on business growth and content marketing via conferences, podcasts, intensives, and guest blogs. She has also been featured in Entrepreneurs On Fire, Inc., DigitalMarketer, and hosts The Content Coalition podcast.

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

[02:42] Shaina Weisinger shares her entrepreneurial background in content marketing
[06:14] The genesis of Repurpose House and what it offers
[09:31] The value of creating systematized and consumer-centric businesses
[14:07] Shaina explains her decision to sell Repurpose House
[18:20] Tips for building productive teams and cultures
[20:55] How having proper documentation impacts selling a business
[23:02] Shaina’s experience selling and exiting her business through Quiet Light
[30:29] What’s next for Shaina?

In this episode…

Exiting a successful business can be just as challenging as building it. So what can you learn from someone who has victoriously done both?

After building a rewarding and lucrative repurposing content agency, Shaina Weisinger decided to sell. She found the key to a successful exit is a clear strategy. To make the sales process smooth and efficient, it’s a must to ensure your documentation, especially financials, is up-to-date and in order. With proper preparation and execution, exiting a content agency can be a rewarding experience that sets you up for future success.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Shaina Weisinger, a recovering content marketing expert, to discuss her journey building and exiting a rapidly scaling content agency. Shaina talks about the genesis of Repurpose House and what it does, the value of creating systematized and consumer-centric businesses, why she decided to sell Repurpose House, and how having proper documentation impacts the sale of a company.

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 again to the Quiet Light Podcast. I’m Pat Yates sitting in for Joe Valley. Today I have an exciting episode. I’m really glad I’ve been working on this for several months trying to get it together as Shaina Weisinger from Repurpose House. She was a client of mine at Quiet Light. And she sold her business Repurpose House. That’s a while ago, it’s probably been about nine months to 10 months ago that she sold it to an Amazon aggregator called Carbon6 who I’m very, very close with and their CEO Justin Cobb. Shaina is an amazing entrepreneur. Not only did she find a niche for something that was necessary and repurposing digital assets, she found a way to sort of put a SaaS feel on it to where someone could come in and had this interface where they could submit all their stuff. She had it done overnight based on her way she set up her VAs across the country would come in on us Thompson and right away they’d have next day for the person, working at different times. She also talked about the culture of how she built the business and had some people that had been with her a long time that she wanted to go forward. It was a really challenging opportunity to think about selling this business. The funny thing is, as soon as we got out there, her personality showed everything she’d done to build the business she was growing 185% year over year in the trailing 12 months of 20 and 21. She did just an incredible job building this business and made my job so much easier. She’s a fantastic person to talk to. She’s a great personality. I’m gonna have a lot of things going on in the future. So I can’t wait for this conversation. Let’s get to Shaina Weisinger with Repurpose House. Shaina, it’s great to have you in the Quiet Light Podcast. Dave, how you doing?

Shaina Weisinger 2:07

Hey, Pat, I’m good. How are you?

Pat Yates 2:10

I am great. I mean, so excited about this. So for the listeners out there, I usually try to bring entrepreneurs on that have sold their businesses somewhere with good brokers, she actually sold it through the best broker in the world, which is me. No, I won’t go to the extent of saying that Shaina, but it’s great to have you in here today. I’m so excited to tell everyone about you as an entrepreneur, because I’ll tell you that your excitement and your smile and your enthusiasm was infectious with me when we first started talking that carried out throughout the transaction. So why don’t you tell our listeners a little bit about you and where you’re from? And maybe a little background on you?

Shaina Weisinger 2:42

Yeah, absolutely. So I’m from Phoenix, Arizona, born and raised. There’s not a lot of us here who came through the heat from the ground up. But here I am still, I’ve had an entrepreneurial kind of spirit since I was really young. I actually was running around with a video camera, I was the only person who knew how to use a video camera in my house when I was like 10 11 12 years old. And I made like little makeshift video editing booths in my parents backyard, I would gather all the VCRs and edit little like cuts and stuff like that. So I knew that media was in some way, shape, or form going to be a part of what I did. And then I just I really liked being able to create something out of nothing. So my first like real business was doing game footage for different types of sports. So we did soccer, we did a lot of hockey, we would have like 10 videographers all over the valley at all the different rings when they would have tournaments. And this was before you could like film on your cell phone. So I’m aging myself a little bit right now with the physical camera, physical cameras, that what they were shooting on cards, but it wasn’t film. But yes, I mean, still was very much, much earlier than you could use a phone. But we would have these guys like with their cameras above the glass risking it all to get this footage for these hockey tournaments. And just these teams and moms would pay an astronomical amount of money to make sure they got game footage for their kids in order to put together real so they could get scholarships. And I mean, I was an athlete in high school. So I understood the importance of that, but it started there. And then it kind of evolved into more marketing based so it was like I know that if I do video with businesses, it’s not as artistic, but there’s, you know, more money involved there. And I went to do video production for businesses, a lot of marketing stuff. And then that evolved into me wanting to do something that was scalable, because I became the bottleneck very quickly in my video production company because a lot of it was I think you got to hey, yo, go ahead. Yeah, sure. I realized I became the bottleneck on my video marketing company, because I had to also be the brain on the marketing element of it. So you can’t scale rapidly if you have to physically be doing any sort of work. So I had a buddy who has a company called Design Pickle and they’re very, very scalable, I had done some video production with them. And he was like, listen, like you’re the bottleneck, you have to create something that you physically don’t have to do the work in, or you’re never going to be able to scale. And so that’s when created the processes and the systems to make Repurpose House scalable company.

Pat Yates 5:19

That is, I mean, thinking back, you were like doing social media influencing before there was social media influencing you were doing videos at sporting events that could have been streamed live or put on Twitter or Facebook very, very quickly. What when was that? I know, I’m not trying to age you but you look ageless anyway.

Shaina Weisinger 5:36

Well, thank you. Gosh, how long ago was that? I was 21. So oh, God, almost 20 years ago, I turned 40 this year.

Pat Yates 5:44

I had a feeling that we were probably talking mid to late 90s, you would have still been doing that before the video came out on iPhone, it’s really incredible. See sort of stayed in the space. So tell me a little bit about Repurpose House and how you decided that this was going to be where you went forward? Because I was sort of surprised when I saw the business, how cool it was how there was a lack of complexity and what seemed like a sort of a complex situation. But maybe tell us what in the past you saw that allows you to start this.

Shaina Weisinger 6:14

Yeah, so one of the offerings I was doing in the video production was video podcasts were clients. So it was a recurring product, I would bring clients in studio, we’d have like four outfits, they would bring in four guests, we’d film it. But one of the pieces of that puzzle that I was giving is the repurpose assets for social media. So we take little 60 to 92nd clips, all the right sizes, because at that at that time, you would have square and then you’d have landscape and tall and all that fun stuff. And I’d put the captions on it. And then they’d be able to use it on their social media. And as I was selling the video podcast product, so many people were like, yeah, no, we don’t care about the long-form part, we already have that covered. But if you could just do those repurposed assets, and I was like, there’s got to be a company that’s doing this though, and there wasn’t like I’m literally searching online. And there were ways that you could kind of do it yourself with really cool like software. But it’s still you have to physically sit there and do it. And it’s the investment of time. And then there were just full-scale agencies who were going to charge an arm and a leg to do that plus all of your other strategy stuff. But there wasn’t like a very specific productized service that only did the repurposing the assets. So that’s kind of where I leaned into my friend who had created systematized processes for very specific things like that, like they do graphic design. And I was like, well, I can do this and just make it very, very hyper-focused on repurposing assets, specifically for social media. And then we don’t have to think about all of the other fluff that comes before and after it. It’s just very streamlined, it’s easy to create processes. And it’s easy to kind of move when those platforms move, which was way more often than I thought, like those platforms go, like, they change things overnight. And also, you’re like, my whole business model changes. But that being said, it was really great to stay hyper-focused and in one lane and be very specific and offer one thing very, very well it was kind of fun to be able to say no to people when they’d said like, well, do you offer this, like creative editing? We’re like, no, we don’t do that, because that’s gonna break our processes. But we were able to scale so rapidly because it was so focused and systematized that if we had offered more than just that very, very hyper-niche thing, it wouldn’t work that way.

Pat Yates 8:28

Well, what’s interesting, and again, we’re with Shaina Weisinger with Repurpose House, a Quite Light exit success story. And when I look at the business, and I got to rewind a little bit, because we got a little bit of time here, one of the things that I was ultra-impressed with, like, when I think about a repurpose an asset, I might send an email to a designer who would then do it with the image that I attached to the email. And it seems very archaic and not very smooth. But I remember that you had a process that made everyone feel much more comfortable, and a timing in that process that would promise something to a vendor. And then as we dove deeper, and I don’t want you to go too far, because we’ll do it in layers. You had these teams of people internationally that were able to turn these things around like that. So tell me about how, because I think the real hidden thing that I loved about your business was you could have done it a lot less systems rich, I guess the best way to put it, but you decided to make it very rich from a system standpoint to make it easier for the consumer. So maybe talk about how you made that decision and how you implemented it.

Shaina Weisinger 9:31

Yeah, well, the biggest part of the decision to make it super systematize really came out of a hospital visit that I ended up having a year or so before where I didn’t have systems, like I said I was the bottleneck. And I was really struggling to make sure that everything was kind of working without me having to work constantly in it. And so when I started Repurpose House, I was like everything needs to be so documented, so systematized so scalable, that it doesn’t matter if I have to step out for a minute, it all functions and it’s quick. And also that translates into being something that clients really appreciate and understand because they know that this is how it works every single time. And it can be fast and efficient. And it doesn’t matter if one person is sick that day, you’re still getting what it is you promised. And so it was an evolution as far as kind of the services that we ended up offering. But the big thing we wanted to make sure we did was people got assets returned to them by the next business day. And that came from the model that I had seen before with Design Pickle, where you submit what it is that you need, and you have an amazing team in the Philippines doing the work overnight, because they’re on opposite time schedules. So once they are done with the work, I mean, it’s going to be well before you’re waking up in the morning, and you have assets in your inbox.

Pat Yates 10:49

I mean, for the listeners out there that don’t understand the backend, maybe you could just quickly say what steps let’s say someone had an asset and they wanted this done, because I think it’s important to talk about those steps, because you and I sort of understand and maybe if you give a quick overview to the viewers of how you changed the systems to fit what you needed it to work for.

Shaina Weisinger 11:09

Yeah, absolutely. So initially, it was a lot of kind of a mix of DIY, and then we also helped so like you had to let us know that this is the little clip in the long clip that you want trimmed out, this is what you want it to say things like that, you would submit that by 5pm. And then our team would take it over, edit it, trim it up, put the captions on it, things like that. What we realized very quickly in the sales cycle was that people don’t want to do anything, they just want a one-stop shop. So then they were like, okay, well, how do we make a process that is still systematized that allows us to do the creative thinking on it. And that’s where we created a service where we would actually go through all of the content for the client. So the client would have a Google Drive folder, or they would send us links to all of their content, they would have an onboarding process, which was the only part that was not fully systematized constantly, but we would have to know what their content looked like their branding, their voice, things like that. And then all they had to do was point us to content one time, even if it’s if it’s a Google Drive folder that’s constantly populated. And then every day you have somebody on the team, going through the content, finding the best pieces to repurpose, creating headlines, and then they are sending it to the actual team that then does all of the certifying of it, they’re going to cut it, and they’re going to catch it and things like that. So we had specialized teams to do all of the different aspects. So you don’t just have one person who may be great at graphic design, also trying to figure out what the best message in the hour-long podcast is. So it was really just honing in on everybody’s special skills, making sure there’s great communication and process and then by the next morning, you’ve got something sitting in your inbox.

Pat Yates 12:48

It’s really amazing. And the reason that I asked that question, Shaina is because I looked back at your numbers to kind of understand and I’m not necessarily going to give the exact numbers. It’s not fair to Shaina, but I can tell you that anyone out there listening, and that talk thinks about how you become customer-centric is the best way I can put it of what she did with relation to how she could operate her business, she went from the standpoint of not how easy it is on me, at least I think this is how easy I can make it on the customer. And the results of that, where she basically almost quadrupled the business trailing 12 months from 2019 to 2020 versus 2020 to 2021. And when I looked it up, you had six months over 200% growth from year over year of six months out of the 12. And then the others the lowest was 103% an average of 182% growth for that year, which is absolutely astounding. And the only way you can do it is to be really smart, really lean and get to the customers needs. And I think that’s really what you did. You should be commended on that. So let’s take a step forward. You’re sitting around you’re killing it. You’ve got other things you’re going to work on to you’re trying to renovate a house you got all these things going on. And one point I think you might have said that you were dealing with some health things and you had some other family things going on. You had a lot going on. What made you decide that I don’t want to do Repurpose House anymore, I want to go sell it and I want to move on to my next thing.

Shaina Weisinger 14:07

Yeah, there were two main factors for me. One of them was I was dealing with a pretty drastic health kind of situation, a lot of doctors couldn’t figure out what was wrong with me. I was immobile in bed, I had all these auto-immune things just randomly starting to happen to me, every test and scan known to man and it was scary. And I had spent a lot of time kind of in Google land just trying to figure out things that these doctors couldn’t figure out for me. So that played a big role in changing my perspective on what I wanted to focus my time and my energy on moving forward once I felt well. The other part of it was that Sarah who was my COO, she’s now the CEO over Repurpose House. Her and I went into it just building something like we don’t have specialized training in Google ads and funnels. wasn’t any of that we were just like, this could be really cool. Let’s see what we can do with it. And so we both knew that we had limitations on growth. At some point, we were going to hit a place where we either needed to bring in partnerships to be able to implement strategic pieces that we weren’t well versed in like funnels and ads and things like that, like I could do Guerilla Marketing all day. But like, I’m not an expert in AdWords, and all of these things. And so we had hit a mark, where we were like, kind of getting stagnant in growth, we didn’t really know exactly what we needed to do. And we needed to figure out whether or not we wanted to bring on partners stay in it and still grow it or if it was time to kind of pass it on to the next generation of people or a company that will be able to do what we want to happen within the company. And so for me at that time, because of the health stuff, and I knew I wanted to get into more of like a health and wellness kind of path, it just made a lot more sense to sell. And so that’s kind of one of the forward foots that I put in it was like, hey, there’s room for growth, you’ve seen what we can do. Imagine what you could do if you were able to implement these things that we have no idea about.

Pat Yates 16:07

I mean, it’s really amazing, because the more that I started thinking about it, I wanted to dive in and figure that out. For those people out there that own a business and are thinking about the right time to sell it, she just hit on so many things like we talked about it in speeches as well, that one day, you’re just going to wake up and either be tired to run the business or you think that you’ve gotten in as far as you can. It’s hard for me to imagine entrepreneur, so humble that you grew 180% year over year, one year, then the next year, you grew almost 30% on top of that, and decided it was time to sell a lot of people think if I’m running it that good and I’m growing it, I’m the best I’m going to be able to get over anything. And you had the ability to say they’re gonna be headwinds and challenges that I can’t navigate. I mean, that’s amazing that you would sit and be able to think that your next move has to be going on from that. Did you go back at any point and regret that you did that? Or was it just, you’re committed, and you’re happy with that decision?

Shaina Weisinger 16:59

I knew the thought of getting on a stage and talking about repurposing content, maybe one of them a little, that was probably, it was probably time for a clean break. But that’s not to say there wasn’t some bittersweet moments during the transition. And having to say goodbye to people. I mean, a lot of our Filipino team was there from the very beginning, like the first person I hired wasn’t Sarah, it was Rachel, and she ended up being the head of our HR department in the Philippines. So I think that kind of stuff was hard to let go of. But as far as knowing that I made the right choice and exiting, I haven’t looked back on that at all.

Pat Yates 17:35

Well, you touched on something. And I know we want to get to something about the sale a little bit. But talk a little bit about that summer, were you talking passionately to entrepreneurs that talk passionately about building the right teams and culture via virtual stuff, not even people that are in their office every day and all of them overseas. Another business I sold, Jimmy Chang was called away basics. He talked about his culture that he built with his Filipino vas a lot like what you did, so maybe you could tell people what made you make that decision because some people might have a nervousness about doing that, whether or not I mean, there could be a lot of reasons it could be that they just feel there might be barriers to communication and timing and things, but it really fit with your business, especially from a timing standpoint. So maybe talk about how you approach that.

Shaina Weisinger 18:20

Yeah, I was absolutely wary of hiring overseas, prior to going to the Philippines, to film people for another company. So I mean, I completely understand the hesitation there. But I actually got the opportunity to go to Philippines as a videographer to create recruiting videos for another company that was scaling in the Philippines. And just filming these employees talk about how the opportunity that they had at that company to live a normal day-to-day life with an eight to five with like, their benefits, like a health insurance kind of option. They don’t have to work weekends. And the biggest thing for them was that they didn’t have to have this good mentality and wonder where their next paycheck was going to come from every week on Fiverr or whatever. Like I was in tears in some of these interviews, like just hearing about the impact that this company had had on all of these folks lives. And at that moment, I was like, I am 100% committed to Philippines as a major place for great talent and there’s incredible talent. So it took an actual trip to the Philippines for me to get to that place. But I helped other companies learn how to create the correct processes, how to hire internationally, obviously, my heart’s in the Philippines, but it applies anywhere. You have to be able to create training systems that can be like duplicatable. So one thing that I tell people is like, if anybody remembers that game or whatever we used to play in elementary school where you have to like tell the person who’s up there how to make the sandwich by just explaining how to make the peanut butter and jelly sandwich and they’re like, okay, open the jar and they’re like folding the jar like hitting it against the table like no, no, you got to grab the lid, you got to twist the lid to the left, you’ve got until it stops twisting, like you have to be so obnoxious about your training and your processes, so that as the least amount of questions that people will have. And when you hear those questions, then you have to add to the training to answer that question. And the sooner you can get to that place, the easier it’s going to be to hire anybody in any location and be able to scale which is a big part of hiring overseas, because you’re going to want to be able to make those positions scalable.

Pat Yates 18:20

What’s really interesting, the more you talked about that I started thinking about another thing you know, I talk to entrepreneurs all the time, and I know we had this discussion of having your financials in good shape and having your SOPs and the way you operate your business documented meticulously and you were probably as detailed as anyone I’ve ever had do that. Do you feel like maybe in hindsight, doing it how you did it actually helped you prepare to be able to sell? Was it easier because you documented those process so heavily?

Shaina Weisinger 20:55

That made the process so much smoother? Because they were like, oh, we need people to teach us how you guys do everything. I’m like, oh, here’s the login information to our SOPs knock yourself out. And it’s like my team got so sick of hearing me say, is it documented and fluster? Is it documented and fluster anytime anything happened or change in our processes? It was like, is it in the platform that we document all this stuff? And I learned that in the past from somebody else, and I’m so happy that I implemented it, because it made the sale so clean, very little questions were asked as far as how things work. I mean, it was very, very much a massive part of the success of the transition, and also of being able to sell it because, people need to know that they’re not going to have to figure this thing out themselves, and granted, there’s probably a transition period where you as the seller are going to be a part of that. But I mean, I’ll tell you what it makes a night and day difference. I can’t even imagine having sold without those SOPs in place the way they were.

Pat Yates 21:55

It’s really amazing you say that, because I was just, I was just in Las Vegas, a shark tank reunion speaking and Ethan and I were talking a lot about preparation and it was more about how you get yourself prepared to sell like people that are out there listening if you don’t understand what SOPs are, it’s your standard operating procedures is everything you do start to finish in that day. And it’s very easy anymore. To get a loom account and just videotape your screen as you do, say, your ShipStation orders or you populate your inventory to Amazon or you do an FBA insertion, whatever it is, you can easily turn on loom, film it as you do it, put those in and you’re cataloging everything, it’s a great way, when you sell to show everything you’ve done your business, you did an amazing job on that clearly. And that obviously made my preparation a lot easier, too. So let’s go a little bit to you deciding to sell with Quiet Light. I mean, I don’t want to put you on the spot, necessarily, even though I will, with relation to working with me. Because usually I’m talking to some other people that have other entrepreneurs, but maybe talk a little bit more in general about what you were looking for when you came in to try to sell it and maybe how it was so awesome that did you found that not kidding? You can tell us a little bit about what when you started your search what you were really looking for?

Shaina Weisinger 23:02

Yeah, so the epicness of the Quiet Light experience? Absolutely. So actually, at first, I think we had a conversation before like months before I had decided to actually sell with Quiet Light. I had a mentor that I had spoken with about just the possibility of selling it was like just before I was kind of toying with it. And he was like, it’s a great time to do it right now. Like okay, well, I don’t even know what it’s worth, I don’t even know how to get evaluation. So I had interviewed a handful of brokers that included and just kind of to get just an idea of what this whole thing was about. Because I had no idea like my I didn’t even think that selling was really an option until this mentor said it. And then I had somebody who was kind of like a partner of ours, they are a similar business model, but in content writing. And we had been doing some like cross-promotion, and we had a conversation with them about like, hey, just so you know, we’re not putting focus into the partnership right now. Because we’re contemplating selling, we’re getting everything prepped for that. And they had expressed an interest in acquiring the business. And I was like, okay, well, that’s interesting. I don’t need to do the broker thing. There’s fees attached to that, and they make a little extra money and this and that and to say the least it turned into a massive shit show. It was the things you don’t know, you just don’t know when you’re trying to sell right and I just kind of stumble through that I’m in my own way. But I mean, we burned like eight to 10 months on just like a painstaking like, oh my gosh, we just need to get this thing done. And in that amount of time, there was a lot of things that like we felt like we couldn’t change or evolve with the business and so some of that was mildly detrimental to when we actually did sell later. But finally, like I decided to pull the plug on that because I just didn’t see it going through finishing um it was almost a year. And I circled back to Pat and thank God because it was the fastest most simple process. I wish I just pulled the trigger at the beginning, I would have saved myself a whole year of madness. But it’s really just comes down to the whole, like you don’t know what you don’t know. Also the types of buyers, I think, brought to the table were just so much more quality. I mean, instead of going from mom and pop shop, which sometimes that is a great way to be acquired, I’m certain of it. But just the pool of buyers that are brought to the table is just so much different. And then the process is so much different. I should have done it from the get go.

Pat Yates 25:30

Well, it’s great that you say that and obviously I appreciate that I try to make my process and Quiet Lights as good as possible. We have 14 Amazing advisors of which are way smarter than me. But, you know, we’ve come up with some pretty good processes and pretty good buyers. Again, we’re talking with Shaina Weisinger era from Repurpose House, one of my clients that sold. So in hindsight, are there things that in preparation that you think if I’d have just done this that have gone a little bit smoother? Do you feel like it went as smooth as you could? When people are preparing? What are they missing other SOPs making sure their financials are tight, and that they’re growing at 200% a year, like you were.

Shaina Weisinger 26:03

Model details, right? You know, for me, it was just I should have just gone the broker route at the very beginning. And it’s so funny because my husband’s a real estate agent. And it’s the same thought he’s like, you don’t know what you don’t know, like, use a professional who’s done this a million times to help you so that you don’t make dumb mistakes, or you don’t like end up having a terrible experience or whatever. And that to me was the thing that I could have done to save myself a lot of time because truthfully, our growth during that time period, while we were attempting to sell to the other company, became stagnant because we were in this weird Limbo when I couldn’t do all the things that I knew I needed to do to grow it. So in hindsight, had I sold at the beginning, likely it would have been for a higher dollar amount, but it is what it is, at this point. Like I’m thrilled with how it worked out. We actually ended up in a baby bidding war, which was really exciting and unexpected. So that’s cool. But outside of just use a broker, I would probably say yes, the SOPs are a massive part of it, have all of your financials documented, and kind of know what you want your exit plan to look like I was in a really unique situation where Sarah, my COO chose to four but I didn’t want to move forward. And that’s not normal. Like I want it to be outside of the business. I didn’t want to continue for six months to a year. And so for me, that was a hard stop. But that’s not a normal thing and I know that. So making sure that you kind of know what you want your moving forward to look like with the company how you’re going to help them transition. That to me, I think is important also.

Pat Yates 27:35

Well, I think you stuck on something that’s really important. I think that I wouldn’t diminish the value of especially Sarah going forward in this deal. It’s funny, because when I talk to my clients, I’m like, they say, well, what kind of deal to have to take like, you don’t take anything I’m bringing five offers you decide you don’t want them we walk on to the six because this is not about Quiet Light. It’s not about Pat Yates, it’s about you. And when we talked about that we wanted to achieve certain goals, which is to move Sarah along, if possible. And we wanted to make sure we got the price she did. The funny thing is we got all of them. And then she was able to go on. And now as people don’t realize, transitioning a business is always hard implementing a business, it’s always hard when you don’t have the owner that goes forward. There’s always things that changes. When they’ve got bought, I’m sure they’ve had challenges as well. But Sarah being the CEO that now is really got to be something you’re sort of proud of, because you ran the company, and now she’s running it as your right hand, they took her forward. That’s a goal if someone wants to have it that we just keep looking for. I mean, that had to be pretty exciting, even if it wasn’t easy for her. Correct?

Shaina Weisinger 28:34

Yeah, I mean, it’s a see her kind of take it on and be able to lead the team and give them a sense of like, we’re not being abandoned, if you will, like that, to me was really a huge positive in the transition. Because if both of us left, which was actually the original intention, she wanted to move on to other things, too. I just feel like it would have not been as great for the team that we’ve been so supportive of and that was it like culture was such a big part of our past that I’m so thrilled that Sarah got a chance to go in there to really lead. Also, she got kind of her dues on the amount of work that she did to create this company with me, so it was really cool to see her take the helm of it. And one thing that she has passionate goals about are supporting second and commands actually. So she wants to help support COOs and Director of Operations. She’s a very operational-minded person. So it’s been interesting to have conversations with her we’re now she’s had an opportunity to be at the CEO seat. And she’s like, I would teach people totally differently now knowing how both sides work because being just the COO, you’re not thinking about all the CEOs, CEO stuff. So she’s like now I can have a more vast in well-rounded training on my second and commands because I understand what it’s like to be the person they have to communicate with all the time. So I was like, that’s pretty cool, too.

Pat Yates 29:54

Yeah, it’s also a big thing. Sarah may have other things. I mean, she’s a sweet young lady. See that she may have other things she does in her career to jump from someone that was a right hand to a CEO of a company is a big resume builder. It’s a heck of an opportunity for her no matter how it turns out. So I guess in hindsight, let’s just kind of look what’s next for Shaina. What are you working on? You sold a business now you got to decide. You said you’re renovating a house. It looks like you’re in there with a bunch of guitars and boombox is clearly but it looks great. So what’s next for you?

Shaina Weisinger 30:29

Thanks. Yeah. So as stated before, I really wanted to get into health and wellness, it kind of into a way where I can help offer answers to other people who have had similar struggles where they like have questions about their health, or they’re confused about products that have toxics, like everything we use is toxic, which is so infuriating. And it’s really difficult to do all of this research to find out like what’s good for us what’s actually bad for us that we thought was good for us, like alternative healing methods and stuff like that. So it kind of came in the form of my cousin and I have been talking for a really long time about creating an event. And so we have an event happening in February of 2024. And it’s geared towards women aged 30 to 45. And it’s all alternative healing, spirituality, wellness, fitness, diet, that kind of stuff. And it’s got a cool vendor experience where we vet all these companies where we’re like, no, there’s not trash in these products, you can actually show up and be excited that it’s already been vetted for you. And there’s like a physical component to so it’s like multiple tracks. It’s funny because a lot of these like, these wellness or like spiritual conferences are like real woo-woo and I’m like, I don’t want it I’m gonna run it like a marketing conference. So it’s gonna have like multiple tracks with speakers on different topics. And one room that’s all classes all day long, like yoga, palates, different studios in the area, and we’re having in Scottsdale, so that’s just kind of the one passion thing that I’m working on. And then that will branch off into like more immersive experiences. So like taking a group of 20 to loom to do a really curated trip, and doing those throughout the year as well.

Pat Yates 32:05

That’s incredible. Honestly, I know it’s not about the sale but I’d love to have you back at worst case. If the listeners out there want to understand about changes thing, you may not even have a site launch will tag the podcast episode, we’ll add that there whenever your site ready, someone wants to check out your new stuff. That’d be great.

Shaina Weisinger 32:20

Yeah, I mean, it’s already in rocking so elevate2024.com.

Pat Yates 32:24

There you go, elevate2024.com I love that. So any other final things, any thoughts, reflections, anything that you would want to add?

Shaina Weisinger 32:33

I think that the biggest hurdle for me personally to get over was that I had invested especially like, as an entrepreneur, you invest your heart into the business that you’re creating, especially as the first one that you’ve really seen success with. And it’s okay to change gears like it’s okay to say, you know what, I really enjoyed this experience. It was fun to build something. But be gracious with yourself and saying like, but this time in my life is changing. And it’s okay to transition, it’s okay to sell. And that was something I battled with, because I was like, but this has been who I’ve been for five years, I’ve been in marketing for 10 years, I’ve been video in some aspect for so long. That suggests make the decision to just completely transition was difficult. But honestly, it was the best thing that I could have done for myself and I can guarantee you the other business owners will struggle with that in their choice to be acquired or to sell or to partner. And that’s something that just know like, if you’re feeling a lead that there’s time for change, just do it. It’s okay, you’ll find the new identity, you’ll be great at it and you can start building again and building is why we entrepreneurs do it. It’s fun to build.

Pat Yates 33:49

That’s absolutely amazing. I mean, you were a model client just for the people out there Shaina made it so easy on me your financials are in great shape or SOPs are amazing. Obviously you can see she’s a great interviewer that bread confidence in any buyer sometimes you have to have the right things in the right place to be able to make this happen. And what’s amazing about Shaina story is she built a business out of a necessity then went through some things in her life that now she’s building something around to try to address her health and wellness. Sometimes when you think about things that going on your life that might be the business start Shaina, you’ve done an amazing job. I don’t have to say that. I had such a great time working with you. I’m sad we don’t get to talk every day. It’s good to have you in here. But I appreciate you coming on the Quiet Light Podcast today and sharing your story. Thanks a lot Shaina.

Shaina Weisinger 34:31

Awesome. Thanks Pat.

Outro 34:35

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.

Peer-To-Peer Fulfillment: A Game Changer for Brands and Retailers

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

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

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

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

[02:14] Manish Chowdhary shares his professional background in the e-commerce space
[03:34] How Cahoot helps e-commerce business
[07:32] Placing inventory strategically in Cahoot’s warehouses
[09:50] Navigating Amazon Seller Fulfilled Prime
[13:04] Manish talks about the process of working with Cahoot and taking advantage of economy shipping
[19:24] How Cahoot helps brands with larger or seasonal products
[23:45] How Cahoot chooses the shipping method?
[25:41] Manish talks about Pulse Commerce and how it integrates with Cahoot

In this episode…

Are you an e-commerce brand struggling to distribute your products to your customers quickly? Where can you find the most cost-efficient method to deliver customer orders as promised?

Shipping products to customers fast and efficiently directly impacts your conversion rate and bottom line. Most e-commerce brands have suffered at the hands of traditional 3PLs because they’re expensive and don’t offer quality service. Manish Chowdhary recommends partnering with an ultrafast order fulfillment company to get an edge on other 3PLs. He shares his journey of building a full-service order fulfillment platform that enables merchants to fulfill orders for other sellers faster and at a lower cost.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Manish Chowdhary, Founder and CEO of Cahoot, to discuss how e-commerce brands can fulfill orders faster, cheaper, and more reliably. Manish also talks about navigating the Amazon Seller Fulfilled Prime site and Pulse Commerce’s role in integrating with Cahoot.

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 0:08

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, my name is Pat Yates sitting in for Joe Valley. Today we have a great episode I’m really fascinated by a distribution, shipping fulfillment. And we have Manish Chowdhary with Cahoot and Pulse Commerce. Probably one of the more fascinating conversations I’ve had about distribution in a long time and Cahoot is the world’s first peer-to-peer e-commerce order fulfillment network powered by a patented business methods and innovative technology that allows e-commerce merchants to sell more offering superfast nationwide shipping to their customers nationwide. What they try to do is get your product in positions like Amazon FBA to have hopefully a little less storage and maybe a little more control on how you make the delivery. And then Pulse Commerce crosses over as an inventory management and full system that works interactively with it’s really incredible to hear some of the things he did and if you have a brand out there where you’re trying to look to work with seller fulfilled prime and he talks about something really interesting on a judgement in Europe that could change people’s ability to do seller fulfilled prime in the United States. Hopefully getting you to get your lead times down a little bit make sure things are arriving on time. But hopefully in a more economical standpoint. I think Manish is such a great resource to hear information from I enjoy this conversation very much. So I’m anxious to get to it. And here we go. Manish it’s great to have you in the Quiet Light Podcast. How you doing today?

Manish Chowdhary 1:54

I’m doing awesome, Pat. Thanks for having me.

Pat Yates 1:56

Hey, man, I appreciate you joining us today. I’m really excited about this conversation. I know you have a lot of things especially me, as an e-commerce entrepreneur, I love some of the things you’re doing your shopping cart, you got all kinds of things going on, which is great, but we’d love to hear about you tell us all about you where you’re from and a little bit about your background.

Manish Chowdhary 2:14

Awesome. Well, thanks for having me again. My name is Manish Chowdhary. I’m the founder and CEO of Cahoot. Cahoot is the world’s first peer-to-peer order fulfillment network. Happy to go into the details of that what that means and how that benefits merchants brands retailers. I also run a leading order and inventory management platform called Pulse Commerce. I’ve been involved in e-commerce since the very early days, built one of the first e-commerce platforms before the whole e-commerce platform was invented. This is going back to Yahoo day start you might recall. So deep experience and dealing with SMB retailers, Omni channel retailers have dealt with Fortune 500 brands all the way to startups. So happy to dive into anything and everything.

Pat Yates 3:04

That’s amazing. What’s funny, the listeners out there, Manish and I had a great conversation before we got on the podcast, he recognized my e-comm brand. And we had talked before in the past about doing some business funny how it comes full circle after 13 or 14 years. It’s really amazing. So yeah, he noticed we did a license with the lady from Jersey Shore, but I’m anxious to hear all about this. So cahoot.ai you’re sort of revolutionizing distribution in a way and I don’t want to be predetermined about it. So tell us all about that and how it can change someone’s e-commerce business.

Manish Chowdhary 3:34

Awesome. So let’s start from the top. What is the problem or Amazon like a delivery experience is absolutely essential. You are an e-commerce entrepreneur, you know what it can do for your conversion. One day, two-day free shipping is now expected from a consumer is expected because Amazon has trained everyone, no matter what kind of brand you are small, medium, large, the expectation from the consumer is the same because that’s what consumers have been trained. So now, if you are selling on your own website, you’re selling on other channels and you’re not utilizing Amazon FBA. And there are many reasons why you cannot and should not use FBA because the fees keep going up. And obviously there are many, many limitations. How do you come to parity? How do you get more sales directly from your channels as opposed to Amazon FBA? So we’ve done the analysis, Cahoot operates very similarly as Amazon FBA. We have dozens and dozens of warehouse locations we distribute the inventory we strategically placed the inventory closer to where the customer is so that we can afford or the brand or the retailer can afford to ship using economy ground shipping and still get the product in one or two days. In order to do that, you need four to five strategic warehouse locations. And strategic locations are different for every brand. I’ll explain why. So if you have a warehouse, let’s say in Wisconsin Madison, or Seattle, Washington up in Pacific, northwest, those are not strategic locations, because that’s not one of the population lives. I want to take a pause. I can keep going, Pat, if you want to chime in.

Pat Yates 5:23

No, that’s great. I mean, I think that what you’re saying in my mind’s eye, so if someone’s in the center of the country, let’s say they’re located in Oklahoma, and they have three or four days each direction in some situations, so what the plan is, is to mirror what FDA is doing some product into you guys, you spread across the country, and you find ways to make that shipping even more efficient. So here’s one question, do you take everything into one location and spread it out like FBA does, or does the client send to each location individually?

Manish Chowdhary 5:50

Generally it’s more cost efficient and more time-efficient to send directly to those locations. Of course, we have clients that bring in containers of inventory from overseas or elsewhere. So it’s better, obviously, the container comes in one location like Long Beach, California, or New Jersey, New York or one of those. And then in that case, we will distribute that to multiple locations. And it can be done packed. And this is something that a lot of brands and retailers think that it’s not possible, or it’s exorbitant, or it’s out of reach. I mean, think of this as marketing, because this directly impacts your conversion, this directly impacts your sales. So rather than paying tons of money on advertising, that may or may not work out, you’re better off giving the customers what they want. And if they get what they want, for a small additional cost to you, it is totally worth it. So I would like to dispel the myth that this cannot be done for SMBs. Because if Amazon is doing it Cahoot is doing it, it can be done.

Pat Yates 6:55

Yeah, I think a lot of people may have a little predetermined notion that it’s difficult because the infrastructure that Amazon has is so big, but again, you shouldn’t fear that it’s about getting the right locations for your product. So do you look at the client, let’s say that you sell beach equipment, you probably want that more towards the Florida and California areas. But if you’re looking at maybe winter socks, it might be more gauge to the northeast, you look at the product and look at the locations or is it just a we have the strategically located no matter where the population is? Is it population driven or, or popularity driven? I guess good way to put it.

Manish Chowdhary 7:32

That’s a great point, Pat. And that’s what I said those strategic locations are different for every brand, every retailer. So we have to overlay the population on top of your customer demand the brand’s order history. So we lead with data. And exactly as you said, so we typically what we do is we request the brand, the retailer to give us last 12 months of data. And that helps us determine, where are the orders coming from, where your customers located, and where’s the opportunity because you may be missing out. So sometimes it’s not obvious is where you have been is not a determinant of where you are to be. So obviously, if you’re selling beach gear, if you’re selling swimsuits, you will have more orders and more customers in Florida and Southern California. So, those are, of course, if you’re selling mountaineering gear, or if you’re selling ski equipment, and Colorado, and some of them, Vermont, and so on. So I think it is difficult. If you go and try to make this work with a traditional 3PL, a traditional 3 PL does not unfortunately, have the ability, the skill set, or the resources to help you with that level of analysis to figure out where should you place the inventory, what SKU should go where and how much? And how often should you replenish that. So Cahoot is doing something very similar to Amazon, but it puts the merchant in control as opposed to Amazon control. And second, it works for all channels. So we don’t have a partial approach that if I fulfill an order for that came from amazon.com I charge you x and if I get an order from say Shopify Bigcommerce I charge you 2x. That is not what Cahoot good does.

Pat Yates 9:22

That makes total sense. So here’s one thing that I thought about very first thing when you’re trying to let’s say that someone’s goal is it’s too expensive to ship with Amazon in the store, whatever the reason is, maybe they limit their storage too much whatever that reason is, how do they get over the idea of the prime badge, which can become a problem for some people? I know some can sign up for SFP Seller Fulfilled Prime which gets you that checkmark and you can still do it with you. But is that a big concern of people’s and if so how have you mitigated that concern?

Manish Chowdhary 9:50

So this is a great, great question. Some recent developments that have just happened in the last three to four weeks Pat, Amazon I had put a hold. They were not approving any sellers for Seller Fulfilled Prime for the last three to four years. Ever since the pandemic hit, Amazon had stopped. But more recently, about four weeks ago, three weeks ago, Amazon announced that they are reopening the application for Seller Fulfilled Prime. And it’s not from the goodness of Amazon’s heart. Amazon does not do anything. That benefits Amazon. So let’s be clear on that. So why is Amazon doing it? Right, Amazon has been sued in the European Union, they entered into a settlement and an antitrust case in the EU and they settled last December when Europe, they have to give sellers the option that if seller can get the products to the customer with the same level of promise that Amazon makes by prime using FBA, they have to allow the sellers a choice to do it either themselves using seller fulfilled prime or to utilize Amazon FBA services. Because Amazon has long been bundling these services that if you want to get prime, you have to use FBA, that’s the only way. And then we’re going to give you we’re going to put all kinds of restrictions, and it makes it overly cumbersome. And number two, that same European Union settlement is now coming to America. So they know that they will have to enter into similar settlement in the US and therefore they are preparing for that. And they have agreed to open this enrollment process. So once you get Seller Fulfilled Prime, then you come to Cahoot and Cahoot can then distribute your inventory. Cahoot is one of the only services one of the very few services in America that can help you meet those Seller Fulfilled Prime metrics confidently, it requires incredible amount of technology, absolute excellent operations, and some very high demanding standards that are not available even from the biggest 3 PLs in the country, let alone from the traditional 3PLs. Happy to dive in further. But seller fulfilled prime is for Amazon, but the merchants the brands that retailers need to think about Seller Fulfilled Prime for every channel, including their website, even if nobody’s policing them. It’s important that customers are policing you if you don’t deliver that same experience on your Shopify store. How do you expect the consumer to shop from you directly and not go to Amazon?

Pat Yates 12:26

Yeah, that’s a very good point. It’s interesting because I think a lot of people fear the prime badge a lot not having it. But again, sometimes it’s going to be okay, especially if you’re getting it to people quicker and cheaper, your bottom line is going to get better. So let’s move on. Let me ask you a little bit about what happens when a transaction happens, I guess the best way to put it. So let’s say you get an order. And I know that when I was reviewing all your information, there’s a way to rate shop, there’s a way to make sure that you can determine the shipper and then be able to easily generate packing slip. So tell the listeners a little bit about what they’re going to see from an order standpoint and workflows working with cahoot.ai.

Manish Chowdhary 13:04

Cahoot has the most flexible, fulfillment solution on the market. And I’ll explain why. Let’s say you have a warehouse of your own one or two warehouses, you obviously have sunk costs into those operations, you have reason to continue operating those, so Cahoot does not tell you to shut those warehouses down. In fact, if anything Cahoot can augment what you have, it can complement and supplement our technology can include your warehouse locations with Cahoot network to create the strategic locations map such that you can continue operating or other shipping orders that are best suited to ship from you. And then orders that are to ship from the Cahoot locations were shipped from Cahoot locations. So we have the patented technology. So as the orders come in in real-time, we have all the popular integrations, native integrations with all the popular channels within a few minutes orders come in then we automatically rate shop orders from every location where the inventory is located against what promise was made to the customer. When should this order get to the customer? Our goal is to make sure to deliver that order by that date in the cheapest way possible and that’s what the Cahoot technology does. So it’s very easy very simple for the merchant. Think of it like FBA in a box but even better because it can include your warehouse locations along with the Cahoot Network. And if you don’t have warehouses that’s perfectly fine. You don’t want to operate on Saturdays which is a requirement for seller-fulfilled prime you have to operate you have to do 2pm late cut off which means orders coming in until 2pm must be shipped the same day. No if then are but that’s the level of compliance is expected but seller fulfill prime and that’s the rigor and that is how you deliver awesome customer experience because you cannot falter, the minute you falter. Amazon’s got you.

Pat Yates 15:05

Yeah. So let me ask this, when you look at your rate shopping, one of the things, especially like, even in my product, I have some things that are less than a pound, which, you try to take advantage of that first class shipping. If it’s not a two-day thing, do you get the opportunity in these to take advantage of first-class shipping and still get it there in two days in some of your locations? Or I’m not certain of the timing of whether that’s still an option? Or if you have to upgrade to priority or something UPS or FedEx has to use? What’s the lion’s share for you guys?

Manish Chowdhary 15:33

Yeah, yeah. So that’s a great question, Pat. So there’s been incredible changes in the carrier oil, including USPS. As you know, USPS just rebranded or rather, is transitioning first class and parcel select into what they call ground advantage. So USPS is making some sweeping changes, the short answer is yes, we can will, and do take advantage of economies shipping, where possible, we have our own heuristics, we have our own algorithms, we have our own data, in addition to what we get from the carriers. So if we have confidence that this order can get there, with a reasonable amount of confidence to the customer, using the economy shipping, we will, of course, always pick the economy shipping, because at the end of the day, it’s all about profitability for the brand and retailer growth at all cost, or growth with negative margins, or low margins is not a sustainable affair. So we recognize that and Cahoot, because we come from technology background, we come from e-commerce background, we’re not the traditional tech pack people in the warehouse, we understand that, we understand conversion, we understand the customer mindset. And all of that is taken into account into our platform to ensure that we’re picking the most cost-efficient method to get the order to the customer. And also measuring whether it was indeed delivered by the promise state or not.

Pat Yates 17:03

That’s incredible. So even when I’m thinking about this, some people may have an opportunity that like in my situation, I’ve cut everything off about two o’clock Eastern time. If you had the ability that you had some stuff, say in California, you may be able to do it at five o’clock Eastern time to still serve as a customer better, is it nice to have that flow across time zones? Is that really an advantage for someone? Or does it not matter as much based on the timing?

Manish Chowdhary 17:29

Massive advantage, and it’s a requirement for Amazon seller fulfilled prime. Imagine, in fact, not only that, what if you could have your order shipped on Saturdays, in addition to 2pm cut off in that respective timezone? So our technology follows the sun. So an order comes in, let’s say at 4pm. And it’s coming from a West Coast location 4pm Eastern Time, which is still 1pm Pacific Time, that order will ship the same day, an order comes in on Saturday or Friday night. So to deliver I think, in my opinion brands and retailers, because they have been potentially impacted by Amazon FBA negatively or they’ve been dealing with the traditional 3PL they are not familiar with the opportunity that solutions like Cahoot provides. And those things can do wonders, you know Pat, that cost of advertising is going up significantly, you know what the conversion drivers are. So if you give the customer what they’re looking for, in checkout, in the cart, date certain shipping combined with this certainty of when your products will get there, it has direct impact on the top and bottom line.

Pat Yates 18:45

It’s really incredible. Like I think of, like, as I said before, my Shark Tank company, which I’ve talked on here many times Happy Feet Slippers is a large house slipper, it can’t go into retail, which also means it you get in a 23 18 13 box, you get about 12 units. And if you have 1000s of skews, it becomes very, very challenging to store this and be able to do it redundantly across say five or six warehouses, how do you address people that have wider skews, maybe larger products, because the fear might be the amount of storage costs it’s going to take, the amount of infrastructure space it will take to do your pick back area? How do you address items like that? And what is a perfect kind of product, let’s say for you?

Manish Chowdhary 19:24

Yeah, that’s a great question again, Pat. So the way to look at it is an 80-20 rule. 80% of your orders probably come from 20% of your skews. And when you do that analysis, what you recognize is, even if you have a very large catalog, there’s many popular skews, those are the ones that are placed more widely and distribute them. Number two, look at the impact on conversion and sales because brands often look at the cost but they don’t look at the upside off shipping and having fast shipping. So if you are thinking strictly in terms of operations and logistics, I’m afraid you’re looking at half the picture, because half your shopping experience now is the shipping experience, they are so closely related. And that’s why I keep coming back to this is marketing. This is not just operations and logistics. It’s not just supply chain. So generally speaking, that is what we do. And then combine that with awesome technology. So those are the traditional 3PLs that cannot handle large amounts of skews, because they use traditional storage methods or traditional way of putting things where each item has to belong to its own bin, but modern technology, how is Amazon doing it, at the end of the day, Amazon has superior technology, they have the same exact building as you do, Pat, I don’t think that building is made up of anything unique. They use the same concrete, they use the same steel. And so the way so I think that the cat is out of the bag, people like Cahoot have figured it out. So don’t let the larger catalog be a deterrent in making this happen. But of course, keep an open mind. But think about get your marketing and sales people and the ownership involved because this is not a back-office fulfillment logistics conversation alone.

Pat Yates 21:20

So let me ask another question. So I keep thinking in terms of my business. So I don’t mean to always go to that. But what if someone is heavily seasonal? What if they say, I really think that I can make impact from October to January, but because I’m slower in June, July, August, spinning extra distribution money may not be the smartest. How do you address people that may go in and out of ebbs and flows of their businesses? Does it need to be consistent 12 months a year?

Manish Chowdhary 21:48

No, not really. I mean, the beauty of Cahoot is, it’s a very flexible network like Amazon FBA, so you don’t have to maintain the same level of inventory at all times. So plan your inventory, meaning just like, you’re making purchasing decisions based on your sales cycles. So you don’t want to send 12 months of inventory or even two years of inventory, just because you got a great deal on it from your supplier. That doesn’t mean that you load up your 3PL with all your excess inventory. So it’s just being smart decision-making. So think of it as a collaborative process. 3PL is not, you cannot expect them to, you know, offer the cheapest rate and the highest service because, you know, they’re both mutually exclusive. In order to operate six days a week, it costs more in order to operate later in the day it costs more, in order to have the amazing, awesome technology when no order is missed, no questions asked cost more, because you’re putting better people better technology better process. It has direct impact on the retailers, the brand’s top and bottom line. So it’s a collaborative affair. And what I would encourage brands and retailers to have an open mind, think of it as a collaborative problem solving, as opposed to if they’re coming from traditional, the challenge that we find is when people are coming from traditional 3PL they’re conditioned to think in a certain way. So we need to migrate their thinking to the new way of thinking.

Pat Yates 23:18

There you go, you got to change up their entire mentality and approach to it. But another question I had, obviously, if you have a Shopify store, and let’s say you get an order, and it’s four to six days shipping, someone don’t care about it, you can still obviously run that through your system, but maybe does it allow you to give different parameters on the delivery. So you guys, I’m not sure how you end up choosing the actual method of shipping or if the user does, but tell me how you would do that. If it’s not say a two-day order?

Manish Chowdhary 23:45

And that’s a great question again, Pat. So Cahoot network is designed to meet whatever promise you wish to set for your customers, Cahoot does not dictate that you need to do a two-day shipping, Cahoot does not compel you, or require that you do one-day shipping that’s up to you. We can give you the data, we can encourage you and show you what the upside might be. However, it’s your business and you make the decision. So most brands, most retailers may have different levels of services that they would offer in the checkout, they would have an economy shipping, that could be three to five days, potentially, then there’s a two-day shipping and then there could be an expedited shipping next day. Because if you’re selling something that has an urgent need, maybe it’s health-related items where you need to have that immediately. So Cahoot has the awesome five-star integration with Shopify, it is the highest-rated fulfillment solution on the Shopify app store. You’ll feel free to check us out. And so Cahoot automatically when we ingest the order from Shopify, we can map that to what service levels that order needs to go too, and then arrange shopping, take that into account. So we will not spend extra money at your expense to expedite the order when the promise was to get the order in five days, we need to meet or beat the customer promise, but at the lowest cost possible.

Pat Yates 25:20

That’s really amazing. So again, we’re talking to Manish Chowdhary with Cahoot and Pulse Commerce, I’d like to maybe shift gears a little bit. Clearly Pulse Commerce came from, it appears to me to be a need that you had to fill or some other way that you’re obviously running Cahoot. So it’s a great way to put things together. But why don’t you tell our listeners about how Pulse Commerce works and how it could integrate?

Manish Chowdhary 25:41

Yeah, Pulse Commerce is the leading order and inventory management platform. It also has an e-commerce solution module, if you will. But it also integrates with all the leading channels or front ends, if you will, like Shopify, Bigcommerce, Magento, all of those popular ones. So what you display in your shopping cart, and how you manage your orders and inventory, order fulfillment services are now very closely related to order management, how do you manage an order, right? In order to manage an order efficiently, you need to fulfill the order efficiently. And that’s how, when we were working with merchants, hundreds of brands and retailers, that what we’re really migrating to Amazon, because Amazon migration was not as strong 10 15 years ago, obviously, there were tons of sellers that were hundreds of 1000s of sellers, not 2 million sellers, as we have in the US today. And so we saw the need, and therefore, this is just an extension of the order customer journey, if you will, because so ensuring that we have proper inventory control, because what you don’t want to do is fulfill an order or send the order to a location that does not have the inventory, because by the time they figure it out, it might be too late. And you may end up missing the SLA from that location, or you need to now recover from that and move that order to a different location and still meet the customer promise, which means you’re going to pay more expensive shipping. So they’re very, very closely related. And the two products are integrated. They’re two separate entities. However, the products are very closely integrated, so if a customer wants a full suite of solutions to manage the order, manage the payment, manage fulfillment, and manage their own warehouse, they can do that in Pulse Commerce, and Cahoot as the shipping and fulfillment services software.

Pat Yates 27:41

That’s really amazing. So you basically have a start-to-finish opportunity for someone to come in and basically manage their entire business. So what kind of clients? I mean, obviously, you have clients that are super successful with this, do they see a lift in sales because of this? Do they see just organically dealing with you guys? Obviously Amazon does a good job in distribution too. But do they have any issue with any problems, reviews or things like that you guys clean up problems for everyone? What happens when you know things go a little sideways in this? How do you support those people?

Manish Chowdhary 28:12

So our job is to help brands and retailers with excellent fulfillment strategies. And that has direct impact on the top and bottom line. We’ve measured it many, many times. So for example, if you were to use our shipping software, which so we basically took all this awesome technology. And we recognize that many brands or retailers may want to do everything within their own warehouse. So they’re using a shipping software like ShipStation, Shipping ez, ship works, one of those tools. So we took all this innovation that we did, and we are giving it to them in a box. So you can utilize the same awesome technology, you’re not required to outsource your fulfillment. So it is all human-less, it uses machine learning AI that’s like cahoot.ai. So we can dramatically reduce the manpower and the errors in the warehouse. I’ll give you a very simple example. What box to you. So if you have a very large diversity of products that like you do, somebody orders, five pairs of slippers, how do you decide what box to use? And what would be the most cost-efficient way?

Pat Yates 29:20

Great point. It’s amazing, because there’s so many things that go into that having a professional that does this, a lot of people may want to save money on 3PLs by just getting someone local, or whatever it is, which I’m sure can be successful. But it is important to think bigger about where you want your business to be. Because starting out with you guys can help scale across the country and even probably internationally very, very quickly. It’s amazing. So in any order fulfillment side, so everything from polls will flow in to Cahoot. And then you have the ability just right in simple clicks inside your system to be able to do your orders. What kind of timeline has it taken a day to operate this kind of a system? Is it easy for operators?

Manish Chowdhary 29:58

Yeah, so let’s take an example where you, you look, you’re looking to outsource 100% of your fulfillment, you know, in that case, Cahoot connects directly with your sales channels. And you have to do almost nothing. We have clients, believe it or not Pat, this is a reality. This is not fiction. And this is not a myth. We have clients that maybe, they have migrated during COVID. They originally, let’s say, from the UK, they are now living in Bali, Indonesia. And they are manufacturing in China having a delivered to Long Beach, California, and then Cahoot takes over from that point on, and they are in a timezone that’s 12 hours away, and they have virtual assistants in Philippines, and then they’ve got some people in the US if at all, and they are living the life, because Cahoot is fanatically focus on ensuring that every order is shipped on time, as long as we have the inventory. So they have to do very little. Of course, if you have larger operations, you have many more channels, wholesale, retail, b2b, it’s all digital. So we are not living in the dark ages, where you have to send an email, and you have to do things the hard way. It is all modern, we have patented technology that makes it very easy for people to collaborate, and multiple users and multiple time zones, not through an email chain or phone trees. So that’s the power of technology is sort of like, what is Tesla self-driving car? How does that compare to your fuel-combustion GM vehicle? You know, there are two different things, they both get you from point A to point B. But one requires far less friction, one can drive itself. So you’re free to dream, whereas the other one requires you to focus 100% of the time.

Pat Yates 31:44

Yeah, that’s a great point. So one of the last questions I had down I mean, I look where your locations are, it’s really amazing to me that the coverage is really, really strong, I can see how you’re able to pull off even one day, and I think there’ll be some wow factors to some customer, they’ve received it so fast, like I just ordered yesterday, I already have it. And I think that’s exciting. But I think the biggest question that I would have with relation to customers, what if they’re a little nervous going away from the traditional 3 PL, and they want to come in and work with Cahoot? Do you find that people say, I’m going to give you my top five skews only in three or four locations to try to test out how the systems work baby step in and understand or do you really need them to jump in and, and just commit? How does that work?

Manish Chowdhary 32:25

100%, I mean, no one should approve their operations. Because, you know, if I were in your shoes, I need to ensure that Cahoot or any other solution would work for you. Obviously, one, there are many, many use cases that we feel strongly about, we are super confident. And that’s why we have the highest number of positive reviews in the industry. So we you can look through that. Some use cases are very easy, very simple. In that case, you can go all in, if you have very massive operations, yes, you have the ability to come try something with a smaller number of skews to really but also think about that as it’s an experiment, you’re not going to see them the full potential, the full upside, but it is purely a micro experiment that you’re trying, so take your time, you know, I can lead with data, one of the things that brands and retailers I’ll encourage them to do, I think you brought up you know, finding a local 3PL. Yes, you can go visit them. But you know what, let’s say a lot of times, brands retailers have a notion in their head that that’s where they want to be because, like I have a story of a brand that sells awesome hats very successful. They’re based in Maryland, so they’re like, I want my warehouse to be next to where I am. But where are your customers, if your customers aren’t California, if your customers in Florida, it is not where you’re 3PL are to be its way of customers are located. And letting go of that control. Because I mean, when you outsource to Amazon FBA, even if the center was right next to you, you really can’t do anything. So you have to find, get comfortable with this new way of doing things and the people that adapt that move quickly, they’re going to beat and they’re going to succeed and they’re going to have an unfair advantage. So I think just keeping an open mind leading with data and having a little bit of trust and confidence and working collaboratively. It is a collaborative process and that’s why we call Cahoot Pat because you and I are in Cahoots. We are all in Cahoots. That’s what we do, is the power of many.

Pat Yates 34:43

I missed that question how the name came up? That’s like the mic drop of the whole day. That’s a great way to put it. You’re in Cahoots with everyone to change the shipping industry. It’s really amazing. Manish I really appreciate you being in the Quiet Light Podcast today. I know that a lot of our listeners out here gonna have interest in your businesses, Pulse Commerce and cahoot.ai, maybe you could tell the listeners how to get a hold of you.

Manish Chowdhary 35:06

Yeah, absolutely. One. If you want to get ahold of me directly, please come to linkedin.com or LinkedIn and just connect with me, follow me, I put a lot of content out there. And if you’re interested in Cahoot, come to cahoot.ai. And please fill out the Contact Us form. Even if you’re just curious, you just want to explore that’s okay. Come talk to us, because we believe that this is a long-term relationship, and we need to start somewhere. And Pulse Commerce is pulse-commerce.com If you’re in the market for a leading order inventory management platform, but once again, I just want to talk with smart, hardworking entrepreneurs that are growth-minded, so that I know connections happen and even if you’re not looking to change your 3PL you’re just curious. Come check us out, talk to us, because I think you’ll learn something.

Pat Yates 35:58

I definitely know I learned something. I’m gonna come in and see the demo to begin with. I think it’s fascinating. I think you’ve done an amazing job. Obviously if you need to get a hold of Manish please reach out to him and Manish again, we appreciate you joining us today on the Quiet Light Podcast.

Manish Chowdhary 36:12

Pat, thank you again. It was an honor to be here.

Outro 36:17

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

My Amazing Exit at 19 Years Old!

Hudson Shapiro is the Founder of TumLove, a brand that creates gut-friendly protein products for those with sensitive stomachs. He has been working on business-oriented projects since he was 10....

Hudson Shapiro is the Founder of TumLove, a brand that creates gut-friendly protein products for those with sensitive stomachs. He has been working on business-oriented projects since he was 10. Hudson co-founded Dupuytrensco, a company with the first-ever all-natural remedy for Dupuytren’s contracture and hand afflictions which he successfully exited in 2023.

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

[02:28] Hudson Shapiro talks about his entrepreneurial background
[03:53] The launch of Dupuytrensco and what it offers
[06:07] The experience of working with a family member
[08:29] Why Hudson decided to sell Dupuytrensco
[09:59] The process of selling a business through Quiet Light
[14:28] Hudson talks about TumLove and what it does
[18:00] Things to look for in a buyer
[20:31] Lessons learned from an exit
[25:18] Hudson’s advice for young entrepreneurs

In this episode…

Are you building a business to sell it eventually, whether to retire or move on to your next venture? What can you learn from a young entrepreneur who successfully exited his company at 19?

After growing a thriving business, Hudson Shapiro decided to sell. With a few failed attempts at handling the sales process alone, he discovered that selling a business can be challenging and stressful, especially for a young entrepreneur just beginning his journey. Hudson recommends researching to find a reputable broker or agent who can help you navigate the complex world of exiting a business.

In this episode of the Quiet Light Podcast, Pat Yates and Elaine Eason sit down with Hudson Shapiro, Founder of TumLove, to discuss his journey of successfully exiting a business at 19. Hudson talks about the launch of Dupuytrensco and what it offers, the process of selling a business through Quiet Light, lessons learned from the exit, and advice for young entrepreneurs.

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

Welcome back to the Quiet Light Podcast. Pat Yates sitting in for Joe Valley and I have the luck of having the lovely Elaine Eason with me an advisor at Quiet Light. How’re you doing Elaine?

Elaine Eason 0:43

Awesome. Glad to be here. Pat,

Pat Yates 0:45

Always great to talk to you. Listen, I know we’re gonna have a great conversation. They really interesting 19 year old that exited his business through you, his father Ken and Hudson Shapiro, both from Austin, Texas, selling a business that I had to pronounce the name several times it’s Dupuytrens Contracture which deals with an issue with tendons in your hand really fascinating. Young man as well as business, so maybe you could tell us a little bit about them and how they exited Quite Light with you.

Elaine Eason 1:18

Yeah, this one was really, really fun. My first time I’ve gotten to work with a father-son duo. And Hudson was only 19 at the time extremely sharp and sanely experienced for his age. Yeah, really inspiring to be able to work with them both. And they came up with this really unique hand cream really first to market of that type of product treating this niche condition. So it was really fun to go through the process. So excited to share more details with y’all.

Pat Yates 1:45

Yeah, that’s the basic I mean, again, the business is Dupuytrens Contracture Hudson is already working on his next business. He’s a really sharp and interesting young man. So we’re excited to talk to him. Let’s get right to it. Hudson, it’s great to have you in the Quiet Light Podcast today. How you doing?

Hudson Shapiro 2:02

Good. It’s good to be here.

Pat Yates 2:03

Man, I’m so excited to talk. I mean, Elaine was telling me about your deal and how exciting you are. A lot of people don’t get to talk to kids that are people that are under 20. I called you a kid, I shouldn’t have done that, under 20. You sold a business which is awesome. So we’re excited to hear about this today. I know that I’m gonna butcher some names in here. But Hudson tell us a little bit about you where you’re from, and maybe a little bit about your background, because like you just graduated high school. So tell us about launch and stuff.

Hudson Shapiro 2:28

Yeah, so I’m located in Austin, Texas. I’ve been entrepreneurial for quite a while I mean, I got into e-commerce specifically roughly, I’d say five or six years ago, started off with dropshipping. And then I’d say the past three four-ish years, I’ve started to build kind of more brands. But yeah, I’ve always been kind of working on some type of projects. Like even before e-commerce, I was doing like freelance arbitrage through different freelancing networks like Upwork and Fiverr, where I’d like kind of pose as the provider of a service like a graphic design service, I’d find someone to do said service and then I’d sell it to a client, obviously with a markup. So yeah, I’ve been kind of doing entrepreneurial things for quite a while. But yeah, recently, I’ve been just solely focused on e-commerce brands.

Pat Yates 3:18

I get the feeling you’re a guy who has a lot of hacks that he can make money on in different directions. I kind of get that feel from you. That’s a great thing, though.

Hudson Shapiro 3:25

Yeah, thank you. I appreciate it.

Pat Yates 3:27

So I’m gonna butcher this Hudson and go over so your business’s Dupuytrensco, but perfect, you nailed it. Okay, so I did nail it there. That’s good. So, my understanding is Dupuytrens contractures is a rare condition that causes tendons in the hands to stiffen. I have honestly never heard of that. So I’m curious for you to tell us a little bit about the business. And maybe you know what it’s solving. That’s what I’m really curious about?

Hudson Shapiro 3:53

Yeah, of course. So it’s a semi I wouldn’t call it a rare condition necessarily. I think people, it typically kind of goes unnoticed because it develops in men, usually 45, 50, and up, my dad actually has the condition. And it’s where like you said, it’s where it kind of your fingers are contracted or you have kind of a little nodule on your palm in the way that the business came about. So at the time, and I mean, we started Dupuytrens I’d say roughly four years ago, and at the time, I was already running kind of other e-commerce brands and businesses in my dad, like I said, has the condition and he found a cream that was really kind of just like a homemade thing that was really working well for him just off of like YouTube and read it and just came up with his own formula. It was really helping mainly with the pain. It wasn’t necessarily helping with the contracture as much like yes, it’s slightly softened like the nodules on his palm. But yeah, he had a lot of pain relief from the cream. And then we found a co-packer or manufacturer who could produce a very similar cream. And yeah, that’s kind of how the business started.

Pat Yates 5:02

Really incredible. So Elaine, tell me a little bit about, I know when someone comes in with this, like I’ve had a couple of business actually at a magnet fishing business, I had no idea what it was. So Elaine, you’re gonna lie if you’re telling me he knew what this was before, but maybe go ahead and tell us a little bit about your view of Hudson and his business when he came in, to be able to sell?

Elaine Eason 5:20

Yeah, it was really, really neat. Really, really cool to be able to see also a father-son combo running a business, probably the first time I’ve ran into that, especially with Hudson being so young, that was really awesome. I sold a number of skincare and beauty-related businesses over the last year. So I’ve known the markets been pretty hot for those. So definitely excited for like I had a pretty good insight into who the buyers were for this type of product, pretty much from the get go. But yeah, it was really interesting to meet you both. And I’d love if you can share a little bit about kind of what it’s like working with your dad or kind of balancing having a business relationship. And also, of course, your family relationship working with your dad as well.

Hudson Shapiro 6:07

Yeah, so I mean, this was kind of our first business or just projects in general together, it was a good experience. I think at times there was a little bit of tension, which is funny, because I mean, I’m living at his house, I’m still living with my parents, so I’d kind of see him in the hallway and try and micromanage him or two little things here and there. But yeah, overall, it was, yeah, it was great working with my dad.

Elaine Eason 6:31

What was your role and his role?

Hudson Shapiro 6:33

So he was more on kind of the production and kind of just say the product side in general. So the product side and I was more kind of marketing, customer-focused, I guess you could call it.

Pat Yates 6:49

So Hudson let me ask you this. So working with your dad, you said he would work on the product side, obviously you looked at what integrations markets to grow and things like that. I’m curious, how you were able to concentrate your focus a little bit, obviously, you’re still young, it doesn’t mean you can’t do businesses, but you came out of school where you just focused on doing something like this an online business or a business in general, what stokes your entrepreneurial fire when you were I say younger, but a little bit younger than now.

Hudson Shapiro 7:17

I don’t really I don’t want to say boredom. But like maybe I will say boredom, like I think I like working on projects like I’ve done. This isn’t necessarily as entrepreneurial, but like I used to make like YouTube videos. And I was always trying, I always just loved having something to work on. And once I found kind of business or more entrepreneurial medium, just something about it. I don’t know, I think it’s something that I can kind of always progressively work towards. And I think that’s kind of a big thing that gravitates me towards just the world of business in general, I’d say. Yeah, just having something to progress towards.

Pat Yates 8:00

That’s a great answer. So tell me this. I mean, a lot of times, Elaine and I, we work with a lot of different entrepreneurs. And actually Elaine and I were lucky enough to work on a deal together that we’ve done some work for, but you’re working with your father, and at some point you decide you’re going to sell how did that conversation come along? Because obviously you had a business that was doing well. And you’re young, and you have all this time in front of you what made you decide this was the right time to be able to sell and come into quite light work with the line?

Hudson Shapiro 8:29

I mean, I thought we were going to sell actually before we ended up selling and I was doing like outreach on my own and that kind of stuff. But I think what led me to really wanting to sell in general was like, I think there was definitely still great growth potential within the business. Everything looked great from the outside kind of as you’ve mentioned, and not to say that it wasn’t, but I was actually creating another business kind of on the back burner, which is the company that I’m currently running TumLove. And that just really started to take up most of my time. And yeah, once it was ready to launch, I kind of wanted to be solely focused on my new projects. And it’s something that I would say I was pretty passionate about Dupuytrensco or the company that I sold. But with this company with TumLove, it’s focused on people with gut issues, and I personally have Crohn’s disease. So it was just a little even though my dad had Dupuytrens Contractures just a little closer to home to me, and it was just kind of the project that I wanted to solely focus my attention on.

Pat Yates 9:35

Yeah, that’s amazing. So tell me a little bit about other than having to work with Elaine how it was to work with Quiet Light in general because she’s probably really mean to you. So when you got into the process, tell us a little bit about that because I think a lot of our people that are out there trying to sell a business don’t think a lot about this, but how was the process for you overall looking and then getting involved and then getting it listed to market?

Hudson Shapiro 9:59

Yeah, so like I mentioned previously before listing with Quiet Light, I was trying to do it on my own. I had like a spreadsheet and I was reaching out to all these different private equity firms and just anyone who could be a potential leader buyer. And that turned out to be a complete nightmare. I didn’t realize how, it was very difficult. I spoke with Elaine, I believe, I was speaking with because that for as she was actually on my spreadsheet, and I thought she was a buyer. And I didn’t realize like I was just very quickly making the sheet I reached out to her. She said that I can’t remember like the percentage cut that you guys take. And I was a little weary. And then I actually realized how hard it is to sell a business. And yeah, once we partnered, it was fantastic. I mean, the due diligence upfront was very thorough. And it just it made the process easier. Because I mean, just the way that you guys kind of do it, it’s packaged out and I’m not having to like I kind of worked with a few leads previously through that spreadsheet. And we would get I don’t want to say close to sale by any means. But we’d make some progress, we talk they’d go over, like the business financials and then the deal would kind of fall apart. So having someone there like Quiet Light, who has just a Rolodex of clients knows exactly how to pitch it knows how to do proper due diligence and kind of neatly package it up. I think that’s a huge value add that kind of took me a while to realize I needed.

Pat Yates 11:32

Yeah, that now Elaine, when they came in, and you had this business a little bit different. I mean, when I look at it, I think, I don’t know anything about the problem that you’re trying to solve. I’m learning about it today. But I mean, Elaine, when you thought about this, did you have any thoughts as to whether this would be niche enough that you would have a hard time finding someone? Or did you find that a lot of people were interested in because it was solving a problem in general?

Elaine Eason 11:56

Yeah, it’s like the fact that it’s solving a problem and that it really is kind of first to market in offering the natural solution to Dupuytrens contractures was really appealing. It’s like, okay, this is some condition that, it seems like Hudson and Ken have really found a really niche opportunity that I know buyers are gonna see value in, but definitely has some reservations, because it is so niche. It’s like, how are buyers gonna respond? Certainly I had that thought. I didn’t know we’ve sold other like very, like niche very, how do I say like, kind of purpose-driven types of skincare businesses before? So I know there are buyers willing to branch out into niches, but yeah, definitely some reservations with it being single product, but I mean, they’re killing it. They have, I think they’ve kind of laid the brickwork and shown that there is demand for this. And there’s still so many opportunities to grow from where the point that they had even taken it to.

Pat Yates 12:55

And that’s amazing. So Hudson, I mean, when I look at the dates, I mean, you were starting in 2020 or 2021. Were you active in starting this business when you were still in high school?

Hudson Shapiro 13:05

That’s a good question. I’m blanking on my timeline, to be completely honest. So I actually left high school early and got my GED to work on businesses full time. So yeah, I left sophomore year, so I don’t think so. But maybe it was on the back burner. Because that’s the thing with this business is it was kind of like, It’s not like TumLove or other businesses I’ve launched. I’m super excited about it. I’m putting so much attention and time into it. It was kind of a backburner project that I just agreed to do with my dad for, I’d say probably a year before it picked up any traction, and then I saw it start to sell organically through Amazon and different channels. And then that’s when I, once I started to see the opportunity, I took it a lot more seriously. But yeah, I mean, I’m not certain on the timeline to be completely on.

Pat Yates 13:53

Oh, that makes sense. I mean, plus the time 2020-2021 everything was remote anyway, it’s like no one was really in school to begin with anyway. It’s not really a path that I’ve seen people not be able to do, what is different is that you’re obviously a young and aggressive entrepreneur that’s going out and trying to create things. So I want to hear a little bit more I think you went into TumLove a little quickly there. When I was going, I wanted to ask about it. So tell us about this new venture. I know you sort of teased it, but it’s another way to solve a problem that you’re having physically in your own life. So maybe give us a little better idea about where that’s headed and how it’s doing so far.

Hudson Shapiro 14:28

Gotcha. Yeah, so TumLove sells are right now or product offering is a protein powder. And I went around with different product ideas for quite a while but kind of the main idea behind just TumLove the brand was to make, I guess I could call them gut-friendly products. So avoiding common ingredient triggers like artificial sweeteners and that kind of stuff, as well as the common dietary things that just a lot of people with gut issues can’t tolerate like, dairy, gluten, soy, kind of all the basic things but yeah, like I said, the idea behind the brand was to create kind of a line of gut-friendly products that even those with the most sensitive guts like me, for example, someone with Crohn’s disease can tolerate. So, yeah, that’s the idea. We launched initially with a protein powder. And the reason I decided on protein is because that’s even for people who don’t necessarily have a sensitive gut, protein tends to, I think, just mess with people’s stomach in general, just from kind of basic surveys that I did of my friends. And I guess my own anecdotes, yeah, protein can definitely disturb the gut. So yeah, that’s, that’s our first product. So yeah, right now it is, like I said, it’s avoiding all those common dietary triggers. It’s only eight ingredients. And it’s also low FODMAP, meaning those with irritable bowel syndrome, or IBS can tolerate.

Pat Yates 15:53

Yeah, I’m taking a look at the site right now. It’s really good. Obviously, you’ve got going So Elaine, tell us a little bit about the process and how it went. I mean, was it well received on the company, when you were trying to exit? I mean, what kind of pitfalls did you find throughout the process with Hudson that are specific to his deal?

Elaine Eason 16:13

Yeah, I mean, there were a few curveballs, I don’t know how much you want to share Hudson, I kind of will defer to you, it’s with any deal. It’s like, more often than not, there’s something that comes up that causes delays. And we had a couple of those that came up in the process. So it did take a little bit longer than we were, initially expect you to take. So let you share what you’re comfortable.

Pat Yates 16:34

Hudson, one way to expand on that some people are really, really nervous about selling a company because they have to uncover their books, they have to go through diligence. That’s the most nerve-wracking part. Yeah, I mean, what did you find about the process that was either good, bad or indifferent?

Hudson Shapiro 16:48

Yeah, so I think that is why I was very, I guess, just happy with Quiet Light in general, is that that part of the process and I agree, that’s typically pretty daunting for most entrepreneurs. It definitely was for me. But yeah, Elaine really, really helped and kind of, I want to say did 99% of the heavy lifting like I was giving her files and kind of providing whatever was needed. But yeah, due diligence was, yeah, not too difficult. And then as far as buyer issues, like Elaine said, there were a few minor hiccups. We had like, just weird things. We had like some Amazon issues and different, very basic things. But yeah, nothing major.

Pat Yates 17:30

Right. So did you find the process itself when you’re working with the buyers that were looking at your business? I mean, I think a lot of times when someone’s wanting to exit their business, they always want to find the right person for it and especially with this, it might have a little more personal connection to it long term. Was it important for you to find a buyer that could sort of understand the situation behind your product? And maybe was even sensitive or user? I’m not sure. So how did that process go Hudson? And what were you looking for in a buyer?

Hudson Shapiro 18:00

Yeah, definitely. I mean, I think to be honest, yes, I care deeply about the brand, and I want to see it succeed. I think my dad is probably a little bit more emotionally invested in the product and brand itself. But yeah, I mean, I think also with this product being so niche, the buyers that we were speaking to kind of seems like the right fit, if that makes sense. Like if I was selling, even though TumLove niche as well, if I was selling like a protein powder business or something a little bit more general, I think I would probably have maybe some concern or run into some issues there. But yeah, I think with this being so niche, it was people were really looking into what Dupuytrens contractures was, and really trying to understand the business before getting into it. So I think we had the right pool of buyers, so it wasn’t a huge concern for me.

Pat Yates 18:52

Yeah, that’s really good. Elaine, so tell us a little bit. I mean, obviously, one of the things that I think buyer’s or seller’s out there listening would want to understand how the process works from an offer standpoint. Did you get a lot of attention to this and multiple offers? Are there more than one? How did the process go about was it an easy one to sort of get to marketing a close?

Elaine Eason 19:13

Yeah, it did take a little bit longer, like we talked about there was some hiccups. But we did end up with multiple offers. I was surprised even we ran into two, I think at least two of the buyers either had Dupuytrens contractures or somebody close to them did. So it’s like, things come out of the woodwork. When you start talking to buyers. It’s like there’s a lot of people out there that you know, you may think something’s niche, but there’s buyers out there for it that understand it. Most definitely. So yeah, it was competitive. We had, it was really like three offers that really came down to if I’m remembering right, you might remember better than I do, and Hudson that we were considering. And we did end up going with a buyer that we’d worked with before it Quiet Light because that really gives us a lot of confidence that the deal is gonna make it through clothing as smoothly as they can.

Pat Yates 20:04

Yeah, that’s great. So Hudson, I mean, let’s talk a little bit about I could reflect the preparation, but let’s fast forward it to your new business summer. Are there things you learned in this process from a diligent standpoint, either from bookkeeping, SOPs, things like that, that people should think about as they’re going through the process, because you may be looking to exit something in the next two or three years with your new business or whatever that becomes, what kind of things would you look at and do differently if you had to do this a second time versus a first anything at all?

Hudson Shapiro 20:31

I don’t think there’s anything major that I do differently. I definitely I would keep my books a little more organized. Like that’s always a huge one. But yeah, I don’t think there’s anything too differently that I would have done. Maybe I would have focused slightly more on kind of stabilizing the growth because I think buyers don’t like to see huge fluctuations, of course, but yeah, apart from that, I don’t think there was anything too big there.

Pat Yates 20:59

Was there an extra added amount of pressure that you were living in the house? You were selling a business with? What if you failed? Are you gonna be outside living or something? What happens there? Were there any problems that way?

Hudson Shapiro 21:10

There are no problems that way. But I mean, I will say that during the selling process, especially when we had the offers I was a little bit nervous. And that’s kind of going back to the growth piece. And even though it’s like looking back on it in retrospect, the growth looks pretty much completely fine. I think just I was very laser focused and looking at like sales dashboards and reports every day, every hour, like I got a little, maybe that’s an advice I’d give to myself, especially when selling TumLove or exiting my next businesses. I was a little too focused on that and kind of driving myself crazy kind of just looking at sales, like I said, looking at sales reports every hour, but yeah.

Elaine Eason 21:52

Yeah, it’s difficult. I see people do that a lot. But it’s better than the opposite. Sometimes we have sellers that just totally check out of their business. And then things can really go south in that case. So there’s a balance to be had there, for sure. Agreed.

Pat Yates 22:08

So Hudson, looking back on the process, obviously, everyone hopes it goes really smoothly. Are there other things when you were looking at this sale this company that you say, hey, if I’d have done this three or four years earlier, I don’t I’m not talking preparation of books that maybe it’s a growth idea or something that you might have done differently to be able to grow at anything at all? Are you feel like you did a really good job building it to get sold?

Hudson Shapiro 22:30

Not to pat myself on the back. I think I did a pretty good job. But one thing that I would do is in this is something that I’m kind of starting to lay the groundwork for, for TumLove is focusing a little bit more on slightly more stable traffic sources like I’m doing some kind of more SEO, which I wasn’t doing for Dupuytrens and having different channels or different mediums, I can kind of stabilize the growth of the company, because yes, I’m still going to be using slightly more, I guess, volatile platforms like Facebook advertising, and those kind of just marketing tools. But yeah, I think doing SEO and doing all these different little things will just kind of help smooth out the growth so it doesn’t look as volatile.

Pat Yates 23:14

That’s great. So with a new business going forward, so how long have you been running that?

Hudson Shapiro 23:20

I mean, technically, I would say, like I filed the LLC, or like I was kind of starting to lay the foundation for maybe a year, a year and a half ago. And this was kind of the same case with Dupuytrens, a lot of the first six months to even the first year is kind of just r&d, and it’s more of a waiting game. It’s not like a super active process. Like I was trying to perfect like a kind of a gut-friendly formulation. And I was waiting a couple of weeks getting some samples, sending in my revisions, and then waiting another few weeks. So there’s a lot of waiting involves, but we officially launched in November. And yeah, it’s been doing really well.

Pat Yates 24:04

That’s fantastic. So you had one successful exit by the age of 19, which is really rare. I bet you that there’s only a handful and Quiet Light that’s there. So is the goal of this business and the ones you have in the future to build for exit. Are you just looking at some as a lifestyle business? What’s your goal? It’s like you got a long time to do this.

Hudson Shapiro 24:24

That’s a good question. I don’t know if I have necessarily, I’m definitely going to build it. So if I need to exit or if I choose to exit I have that option. I’m going to definitely keep that in mind. But I don’t know if I’m necessarily looking to exit anytime soon to be honest. Like I’m not building it to exit. I don’t have like a very kind of rigid plan that I’m following.

Pat Yates 24:46

Sure, maybe eventually sell it and move out of your parents house. It’s probably bad mom and dad or dad probably says that anyway. No, I’m just kidding. So what other advice would you give young entrepreneurs because this is really actually fantastic. You don’t see as many young entrepreneurs come in, especially in this kind of situation, some that are just either fledgling and jobs or looking to build a business. I mean, what motivated you to decide to do this? Because really amazing by this age to have that done. It’s rare, but it’s not unheard of.

Hudson Shapiro 25:18

Yeah, kind of, like I was saying, it’s just something that I know this isn’t a great answer. It’s kind of cliché, but like, it’s just something that I’ve always gravitated towards. And it’s also something that I’m good at, like I used to, I was never really into sports as a kid are all like the just kind of typical activities. And I think one of the main reasons is I wasn’t good at them. And I think once I found business, it was something that really, I don’t know, it was very captivating for me. And it was something that I actually I wasn’t good at it for a while. Because I mean, to be fair, I was running some of these businesses when I was 11 12 13. And I mean, the models didn’t make sense. Nothing was working. But yeah, it was interesting to me, it’s kind of just like a fun game for lack of a better word.

Pat Yates 26:07

That’s fantastic. So Elaine, what are the thoughts did you have on Hudson or his business or the sale? I want to be actionable. So our listeners understand, but this is such a unique story to have a young entrepreneur come in and do this first one I’ve heard in many years.

Elaine Eason 26:20

Yeah, I mean, it’s super cool. I don’t know if I have specific other takeaways, but kind of general advice I give is always, be patient with the process. Like, that’s the biggest takeaway with this is like, especially if something niche can take a little bit longer than it may otherwise take to sell and especially in today’s market. So just be aware of that. But also you’re never too young or too old to start a business. Definitely.

Pat Yates 26:45

Yeah, I mean, I’ll tell you what, it’s something to accomplish to be able to do that. I think the first business I sold, I think it was 24. So you beat me by five years Hudson, I’m much older. Now. I don’t even want to tell you how old I don’t even know how your dad is. I don’t want to be depressed today. So we’ll skip that far to begin with. Anyway. So Hudson, anything else you’d want to add? Tell the listeners. I mean, obviously, we love having any successful entrepreneur that sells through Quite Light on here, but this is even more unique. It’s just been an awesome conversation.

Hudson Shapiro 27:13

Anything I want to share? If you need gut-friendly protein, go to tumlove.com.

Pat Yates 27:23

No, but seriously, they’ll tell us, spell out the domain again.

Hudson Shapiro 27:26

Tumlove.com.

Elaine Eason 27:30

It’s delicious. I’ve tried it.

Hudson Shapiro 27:31

Thank you. Thank you.

Pat Yates 27:32

I had to look it up as well. I had to look at as well but Hudson thanks for coming in today. We’re so excited to have you as one of the experienced Quiet Light sellers. I have this weird feeling it’s not the last time Elaine is gonna hear from you. I feel like we’ll be able to do a podcast update in a few years on the newest, either acquisition and or exit. But we appreciate you taking the time coming in today.

Hudson Shapiro 27:52

Yeah, thanks, guys.

Outro 27:55

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

Grow Your Subscription Income With Rodeo

Ben Fisher is the Co-founder and CEO of Rodeo, a consumer-centric subscription platform for challenger CPG brands. He is an entrepreneur who understands the technologies and growth strategies for an e-commerce brand and is passionate about helping entrepreneurs scale their businesses and achieve their maximum potential. Before Rodeo, Ben was the Co-founder of CartHook, a customizable e-commerce checkout used by hundreds of DTC companies on Shopify and famous for its one-page checkout and one-click post-purchase upsells.

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

[02:34] Ben Fisher explains how he got into the subscription model space and how Rodeo helps entrepreneurs
[09:54] Rodeo’s idea client profile — a case study
[15:27] The steps of working with Rodeo on Shopify and the additional services they offer
[20:12] Ben talks about the reasons for high churn rates and how Rodeo helps brands avoid them
[24:03] Rodeo’s pricing structure
[27:25] The mistakes entrepreneurs make with the subscribe and save model
[32:30] What is the boost revenue button?

In this episode…

Every e-commerce brand strives to acquire repeat customers. One way to accomplish this goal is by offering a subscription, but how can you perfect this method?

With the evolution of the e-commerce space, the tools and strategies people use to sell have changed. Ben Fisher notes that about 70% of Shopify brands are offering subscription products this year. However, with more and more brands pushing subscriptions, it can become a negative experience for people, resulting in higher churn rates. Ben describes how he helps clients reorchestrate the reordering experience into something better for everyone.

In this episode of the Quiet Light Podcast, Pat Yates sits down with Ben Fisher, Co-founder and CEO of Rodeo, to discuss how to introduce a successful subscription model. Ben explains how Rodeo assists entrepreneurs with the subscribe and save model, its ideal client profile, the reasons for high churn rates, and how entrepreneurs can avoid the common mistakes made with e-commerce subscription models.

Resources mentioned in this episode:

Sponsor for this episode

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

Episode Transcript

Intro 0:07

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

Pat Yates 0:32

Welcome back to the Quiet Light Podcast. This is Pat Yates sitting in for Joe Valley. Today we have Ben Fisher a really fascinating conversation. Ben is with hey.rodeo is the website but the company has called Rodeo and they work really hard to increase your subscribe and stave so just a little information about Ben. Ben’s journey began as a young kid selling strawberries door to door in Maine. And if you could imagine a kid walking out with just strawberries, how do you not have blueberries and a whole complement I’m not even sure I should. I asked him about that during the podcast. But then he used the profits to be able to do computer programming books and learn about coding when he was a teenager. He co-founded CartHook a platform that optimize the checkout process for DTC e-commerce brands on Shopify and enabled them to offer post-purchase upsells. Post-purchase upsells created a new revenue channel for brands resulting in an additional quarter of a billion dollars in revenue. And it was acquired in 2022. Today, Ben runs Rodeo a platform for eight-figure DTC brands that use subscription models to maximize customer retention and LTV. This is a fascinating conversation. And if you’re out there working on your subscription model, Subscribe and Save whatever everyone’s gonna call it, then this is the kind of podcasts you really need to listen to. And I would reach out to Ben at hey.rodeo. So let’s get right to Ben, I’m excited about this conversation today. And Ben, how are we doing today?

Ben Fisher 2:00

I’m doing great. Thanks for having me.

Pat Yates 2:02

Man. I’m so excited to get into this today. It’s funny because we have so many entrepreneurs and especially as an advisor, we get so many questions about ways to expand their business. We don’t just get people coming in looking to sell they want understand how to improve and get in a position. So I’m really excited to talk about the business today. And I’d love for you to introduce hey.rodeo and tell us basically the 30,000-foot view of what you do the broad is thanks. So if you could tell us a little bit about yourself. I’d love to hear your background and then go into the business itself.

Ben Fisher 2:34

Sure. So going back to 1985. All right, gotcha.

Pat Yates 2:39

Oh, that’s okay, I can do that. I’m not old, we can do that.

Ben Fisher 2:41

No, just funny, I did start programming. And I guess this is a part of like my I’ll say like my hero’s journey. And just my sort of where I am. And how I got here was I started programming at like an absurdly young age, like fifth grade, I grew up on a tree farm in Maine, I’m an only child. And so like, I had a lot of time on my hands. And so I got really interested in computers and like learning how to code and I used to sell strawberries to buy computer books. And so, fast forward, I’m still doing more or less what I was doing in fifth grade, right? Which I guess is both a blessing as well as some days a curse. But I would say is like a lot of what I’ve been interested in the last 10 years, I’ve really focused on building tools, and specifically tools that help e-commerce entrepreneurs make more money. I’m sure like, for anyone who’s built the business out there, you have a lot of really interesting and cool ideas. For me, one of the challenges was like, what’s the revenue model? What’s the business model? And so after I’d say like, several cool projects that like I never figured out the business, I decided to focus specifically on e-commerce, because I was like, if I can help other people make more money, then it becomes a win-win, because naturally, there’s a business model there. And so that’s what I’ve been focused on for the last nine years. And specifically on the Shopify ecosystem. So I don’t know for how many of y’all are listening, how long you’ve been in e-commerce, but now Shopify is known as the, you know, the dominant platform for certainly, early on, it was perceived as only for small merchants, over the last like four or five years, they’ve really never even been longer than five years or so they’ve accelerated and focus on the upper mid-market to enterprise, which is the space that the Magento is and the big commerce is used to play. Anyways, with that, and that’s it as the evolution of the Shopify ecosystem, a lot of things have changed in e-commerce as well. And one of those big things is the different tools and strategies people have to sell. It used to be with e-commerce, you could sell your product and then you had to sell a product again, hopefully to the same person like a few months later, but now about 10 years ago, we had sort of like this box of the month model that came out where you could actually subscribe to product And as of this year, about 70% of brands on Shopify, offer some sort of subscription product, and specifically direct to consumer e-commerce brands on Shopify, that’s the last stat that I’d seen. And so we went from a place where offering a subscription to a product was somewhat novel. And like, you might subscribe to like a couple of things. But now an enormous number of brands are all asking you to subscribe. And the problem there is in part that if you had a digital subscription, whether or not you watch Hulu or Netflix this month, you might have wasted five bucks. That’s not a huge deal. You don’t like wasting money. But when you’re subscribing to physical products, specifically, like food and beverage brands, it really is to actually like it’s painful to receive a package in the mail for something that you actually don’t need more of. Like, I actually have my freezers currently full of paper towels, because I had a shipment show up like a family size of paper towels, and I wasn’t ready for more. And so what you’ve seen over the last couple of years is that as this business model has exploded, and then everyone’s offering subscriptions, the reality of subscriptions is that they’re not always convenient. And as more and more brands are kind of pushing subscriptions as a model, it actually becomes a broken and bad experience for more and more people. And so, what I have focused on specifically what are tools to help other brands or to help brands still generate recurring revenue, but still provide a great consumer experience. Because at the end of the day, the goal for any brand, is you want repeat purchases from customers, right? It’s to have as many people to have satisfied customers and get them buying from you on a recurring or regular cadence, whatever that mechanism is, and subscriptions up till now have really been that mechanism that people perceived as recurring because it automatically renews unless the person cancels. So as I don’t know how far into the weeds you want to go into exactly how our what our product does, but what I was going back to that analogy, or the anecdote, rather, of my paper towel example, is that happens to people all the time, especially like if it’s a food and beverage brand, unless you’re buying a medication where you know the exact dosage you’re taking every day, like one aspirin or something, 30 days or product isn’t going to last, necessarily 30 days, and that issue becomes compounded when brands aren’t necessarily matching their packaging to the subscription cadence because it’s sort of funny that every single brand basically offers the same subscription plans, like every 3060 90 days, are you telling me that all their packaging is really thought out that this is exactly 30, 60, 90 days of product? That’s a very, very good point. And so and especially in the post-COVID, now that people are traveling and stuff, like our consumption patterns aren’t even consistent, like people are out of town and whatnot. And so at the end of the day, and this has been our thesis that subscriptions are great for certain types of products, and for certain people, right? Like, if you look at any sort of customer base, the numbers I generally see are about like, let’s say 15%, of a brand’s customers will be like subscribers, and say like, half of those, I want to have those, let’s say, in a percentage of those will be like loyal subscribers, but you have this enormous, larger pool of customers who they buy repeatedly. Like, if you were to analyze your order history, you probably do see people who buy on somewhat frequent basis, but they’re not subscribers. And there is a way to enable those folks to essentially be able to buy from you frequently without having to remember themselves because ultimately, even like the promise of subscription is this idea of set it and forget it. The problem is the reality when you’re dealing with physical products is it rarely works out that you get as much as you need when you need it.

Pat Yates 3:55

That’s really an incredible point. Because I’m searching in my mind just thinking of things that I’ve had on subscriber savor my wife has and then you end up with to two months of it. And you say, Well, I got to shut it off. And then you basically don’t go back to it unless you remember it. So it’s a really interesting point. So let me ask this. So again, we’re talking with Ben Fisher with hey.rodeo and we’re learning how to really take this subscribe and say make it better. So tell me an example of what kind of businesses you work with. Maybe give one good example of someone that’s like a perfect case study. It doesn’t have to be the person it could be an item if you want to say because I’m curious who the wheelhouse customers are here.

Ben Fisher 9:54

Yeah, so we focus specifically on CPG. So food and beverage health and wellness and beauty and cosmetics. So specifically products that have some sort of unpredictability to how often you’ll go through them. A great example of doesn’t say like, so for example, with wipes, one of the companies who work with Biom, they sell eco-friendly, like wipes, it’s an alternative to like the caustic, Lysol spray, like this is actually like a beautifully designed product that you actually want to have outside in your home. But you’re not going to consistently use the same number of wipes every month or every week. Right. But Biom still wants to make it super easy for someone to be able to buy, right to buy and, and, and for Biom to be top of mind when that person is ready or getting close to running out so that you don’t run out and then go to like the local store and buy whatever wipes that they have available. Right. And so Biom is actually a great example of a business where a customer isn’t necessarily always going to want to subscribe, by default, because they’re like, Well, I don’t necessarily know, someone thinks about subscribing is you then have to pay attention and self-monitor and go like, well do I need to skip this month, like, there’s an element of anxiety that can happen, a lot of people are like, I’m forgetful, so I’ll forget that I have to have this subscription. And then there are certain people who’s like, I don’t care if I have a few extra wipes or like I just want them on hand. So subscriptions per subscribe and save is perfect for that type of consumer. But there’s a lot of us where it’s like, I know I want it, I just want to be easy to buy when I need it. And so what we developed is what we call an on-demand experience. Where so you can have basically customers will get a smart reminder that ask them if they’re ready for more, and their card is stored on file. So that’s the important pieces, store the person’s card on file, and then check in with them, let’s say after 30 days and say, hey, you’ve been using Biom like, basically, do you have another? Like? Do you have another week left? Like do you think you’ll need more in like 30 days and or like we’re in like one week, and the person can either snooze the reminder or essentially click a button and rebuy what they had before?

Pat Yates 12:13

So you try to get ahead of the timing. Let’s say you talked earlier about how regimented some people could be 30 60 90. That’s how they do their Subscribe and Save. So this is meant to be not necessarily the actual in-your-face purchase, it’s meant to be a reminder of the need to purchase and then they help schedule it out instead, am I saying that right? As far as how the flow would go?

Ben Fisher 12:35

Yeah, so you could even think of it as with a typical subscription, it will automatically renew on its own after let’s say 30 days, what we do and we still support that, right we do our technology, our platform supports a traditional subscription. But our on-demand model is just another option that brands can offer customers who don’t want to subscribe. And what it does is they say, hey, all right, you don’t want to subscribe. So just put your card on file. And we’ll check in with you on a regular interval based off of how quickly we basically are able to see you like consuming the product. And an order will not be placed unless the customer is like, yep, I’m ready. And so ends up happening as you get a lot of people who would typically just be buying in response to email marketing, or if they think about it, you’re base game to eliminate 95% of the checkout friction by first off having their card on file. And the second piece is they have opted into getting reminders from you checking in to see essentially how quickly they’re consuming the product. And if they’re ready for more.

Pat Yates 13:41

Is it a pseudo way of being able to set when you want that refill and just not making it so structured? Is it as simple as thinking that and people feel is that they have more control over that refill than they do with a regimented time range?

Ben Fisher 13:54

Yes, correct. I mean, that’s really like a good way to describe it. Like I mostly read like a pharmacy, a pharmacy will check in and say do you need a refill, they won’t just necessarily refill your prescription. And so it’s what we call, it’s like, it’s a middle road, where, you know, we really have two options today as consumers, you can buy whenever you think of it, and like remember it, or you can buy it and automatically get it every single month. And the reality is that like life is more nuanced than that. And so Pete like brands, and entrepreneurs should be able to offer additional sort of intermediate options. And so there’s on-demand is like a middle ground between its subscription, like it’s still that Pavlovian, like reminder, hoping, you know, kind of encouraging someone to buy, like every 30 60 90 days or whatever the timeframe is for them, but they’re actually getting more people to opt into it because it’s not so prescriptive. And it’s not the same sort of, we’ll call it like limiting model that people have experienced now that more and more people have had bad experiences with subscriptions.

Pat Yates 15:00

Yeah, that makes a ton of sense. So let’s say for instance, that I’m selling supplements, let’s just make it. And I have these on Shopify, and I want to go out and I want to use your services. And I come in today and I say, Ben, let’s go, what is the first step? And what typically do the clients need to be able to get onboarded and work with you? I mean, I’m sure there are steps to get it going to have that working on your system. So tell a little bit about that.

Ben Fisher 15:27

Yeah, so one of the great things about Shopify is as long as you’re on Shopify, like most apps in the Shopify ecosystem, you can install with a click. So the initial installation process, it’s easy out of the box, like you literally just go into the app store, you click the install button, it’s installed. There are some then configurations that you do. What we do is we I mean, when you’re on boarded, working with Rodeo, we guide you through the different steps. It’s straightforward, but it’s questions we have to ask, like, do you want different shipping? Like, are you offering free shipping for people who subscribe as opposed to maybe it’s not free? If they don’t subscribe? Like, what are some of the different perks that you want to incorporate into your subscription program in the first place? So for example, you can have products that are only available to subscribers, we have one brand that we’ve worked with, that they would collaborate with, like different coffee makers, every couple months, and so they had coffee that you could only buy if you had a active subscription. And now is a way to layer in value to the subscription beyond just hey, here’s more stuff. Like they made it feel like a perk just to be a subscriber, like you’re getting access.

Pat Yates 16:42

Yeah. Now let me ask this. I know that when people come in, there’s systems that work a little differently inside Shopify, the way they do this, I know that you have a lot of different services that you offer. I mean, maybe tell me a little bit about that, because I noticed it, you help with branding design, maybe a little bit more how it’s marketed. I mean, when they come in, and they’re wanting to work with your company, how do they actually get it to market because I’m envisioning installing the app but needing some work after InDesign or the way that it workflows maybe I’m wrong about that.

Ben Fisher 17:12

Yeah, so we don’t do anything on the actual like design development side, we are on the software side, but we do do is we do provide because of our experience, and like my partner, he’s also an engineer. And both of us have been working in the space for so long. Part of the reason we started Rodeo was we wanted to work with other experienced entrepreneurs and provide sort of like, what we’re good at, which is the technology side, and just a lot of pattern matching, and having worked with a lot of brands over the last 10 years. And so oftentimes what will happen is, there will be a bit of a collaborative piece where an entrepreneur who has an e-commerce brand, like I’m thinking about maybe, like, they’re looking for advice or feedback of around even what they’re offering as a subscription. Or maybe they want to package it more as a membership, as opposed to a subscription to individual products. So we do help with that. But we don’t do any actual design development.

Pat Yates 18:08

Yeah, that makes a ton of sense. So what about timing, I mean, to customers come in and work with you long term continuing to do this, is it usually an onboarding process, tell me a little bit about start to finish the kind of timing it takes to get traction with something like this.

Ben Fisher 18:23

So we typically work with brands that already have at least a couple million dollars a year in revenue. Like we work with some brands that do 10s of millions, brands that we’ve worked with some brands to do hundreds. And so we don’t work with brands, typically that are just starting out. And the reason behind that is we can be most helpful in serving brands that already have revenue. Because early on, what you’ll find is a lot of early-stage e-commerce brands are just, they’re trying to figure out whether or not they have a business, they’re trying to figure out how to grow it. Where our experience is really helpful as we scaled so many companies that if you’re a brand, that scaling, were disproportionately valuable to you, because the questions that you have are probably things around, like the technologies you’re using, like what’s the right way to do this to avoid issues around, like on the operation side of your business around fulfillment? And those problems are magnified for companies that are doing north of $10 million. And so just by and large, who can we be most helpful to? Like, that’s our sweet spot is focusing specifically with brands who already have product market-fit, and then what they were, the reason they work with us is to help them accelerate their growth. And a lot of the brands we work with, actually, every single brand we’ve worked with, they already had an existing subscription program. So none of them were starting from scratch. Right?

Pat Yates 19:51

See, that’s interesting point because I’m thinking about the people that did it wrong first, let’s say that they had 15,000 subscribers a year and a half, two years ago. Now they have 8000, let’s say that they understand that they can do this better. But is there an opportunity recapture those seven? Because they have a better system? Have you have any data around how people can actually improve what they’ve already messed up?

Ben Fisher 20:12

Yeah, no, absolutely. And I think what’s interesting is when you look at like why? Obviously, the answer is it depends. But if it doesn’t, the example doesn’t even have to be as dramatic as that. It could be somewhat, it could be a business that hasn’t really grown. Because with subscriptions like that, basically, the killer for subscriptions is churn. It’s people canceling. And so one of the first things that we do when a brand onboard with us is we look at all their customer cancellation reasons. And the number one reason brands that consumers canceled subscriptions, is they have too many products. Prices is the other reason it’s either price or it’s too much product. And then the insane thing about too much product is it goes back to the fact that this auto-delivery mechanism of subscriptions, while so powerful, is actively leading, like customers who like your product to cancel, because they’re getting too much of it. And so for folks like that, what we do is we can actually identify all of your customers who cancelled for that particular reason, essentially create a segment of them, and then work with you to get them to do like, for example, the on-demand program where, hey, we know last time you were getting too much product, now we have a way to enable you to be in, like 100% control. And the benefit is that you’re still getting reminded you’re not having to remember yourself. And aren’t your cards on file, we know your preferences, because you’ve purchased before. So we’re able to pre-build a cart every month based off of what you’ve previously purchased. But now you can avoid that problem of getting too much product because you weren’t ready for it. Does that make sense?

Pat Yates 21:55

Yeah, it absolutely does. I mean, it’s really fascinating. I mean, in the business that in my e-comm has Sonar do any of the Subscribe and Save. It’s really not that kind of product. But it’s really interesting, because even it made mention, as I was reading up on this a little bit, that you may have an opportunity to even expand what that customer is buying from that same vendor subscribers say maybe because they’re able to put other things there. Tell me a little bit about how that can happen. I mean, cross-promotion, where you end up reselling someone that’s already on a subscribe, it’s like selling the people you’re already dealing with.

Ben Fisher 22:25

It’s funny, like, that’s great. So one of the things that we developed was, oh, let’s go to the insight, the insight is that the highest open email that a brand sends is the upcoming order reminder email, which brands hate sending that I’ll say like some brands, hate sending it to hate reminding people, they have a subscription, because that leads to someone realizing I don’t need more product. I’d arguable that’s literally the cost of doing business is, like if you’re building a great business, you want people who need your product to have your product not getting forced fat. And because then they then they resent you. What’s great about that, though, is or the fact that that email is open so much, it’s also a great opportunity for you to almost frame it, that upcoming order email can be framed as a, hey, your orders about to renew, you still have time to add a few more things to that order. And so what we’ll do is like, what with Rodeo, we have the ability for you to embed complimentary products that can be added to your upcoming order with one click. Right. So that becomes a revenue expansion opportunity, not just one where yes, some people will cancel because that’s life. But it can be offset. Now is that a fact? Well, some people are actually increasing their average order value, because you have these offers incorporated within that email. And it’s only a single click to add it.

Pat Yates 23:49

Yeah, maybe talk a little bit about your pricing and how that works. And you don’t have to talk specifically because I know this dates it and it could change but maybe give us an idea if someone comes in, what they expect to be paying for your services?

Ben Fisher 24:03

Sure. So it’s largely performance-based, we have a flat rate of 599 a month, and then it’s 1% and 20 cents per subscription order. The way we framed it that way is in part like the 599 is because we’re more hands-on as a business like we want to be hands-on. And so there’s just like a cost to have us be able to afford to be able to do business with a brand to be able to give them the amount of time that we want. And like the typical brand that’s working with us, like they’re doing a fair amount of volume and, and having that sort of performance piece around like the 1% 20 cents. That matters because it also enables us to continue coming up with creative ways to help them grow their revenue, right. Like if the brand’s not making more money, then we’re not doing our job and we’re not making more money and so intended to align incentives.

Pat Yates 24:56

So obviously one thing you want to make sure people understand is This isn’t something you come in and you just run a SaaS program and it cranks it out you do personal help with these people understanding that Subscribe and Save and your business and Rodeo and how to grow that. Is that correct?

Ben Fisher 25:10

Yes, yes.

Pat Yates 25:11

You find a lot of companies that just sort of come in and give you a fix. And they say, well, here, it’s automated. That’s how people work. But giving that direct feedback is really, really amazing. So another question that I had, I mean, do you find that your customers stay long term? Is it something that the improvement is so solid? I’m sure that every case is different. But do you feel like with most of your clients, they’ve seen that increase? And it’s something they continue to work with you 12, 18, 24, 36 months down the line?

Ben Fisher 25:40

Yes. We’ve been around for about two years. So you can’t say that we’ve had anyone for 10 years. But because it part of this wasn’t even technologically possible and Shopfy until two years ago. So we were one of the first apps to launch that we’re able to leverage these new API’s that Shopify had created. And this goes back into like the history of like, the evolution of Shopify, but for about seven years, there were two companies that were allowed by Shopify to offer subscription solutions. And that’s because Shopify itself couldn’t natively support subscriptions. And so they let two companies for seven years have a duopoly and they were the only ones who were able to offer a subscription solution. And then two years ago, Shopify released, sort of like some initial API’s to let other developers also compete.

Pat Yates 26:36

I’ll tell you what really strikes me. Sometimes I look at businesses that I think they do way too much like I look at marketing agencies all the time, they’ll do 75 things you need inside your business, you really decided to concentrate on one and one that not a lot of people spend a lot of time on. But what I found amazing in this and maybe you can talk to the listeners a little bit about how it’s important to even compartmentalize this because there may be people out there that understand a little bit about Subscribe and Save. And maybe the listeners who are doing it think oh, it’s pretty simple. I just put it out there and people subscribing. They keep saving, but they can’t avoid the churn. So you’re a specialist in this? What are the main hiccups that you see people that don’t work with someone before they come into you, what are they experiencing that you try to fix? Because maybe people sitting there right now saying, I can’t get past this in my Subscribe and Save? And if he says it, I need to work on what are those things?

Ben Fisher 27:25

Yeah, well, so I mean, a few things I think part of it is it’s especially as I was saying, like, part of what’s happened at a macro level is we have so many brands offering subscriptions regardless of whether or not their product actually makes sense as a subscription. So I think for any entrepreneur, part of its thinking about well, does my product on its own make sense as a subscription. If not, there are still ways for you to offer a subscription product it can be at, like as a membership where it’s not necessarily about sending them more product every single month, it could be around curation, that could be a digital product, something that where someone will pay like 10 bucks a month for where maybe it’s not the full-blown product, what they get instead is you get a discount for buying products on your store. Right. So there’s different flavors of subscription revenue. Like if you can think of it, it’s an umbrella, the umbrella of the parent is membership. And membership is like what you experienced, like Amazon Prime, or Costco where you pay a membership subscription. And it gives you some sort of perks, whether it’s like a discount off of some products or two days shipping if you’re an Amazon and then you can subscribe to individual products. What I will say like focusing on the subscription piece, one thing that I’ve seen brands kind of mess up is doing really heavy to steep discounts. And the reason that can kill your subscription program is it ends up a lot of people will subscribe simply because of the discount. And in talking to a lot of consumers and part of what we do again is like we’re super nerdy about this, like, and I’m a consumer, I spend a lot of time looking at and buying stuff and thinking about like, what the experience is like and comparing like brand experiences. I’ve had conversations with consumers who are like, I felt like I was being ripped off if I paid full price, even though I only wanted it once I bought it for the subscription and then I cancelled it. Right? So what ends up happening is you’re by focusing on the financial incentive, you’re bringing in a lot of people who if they don’t actually want to subscribe, and so that is very dangerous when you’re doing a very steep discount. So let’s say anything over 20% the amount you discount varies and like depending on your business, maybe like certain different businesses can support different margins. But just like all things being equal, like if you’re heavily discounting your product, you’re probably attracting a lot of people who just don’t want to subscribe it’s just it’s too enticing them to pay full price. Right. And what that actively does is it doesn’t give you a good signal around, well, how many of these people are actually going to stay, it will artificially inflate your churn. And so you have a what I call like, you have like an anemic subscription program, as soon as you start going down that road, and I think part of the problem there, too, is focusing so much on price. Like if you look at Amazon, Amazon Subscribe and Save you save like 5% like Amazon has not framed there’s like, Subscribe and Save as like, you get 30% off the product. And I think that goes back to the reason when subscription works, it works, because it’s convenient, it’s a convenient way for a certain type of person to like, receive a product. And again, for most of us, it’s like we’re so busy with life, like, we don’t want to be remembering like my solution actually, before Rodeo was I had a calendar reminder to rebuy products with a link to the product page to like to buy the product. That was my original solution before Rodeo was I did it myself with my calendar. And so like different people want to buy in different ways. And ultimately, we all want control of our money, especially with what’s happening in the economy, where people are just they’re looking at where their money is going. And so yeah, focusing on the financial incentive of a subscription is kind of just making it sound like all you’re getting as a benefit of a subscription is like the benefit is the discount, when in fact, the whole point of a subscription, this is subscription should actually be a convenient mechanism for you to consume, right. And so I would again, focus on ways beyond just price to inflate the value of the subscription, whether it’s by layering on like a free digital product. But again, I would hesitate to like some of the brands we work with, they don’t even discount their subscription at all. Like there’s one brand we’re talking to right now is actually considering removing it entirely. Because the whole point is their products great. Like why would you need a discount to buy it? The whole point is that we’re actually making it convenient for you to not run out.

Pat Yates 31:57

Yeah, that’s a great point. So again, I’m talking with Ben Fisher Rodeo at hey.rodeo. If you can’t see the video, he’s a Yankees fan, which means most people don’t like him probably as it is, but Ben then leave another question, I see that you have a boost revenue button on your thing, which is really great. It’s a great way to call it, I’m sure that you have an onboarding or at least meeting with people or a trial or something of sort that lets people understand. So if they came in to talk to you guys, tell me a little bit about the process where they’re learning about it through you, can they do a webinar? What do they do?

Ben Fisher 32:30

Yeah, so if you go and you click the boost revenue button essentially, it’s scheduled a consultation call with me. And what we’ll do is I’ll focus on not showing you the dog and pony show of the product, necessarily what we’re focused on is understanding your business and where you’re at. Specifically, like understanding, yeah, like, what are your quarterly goals? What are your end-of-the-year goals? Like, what’s the size of your subscription program today relative to like, your entire, like book of business? And what are the things that you’ve been struggling with? And what are you trying to accomplish? And from that, I can kind of give you my honest assessment of like, can we be helpful? And in what ways can we be helpful. And so it’s largely around brands that, they have a healthy business, they are looking for ways to increase, repeat, repeat purchases, both on the subscription side, as well as in more, we’ll call it like other creative ways, like on-demand where, all right, not everyone wants, like knowledge that not everyone wants to subscribe. But there’s still ways to create predictable, or semi-predictable revenue. Because a lot of people just aren’t going to subscribe to your product. And actually, one question, I didn’t ask it, but I should have had beginning of this is do you have any physical subscriptions yourself?

Pat Yates 33:48

Myself? I do not think so for products at this point that used to be for my wife was taking a certain kind of weight loss program, and she had to get these bars, these snack bars that she had on subscribe, but it became a problem. That’s exactly what I was going back to. They piled up. They were going.

Ben Fisher 34:06

Yeah. And I think that’s like, the funny piece of all of this is like, when you talk to people, and even when I talk to a lot of our, like, brands that are trying to push their subscription program. One of the first questions I asked them is how many subscriptions Do you have? And several don’t have any like, I’d say by and large, the answer is like maybe one, like they have one product, too. And I think what’s kind of funny is like there’s a little bit of it, and I get it right? Like you are looking at your business and you’re like, well, subscription revenue, on average, people buy at least three times and the reason LTV is times three typically is you buy it once you get one renewal, then you realize that you got too much of it and then like shit, and then you forget that you’re still subscribed. And then that third time is when you cancel. That’s why LTV, oftentimes for subscription is that’s not true for everyone. But when brands are looking at like oh we need to get more and more subscribers. One thing I asked you to take, like a pause on is like, your goal is not a subscription, your goal is to get people repeated, like to have happy customers repeatedly buying. And subscriptions are a way to do that. But there’s other creative ways that are now being developed. And I think if you look at your life, and you’re like, well, you don’t have any subscriptions, yet, you’re basically trying to get all of your customers to subscribe. There’s an insight there. And I think that I encourage every entrepreneur to kind of pay attention to that, because it’s really easy to focus on, just like what everyone else is doing. And kind of think from like, first principles of like, what’s the goal here? And what can I even learn from my own behavior, to inform like some of the decisions I’m making within the business?

Pat Yates 35:29

It’s really amazing. I mean, this is fascinating to begin with, because while I talk to a lot of companies that have some subscribe, and save and recurring revenue like that, it’s not only structure where they focus on it this much, it’s just really like, okay, we have this, which is great. If anyone that’s listening goes to hey.rodeo to see the site, obviously, you’re gonna see some pictures, and then I got to ask this question. You and Joel both have pictures with dogs in there. What story with that? Because your dog has the same expression you do in the picture. That’s really funny.

Ben Fisher 36:17

That’s so funny. I’ve heard that so many times. That Charlie, and she does, like people said that we look very similar. Yeah, and that’s Joel’s dog. Shotzi. Yeah, so I guess it started off with me, because like, every single photograph of me even on LinkedIn is me holding Charlie. And so just to be consistent, I was like, I think Joe and I were like, Joel, you need to hold a dog otherwise. And luckily, he had a dog to hold. He didn’t borrow the dog, the dog is actually his. But I think, part of it, too, is our personalities as well, that we try to inject in everything, which is to try to have a little bit of fun. And although we’re professionals, it’s like, how do you make a tool that isn’t necessarily on its face? Fun? And interesting. How do you make it delightful? And how do you inject that into the personality of the business itself?

Pat Yates 37:09

Yeah, because pets can be a great place to actually come to your business, because people are really regimented in what they do with their pets. So typing out subscribe stuff. Well, this has actually been an amazing conversation, Ben, but is there anything else you think that we didn’t touch on that people out there would want understand about Rodeo with hay hey.rodeo?

Ben Fisher 37:29

I mean, what I’d say that is two things. If you have an existing business, that you just have not gone into subscription yet, I’m thinking specifically probably if you sell beauty, or largely beauty is one of those places where people buy repeatedly, but they vary what they buy. And so a lot of beauty companies don’t do offer subscriptions, because they’re like, well, people change what they’re buying every single time they buy. I’d love to talk to and just like be like, sort of, like, a bit like a whiteboard for you. And just to kind of talk through some of like, what are you seeing and potential ways that like, I could imagine you guys be able to drive repeat purchases. And I guess this is open for anyone, any of your listeners who are listening is like, I guess as it came across, like I kind of nerd out on this stuff. And I think about it a lot. And I really enjoy it. So if there’s any way that I can be helpful, I guess click the boost revenue button or get in touch with me through LinkedIn? I’m also on Twitter my usernames skinny and bald because I’m kind of skinny kind of bald.

Pat Yates 38:39

Is that AND bald?

Ben Fisher 38:40

AND. Yeah. I’m bald here today.

Pat Yates 38:43

Okay, I’ll remember that? I’ll get that. All right, that looks like it’s semi-self-inflicted. It looks like it is awesome. But then you took the rest and just sort of made it consistent.

Ben Fisher 38:54

In college. Yeah, it got to that point where like that awkward middle part. No, but if I can be of service and helpful to anyone I’m happy to talk through. And again, the brands where I can be most helpful to you already have probably are doing at least one and a half million dollars in revenue. And the reason behind that is at that point, these brands are probably just trying to figure out how to grow faster, as opposed to figuring out do they have a business in the first place?

Pat Yates 39:20

It’s really amazing, because you’ve done such an amazing job. This has really been a fascinating podcast, because even though I understood about Subscribe and Save. You really take it as under your wings. I mean, a lot of marketing agencies of go back do a lot of things. They might even they’ll say, well, you can do this, but the fact that you’ve compartmentalized one thing and actually what’s amazing is, it’s like you’re going to enhance the people that are already buying from you. So you have a captured audience. It’s not like you have to sell someone, they just have to get consistent and maybe even look at other products. So it’s an incredible growth opportunity for both sides. Thank you for coming in today. It’s been awesome. And all the listeners out there again, if you want to reach out to Ben on Twitter, it was is skinny and bald is handled that’s awesome. I can’t for…

Ben Fisher 40:03

It’s also on LinkedIn. That’s my handle on LinkedIn as well. You can run it on LinkedIn.

Pat Yates 40:08

Right and then it hey.rodeo is the site for Rodeo and Ben, man thanks for bringing into the Quiet Light Podcast today. We really appreciate you to have it and spending the time today.

Ben Fisher 40:17

Thank you so much for having me, Pat. Appreciate it.

Pat Yates 40:19

Absolutely.

Outro 40:21

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

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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?