The Quiet Light Podcast

Welcome back to the Quiet Light podcast. Chris Wozniak is the newest member of our team and we thought it would be a great idea to sit down and chat with him. He has built, bought, and sold online businesses, in addition to brick and mortar brokerage firms. Chris has more experience than anyone on our team and we are excited to have him on board. Tune in to hear us talk with Chris about what buyers and sellers should do to come out on top. Topics:

• An abbreviated version of Chris' work history.
• Earning a CBI after becoming a board certified broker.
• Chris' buy-side brokering experience.
• Potentially creating short films about clients.
• Tips for sellers.
• How he leads buyers through the process.
• Why Chris spends time with and coaches buyers.

Transcription: Mark: I'm really excited to announce that we have a new member to our team, Chris Wozniak. Now you hear Wozniak and we think Steve Wozniak from Apple, is there any relation? Did you ask him that? I know you talked to him this week and that would have been my first question, how is he related to Steve Wozniak? Joe: I did and I'm not going to tell you the answer. Mark: So we don't know. Joe: I know. I asked the question. Mark: Then I'm going to listen. Joe: All right. Mark: You have to listen to the pod. You got to listen. Joe: How many shares of Apple he actually owns and whether he inherited them or bought them? Mark: Oh, there's a bit of a tease right there. Joe: All sorts of tease. Mark: Chris Wozniak, the guy, he's new on our team but he's; Chris is new on our team but he's not a greenhorn by any means. Joe: Not at all. He's got more experience than anybody that's ever joined our team before. I think he comes to the table with more experience. He's built, he's bought, he's sold his own online businesses, and he's run two brick and mortar business brokerage firms and sold one of them as well. His top year is probably selling 15 million dollars worth of businesses. The guy's just ridiculously qualified. He's got all sorts of certifications behind his name in his LinkedIn profile. We talked about that; jokes about that quite a bit, actually. But it's not just talking about him and his experience. I asked him a lot of questions about what sellers should do, what buyers should do throughout the entire process of building a business to eventually exit or looking to buy a business, and then build it so he gives lots of advice throughout. Mark: Well, let's go. I'm excited to introduce him to our listeners, and I'm really excited to get him as a part of the Quiet Light team. Joe: Oh, and there's one thing that we do tease something that's coming in the future at Quiet Light and Chris is helping us bring that to the table. It's something people have been asking for for years. We talked about it briefly, so be sure to listen in to that as well. Joe: Hey, folks Joe Valley here with Quiet Light Brokerage, and today I have the Woz with us. How are you doing today? Chris: I'm doing good Joe. How are you doing? Joe: Good. How many Apple shares do you own? Chris: None. Joe: None? Grandfathered in by uncle… Chris: None and we've never really investigated it either so maybe we do. I don't know. Joe: So you're not… Chris: I knew that I wouldn't work as hard as I do. Joe: You're not a descendant then of the great Wozniak? Chris: I have to be a descendant. I just don't know how far down the line that stretches. Joe: You know, I actually have a client now who is the; we were having just a casual conversation and he said, hey, you want an interesting fact? I'm actually the great, great, great, great-nephew of Teddy Roosevelt. And when he told me, I was like, that's an odd Segway into telling me this, but I've repeated that story and now it is interesting. I find it fascinating that we… Chris: Oh yeah, everybody does. Yeah. Joe: Even with what's going on in the world and some folks wanting to take down the Teddy Roosevelt statue outside of the museum, but yeah, fascinating. So, no relation the Steve Wozniak of the world? Chris: I honestly don't know. Joe: Okay, enough with the jibber-jabber, folks. This is the real Chris Wozniak, the newest member of the Quiet Light Brokerage team, a ton of experience, but I'm going to let him talk about it. I've got your LinkedIn profile open here but why don't you talk to us, tell the folks listening, Chris, about your background and how you ended up coming to Quiet Light. Chris: Sure. Well, first, I want to say that I'm not used to podcasts and I got an email from Joe yesterday saying, hey, just be ready at eight in the morning tomorrow and give your entire professional life history. So I said, okay that sounds like fun. So this is going to be off the cuff and obviously coming from the heart. But yeah do you want the long kind of version of my… Joe: I think people want the shorter version. Chris: Okay, that's going to be hard to do but the short version of the long story is I graduated college. I was in commercial real estate for several years, even in college as an intern. Then I joined my dad as a business broker. We had a company called Lesdon & Associates that was in 2002, 2003. Joe: Brick and mortar business broker or online business broker? Chris: Mainly Main Street brick and mortar which we graduated to smaller deals and we had initially started and graduated to larger and larger deals, we eventually sold Lesdon & Associates, I think in 2008, 2009. And then we started The George Ryan Group, which was a company focused on lower middle-market businesses. And so what we define that as is anything over a million dollars and then we never had an engagement over 12 or 13 million. So we own that company and going backwards in 2002, I started my first e-commerce business. Joe: That's a long time ago. Chris: Yeah. Joe: 18 years ago. How much did the website cost you? I love the answers to this question. Chris: I had to hire somebody to create and code it for me. I had the idea of what I wanted to sell; the product line, which was actually non-precious gemstones in 14-carat gold settings. Joe: Wow. Chris: So kind of a very niche-y product. But anyway, we built that for I think $5,500, $6,500. Joe: Wow. That's a lot of dough. I ask the question just because I like to say mine was $50. Chris: Oh yeah. I guess then there is no Shopify, there is no platform that you could just point click. Joe: No. No Amazon fulfiller accounts, very different. Chris: Yeah. Joe: Okay. Chris: So I sold that. I sold the e-commerce site about a year and a half later and did pretty good with. It was 22, 23 years old so it was a big chunk of money for me and my wife. And so fast forward, I've been selling businesses for 17 years. Some of those are online businesses, but through the years I've created and run and sold online businesses of my own. And so I guess five years ago or about six years ago, my wife and I decided we wanted to get out of the United States and kind of change our pace of life. And the only way I was going to be able to do that was to be able to have some type of income where I could do business brokerage because of the situation. So we ended up moving to St. Croix in the US Virgin Islands. We were there for two years. And so winging it for about a year and a half to two years leading up to that move, I created an Amazon FBA business. And when we got to St. Croix, I purchased with a partner an affiliate business in the finance niche. Joe: So just to be specific here folks, Chris, has built, bought, and sold his own online businesses. Okay, go on. Chris: Yeah, and then I've also created and still own several content sites and still own my Amazon FBA business as well. Joe: Okay, as I look at your LinkedIn profile, you've got a lot of acronyms here M&AMI, CBI, all sorts of different things, BCB. You come to us with things that I think most of the team does not have. Chuck is now certified in some way and these certifications folks are normally designated for a local brick and mortar business brokers. There's no specific certification for online business brokers. Walker's got some as well. Specifically, I think he got it prior to writing the book that you all hear us talk about, which is Buy Then Build. But what are some of these credentials that you have, Chris? Chris: Board Certified Broker is a designation that's awarded by the state of Texas. I earned that I don't remember when; maybe 2006, 2007. I've also got a CBI, which is the Certified Business Intermediary. That's awarded by the International Business Brokers Association. I got that shortly after my board-certified broker designation. And then I also carry the Merger & Acquisition Master Intermediary designation. That's the M&AMI given by the Merger and Acquisition source, which is kind of a sister program to the International Business Brokers Association. And to maintain that designation it's pretty difficult. I don't know now how many there are throughout the United States, but at the time there was maybe between 100 and 150, I believe. I don't know if that's still true or not, but it's difficult to achieve that designation because you have to have done a deal over a million dollars and then you had to maintain that. You have to do a deal over a million dollars at least once a year and believe it or not, in our world, Quiet Light's world, and my world that doesn't seem like a lot. But in general; in brokerage in general, that's tough to do. Joe: Yeah. So, folks, if you haven't visited the Quiet Light website lately, you'll see that it is new next time you go visit it. And it says right there on the homepage, sell your online business with a team that has a crazy amount of been there, done that experience. And obviously, the Woz here, QLB's Woz. We have three Chris's now so his email is actually [email protected] because he has that experience. Chris: By the way, I had to clarify to the team because Joe introduced me as, hey, check this guy's email out. He's our new member, Woz@QuietLightBrokerage so I immediately; my first reach out to the entire team, all the other brokers was guys I'm not trying to be cool with Woz. There's already two Chris's. I didn't want to get anybody confused with the other two Chris's. My name is too difficult to spell in its entirety so I went with Woz for simplicity purposes only, not to be cool. Joe: You're cool by default just because the email address is accepted. But you do have a crazy amount of been there, done that experience, but let's segue way to one of the reasons why you are on the team amongst all of the others. And buyers and sellers this is important for you to understand in terms of one of the things that we're going to do at Quiet Light in the coming months. We're launching this podcast sometime in the month of July 2020. And you've got, Chris, some buy-side brokering experience. For the last decade or more we've had requests for buy-side services and we've always said, no, we don't do that. Because of your experience with it and experience with a close friend of mine that you worked with we're going to move in a direction where we're going to offer this. Don't start sending us e-mails here folks. We will announce it. We'll give you the details. We're going to start with a small pilot program and make sure that we serve you properly. And we will not be helping you buy businesses that are listed by other business brokers. These will be unlisted businesses that we will search and find for you, given the criteria that you're looking for. But what made you go into or get pulled into the buy-side part of the brokering Chris? Chris: Yeah, that's the right way to say it. I kind of got pulled in to it wasn't necessarily a proactive decision on my part to get into it. There was demand there for it and so I just tried to get that demand and service those people that needed that service. So we had buyers that we're looking at online businesses, we had buyers that were looking for any type of service business, we had buyers that were specifically looking for manufacturing, all these things over the years and so we just developed the process on trying to uncover businesses that were not on the market, which is that's the kind of grassroots kind of guerrilla effort that we use to uncover these types of businesses. Joe: Yeah, and it's an exciting one for us because it's one that everybody's constantly been asking for and sort of pulling us in that direction. But with Chris's experience, the vast amount of experience that he has here we formulated a plan, we're starting to put it into action and we will test it out in the coming months. And we will make an announcement both via the website, email address, this podcast again, and an official, probably podcast specific to the buy-side brokering and what services we'll be offering. So keep that in mind for the future, and we're excited about it for sure. So, Chris, with your experience, I'm going to ask you random questions because you've been doing this for so long. As everybody knows, Mark and I don't script these. We're just flying by the seat of our pants here and hopefully, it gets across good information to you folks. Let's talk to the sellers out there in the audience, in your experience; the vast amount of experience that you have, what are the top one or two things that a seller should understand about a business that they own, and a path toward exiting that business? And when I say understand, I mean understand and do. Chris: Understand and do, yeah. Well, I think something that kind of gets overlooked when we're speaking with sellers and trying to coach them and advise them is they should know that it's going to be an emotional experience because of the nature of what it is we're about to do, which is the biggest transaction in their life. It's bigger than purchasing your home. It's bigger than the most expensive car or boat you're going to buy or sell. And so this transaction is going to be a monumental change and it's going to be an emotional ride because they typically have some blood, sweat, and tears poured into this business and a lot of times it's their baby. So to not address that when you're speaking with them, because they may not realize they're going to go through these different waves of emotions, that's why a lot of times I know you've talked about it, too, and I've said it a million times, we're just as much psychologist or therapist as we are advisors because it's 100% going to happen that there's going to be these waves of emotion and anxiety and things of that nature that happen. And so I think if the sellers just know that and we can kind of tell them what to expect a little bit and why they're probably going to be feeling this way and why it's natural and why everybody else goes through it too, that I think helps ease that burden a little bit. Joe: Yeah, I think that's a huge one. I was reading some content that's being created now that describes what we do and it said something like entrepreneur, advisor, broker, mentor, friend to online business owners and become all of those things and the friend part at the end because we spent a lot of time with clients. And I'm sure you've experienced that, especially if you've been working with somebody that lived in the same hometown as you or a neighboring area where you actually get to see them more. In our situation with the online world, we get to see them now with Zoom and we see them at conferences and things of that nature, but not as much. So the business folks know the name Joe Cocker, and if they've been listening to the podcast and I've been talking to Joe for two and a half years, I've never met him face to face. I sold his business in Q1, we had him on the podcast. He told a story. This is somebody, folks, that his first child, two days after his 17th birthday, he was in high school working full time and still graduated high school; hustled, worked hard, sold his car. This is the title of the podcast, he sold his car to buy inventory and then sold his business for seven figures. That was the process, a hell of a story. But, you know, I consider Joe a friend, even though I've never met him face to face. I can't wait till COVID goes away so I can get down to Florida, go visit with him and go fishing because he's got a new boat and he goes fishing all the time. And he's very, very good at it apparently. But that's a big part of it. And one of the things that you're going to see, folks, is a new series that Chris Moore actually has been working are called Quiet Giant and we are sharing some experiences with our clients and doing a quarterly short film, if you will, about them. And the second one is already produced and one of the things that the person featured in that series said was just reiterating what you said, Chris, which is at times the advisor mentor, broker, friend is a therapist because whether it's 250,000, a million, quarter of a million, or ten million that you are two weeks away from and you're negotiating the asset purchase agreement and it goes off the rails because it will. And the difference between a good and great advisor is that the great must get it back on track towards closing. But you are going to be in a very emotional state and if you all can see Chris on YouTube, he's very calm and collected. And obviously, I'm not hyper myself, the tone of my voice is this is about as excited as I get some time. So we're here to support, advise, and help and sometimes that comes across in therapeutic sessions if you will. And we've all been there and done that so we know. When we were selling, we're in the same situation, right? You've done it dozens and dozens of times with clients as well. Chris: Yeah. I sold a non-durable medical equipment company that was one of my largest sales of my career in 2014 for right around ten million dollars. And I shouldn't say the name of the business, but I'll say the first name of the seller's name is Ralph. And he actually reached out to me on LinkedIn a month and a half ago just to see. He saw my name and it kind of; I don't know why it popped up or how it came into his point of view, but he reached out and said hey, how are you doing? And I mean, we spent a lot of months getting his business marketing and getting it sold and we developed just a great relationship. And he's just one of honestly a ton of sellers that I've had that we still maintain relationships and we get along great. And that's one of the things I love about the business. It's transactional, but it's very intimate and there's so much at stake that you bond. Joe: Yeah. Chris: Or it's almost you just bond. Joe: Yeah, one of the things I like least about the business is the stigma of being a quote-unquote broker. But once I got over that and realized and became that entrepreneur, advisor, broker, mentor, therapist, friend, it is what we are. And those that want to put a label on us as just a broker, they can just go somewhere else. Chris: You know all those letters we were talking about earlier. Joe: Yeah. Chris: I probably got those because of insecurity. Joe: Right. I'm incredibly secure because I don't have any of those letters. Chris: Right, exactly. Joe: No, you're just lazy. Chris: I'm the most insecure, yeah. Joe: All right, let's talk. We're going to keep this episode relatively short, folks, just simply because you don't want to learn too much about Chris until you get to know him personally. But let's talk about some things though that buyers can do. One of the things that sellers can do is prepare themselves emotionally. Well, actually, I'll follow up on that first, how do you prepare yourself emotionally? I've got some thoughts on that, but I want to hear from you. Chris: How do I or how does a seller? Joe: How does that seller prepare themselves emotionally? You said that is one of the biggest things they need to be prepared for, that it is emotional. How do they get prepared for that? Chris: I think broadly speaking and yeah just talk to them about the process. What is this going to look like for you from day one and then all the way to the exit day? And as long as you're very upfront about that and you're detailed about your explanation of what that process looks like, it reduces the amount of question in the seller's mind. And then if you're also honest with them and you're not selling a bill of goods that you can deliver, which is we're going to get you a buyer in the first week and that buyer is going to be the one that buys your business, they're going to close, it's that easy. If you create those kind of expectations, you're not going be able to deliver. Joe: Are you saying from a seller standpoint, it's actually hard to sell a million, two million dollar business? Chris: Yeah, it's a little bit difficult. And believe me, as that day gets closer and closer you're not going to get more calm. As you get closer to that million or two million dollars, you're going to start to tighten up a little bit. I won't say what I want to say, but you're going to tighten up a little bit and it's going to get more real and it's going to get daunting there for a little bit. But you just got to hold on and listen. That's the other thing, you asked what are two things you would do as a broker or what two things to consider with a seller. My second thing instead of going with the normal answer would be if I'm talking to a seller right now, listen to our coaching. And it's not because we're rocket scientists, it's not because we're smarter than you. You're an entrepreneur. You probably have certain personality traits that have gotten to where you are and why you're successful and we get that. We're entrepreneurs also, but we're not trying to say we're smarter than you or no more than you. But we actually have the knowledge of selling a business, not running your business, but selling a business. So if you're going to hire us, just trust us because we're there to coach you. We know the pitfalls. We know the traps. We know that things are not going to go perfectly all the time. That never happens. You're always going to get sidetracked. So if you just listen to our coaching, if you listen to our coaching when you're dealing with buyers, that's a huge part of it. So my second point of advice would be just trust us and allow us to coach you. Joe: And the sooner we can begin that process, the better. You don't want to talk to somebody, sign an engagement letter the next day, and then list the business for sale a week later. It's better really for everyone involved to start that process of building that trust and that relationship as early on in your business as possible. I love it when somebody calls and sets up a meeting with somebody on the team that says I'm tracking toward selling in Q1 of 2021 or 2022. Let's get started. I want to do a review. And we do that, we will look at the profit and loss statement, we'll look at the financial key metrics, we'll see what the strengths and weaknesses of the business are. We'll go over the process and educate you, help you set an exit goal. You're going to pick that number, not us. But we're going to help you understand what you're leftover with after the sale. It's not necessarily important what you sell it for it's what you could keep. And then ideally reverse engineer a path to that goal. And the longer you are from reverse engineering that path to the goal, the more likely you are going to achieve it or overachieve it or beyond that. Chris: Yeah, I agree. Joe: All right. Let's talk about bias. You've worked with a lot of them, both as the sell-side broker but you're working with buyers and then as the buy-side broker as well. Any advice for buyers when they come to you or anybody on the team or any broker period or actually to a seller directly for that matter, what should they be bringing to the table? Is it a Wall Street type negotiation, is it just come in and pay all cash, what are the secrets to being a great buyer? Chris: I think part of being a great buyer is also listening to the advisor because obviously there's two sides to the coin. So part of our job if we're representing a seller, is to get their business sold. And one of the ways we can do that and ensure that that happens is we lead the buyer through the process. And so that's no different. I interview buyers when we have a business for sale, we have a buyer that approaches us we basically interview the buyer as well. And one of the things that we coach them on is transparency, I think is a big one, because, in a lot of transactional environments, you're quote-unquote negotiating so you want to keep your cards close to the vest. In this sort of situation, we were talking about bigger dollars. Sellers need to know that you're financially capable of getting this transaction done. And so eventually you are going to have to be transparent, not only with your financial situation but also your experience. That's a big one because quite frankly, a lot of the time they're seller's notes, there's earn-outs in some situations and so your ability to pay that owner back is huge. And so when you're going through the process, that transparency is a big deal and a lot of buyers don't understand that. It's counterintuitive. Joe: It is. Instilling confidence and use the advisor first and foremost and then the guy that's going to be selling you the business is critical. Mr. Buyer. I had a call yesterday where I had to go through this process of; the first call I had with this particular buyer, first, he talked about the multiple and how high it was, and he only thought the business was worth X. It's all right. Well, they're not willing to sell it for even close to X, so maybe this one isn't for you. He did move on. In the same conversation, he talked about raising funds. He didn't have the capital for it. So two strikes did instill confidence in me that he thought the business was even close to what it was worth, close to what it was listed for. And two, he didn't have the capital. And so he's going to be raising the funds during a worldwide pandemic with a looming recession where banks are tightening things up. And from that, we had a good call. We had a call yesterday. I would say it was a good call, it wasn't a great call. The first call was a great call because it ended with maybe this doesn't make the most sense for you, but then he followed up with he really did a very thorough job reviewing the package and asked a lot of great questions. Yet there's not confidence in me or I have to reveal who this person is in detail to the seller of the business and neither one of us have a great deal of confidence. So I had a good call with him yesterday where I had to be honest and I think I'm slightly offended him saying, look, man, it happens. You spend a lot of time on this, yet you don't think the value is there and you're trying to raise money. My question was what are the odds? Give me a percentage, in your opinion that you will be successful in raising the capital to make this purchase? He goes, I think the odds are better good than not. I'm like, really? Come on, instill some confidence in me. I'm sorry if you're listening buyer, but I said some very nice things about you as well and I do have a lot of respect for you. I think it's just; and we talked about that, the instilling in confidence. Chris, you're human, right? I'm human. We're spending time trying to help both buyers and sellers get to a successful transaction and we're going to give both parties some advice that they're not necessarily going to like. But it comes from a place of experience; crazy, been there done that experience, and sometimes it's hard to get that across in a way that makes you feel warm and fuzzy when we're telling you. Chris: Oh definitely. Joe: Yeah, it's hard. Chris: One of the things I tell sellers every time we get an engagement is you're not going to hear from me unless I have somebody for you and I'm going to be spending 90% of my time with buyers. And a lot of the time they don't like the sound of that right off the bat. But I let that sink in for a minute and say, look I've got to establish a relationship with these buyers. I've got to establish trust with them and that's why I'm spending all my time with. And it's for you, Mr. Seller or Mrs. Seller. That's why I'm spending all this time with these buyers is establishing that trust and coaching them and letting them know what the process is and how we don't deviate from that process. It's the same thing every time. Every business is different and certain things will happen but we do not deviate from our process and the process is because of experience. That's all it is. Joe: Can you see, folks, why Chris is joining the team here? Bringing a great deal of experience and wisdom, credibility and a lot of credentials, as you can see, because of his insecurity to the team and helping us move in a direction on that buy-side that I think will help serve some of you in the audience to find things that are not listed. We as a company have never practiced spamming emails and reaching out to buyers to say, hey business owner, we've got a buyer for you when we really don't. Chris: Right. Joe: This will allow us to go ahead and reach out to buyers in an honest, sincere, and ethical; I'm sorry sellers. Chris: Sellers, yeah. Joe: Honest, sincere, and ethical way with 100% of the truth. So I'm looking forward to that, Chris. I'm looking forward to having you on the team for many years to come. I appreciate your time today. Chris: I'm so excited. I'm so glad to be with you guys and I appreciate the opportunity. Joe: [email protected], we've got the Woz on the team, guys. Thanks, everybody. We'll talk to you soon. Chris: Thank you. Resources: [email protected] Quiet Light [email protected]

On‌ ‌today's‌ ‌episode,‌ ‌we‌ bring back ‌Scott‌ ‌Scharf‌ to talk about‌ ‌how‌ ‌to‌ ‌build‌ ‌out‌ ‌an‌ ‌accounting‌ ‌system‌ ‌using‌ ‌automation.‌ ‌ Scott is the Co-Founder of Catching Clouds, an outsourced cloud accounting service for e-commerce businesses. Topics:

• Why accounting is a daily, weekly, and monthly endeavor.
• The best accounting software.
• Setting clients up for accrual.
• Understanding the technological ecosystem.
• Switching from cash-basis accounting.
• Refining the process of cash flow projections.
• Why cash is king.
• One thing to increase optimization.

Transcription: Joe: Mark, I said many times that I actually fell asleep in accounting class in college. And unfortunately, it was Northeastern University and there were probably 200 people in the room. I was sitting near the door. So 199 people marched out with me there, my head on my desk, drooling, and then the next class came in yet somehow I'm in the position over the last eight years of really revealing a bare minimum of 5,000 profit and loss statements. And I get on my soapbox and preach about this; how important good clean financials are, not only for an entrepreneur's ability to analyze his own business and make sure they're driving towards their goals properly, but to be able to even just get in the room with highly qualified buyers. Once you get in the room, there's a ton of other things, but the P&Ls will get you in the room. And I understand you just had another conversation with our good friend Scott Scharff from Catching Clouds about building automation into accounting so you don't have to actually do this yourself day in and day out, week in and week out by building some automation into the process, either through QuickBooks or Xero. I understand Scott has preferences for both and good things and bad things to say about both. Mark: Yeah, so you're not the only one that fell asleep in accounting class. I did as well. If you looked at my grades, you'd wonder why I'd talk about accounting so much. But you know this Joe I've been working my way through some biographies of various titans of American business. I went through John D. Rockefeller. I'm now in the middle of a biography on Andrew Carnegie. And you know what one thing they both have in common? They were religious about their books. In fact, that was one of the big advantages that Carnegie brought into his business, was detailed books that they could optimize. I just find it fascinating that we can see that this is the case all the way through history what the people have been super successful. Their books are up to date. They're clean. They use them to optimize their businesses. And Scott and I talked a lot about how to do that with an Amazon business. I'm not going to lie, it was overwhelming, partly because Scott is crazy intelligent when it comes to this stuff and he has his systems all set up and he starts throwing around this system, that system, you just hook this up and you do that and then the other thing happens. And in my head, I'm thinking, how can anyone even start this? And at the end of this episode, you'll hear me kind of say that to him. I'm like Scott, this is overwhelming. How do you even get started? But the idea is simple and it is you just get started. He said something in this episode, which I didn't call out in the middle of the episode, but I think is really, really key. He said that of all the financial records that he sees people put together, he will see sometimes accountants that don't know the Amazon world trying to do books, and then he'll see some owners doing their own books. He said both are typically a mess but the ones done by the owners are less a mess than those being done by the bookkeepers because the bookkeepers don't know anything about Amazon. Joe: That is CPAs you mean, right? Not the bookkeepers. Mark: Yes. Joe: Yeah, I'll agree with them a million percent because CPAs do taxes, bookkeepers manage books, and owners try to manage books as well but never quite as good. So I think he's spot on. Guys, listen, and by guys, that's a unisex term. Pay attention to this. I know I preach on it sometimes and I'm so sorry, but it's because I'm here to help you. I'm here to protect you. We are entrepreneurs, we're advisers, we're brokers, we're mentors, and we're your friends, and we're sharing this information for you to help you build a better business and have a better exit someday. Even if that someday is 20 years from now, if you've got automation in your books like Scott is talking about here with Mark, it's going to make your life easier and help you make more money. So with that, let's move to it. But before we do, I want you all to send an email to Mark to discuss whether Carnegie is pronounced Carnegie or Carnegie. Mark: That's a really good question. I go both ways by the way. The author of this; it's an audiobook, he's saying Carnegie so I'm saying Carnegie now. Joe: Okay, Carnegie Hall is where I've been before, but I don't know either. I actually said we have a client that is a one, two, three, fourth remove descendant of Teddy Roosevelt and I pronounced it Roosevelt because I Googled that. Mark: That's wrong. Joe: I know. It was dead wrong. Mark: Carnegie, Carnegie Accounting, let's do accounting. Joe: There we go. All right. Here we go. Mark: Scott, thank you so much for coming back on the podcast. I know you are on the podcast a while ago. I think we talked about the ultimate seller's checklist about the things that you have to do, both leading up to a sale and then after the sale, closing on the business but I'm excited about today's conversation. We're going to talk a little bit about bookkeeping and the reason I'm excited about this and I know people in the cars or wherever you're listening at would be like I need to stay awake, I want to talk bookkeeping. I hop on this all the time. Bookkeeping is so important and there's so much data in your books if you keep them right. I had a conversation with somebody just the other day who is ready to sell. He's got a great business that's growing like crazy and he's going to have to put things on hold to flip over to accrual because that's what we require now. And so I want to talk to you about this because it's what you guys do over at Catching Clouds. Why don't you just kind of give a quick introduction for those that are listening to you for the first time? Scott: Okay, cool. Thank you. That was a while ago and that was a good conversation. So Catching Clouds, we provide outsourced cloud accounting services to e-commerce businesses. So our whole focus is only working with businesses that are selling a physical widget on Amazon, eBay, Shopify, Bigcommerce, TrueCommerce, House, Wayfair, Wish, Amazon Canada, CO, UK. Really most of our clients are those more complex multi-channel sellers and we're working with the larger established businesses and the one to fifty million dollar range. But the main value we offer is we provide the bookkeeping, accounting, and controller level review of their financials and we do all the work. The clients get read-only access to the financials. They threw everything over the wall to us and we leverage technology to pull everything together and then we turn that into accurate financials. And we just consider ourselves part of our client's businesses. Were just part of their team. Mark: Why? I mean, let me just start off with kind of an obvious question and one that I think if somebody is not at the million-dollar revenue or fifty million dollar revenue level, why are companies at that level hiring and spending money on a company like yours? Why is it that their financials are important enough to have that controller level service like yours? Scott: Yeah, so the main thing is that they feel out of control. And we have talked all about management accounting, not just year-end for taxes; we're like a clock, strike twice a day. And otherwise, you only know; and if anything it is extended, you only know if you're profitable in September for the whole prior year. And our whole focus is accountings at daily, weekly, monthly piece and that the owners at a minimum have to stop, take a step back and look at their financials and adjust their gut feeling so they can make great decisions on a daily, weekly, monthly basis, which are all those decisions you have to make so that your business runs better. It's more efficient, it's more profitable, and better to sell because it's managed well. But if you don't get that feedback where we have people; sellers that will go, wow, that was my best month ever and we're like, yeah, you lost a bunch of money. And they're like, wait, what? Well, you spend all the money on this and you didn't pay attention to your marketing spend and you spent through all your profit on the marketing spend. And if you don't see that, it doesn't do any good to notice that six months from now. So it's those kind of things. Or when they're looking at any of the many real-time tools, there's a big difference between real-time tools to do re-pricing and high-level reporting and you can use to make real-time decisions on re-pricing product or what to buy and all that stuff, and then double-entry accounting that accounts for everything. And then we help them adjust they're gut. Hey, this tool always shows you your sales numbers 10% too high, and then they can adjust to it and make those real-time tweaks. But the real value is they're serious about being entrepreneurs. They understand and they hate doing accounting. Most of these businesses didn't go into business to pay sales tax or do accounting and they want somebody else to do it, but they want somebody else who can talk the talk, who understands where the FBA is and FBA reimbursements and inventory and accrual and landed costs. And they don't want to have to train the accountants on just the terminology, let alone what are all the crazy things Amazon does, what's the settlement statement, and all that crazy. So that somebody that they can trust is taking care of those financials and then it's our goal to educate them on how to read the financials themselves and provide insight. Mark: Yeah, I think you talked a lot about kind of those boots on the ground sort of decisions, those granular decisions. I think financials and getting comfortable with reading your financial statements there's two levels. I'm a big picture type of guy and I actually just recently did this with Quiet Light and with another company I own where I took a look at my financials over the course of the last year and I just simply broke down the expenses as a ratio of revenue in the big categories and where are we? And with Quiet Light one thing I want to do is up our data game. We've got a lot of data that we built on over the years, but it's not organized as well as it could be. It's not point and click we could pull this data up. It requires some work. And you know what? It shows in my P&L because we historically had a large tech department that's changing. With my other company, we should be more marketing focused and it was this kind of bigger directional sort of CEO sort of thing and saying, hey, you know what, we really need to double down on the marketing. So I think the financials have that kind of dual-level play of you get the big picture, but the granular boots on the ground sort of decisions too is important if you know how to read them and understand them. You guys help with that. You help laicized some of it. Scott: We do. And one of the key values we do is each of our controllers who are CPAs we don't do federal and state income taxes, but they understand accrual accounting, gap accounting, and everything else. But each one is supporting at least 10 sellers and we never share confidential information, SKUs, or whatever but we can look across all of our clients and say, hey, wow, you're spending three times as much on your Google ad spend as we've seen with our other clients and we're not seeing that show up in your income. And they're like, oh, I just launched a new product, in four weeks I'm going to cut that back. And then our controller as from an accountability puts it on the calendar, calls the seller and say cut it back so you can start making profit. It's okay to ramp up your marketing spend and burn through your profit for whatever number of weeks to launch a product but sometime you've got to back it down. And if you forget all your profit is flowing out. And so it's that comparison and we can do that common comparison, kind of small data, big data across our client base because they're all consistent because we have no restaurants or which would be bad or nonprofits or other things. So it's that insight of being able to see multiples and your business too, you have the same benefits of the fact that I've looked at over a thousand seller's books. You guys have looked probably at least that many if you get that when you're in this niche and you focus on these areas, you really understand the nuances and you see the different scenarios and then you can provide that feedback. Mark: Absolutely, specialization especially for what you guys do. It makes a huge difference. Let's start with talking about different types of software, because Joe Valley, the co-owner of Quiet Light he often, says Excel is not accounting software. Unfortunately, we see a lot fewer Excel books these days than we used to, although they still come up every once in a while. The two dominant ones seem to be QuickBooks and Xero. I have seen other systems thrown in there from time to time. I know you've dealt with NetSuite to an extent. What's your favorite, why, or are they equally good? Scott: So Pepsi, Coke, they're great. It's so great that they… Mark: I'm a pop guy. Scott: Okay, yeah. Mark: Oh no, I'm joking. I'm not, I don't drink pop or soda. Scott: Yeah, I know. So in general it's great that they're both out there, they're both heavy competitors, Xero does much better internationally. Intuit has a much bigger footprint here; a much, much bigger footprint here in the US. But because Xero came along and has been in the cloud and about six years ago, got 200 million in VC funds Intuit went uh-oh we better fix our cloud solution. So that helped anybody that was on QuickBooks. So today they're both feature consistent. Okay, so if you pick either platform one or the other, you're going to be okay. We prefer Xero. We think Xero is a better cloud platform. It's better with multi-currency. If you're doing multi-currency, it is by far significantly better. And then our view is that Xero is a better company. Intuit is a shareholder driven marketing company and that's all they care about. They don't care about accountants. They don't care about small business. I mean their marketing says they do. They are a big, big business. And Xero even though it's much bigger, is still only a few thousand people. It started in New Zealand and is very much about supporting businesses and being engaged in everything else. And they're just really upping the feedback always. Mark: Yeah, I've got a soft spot in my heart for Xero. I put my other company on it for a while. I actually had to take it off because I didn't like their PayPal integration at the time and that other company had a good amount of PayPal sales, but I just like how they set up the system philosophically. It just felt tighter. It felt like QuickBooks you could have all these loose ends kind of floating out there and Xero, like their name kind of alludes to, wants everything zeroed out and they wanted all the balance out. And philosophically, it felt better. What about NetSuite or other third-party systems? Are there other systems that you think are good to work with? Scott: Not really. Really it's in that small; even if you're a startup, you should start on Xero and QuickBooks and you should be doing accounting from day one even if you have no idea what you're doing. And every business owner, entrepreneur, you have to wear every hat in the business so you understand it enough so when you delegate it, you can oversee it. So you can start at that level and the only reason we would expect anybody that would outgrow Xero or QuickBooks online or us at that 50 million or whatever stage is when their supply chain gets more complicated. So we can talk about cloud inventory tools but the idea is need and I'm a big believer in best of breed; so Xero for cloud accounting, Gusto for payroll, A2X for Amazon and Shopify income, Hubdoc for document management, Bill.com and others and Veem for international wire. So we've got these set of tools but then the cloud inventory tool really has to be specific to the client. Almost all of them suck in different ways but there are some that are getting to be pretty good that you can use. But if you outgrow those or you can't find a tool that you need that will meet your supply chain and the number of 3PLs you have and your manufacturing process, then you might have to grow up to NetSuite. And if you're a larger business and you want to be able to; you're buying a lot of international stuff and you have customs invoices that show up six months after you've done a sale and you want to back-calculate all of your COGS into the past, the only way to do that is on NetSuite. Because we do monthly snapshot accounting so if there's an adjustment six months later we posted in that month, we don't go unravel everything and put it all back. So if you need that sophistication or you need a more advanced one but you're going to pay for it price wise and you're actually going to pay a penalty that in my opinion, not great integrations to pull data from these sites and it makes it difficult to impossible to at least reconcile Amazon working with the different NetSuite integrations. Mark: Well, let's talk a little bit about that because I want to talk about some of the automation of this because I think the biggest challenge with a lot of the software is figuring out how to pull in the data in an efficient manner and we especially run into this problem with accrual accounting. This is why so many bookkeepers mistakenly or misguidedly tell their clients you should just do cash basis, because for them it's a lot easier, right? You see the purchase order, you enter it in, and going through to an accrual, you need to check your beginning inventory levels at the beginning of the month and ending inventory levels to figure that out. And it's just more work than they want to do, frankly. How do you set your clients up? I want to talk two questions, one would be how do you set your clients up for forward-looking moving forward we're going to be on accrual and keeping that automation in place. And then secondly, what are easy ways if there is an easy way to go back and get those historical COGS on a monthly basis for an Amazon business? Scott: Yeah, the two sides income. I mean, the first piece would be the automation we look at is first making sure you're posting your income properly. If you sell a hundred widgets that you get paid for 100 widgets and so we use a tool called A2X accounting to post the Amazon income. We've been using it for six-plus years. If posted a penny, it breaks up a hundred plus Amazon fees and follows the accrual method by posting a summary invoice. Because the main thing we recommend for everybody, unless you're doing B2B or direct manual sales on turns, every other sale can be summarized on a daily or weekly or monthly invoice and A2X will post Amazon and Shopify income. For Shopify, it will post Shopify payments every day that matches the payout every day. So the first thing you want to do is be able to get all the income into the system properly and then A2X breaks out based on our design. We're their close partners. We're using it for a year and a half but we were in Alpha for about six months, but they'll post and our standard is to post all the income by payment processor. So on Shopify, if you're using Shopify Payments and Amazon Pay and PayPal and Globally and Sasol and Afterpay or whoever else. It'll break out each of those posted invoice for each of those merchant providers and then you can reconcile it. So that's how you get your income and it's going to post it in the right period as to when the sale happened, not when you got paid. The difference between accrual, you track everything. And in our opinion and accrual, not only do you need it for valuation, not only do you need accrual to make sure you have a balance sheet so you can see your inventory and your assets versus liabilities but it's also easier to look at that if you have these huge expenses that you pay for or you're buying a ton of inventory and you pay $100,000 this month in shipping charges you want to spread that out and as you sell the product, pull that out not pull it together. Now for COGS and inventory, if you're looking for your values, the best tool is just you can't do it on spreadsheets. Just like you can't run accounting on spreadsheets, you really need a cloud inventory tool. You need the automation so you have a structured process to purchase products through a purchase order so you know what you're paying for. I mean you're constantly updating your costs, you're receiving that inventory. So whether it's fraud or they forgot to put a case; you bought 20 cases and they only put 19 in and they were just going super fast, which is usually the problem not so much someone's trying to rip you off. And if you can't catch that in controller control, you just have money that's just leaking because inventory is just cash in a different form that you're trying to turn into more cash. And so you really need those tools that are pulling in every order because all of that detailed data doesn't have to live in the accounting and it shouldn't. Xero and Quickbooks online are not set up to pull in every Shopify transaction, every Amazon transaction. They're not. The idea is you want that summary information and then you want to make sure that your cost of goods sold aligns with the income. So you have to have a consistent process. For Amazon, we upload costs into A2X and it'll post cost of goods sold so the same orders that were in your income even if the settlement statement splits over the end of the month all get posted in the appropriate month, and then you can do the same thing for Shopify. And then for our clients that are on cloud inventory, you can run as long as the tools provide in our focus, which would be cost of goods sold per channel so you can see your profitability per channel on the financials is really the piece you want to make sure that you can get that number, be able to validate it, and everyone's like, oh, that's this big accounting thing. I'm like no your whole world is operations; its purchasing product and shipping product out. Everybody will know we did 422 orders last month and they'll go, okay, and there's all the data for it and that needs to get applied to the accounting and then you need somebody who can do that properly. Mark: You said something just a little bit ago here which I find; it tends to be a mindset shift among a lot of sellers and that is your inventory is just cash in a different form that you hope to turn into more cash. And this is where the switch from cash to accrual changes and people that are on cash basis tend not to see this, right? They see their business bleeding cash and they see a cash in, cash out and when they spend all the money on inventory, they see that as losing value but it's not. You're just transitioning one asset cash into another asset inventory. And I think this is, again, why this topic of discussing books excites me because it causes you to think of your business in a different way; in completely different ways, as a blend of assets. Most of what you said, I already know our listeners are going to listen to this and be like that is way too complex for me to go through and do. Can I connect these things directly? Can I just plug and go or do I need to hire somebody to do this? Can I train somebody to do this? I mean, how do you actually go about implementing this? Scott: So there isn't one tool that will connect all the different pieces. Now Xero and QuickBooks online and A2X for an Amazon-only business gets you a long way along the method because if you're all FBA A2X will get you most of the way there. But for anything else, there's no secret process. So someone's like, oh, I'll just use what Logility and use their reports, they connect everything. I just did a deep dive review of them again and we couldn't figure out how they were posting the data and then we couldn't rec because we were evaluating we were trying to implement it. So you have to have a consistent set of processes to know you're doing your accounting on a daily, weekly, monthly basis. We do cost of goods sold monthly. So it's an hour or two per client per month because we have a standardized process that we follow through that shakes out vendor deposits and the other details. So the first process is what are you doing, what are you trying to accomplish, and just break that down, whether you're doing it yourself. Look at resources. We have some online courses. We have a bunch of YouTube videos to make sure we educate people. But then we still have a manual process for Walmart and eBay and Etsy and House and Wayfair and all these other channels where we download the data monthly, pivot it to post the income, and reconcile it. But we use the exact same data to apply a cost to post COGS. So it's a matter of that. Now, there are consultants out there that will help you set up the cloud inventory tool which we don't do, or you can work with the vendors to implement it and then you either have to manage it yourself or hire someone like Catching Clouds or another e-commerce accountant that understands the technology, the e-commerce space, and accounting. Mark: I think this is why it's so tough for so many people. Because as an entrepreneur, I have an idea, I've invented a product or I've identified a niche I want to go after and I'm good at that but now you're asking me to understand my financial reports. And then on top of that, you're asking me not to just understand my financial reports, but to understand the technological ecosystem around these financial reports to make them all work without hiring somebody who's going to cost me $10,000, $20,000, $30,000 a month just to be able to do this and suck up any profits that I do if I do have. That's why it is so difficult for people. The whole ecosystem is complex and difficult to understand. But I do know once you do get it set up, it is just a few hours a month. So you put in the effort of what am I selling, what are my processes, and then how can I get this into the system the right way? Once you get that setup, then maintaining it isn't as difficult as the initial setup. Is that fair? Scott: That is correct. Once you get those processes in place and you've got a defined process, you're just not assuming you can set automation and set and forget it, you're there. And then I would put the same due diligence that everybody puts into outsourcing; I mean, e-commerce sellers, the big things they outsource, except for the few that decide to buy a warehouse and want to invest in property and that's important to them being an entrepreneur and that's part of the journey. But that's, in my opinion, a very small percentage of the sellers, everybody else is working with 3PL warehouses or FDA or Walmart fulfillment service, Shopify fulfillment network. The same due diligence that anybody puts into that and understanding their supply chain or their vendors or who they're purchasing from, you just need to decide the financials are a priority for that order and then go through the same due diligence where you know nothing as an entrepreneur about whatever and then you start. But it is absolutely possible to put these systems in place or outsource the work like most sellers outsource and one thing I recommend every seller do is outsource sales tax. Don't try to use a tool like TaxJar or Taxify or Avalara. Just hire assault consultant or have someone like Catching Clouds, which we do it only with our accounting services because it's so complex. We're filing over 5,000 returns a year and even if you do everything right, the states generate notices and you have to deal with all of that. And the same thing applies to outsourcing your 3PL and your fulfillment. And then I would recommend outsourcing your accounting and finance because unless you're 30, 40, 50 million, it's really expensive to hire a bunch of accountants and manage them and train them and make sure they stay on top of the technology and all that other stuff. Mark: You know this is the sort of field that if you fall behind, is that much more work to get caught up. And I know we've referred some business over to you in the past that need some cleanup. We refer them to other partners as well that need clean up. What does that process look like? I'm saying, okay, I've fallen behind, I've been doing cash basis accounting for the past forever and now I want to go back three years to do this right and get moving forward. What sort of workload are you typically looking at to be able to get that caught up? Scott: Yeah. So in general, unless they were using A2X and it's very, very rare or they were doing things right or in a lot of cases it's interesting if the owners are involved, they don't know all the things in accounting and what they do they're very particular about so they do less wrong. Invariably when we see other accountants that don't work with any other e-commerce businesses, they're just making it up as they go and they make it worse and worse. 80%, 90% of the time we have to start over with a brand new Xero file even if somebody is on Xero because there's just tens of thousands of bad records in there and you can't get to it. So we set up a new Xero file. You import all the bank and credit card transactions for that time period. You categorize them and you reconcile all those accounts. Then you post all the income and then you go through accounts payable through all that time. And of course, once you just identify the data and even if they have another system, we can rip all that out, put it back in, but then make sure that no, no, this invoice was paid this month, but it was from the prior month to make sure that the bills are in the right period to get all that going. And you just do those accrual things and then we can post the income per month historically and then do the cost of goods sold per month. And so if it's 12 months or; and so we have to go back to either 1120 or 1119 to the prior tax return or back to the beginning of the business and run that and that's what it's going to take. We have looked at; we are Xero expert experts. My co-founder, partner, and wife Patti teach Xero experts how to do cool expert things in Xero and we have all these tricks to clean up the accounting. And I've got a whole list of things that I want Xero to do to allow us to make it so we can just take what's already in Xero and clean it up because the bank feeds and the fundamentals for Xero are great it's just when you connect all these apps and push in data, you end up with whatever. So it's really a process for us. It's about four to six weeks for one to maybe a little bit longer but it takes time. It takes time to set up the systems. It takes time to pull in the data. It takes time to get through it all and redo it and then validate things with the client go away. Hey, I bought a forklift. That was in inventory. I don't sell forklifts. You go, oh okay that doesn't go in inventory. We'll move it over to a fixed asset and off you go to the races. But it just takes a fair amount of work to understand to pull in all the data and do it. But for the most part, you just start with a new accounting file, get all your data; bank, credit card, bills, income, and COGS, and repost it following the accrual method. Mark: Yeah, I get that. I've been there. I've had to do that before. And you're right, going back when you have thousands of transactions can be a nightmare. I want to know where's the balance between good enough and probably not good enough and too much. And here's what I want to bring up to you, there's a well-known accounting company, which I will not name names, that has a cloud-based service that I know does cash basis and then at the end of the year does an inventory adjustment so basically giving you a full yearly accrual basis. And I've seen these financials before where all of a sudden December looks like the worst month ever because they're doing this massive adjustment at the end of the year. So that's one extreme and for a lot of owners, they'll say, well, it's good enough, I'm getting some high-level understanding of my sales and maybe my some cost, but not COGS. That's one and I would say that's not good enough but that is the attitude. On the other end, you and I have talked before about entering sales down to the individual sale, and being that's ridiculous you don't need to go to that level of detail. What is the balancing point from a controller standpoint being able to look at financials and be able to understand these books and be able to get both those kind of big picture decisions made, but also those granular decisions of look you're over overspending here. This is not a profitable product line or you need to stop ramping up your expenses in this area. What's that balancing point for you guys? Scott: So, yeah, there are a lot of people that really look at their financials and that other method is good enough for a tax return. It's not good enough to make those decisions to understand what's in your business. And it's just making sure that you're doing all of the accounting, not everything, right which means every bank. And the most common things we see when we review books is that they're not reconciling every bank account and credit card every month. Because if you think your system; you downloaded whatever data and you think you have $50,000 in the bank and the bank thinks you have 10, they win unless you've caught the error and fixed it. And it's typically just a data error so if you're not looking at the end of the month settlement for every bank account, credit card, and merchant account to say, hey, this is where we have clients were like, you had $30,000 disappear. Oh, it's a reserve. PayPal's got a reserve or Strike has a reserve which has been happening a lot recently. So we want to have those triggers but you want to make sure you're doing those reconciliations so that you know about all of those expenses and all the things flowing through your credit cards. The other thing is make sure every account's on there. If you're using a personal credit card from the owner because you don't have an Amex, Plum, or whatever in your business, and as long as it's dedicated to that business, it should be on the books. You should be tracking those expenses and then it's just do; and then you pay it off and it's just payments to the owner and it all works out from an accounting perspective. And then, like we said, you just want to make sure you're posting the income in a summary fashion and you could just decide to do it all monthly and know that I'm going to take four hours a month, I'm going to post the income and figure out COGS and get that done and it's good enough and if there's any adjustments. And then the last thing is you have to make sure that the balance sheet balances, which means all the numbers and the liabilities and assets. If the balance sheet doesn't balance you can't trust the P&L. You can't trust your statement of cash flows. And so it's kind of a do those core things and then go make sure you have somebody; an external party that's reviewing what you're doing at least monthly or quarterly to say, yeah, this is right or no, you have this write off or hey, you have this big hundred thousand dollar adjustment leach let's go see if we can figure out what's going on in there. Mark: It sounds like there's two steps here, right? There's the validation of your financials, but there's also an understanding or review of those financials. And maybe they're kind of linked together in the same thing where when things don't add up right that's a sign that you need to be digging deeper into something. Maybe you have an inventory leakage or you're leaking money because not all the inventory has been shipped or accounted for. And you would recommend that on a monthly basis then? Scott: Yeah, at a minimum, it's hard to do. We try to do as much of the accounting daily as possible. We believe that to stay on top of a dynamic e-commerce business, you have to be pulling in the bank feeds from yesterday today. You need to be looking at accounts payable and bills you know oh, I did a $30,000 prepayment on a $100,000 purchase order and I owe $70,000 in six weeks when it ships. Like if you're not paying attention to those things on a daily basis, then the owners are constantly pulling money out when they have to pay bills out of the business; their personal bills, and then the next week loaning the same amount of money or more back into the business and you just go do this swing if you're not staying on top of it. But if you're smaller and you're ramping up and everything else, at least do it monthly and then start doing a little bit more weekly. There is more automation that's coming over time around bank feeds and AI and other stuff, but it's going to take a while to get here. Mark: You know, one of the things that I think can really help once they start getting the stuff together is the ability to forecast. And I'm not talking about even on the sales side, that's kind of the second level of forecasting. But on the expense side, because you just brought it up right now, right? You have a bill of $70,000 that's going to come due. Have you planned for that or is that something that's gotten lost with all the craziness of the rest of your business? Or you want to launch a new product line what do your expenses look like over the next three, four, or five months? You can't do that if you aren't living to some extent in your financials on a fairly regular basis where you understand what's coming up. Do you guys get into much of forecasting even on the expense side? Scott: Not long term forecasting, but cash is king and cash flow projections. So we're just refining our process. So we have some clients that we'll do it for a daily for a short time when they've got lots going on at a specific time frame. And then we'll just provide kind of a weekly cash flow that's always that four to six-week view; here's where payroll comes out, here's your expected income, here's what the Amazon payments come in if you're not using Payability or something that lets you cash out every day so you can manage cash flow but it's really all about that. And we just haven't chosen to extend it for a longer period of time because our focus is daily, weekly, monthly but the idea is that the owner should take a step back and look and say, oh, because what we're trying to always get to is to say, here's how much free cash flow you have to buy inventory, pay for marketing, invest in the business, new products, new design, new people, whatever and then hopefully there's something left over for the owner as well. Unless you're in that I'm continually investing that's great but you need to know how much that is so you're not constantly doing. And that cash flow and that availability can include you have a $100,000 Amex plan card. That's just capital to you because most e-commerce sellers love racking up points and that's not debt. That's not a long term loan. They're going to pay that Amex bill probably every two or three times a week to keep the balance down so they can keep buying product to keep up with demand. But you need to know where those numbers are, where are those thresholds? When you're starting to push out against them if you're growing and your sales are growing, which is what's been happening for a ton of sellers in this big new world that we're in where everyone's home and everyone's buying online and that's all ramped up you need to know when you're hitting those limits and that you either need to invest more money as the owner because you're going to turn that cash into more profit; into more cash. Or you're looking at different lines of credit whether it's with a bank, which is usually the most painful way. But there are other alternative ways that aren't quite online loan shark and you find the balance between those to post that in. But it's really cash is king. If you're not looking at it; there's so many businesses that are profitable on paper, profitable on their P&L that go out of business because they didn't manage their cash. Mark: They didn't manage their cash or the cost. And you said costs are king what do you mean by that? Scott: Cash is king. Mark: Cash is king. Scott: Well, actually, costs are pretty important. If you don't have a good handle on your costs, you're going to run into the situation where you don't know what the value of your inventory is. And the most important thing is you don't know how to price your product. So if you have a product that you buy in the US and you buy in huge volumes and that your suppliers don't charge you shipping, you can use your buy cost. It's pretty straightforward. But if you're buying a product, either whether it's being manufactured or shipped internationally and it costs you a dollar per unit, but it costs you nine dollars to get it live in Amazon FDA or your warehouse, you need to know your cost is $10 is your landed cost after shipping and customs and insurance and even inbound into Amazon. So you know your all up cost to know what that is. And if you don't have a good handle on one of the first things we do with just about every client is revalidate their costs, identify the ones that are wrong, and then look at what they're selling it for. And they think they're averaging some margin and it's usually a lot less because they're not aware of their full cost for their product. And that's understanding that landed cost and landed cost is a key accrual process where you pay for everything and then you take that shipping and it gets added to inventory and then as you sell, it comes out and it's value. And that can make a huge difference on client's business. We have clients that are close and they're using landed cost, but they're not doing that last accounting bit monthly to do a journal entry to take hey, I spent as much on cost, customs, tariffs, whatever, and moving that all into the inventory account. And then you go, oh, I really have spent two million dollars on inventory and shipping and everything else, and I'm pulling out 200,000 a month in cost of goods sold. I have not just the number of quantity of units, but you can see the money flowing in and out of your business. Mark: Why don't we have you on monthly to the podcast? I don't know I feel like we just scratched like the first quarter of what you put together as far as the list of things we can talk about. But we are up against the half an hour, so I am going to cut it here and ask the best way to reach you; obviously CatchingClouds.net. You guys have courses available. Is that on Catching Clouds? Scott: Yeah. So if you go to our site, we have a contact form if you want to talk to me, especially if you're a larger business, I'm happy to talk or email and interact with anybody. I just enjoy interacting with sellers. Then we have our YouTube channel, which we have over a hundred YouTube videos, and we'll start adding more next month on basic topics. Now it's all my wife mostly who can explain things better and doesn't talk as fast as I do, but we're really there. And we have so much more that we want to push out onto those YouTube videos because we're happy to share the basics; how to read financials, and all these different things. We just want to help those sellers that are smaller than a million and or do it yourself. And then we also have a Facebook group that supports that for sellers and accountants for providing answers and questions for people that take our courses and just have general questions and then we have our outsourced service. So if you go to our contact form, reach out and I'm happy to interact and have a conversation. And most of my focus is really where your biggest challenge is and if I can help them figure out the top two or three cloud inventory tools that would be there or a developer that would do automation and build zappy integration to improve their efficiency or point them in the right direction, I'm happy to do that. And then our big services, we'll just take it all over, clean it all up, and then run it. Mark: Yeah, I think for those that are listening here, especially those that may not be in that one to fifty million dollar revenue range, the one thing I can say just from my experience is the companies that get there have books in order for the most part, much more so than smaller companies. And part of the reason that they've gotten there is because they have taken the time to put together good books. And it does give you insights into the business that you can't get otherwise. That doesn't mean that we haven't seen companies in the one to 50 million dollar range that don't have their books together. But all the more reason for those companies to make sure you're are doing this because if you aren't, I can almost guarantee you're bleeding cash somewhere and you're lacking optimization somewhere. I think the biggest thing; let's end with this cut, people are overwhelmed by this, they may be not sure how to start. What's one thing that they can do today? If they think that they're under optimized with their books right now, what's one thing that you would suggest that they do today? Scott: I mean, it really usually just comes down to education. So whether it's our YouTube videos or books like Financial Intelligence for Entrepreneurs is a good book. It's looking at that and then our big thing is process. So if you're not documenting your process for receiving inventory and dealing with returns, just take a whiteboard and put it on your wall and start building those things. So it's called the combination of education and then it's just organization so you can keep track of your to-do list and you know, oh, I've got to block out this much time every day or week or month for accounting. It's more about that discipline and then just get an accountability coach. There are other things you can do, like profit first for a different way to look at profit. Or you can hire someone for EOS entrepreneurial operating system and the traction books. So there are actual structured processes that you can join in where it's not just you have to determine it ahead of time, but it's kind of education. Have coach as partners, whether that's Quiet Light who gives out I know great advice. Even when they're talking to people two or three years from when they're selling and they may never sell to say, no, these are the smart things to do because everything they're telling you to do smart to sell your business is the same guidance to run your business profitably. And then get those external resources, find your peers out there and talk to them and share best practices, and just continue to evolve as an entrepreneur. Mark: Scott, it's really good to see you again. Thanks so much for coming on. Scott: You're welcome. Thank you. Resources: Catching Clouds Catching Clouds Contact Form Catching Clouds YouTube Channel Catching Clouds Facebook Page Quiet Light [email protected]

On this episode of Quiet Light, David Newell talks about when a SaaS business earns a revenue-based multiplier. David is one of our colleagues who just wrote a guide outlining everything he knows about SaaS valuations. Tune in to hear his thoughts on how SaaS businesses have unique needs, the ideal scenario for revenue growth, and which valuation metrics to use when scaling. Topics:

• Revenue-based multipliers.
• What happens when SaaS businesses scale.
• The ideal scenario for revenue growth.
• SaaS valuation metrics.
• Why there is a bias towards monthly plan revenue.
• Comparing scaling a business to dating.
• Takeaways from David's guide.

Transcription: Joe: I understand you spoke with our colleague David Newell about when a SaaS business becomes a listed at a multiple of revenue instead of multiple of discretion earnings, how'd that go? Mark: Well, there's an interesting dynamic when it comes to SaaS businesses, right? E-commerce is pretty straightforward. We have some pretty good metrics that just show that vast majority of e-commerce businesses will be measured as a multiple of their SDE but SaaS businesses, especially on larger levels, we see transactions happen as a multiple of revenue even in some cases when you have a business that is not turning a profit or is currently EBIDTA zero or close to it. And so there's a big question out there, what are the criteria that allow you to apply a revenue multiplier versus an SDE multiplier to a SaaS business? Obviously, this makes a huge difference, right? I mean, if you're multiplying your revenue by five, that's going to be a much bigger number than multiply SDE by five, or four, or three, or whatever. So SaaS valuations can accelerate incredibly rapidly. I mean, it's breakneck sort of whiplash valuations that happen. So I talked to David; I sat down with David. He had just finished writing a 15,000-word guide that really picks apart everything he knows in SaaS valuations and that's a lot that he knows. And he goes into how do we first make this determination between a revenue-based multiplier versus an SDE multiplier? And then the second question, which is again equally sort of murky if you haven't been doing this as long as David has, is where do you then find the multiplier because the ranges are a bit broader than we see in other sectors. And so he goes over the approach he takes for it and then we started talking about some of the individual metrics as well, which are going to apply to all SaaS companies whether it be revenue based multiplier or SDE multiplier. If you are a geek when it comes to valuation talking this is the podcast for you. It's definitely meaty. We get into it pretty in-depth on this. But if you really enjoy this, take a look check out the guide that he wrote. It's now published. It's going to be available on our website. It's also available for PDF download. Share it. Discuss it. Reach out to David. Chris Guthrie would be another great person on our team to discuss these items with. He knows SaaS extremely well. And frankly, anybody on the team, we've all worked in this space ourselves but really, when it comes to our resident expert, we look to David first and foremost and part of it is because of the guide that he put together here. Joe: Let's go to it. Mark: Hey, David, thanks for coming on the podcast. I know you've done a couple of these before, right? David: I have, yeah. Mark: Well, cool. I'm glad to have you back on and I'm excited to have you on this week because you finally finished, and I shouldn't say finally because it wasn't even expected of you but you put together a very comprehensive guide on valuing a SaaS company. How long is it? David: It's a jargon. I think it's about 15,000 words. We shouldn't say that just in case that thwarts people from reading it. I think we're going to do a distilled down version of it. Mark: It's kind of like a mystery novel, how to value a SaaS guide. You know I wrote the ultimate guide to website value years ago when that was what we were really talking about is valuing websites and I think that was a 25,000-word guide. I started out thinking this should be something I can hammer out in a week and it turned out to not be a week. It was much longer than that. It took a while to put that together. And I know this took me a while to put together but the stuff in here is really an authoritative guide on the valuation principles behind a SaaS company. David: Yeah, it's a strange terrain this SaaS valuation conversation because unlike other business models that everybody's familiar with is not purely an earnings-driven model. It's not all about seller's discretionary earnings. And you see that so much in kind of public markets, they speak about SaaS businesses based on revenue multiples and then obviously in our kind of business brokerage landscape, you see it more around SDE multiples and so there's this kind of big confusion in this cross terrain between both buyers and sellers about what is my SaaS business worth and on the other side of the table is how much should I pay for it. And so there's a surprising amount of similarities in the valuation logic between both but what I wanted to point out was the crucial distinctions between them and why they're there to really help people understand that both buying and selling. Mark: Yeah, and I think this is an interesting conversation because we talk so much about valuations at Quiet Light Brokerage. And I've said in the course I put together on how to sell an online business for six, seven, or eight-figures I spent a lot of time on the valuation side and trying to dispel the myth that the valuation formula creates the value of the company as opposed to the valuation approaches and formulas and methodologies are really a predictive exercise more than anything else. And that really, when you boil it down into kind of a philosophical standpoint, it's really a measurement of expected return on investment for the buyer discounted by risk or mitigated by risk. And so you can have other valuation approaches that are completely valid. I know in the web hosting space, which is where I cut my teeth in the brokerage world, that was a revenue-based multiplier as well, because you had a lot of strategic sort of sales going on. It was typically 10 to 16 months of revenue was the average range that we were seeing so I'm interested to get into this. Because I know when I talked generally to people about valuations, I always have this asterisk of but SaaS companies are different and it's kind of a mystery box. So let's talk a little bit about that right there. We'll start with the revenue-based multipliers. Why are we using revenue with SaaS companies and are all SaaS companies going to be valued on their revenues as opposed to SDE? David: Yeah, that's a great question. You hit the nail on the head with what you said there which is that it comes all down to expected return on the asset. And I think the way to think about it is actually kind of in the life cycle of starting a SaaS business. If you imagine starting as many you do people SaaS businesses out of their bedroom; a lot of entrepreneurs see a problem, decide they didn't like it, wants to code a solution to it, put in their own money into it, then they might bring in a developer to start helping them out and they start putting their own money into start scaling it. They get friends as customers and sooner or later they are 10,000 in MRR or so forth and then they start to scale a little bit beyond that. And so initially you're in this period of scaling often with your own capital. And this is kind of a lot of the businesses that we see in the very early stages; kind of like homemades, bootstraps, sub million dollars in ARR businesses. They can remain focused for a large part on earnings and that's why they get they tend to craft some seller's discretionary earnings-based valuations. A lot of these SaaS businesses, for example, one doing 300,000 ARR might have about a hundred thousand in seller discretionary, slightly more multiple of that. Now, what happens? Typically a SaaS businesses look to scale particularly as they kind of arrive more towards a million in ARR and above is that typically what's the case is quite a lot more infrastructure is needed to be brought in to solve the biggest challenges of SaaS businesses which is churn. And that infrastructure is a lot of sort of customer success, it's a lot of additional development in terms of creating better onboarding, and it's putting a lot more sort of infrastructure around the business to really mature and allow it to scale from a small business into a much, much, much larger one, which can happen very quickly, arguably faster than any other business model. And so what happens it seems to me has been the case is that it has become acceptable and standard within the SaaS establishment to at this kind of sub million and arriving at a million in ARR level be able to say we're going to sacrifice our earnings in the near-term, in the short term in order to now chase absolute scalability in the business. And this is acceptable, more so in SaaS than any other kind of business, largely because we have a recurring revenue model with unit economics that are stable once you have churn in place that allow you to do that race up and scale and then cut back on that expense and immediately just be accruing very, very, very significant profitability in the business. And so the quid pro quo for you, reducing profitability of what was a relatively profitable small SaaS business to a now significantly unprofitable or flat profit business is that you'd have to start chasing revenue growth significantly. And so to your point, Mark, about having this kind of expected rate of return, buyers basically say we'll let you run to EBITDA or EBIDTA 5% margins in order that you're going to start sharing consistently 40% to 50% to 60% year over year growth or higher while still going between a million in ARR to five million in ARR, to 10 million in ARR, and 20 million in ARR and beyond. And so that is really the thinking behind why you get to a revenue-based multiple with businesses because the expectation is that eventually a SaaS business will mature and become extremely profitable. A great example of that is something like Salesforce which is now striking off enormous amounts of cash but for a long period of time before it wasn't. And so a lot of the businesses that you see come to market eventually even IPO still have this same kind of fundamentals and eventually, their hope is that they do become very profitable businesses. So it all kind of descends really back from that and I think that some of the question marks around valuation methodology is where is in this kind of hundred thousand in ARR to three million in ARR level which is, of course, where we do a lot of business and where a lot of other market participants are; people listening to this looking to buy and to sell often are is figuring out where are you in a lifecycle, the life journey of the SaaS business, like what is your aim and what are you trying to achieve? And that really informs what the valuation method is for the business. Mark: So as you said there, and there's a lot in there to unpack but the tradeoff or the requirement if you're going to be running at a low EBIDTA or a low profitability or even zero profitability, and I have seen this, by the way, we get these messages from private equity all the time saying we are actively seeking out X, Y, and Z with these characteristics. And I've talked to private equity that is looking for SaaS companies where they said we are not concerned about the EBITDA, we're not concerned about the profitability, but the expectation there is revenue growth at that. I would imagine, though, that there's got to be some other elements in there as well that; let me back up a little bit, we have the revenue growth, but I'd mentioned the expense structure needs to also look at this as being a growth-driven company where the expenses are being driven mainly towards growth. I can't imagine a scenario where you wouldn't necessarily see that but what happens if the growth is minor? So you have a company who is maybe a 500k ARR and they're growing and they're trying. So they're investing heavily in advertising, but their cost of acquisition has skyrocketed. Or they've invested in a large sales team to do onboarding, but they just have not figured that out yet. At what point can we start to say it's not working or is that a solution or somebody just needs to wait in order to sell the company, how do we start to make that discernment in that kind of squishy middle territory where we don't have the clear revenue growth, but we still have the low EBITA? David: 100%. That's what we call the struggle and there's a lot of SaaS businesses in that exact pocket. And the decision for the management team really is what do we do to grow or do we park this and move on to something else? And the former can involve all kinds of different decisions. Obviously making pivots within the business, like changing terms of software products, customer base, also looking to kind of raised capital, the venture capital or angel just to try and get into different channels or find capital to source it from there. And you more or less, Mark, have to push towards that fabled grace, because that's the only available kind of exit option to you from there. Or you go the other way, which is; and you see there is a lot of businesses we're promising and then they haven't reached the cap in the market or a competitor outcompetes them or management loses interest or whatever, and they start to trail off, go flat, and you end up with what's called zombie SaaS which is a not particularly affectionate side while it's probably still a lovely business. And then the option there is more or less you have to cut back all of that operating expenditure in the business in order to restore some earnings and try and exit at typically a much lower multiple of revenue still, but considerably lower that looks more like a normal of an EBITDA type sale and just cut your strings basically and move on to the next thing. And so many businesses, of course, we all know how hard it is to grow and scale any kind of business are in that struggle and trying to figure out that option. Mark: Yeah, I love going through with people the basic framework that we created of the four pillars of value. You want to mitigate your risk, you want to have good growth, make it easily transferable, and have great documentation. Well, that's second pillar of growth is so easy for us to say, right? You want to have great growth and everyone's thinking, well, yeah, of course, I do. It's a lot harder to do. Let's talk about the ideal scenario here. You have a company that is growing strongly and let's say that you're in that one to three million ARR range and we're seeing that ARR grow rapidly so we can apply a multiple to the revenue here. I know what people are thinking, what sort of multiples can we apply to them? David: Yeah, so this is when we flip into a slightly different structure but with very similar dynamics to how we think about business value at Quiet Light and the way we model multiples but the difference, the departure is the starting point. So whereas we in the private buyer side particularly the earnings businesses, we draw upon the several hundred previous transactions we have. We know where the average multiples are for businesses with certain characteristics in nature and we can call on that data set. To start with the revenue multiples side of things you have to again go find the data set and the data set to pull on is generally the public market. And so the best thing to do to start with is actually go look at like an index of cloud companies; SaaS companies that are publicly traded on Nasdaq and so forth, and use that as the benchmark for that kind of revenue multiple that normal publicly traded SaaS businesses are trading at. And that could be something like 10 times, 11 times forward multiple around probably what it is right now. And then, of course, naturally, that's a multiple that's appropriate for a large publicly listed company so already you're saying like, well, that's not really relevant to my smaller private business. So the first thing you have to do is make a public to private discount on that and so there are varying schools of thoughts around what that kind of discount is. It can be somewhat arbitrary. There's a lot of private equity companies out there that speak about what they do, and they have portfolios of private companies that they pour. The received wisdom is it's anywhere between 25% to 30% immediate haircut for being a private company. So you can come down off that 11 to something like eight, for example, and you have what feels like a large private company SaaS business should be trading at. And then we get more into the territory of what we do Quiet Light and what you're just talking about, Mark, in terms of the different four pillars of the business and you start to adjust based upon where this business is aware of the SaaS business we're talking about is relatively strong or weak compared to businesses of its size and businesses of its nature. So three million in ARR is a great example, you'd actually expect on average businesses at that level and this kind of valuation exercise to be growing probably at something like 50% to 60% year over year because it gets harder and harder to grow faster and faster, obviously, with scale. And so if it was much larger, say like a hundred million, you'd actually reduce it and say the average business at a hundred million ARR would be growing at about 30% year over year. And so already you need to compare what's the revenue growth rate of this business versus the paired average for other similar-sized businesses. And it's again a case of going through all of these different classic criteria that we normally do; revenue growth, churn, lifetime value, diversification, all of this classic operational metrics that go back in kind of normal business logic land and just comparing where does it look like versus businesses of its size and businesses in its same kind of customer segment of category and that begins the adjustment process down until you get to a multiple and that starts to make sense. Mark: Yeah, so I want to touch real quick on just the size of a business in general because I know we experience this across the board with all different types of businesses. And yeah, my alarm bells went off, and let's just start with the publicly traded companies. Because I can hear all of my e-commerce clients saying, well, fantastic; I don't know what Amazon is trading at right now as a multiple of revenue, but I'm sure it's a ridiculous number. David: Yes. Mark: But Amazon is also the largest company in America at this point. Actually, I don't know that for sure. I'm sure they're up there, though. They're top five. So sort of with the publicly traded markets is a starting point but there's a lot of discussions that are going to happen in place. So if we're looking at a publicly-traded company like a Salesforce, as we scale down in terms of revenue down into the seven-figure territory from the nine-figure, eight-figure, seven-figure, the discounts do come in pretty rapidly. Why is it that larger companies earn a higher multiple of either revenue or earnings, in your opinion? David: Well, there's a perception of greater stability with greater size. Additionally, just generally speaking if you were to say a business growing 30% year over year at a hundred million in ARR versus one at 10 million in ARR it's more oppressive to be doing a more valuable; you're creating more value at a hundred million than you are at 10 million and therefore, it's commensurate with so the business is worth a greater multiple. It's much, much, much harder to do so. And you see that very, very clearly if you just go and look at a size-adjusted scale in public markets, at businesses at scale that are growing very quickly, they're the ones that are trading at the highest value and that's why Amazon's ballistic valuation. But it's because it's delivering unbelievable revenue growth for business scale. It's already absolutely huge in size so it is very, very, very impressive. But you're right, you need to start discounting down quite significantly. But it's tempting to be like we're starting so kind of pie in the sky with these public numbers and public multiples like wipe off of there. They are the heartbeat of overall like macro SaaS macro sentiment and like it or not, that is where a lot of sentiment; investment sentiment, think about it like kind of customer confidence. It's kind of like investor confidence really does benchmark from public market tech valuations. Mark: I mean, it makes sense, right? Everything that we're talking about here, any sort of valuation is really a market-based valuation. Anytime we're valuing any asset, whether it be a business or apples, it's based off of market dynamics here. So that part makes sense. I want to dig into the business metrics though that we start to get into in more. The regular as we are characterizing it, the regular valuation metrics that we look at. Within the SaaS world, these are going to be somewhat different anyway from, say, an e-commerce business, right? On an e-commerce business, we're going to be looking at gross profit margins, we're looking at growth, we're taking a look at some qualitative aspects of the products that they're selling such as the intellectual property protections and everything else. What sort of business metrics are we going to look at for a SaaS company, regardless of whether we're looking at it from an SDE valuation viewpoint or a revenue multiplier viewpoint; what are some of the other metrics we want to look at? David: Yeah, it's a great question because it's both actually identical and this is where the commonalities between the two methods are huge which is that it's all very well talking about in a revenue growth way of SaaS businesses but you have to look at what's the quality of that growth. And the key barometer of quality of revenue growth in any SaaS business is churn, average revenue per user, lifetime value, a monthly versus annual plan split, and the gross margins on there. So clearly if you just take the first one, because churn is such a focal point for everybody, if you have a business with an outsized level of churn versus its size and category, then that's a major red flag in terms of the business. You see that quite a lot in terms of Shopify or Amazon plugin type add-ons, where largely because of the type of end-user which on Amazon can turn over quite quickly buyers and sellers come and go there. Those tools can kind of have quite high churn rates. And so it's an interesting one because they often have very fast growth rates in general, like a very sharp revenue growth rate because Amazon is an absolutely enormous space to be in. There's tons of new sellers turning up, signing up for new tools that they're churning away after three to four months. So you have to immediately look at can I appraise this tool that's going 100% year over year growth versus the 15% monthly churn? Because if it stops growing even just a little bit within 12 months, it's going to churn out almost the entire customer base and cut off all the growth. And so you have to look at those two. They're absolutely symbiotic. And it's the same with seller's discretionary earnings type businesses because ultimately that impacts the bottom line as it is with revenue multiple. And then the interesting one is looking at monthly versus annual plan split. Naturally, most SaaS businesses are an amalgamation of both and it's definitely favored and preferred that there's a much stronger bias towards monthly planned revenue if that makes up sort of 85% plus of your overall business. That's perceived as a very good thing. If annual is a bigger proportion of that, that's something of a concern. And that's really just because what you want in SaaS is predictability. That's what everybody loves with recurring revenue. Monthly plan revenue is more predictable than annual planned revenue, which seems psychologically counterintuitive, but it's not when you consider that every single month customers have the opportunity to churn away, whereas with annual planned revenue that only happens once every 12 months. So you have no idea what's going to happen in 12 months' time to a large cohort of any bias. Their whole lives could have changed quite a lot so the data set there is less rich and so it makes it more opaque for bias. And so they actually value that pop business generally lower than monthly occurring revenue. So they are just a few of a couple of the kind of revenue quality metrics that should be really important for both buyers and sellers. Mark: I want to talk about ARP but before that, I'm going to talk about churn and a concept of it. I don't know if you would take this into account an evaluation of an Amazon SaaS business, for example, that is supporting sellers. As you know, David, I have an interest in a dating website online and there's a concept in dating world called the good churn. It's somebody canceling their account because they met somebody. And within the dating world, you want to have good churn even though it does impede growth. I know with the site that I have interest in, the business I'm interested in, we have monthly turnover on 23%, which is massively huge and it does impede growth, but we want to have 23% be made up as much of good churn as possible because when people meet somebody they then talk to each other. So within the Amazon space, do we take that into account or with any sort of support service where you're getting somebody off the ground and they outgrow your product because it served its need, right? That's really the dynamic here. If your SaaS business serves a need that your users no longer need it that would be good churn. Would that be taken into account with that churn number very much or are we really looking more just the throttling on growth and the fact that you're chasing ever-increasing growth numbers with high churn? David: Yeah, it's hardly the latter, because if you think about it, I mean, SaaS valuations, in general, are higher than any other business model. And the reason for that is because for every single unit of revenue you're bringing in you can predict how long it's going to stay with you for and you can't with any other business. And so helping people out for a shorter period of time, even if they're then canceling for good reasons while still brilliant from a customer success standpoint, isn't something that a buyer would attach a higher multiple to. So you kind of want to help people for the longest amount of time to create the most amount of value and that's why I like businesses with very high lifetime values and their churn are generally speaking, the most valuable type of SaaS businesses. So, yeah, you've got yourself a beautiful paradox there Mark with your site. I think in that situation, you just have to turn into a massive marketing spend then. You need to post those numbers all over your website and say people are gleefully canceling because of what we do. Mark: Well, you know it bleeds out into the other metrics, I think. And I wish I could say our 23% was good churn. It's not but it bleeds into be other numbers, right? Because if you have good churn where it trickles into is your cost of acquisition becomes effectively lower. So the more good churn you have, the lower your effective cost of acquisition compared to people that don't have as good of churn because you have more social proof. Now, it may not be a very clear or strong relation, it's more murky but let's talk about ARPU and also a lifetime value of a user. When we're looking at these metrics, how much does taking look at cohorts in terms of time play into that? Because I know Chuck sold a business a while ago, it wasn't directly SaaS. It was sort of SaaS-y in its makeup, which it was pretty much awash for the first 24 months in terms of lifetime value and cost of acquisition. But after that 24 month period, everything was profit on top of that. And I look at that and say that's fantastic. That's great. I get it. But from a buyer's standpoint, the cash requirements for a business like that, especially if you're growing rapidly, becomes a constraint to growth. You have to be able to fund a business with a 24 month period lead time. How much does a cohort analysis play into a valuation? And I would assume kind of the logical conclusion here is the shorter period of time to be able to get from your cost of acquisition to your revenue is more desirable. But is that something that you look at closely? David: Yeah, I mean, from the challenges with LTV in many monthly recurring revenue businesses, is it's moving around so much. I just sold a business just recently where the LTV posted up and profit well is going everywhere from 2,800 to $7,000 month to month. So try marketing a business with that level of variance. So to your point, Mark, you do have to look at cohort analysis, I think to go back and be like, what's the kind of longer-term trend in the business here? Like what's actually evolving because that business is a great example, the same phenomena you're talking about which for two years, more or less, didn't really make any money and then started to hockey stick. Not so much because the revenue growth was absolutely phenomenal it's just because the cost base no longer needed to go up anymore to substantiate it. They kind of refined the products enough, spent enough on development, finally figured out the marketing channels, stopped spending really a lot of both and then it just started to fly. And that is the case in point for so many SaaS businesses, which is that it's kind of like swimming into the dock a bit for an indefinite period of time until you do hear those unique economics that makes sense. And it just flies from that point in many cases, anyway. Mark: I think that the whole world of trying to value SaaS companies, especially in this murky range, is a fascinating exercise. When we do an e-commerce valuation, so much of it is cut and dry and I think part of that is just due to the volume that's out there. It's also the nature of these e-commerce businesses as you buy an asset and you turn it around and you're selling it so your profit becomes kind of immediate as opposed to the longer periods of baking and growth with the SaaS company for the long term, which makes it more of a complex exercise. So let's talk a little bit about the guide. 15,000 words, you talked a lot about this idea of moving over to the revenue-based multiplier. I would imagine that there are some examples. And we joked about this before we started recording, I haven't seen the guide yet and reviewed it so I'm going to be speaking a little bit and guessing. I'm assuming that you have some examples in here and other information. Tell us a little bit about what's in the guide and what people could take away from it. David: Yeah, so the guide really breaks down how to do the traditional SDE approach valuation and the revenue approach valuation, and most importantly, how to discern the difference between case studies where you should do one or the other. And I kind of put a four-part test in there which is really the size test. Is it or around or above the million dollars in ARR level? The next thing we look at is where's the revenue growth trending towards, is it showing these kind of fundamentals we're talking about 40% plus year over year growth? The next thing is looking at is this still a business that's kind of a single owner-operator in a relatively thin personnel business, or is it starting to staff up with customer success, starting to wrap around some significant infrastructure to enable it to start going from one to 10 million dollars? That's a really important kind of qualitative factor. And then the last one, of course, is churn, because in reality smaller apps, generally speaking, have higher churn rates. So you'd expect to be seeing kind of an over tuned 4% to 9% in monthly churn in immature let's say, and to the immature SaaS apps. And as you start to get up to this million in ARR level you'd like to see that really dropped below 4% monthly churn. That's the big thing, because churn, as every SaaS business more or less in the world will tell you is the hardest problem to solve for because it is the ultimate barometer of whether people think you're creating enough value to not want to churn out and cancel. And so the more value you're creating, the more helpful you are to people, the less they're going to churn. And that's ultimately what anybody wants to pay for in any business. And so it being the most difficult problem to solve for makes it the most valuable one for a buyer to want to buy. So the lower the churn, generally speaking, the higher the value of the business all else being the same. So those are some of the key distinction points. And then, of course, I'm aware that there's both sellers and buyers looking at it. It's really useful information for both sides to see. Buyers are looking to buy to grow up and scale, sellers are looking to increase the multiples, everybody wants to increase value so I put in a bunch of additional kind of growth value; what I call value-centric growth levers. And what I meant by that is like what essentially the top three things that you can do that will most dramatically impact the most part of the business right away beyond just getting more growth which, of course, always helps. But like specifically one of the things that we've seen over the years in Quiet Light selling businesses, one of the things that we know dramatically increase the multiples of businesses. So I shared some of those in the guide as well for both buyers and sellers to look at. Mark: So if we want to just be trite, we can say if you want to get a great valuation, grow your business or reduce the churn, right? David: Yeah. Mark: All right, the guide is going to be available on the website. We will include links, obviously, in the podcast. You're going to be seeing some emails from us about the guide. We'll also have a PDF downloadable version of the guide. And of course, if anybody has questions about the valuation of your SaaS company and where you fall or questions, I'm sure David would be more than happy to answer any questions about this as well. David: Absolutely. Mark: [email protected]. David, thanks for coming on and enlightening me a little bit on this. And it's a complex topic, its super interesting, though. You know, I've been doing this for 14 years now, and it's sort of refreshing to look at different types of companies, different approaches to the same problem, and seeing where we can get some variation. So this is absolutely fascinating to talk about it and I'm looking forward to reading it, which I should have access to it. I'll be reading it here soon. David: My pleasure. Mark: Thanks David. Resources: David's Article About SaaS Valuation Quiet Light [email protected]

On this episode of Quiet Light, we talk to Steven Pope about how to handle any problem you're having with Amazon. Steven is the founder of My Amazon Guy, a full-service Amazon agency, currently assisting 80 clients. They seek to help their clients and others with all of the possible Amazon travails businesses face. Topics:

• How and why Steven started his agency.
• Dealing with Amazon account suspensions.
• Best ways to rank organically on Amazon.
• The outlook for American-made products.
• The number one action item in advertising.
• A major success story for Steven's agency.
• How to hone in on what changes will make a difference.

Transcription: Mark: Joe, one of the things that you do with Quiet Light is you have a pretty wide network of people that you're now talking to. And I know you recently talked to Steven Pope. He is an agency owner. He helps Amazon business owners solve problems. I know that it's like crazy generic for me to say that but when it comes to owning an Amazon business, there's a lot of different problems you can have; everything from suspended accounts to; I mean, you name it. And I know you guys talked a little bit about the services he offers. But not just the services he offers, you talked about some of the problems that people face and how he goes about solving them. Joe: Yeah, there's something; look, we generally don't have people on pitching their products and services, simple as that. And so when I got this email introduction to Steve and set up a 15-minute call to grill him a little bit on who he is and what he does, the first thing I did was ask for five rapid-fire questions about what to do on Amazon if this happens and he answered them all and it was great. And then he said I've got 300 videos on YouTube that does the same thing. I give it all away for free and if people want to hire me as their agency, then I'm here for that as well. So I just dug into those videos and I love it. I think that you should hear him talk folks. You should listen to some of the things that he suggests and he gives it away for free in this podcast as well. I ask him the questions. I drill deeper when there needs to be a follow-up question. But then he also and it should be in the show notes, he also has a YouTube channel. It's My Amazon Guy on YouTube where he's helping people solve problems. One example is a woman and this is; and I talked about a little bit, single SKU, 100% of her revenue is coming from a single SKU on Amazon and oops she got suspended. Mark: Oh. Joe: Right. And for a week and a half or so, she cannot solve the problem and so she's losing five or six thousand dollars a week in revenue. And Steven has a process for that. It's not rocket science. It's three separate sentences that help get your account unsuspended quicker… Mark: What are those three sentences? Joe: He goes over them in the podcast. I can't recall. I recorded it yesterday Mark. You know how my memory is come on. Mark: I was hoping to tease it so you actually listen to the episode. Joe: Yeah, okay. So you actually have to listen to the episode. Mark: There we go. Joe: Why don't we just go to that? So that's our teaser, go to it… Mark: We are really not pros of this already. Joe: Not at all. If you have anybody else like this that's an expert in the space that gives it all away, regardless of the fact that they also have clients that pay for the service, introduce them to us, because I think this type of information is fantastic. Because everybody hears yeah I hired an agency and my customer acquisition went through the roof. We hear it as well. But this person was referred to us. I grilled him. I know who referred most of his clients to him and I have great respect for that person and they've been on the podcast as well. So give it a listen. Hopefully, it's going to help everyone that has even if it's just 10% of your revenue on Amazon, it's worth a listen and worth getting over to that YouTube channel to get educated as well. Joe: Hey, folks, Joe Valley here again with the Quiet Light Podcast. Thanks for joining us. Today I've got the pope with me this morning I had the was that was last week's podcast and today I've got the pope. You probably get that a lot, don't you? I'm sorry. Steven: The Popemobile jokes when I was a television reporter days, yeah, I remember them. Joe: My full name is Joe Valley when I was in college the Peanuts folks; the Snoopy, Charlie Brown, and all that, it was a big Valley girl craze back then. And there was actually a Christmas or birthday card that said something about Joe Valley Beagle for sure. That's my only connection with something semi-famous. You've got a big one to the pope. Anyway, we're here to talk about Amazon. Your business is The Amazon Guy and you're going to share absolutely every possible secret you know about… Steven: Every single one of them. Joe: Every one of them. It's going to take a while, folks. Steven: Yeah, everyone who's listening to this will be a millionaire just by simply listening. Joe: No action taken whatsoever. Okay, well, let's over promise and deliver right now. We just did. All right enough of the jibber-jabber. Let's talk about you. Give us for the audience a little bit of background in yourself; who are you, what's your business, how did you start, and all that kind of stuff. Steven: You bet. So my name is Steven Pope. I'm the founder of My Amazon Guy. We are an 18 person digital agency at the Atlanta, Georgia area. One-stop-shop. All things Amazon. Everything from search engine optimization, to PPC, design, and logistics all in one place. My background, I started my agency after a side hustle in consulting Amazon for several years and one day I lost my job. And very much like the private labelers that are listening to this who are running their current day job and they're looking for something else to change their lifestyle or whatever else, this one forced me to change. So within 48 hours of getting laid off and I was working for a lighting company, I decided to start an agency and the rest is history. We just help people grow sales. Joe: And you're also living it as well because you have a brand that you apply your own services to and share that information on your own podcast as well, right? Steven: I do. So I own a brand called Momstir and it's M-O-M-S-T-I-R. And it's a brand where we sell funny wine glasses with funny sayings on them and very much a side hustle brand to try and figure out and keep my skills sharp. So a lot of agencies try and build out their like, hey, let me go network, let me go show up and shake Jeff Bezos' hand and plaster a photo on my website. We just get crapped on. We just go into accounts. We don't leave our house. We don't go to conferences, complete referral-based business. And I think that's the right way to run an agency. We just go solve problems left and right and grow sales every day and go in and get our hands dirty. Joe: And you folks know my position here. You know that I get e-mails and calls all the time from agencies and I have the privilege of working with clients and seeing if they have agencies or not. When Steven and I connected, I just went with some rapid-fire questions to see if this guy had any idea what he was talking about and it turns out he actually does. So I want to duplicate some of that here on this podcast for you. E-commerce business owners that are 90% Amazon or 20% Amazon and want to be 90% Amazon. But let's first start with the fact that you do have 80 clients now, active Amazon business owners that you and your team of 18 work with, right? Steven: We do. Everything from air purifiers to tweezers and everything in between. Joe: All right. Let's talk about Amazon Suspensions. You mentioned in our pre-call that you had a woman call you and her account has been suspended for several days or something like that. Tell that story briefly but how you go about getting something reinstated? Steven: You bet. So there's a difference between suspension and listing yank. So suspension your account is down, you can't even log in or get your money out. Listing reinstatement and this is where you have a product that's been yanked from the catalog. Each has their own problem and their own solution. Amazon is a siloed organization and so it can be a very daunting and confusing process for sellers, no matter what the problem is. We could be talking about anything that goes wrong at Amazon. It's literally impossible to have a single point of contact at Amazon so like me as an agency, we don't even have a single point of contact. We got one guy that we talked with on a monthly basis and talked about advertising with and outside of that, we're doing the same thing sellers are doing; brute force, sellers support, ticketing, emails, you name it. The difference is that because we've seen the trends between the accounts, we're able to see what works currently. And I say that because what I talk about today may not work 90 days from now and that's because the platform is shifting at such a rapid pace. It's entering its maturity phase. We've seen Amazon change all the rules constantly on a whim, which is why you shouldn't be 90% Amazon sales. You probably need to diversify if you want my opinion. But let's talk about this, so I got a call today from a single mom and her listing was yanked. This account, $30,000 a month in sales, one product, and all she could do… Joe: Bad idea, first of all, but go on. Steven: So she was in tears talking to me today. And I share this with genuine care and knowing that this is her livelihood and Amazon took her livelihood away. And it wasn't even for an egregious thing. It wasn't like she broke a rule. One day the algorithm crawled her catalog, looked at a bullet point, and said, this looks like something we don't like, yank. And so she did all the right things. She fixed it. She made the changes to the ballpoints. She contacted the support team. She got on the phone with what's called the captive team in America. She sent listing evaluations, e-mails. She did all of the right things and can't get the listing reinstated. And so for seven days, her business has been down. And if it doesn't get fixed, she can't afford what she needs to do to live or run a business or run her household. Joe: So that's something you're confident you can fix based on the phone call you had with her? Steven: 100%. Joe: How long will it take? Steven: That's the part I can't guarantee. If an issue like a listing yank is down we have a near 100% reinstatement rate, but what we don't have is a timing reinstatement guarantee. For some accounts, we'll get in there and we'll fix things within 48 hours and other times it takes 30 days. And it has nothing to do with the talent that we have or the process. It's just that Amazon's system sometimes just is absolutely breaking and they don't have; they use the 80:20 rule to an extreme. If they can get rid of 80% of the bad actors with 20% of the effort knowing they're going to screw over 20% good actors, they're okay with that. Joe: Lots of actors these days, I guess. Steven: And because of that, even if you're doing all the right things, you will eventually run into this problem. Your listings will get yanked. You'll get suspended. Whatever it might be, you will face a challenge that economically damages you and you have to act quick and you have to be concise. And whatever you do, don't submit 10 tickets. Don't do that. Your appeals need to be concise. You need to be giving them exactly explicit what they ask for and make it easy on them to help you. Joe: Do you have any language on your site that tells people exactly what to do? Steven: We do. Yeah. We have a page. I'll give it to you for you to put in the show notes, which is basically a plan of action to do when you run into a situation like this and in high-level summary, you do three things; admit the problem, how did you solve the problem, and what are you going to do to prevent the problem from reoccurring? And those could be two to three sentences a piece. If you do that and you format it, just like I mentioned, you have a greater chance of success. Joe: You don't think that they should write 17, 59 paragraphs for that seller account to Representative Reeve? Steven: No. Joe: No, I'm kidding. Of course. Steven: Nor do I think you should mention that you've been on Amazon for 15 years and you're a half a million-dollar business. They don't care. Joe: They don't care, yeah. Steven: The person reading this is looking for reasons to not approve your requests. They're not looking for reasons to approve it. So give them exactly what the request with no fluff and then you'll have a higher chance of getting approved. Joe: Okay, so I'm just going to say to those folks that have a hero SKU like that, knock it off, takes some of the money, launch a new listing, and spread out your risk so that you're not in a situation like that. What's the best way to rank organically? You're launching a new product, what's the best way to rank on Amazon, how do you get from page nowhere to the top of Page 1? Steven: So two types of situations we could be in; situation one is you're launching a brand new product and situation number two, you've had a product on Amazon and you're trying to take it to the next level. I'm going to talk about the product launch first because there's what's called a honeymoon period in the first 14 days of having an item on Amazon. You want to maximize traffic to the listing and maximize sales during that honeymoon period because it will leapfrog the listing rankings in a very rapid succession. If you can show Amazon that you're for real, you're the real deal, this is your first product in the account and you got a hundred sales in the first two weeks, they're going to pay attention to that. In the past, people would use programs like viral launch or some sort of giveaway to make this happen. Those programs no longer are as effective as they once were so you can't just solely rely upon that. What I recommend you do is; I'm assuming you've got a budget for the product you're doing a launch for so I'm assuming you spent two or three grand on the product. I would set aside $2,000 for Google and Facebook ads in the first 14 days. Spend it. No guarantee you're going to get sales out of it. No guarantee that you're gonna get a good ACOS. That's not the point. You're trying to train the algorithm that the product is important and that you personally can bring traffic to the Amazon platform. They will reward you accordingly. From there, it's almost 90% Amazon PPC in the first couple of months. And then from there, you can start relying more on SEO. For the other products that have already been there, the longer you've been there and the lower the run rate you've had, the harder it's going to be for you to start gaining. So there's a bunch of core key practices that we could discuss; back end search terms, make sure you've got 250 characters that are unique, have no commas, no duplicate words, make sure you got misspellings in there, and include a couple of Spanish keywords, front end, you got titles, bullets, images, A plus content, all of those need to be maximized. If you don't have every one of those fields maximized you're going to be losing out on keyword rankings you could have gained otherwise. So everything you do on Amazon to grow sales can be boiled down to two things, driving traffic and improving the conversion rate. SEO is almost primarily a traffic generation strategy. However, if you rank four words you don't convert on, you will stop ranking for those words. So if you're selling an apple slicer product and you want a rank for foot rubs or foot lotion or whatever; it's the first thing that came to my mind, it's not going to work. I guess I need a foot rub right now. Joe: I guess so. Steven: But in any case, there's so many different things that help with ranking on Amazon, and the one that I would say is your quick five-second hack today for those that are looking for like, okay, that's cool, I understand I need to optimize but what can I do right now? Go into your A-plus content and make sure every single photo is maximized with a hundred characters per A plus content photo. So if you've got 20 photos, that's 20 times a hundred characters of keywords you're probably missing out on right now. And throw one of those to be Spanish, put misspellings under one of them. Amazon claims that they don't index the A-plus content. I believe they're big fat liars and I can prove it. I've put Spanish behind one photo, I didn't put it anywhere else and guess what? We indexed for it. Joe: How important are product demonstration videos in this conversion aspect? So ranking is one thing that's important but if you're not converting, what's the point? And eventually, their algorithms are going to say people are looking, but they're not buying so we're going to de-rank you I assume. How important are videos in that conversion process? Steven: Minimum. Joe: Really? Let's talk about that. Steven: So I'm coming from a background in television where I thought video was king, right? Content is king. But video on Amazon, I'm utterly surprised by how few people are actually watching the videos. And so, in my opinion, instead of spending $5,000 on some professional photoshoot, grab your cell phone and just talk on camera about the top product features for 60 seconds and call it a day and put it on your listing. Now, if you're running a corporation that's not going to resonate with your management staff. They're going to throw a conniption fit. Obviously, that's not going to work. But if you're a side hustling brand and you don't have a video today, fix it. Go out and get one. Shoot it on your cell phone. Put on the target demographic, whoever you want to buy it. It will help. But of all the things that we could talk about on today's podcast, video will be at the bottom of the pile and it's because nobody clicks it. Joe: Let's talk about American made then because we've got a situation in the world where we're in trade wars with everyone else. How important is; and I know you don't have a crystal ball that I see on your desk. Apparently, you need a foot rub. You're thinking about that while looking at me on video. Again, I don't know why people help me out here. But crystal ball American made products, given the trade wars that we are in. Is it going to be something it's going to be important on Amazon in the future? Steven: I consider myself a thought leader in the Amazon space, and that's why I'm going out and getting on my podcast. I want to talk about where I think Amazon is going. I personally believe manufacturing is coming back to the United States. Is it here today for B2C products? No, it's not. I think it will be soon. All of the symptoms are there. If you're looking at the symptoms there at present; you talked about the trade wars with China, tariffs increasing currency exchange wars, and all that good stuff. COVID is a second reason the entire supply chain and the entire world broke down. Globalization takes a hit when international events happen. So nationalism and hyper localization are likely to occur under these circumstances. In addition to that, the user base who may blame COVID on China is going to start actively looking for American made products. This is going to help you with margin issues where you're selling a product for sometimes 40, 50% more in cost. They're willing to bear that market just because of principle. And the question is, how do you manufacturer in the States and do so profitably? I do not know the answer to that question. Joe: I was going to ask that and maybe you know, the answer to this one, how do you find those manufacturers in the States? They can go to Alibaba and eventually get to the manufacturer in China and there are some services; we've had folks on, Zach from Gembah can help you with finding manufacturers but how do you find them in the States? Steven: I have tried to solve this problem for the last three years. I joined what's called the Georgia Manufacturing Alliance. So I'm in the Atlanta, Georgia area. I toured several different manufacturing facilities. And what I learned is that for the most part, the United States is a B2B manufacturing country and most businesses are focused on B2B products. So, for example, a facility I went to, they made toilet seats for airplanes and it's a special process to do that. Joe: Sure. Steven: They have to fire-resistant, right? Couldn't you can't buy that overseas because there's lives on the line. B2C products like gifts or day to day households; anything that's not topical or consumable, because obviously most of those are made in the states currently. Joe: Exactly. Steven: But home goods, if you will, it is absolutely cheaper to go overseas right now for that. There are brands like American Giants who hires 100% from end to end American made, American laborer and they are doing well. They're selling the Mercedes Benz version of a hoodie right now and they've proven it works, but it doesn't work on every vertical or every catalog, every type of item today. I think technology is going to be the last category that this will work for. But I do see the symptoms and I think if you were an investor today looking for how do I get ahead in five years from now; not today, but in five years from now, I would definitely set yourself up for American made manufacturing and an American made company run by Americans selling to Americans. Joe: Okay. Crystal ball. I love it. Let's talk about that person who has the American made products or an overseas product and they sell on Amazon, what's the secrets to sponsored ads? What can you tell folks that are listening that you do that they should be doing to help them lower their ACOS and increase their conversions? Steven: If there's one area that you need to hire out for if you don't have the expertise while selling on Amazon, this is the one. And it's because advertising is changing at such a rapid pace. If you haven't been watching two webinars a week or spending two hours a day on your ads you're behind currently. In the last two weeks alone, display advertising, the cat is out of the bag. That's what I would have given you two weeks ago but because segmentation approaches and every avenue available to advertise your product and generate traffic right now everybody is jumping on. Everybody's looking for that edge and so you have to be very quick. You're going to have to rotate your funds around. There are three types of ads today on Amazon, sponsored products, sponsored headline ads or sponsored grants, and finally, display. Every single month we have seen a new form of segmentation come out under one of those three core areas. Three months ago it was custom brand images. Display came out even more recently than that. The one that's coming out on 10% of accounts right now is retargeting; hitting people off of Amazon who have already viewed your products or who have already purchased your products. So those are two different things and then there's a third one that's coming out that is people who have search-related keywords off of Amazon to bring them into the platform. Two of those three are only available to 10% of accounts right now but the moment you get a glimpse and you see it on your account; nobody's giving you an announcement. Amazon is not emailing you and saying, hey, this is now available. You literally need to check your seller central portal in every nook and cranny on a weekly basis, because I'm telling you, you will find it 30 days before somebody shows you it. Joe: And the advantage to that is? Steven: You can quickly execute it and then generate additional traffic at a lower cost and get into additional areas where nobody else is paying attention to. So if you are on that display bandwagon before two weeks ago, you would have had record low ACOS, new sales you wouldn't have gotten otherwise, you could have shown up on your competitors page in ways that they couldn't predict or know how to combat. And you should still do display today, by the way. I think that's probably the number one action item in advertising right now. If you don't have display ads up, go do that. Joe: I got you. Okay, your average client is doing a million dollars a year in revenue I think, right? Steven: Yep, somewhere around there. Joe: Okay, give me a success story. Steven: Sure. So I have to think carefully now which brands have you made public permission. Joe: You don't have to name brands, you can just talk about the story itself. Steven: Yeah, so let's talk about a generic men's supplements company; let's call it that. Joe: Okay. Steven: The hardest category to sell in right now in Amazon is supplements so if you're looking for a product to launch, I wouldn't go into supplements and that's because of all the challenges and listing yanks and stuff we kind of ended about earlier. It's egregious right now how bad it is in that category but in any case, when I first started, my first client as an agency was a men's supplements brand and they tried to other consultants before me. They couldn't get past four grand a month in sales. Within 60 days we got them to $80,000 in monthly sales. A couple of months ago, they clocked in at 400,000. And it's because the grind; the My Amazon Guy process, the grind if you will, it works. You go in every day and you look for as much traffic as you possibly can get and find as much conversion as you can get. And it takes going attribute by attribute, ad by ad, design by design; every single layer has to be fulfilled. Where they may have previously failed, they didn't load their entire catalog to Amazon. That might sound like a core issue and some of you are like what you mean they didn't load their entire catalog but if you're an omnichannel brand today, sometimes you purposely don't load all your product to Amazon. I think that's a big mistake. The fastest way to grow an Amazon is load more product, launch as many as you can. Every three products you launch, one is going to fail flat, one is going to break even, one is going to succeed. So you've got a one out of three ratio to work but load as many new products as you can to your lifecycle on average on Amazon. Second, get on as many platforms as you can. Diversify. Amazon, eBay, Etsy, Walmart, Shopify; all of those are important. Joe: Not necessarily in that order, I'd like to know where would you go to first beyond Amazon US. Steven: Yep, Amazon US and you could talk about more marketplaces like Europe or Japan or Singapore and Middle East and Australia, I guess let's pause on the location geos for just a second, let's talk just marketplaces. And so after Amazon, if you have a product that can sell on Etsy that's the one I would go to next. It is the easiest to get on and will produce at a higher rate than it would have six months ago. And it's because when Amazon supply chain took a hit and the shipping timeframes went down Etsy doubled in size overnight. Doubled in size but did not double in competition which means that's your opportunity. We are seeing massive success on the Etsy platform right now. Joe: Any particular category? Because if I'm just selling supplements, I can't sell them on Etsy, right? Steven: You're not supposed to. It's supposed to be handmade and they're supposed to be hard to obtain items. I've seen everything on Etsy, though. So even, you know, it may not be the first platform of your choice if you're selling supplements or if you're selling something that doesn't go well on Etsy. Maybe launch on eBay and Walmart first before you go there, but I would still give it a look. Joe: I want to say that the transferability of an Etsy account may be a challenge. And transferability is one of the four pillars. If you can't transfer the control of the assets of the business, your business is not sellable or much more difficult to sell so we'd have to look into that again. The last time I had any significant Etsy account as part of a sale, it was tuck in hopes that you couldn't squeeze through to try to get the transfer of the control that Etsy account. So I would say caution there but if you're looking for that short term gain, it's fine. Where there's a will, there's a way. My particular buyer wasn't willing to go that route and he could have but he chose not to and that's okay. What about the idea of just simply feeding your stallions and maxing out Amazon.com if you're still growing and there's lots of more opportunity here in the US, why divert your attention to an Etsy or a Walmart or whatever it might be or the EU? Steven: So this is a good debate between focus and diversification. They have a massive amount of friction between the two. I believe it's easier to do diversity than do focus. The shotgun approach generally will lead to more success. That's my personal style. If you're a perfectionist, focus will work a lot better for you. So I would say that's a choice the business could make, a business decision if you will. Joe: And I have to say and interject that it depends upon your goals. If you're going to run the business for the next five years, I think diversification is really smart because if your business is more diversified, it's going to be risk-averse. The lower the risk, the higher the value in terms of the multiple. If you've got two businesses that are equal in revenue and discretionary earnings size, and one is 90% Amazon and the other is 40% Amazon, 30% Shopify, and 30% something else or other marketplaces but the discretionary earnings is the same, same number of SKUs, same hero SKU count and all this other stuff, that diversified business is less risk. Less risk equals a higher multiple. You're doing the same amount of revenue, but your business is much more valuable because buyers see that it is less risk and they'll pay more for it. My two cents. Steven: So I totally agree with that and you're definitely the expert on buying and selling, so I won't even go there. Joe: Have you noticed how I like to interject my opinion on buying and selling when I'm talking to somebody else about Amazon rankings and things of that nature? Steven: I couldn't have guessed why. Joe: It's amazing when you run the podcast and you get a microphone and you can say these things. You had talked about 80% of the work that you do in a seller account is fairly SOP oriented but there's 20% that requires just instincts and a deeper dive into the why of the particular problem or ranking solution. Can you talk about that 20%; what are those things and how do you really hone in on what's going to make a difference in your particular brand and ranking? Steven: So for the 80% that's SOP or standard operating procedure, you can follow a checklist and it can be clerical in nature. If you go through that checklist and you do an 80% job, you're probably going to succeed. The other 20% is the experience, the nuance, the analytical understanding to forecast, predict, and see what's going to happen under the chaotic nature of Amazon and e-commerce, understanding the landscape, and understanding what happened in the previous situation. So as one small example, understanding the notion or the difference between a coopting of demand versus a demand gen product, this is an easy to understand concept but doesn't even cross the mind of most individuals. So what do I mean by this? If you go on Amazon today and you want to sell an apple slicer, that product has been commoditized. You're basically trying to sell a commoditized coopting demand product. There's already demand, you just need to go get it and tsxake your share of it. If you're trying to come out with a patent protected product, gadget, widget; whatever it is that does something that solves a problem that nobody even knew was a problem, that's demand gen. The guy doing demand gen has a one out of 20 chance of succeeding, the coopting demand guy has got like a 12 out of 20 chance of succeeding; much harder but if done correctly, the demand gen product that wins., the one of the 20 will be gigantic in size and will dwarf everybody else. GoPro is a good example of this where they solved the problem nobody knew they had and now they have an entire empire. So if you're looking at analyzing data and you're looking at like how do I solve my problem, you're going to have to consult either an expert or you're gonna have to grind it yourself. You're going to have to spend so much time analyzing this question and watching all the podcasts, watching all the webinars, reading information, submitting the tickets in Seller Central on a daily basis until you hack it, or figure it out. That's what it takes. And that 20% is very hard and you want to understand like, what do I do in this situation? If you've never done it before it's really hard to learn. Joe: And it's probably going to end up producing 80% of the revenue if you click the rules there. You actually have book a coaching call on your website. You're not just working with clients and taking agency fee on a monthly basis, but you are doing coaching calls as well. Can you talk about what type of calls those are and how often you do them? Steven: You bet. So I probably do one a day on average. And I have a very different vision of what agency should be than the typical agency. I would give away all or trade secrets. I got 300 videos on YouTube answering literally every question. If you have pesticides gating on your product and you sell tweezers and you're like, why does this on my account, I don't even understand this? We give away the answer key right on the YouTube video. Joe: And how do they find that; is it My Amazon Guy on YouTube? Steven: Yes, and if you were to literally Google pesticides gating My Amazon Guy, you would find it. Or even just pesticides gating Amazon it'd probably still come up. But the point I'm trying to make here is we share all our trade secrets openly. We're trying to add value to the community because it comes back. I know that if I had value to you today over the next year; let's say you follow me for a year before you even pay me a dime, you will then come and say, hey, shut up and take my money. And so sometimes I will hear from people that have watched 40 of my videos and they just want to say hi. But on those calls, typically we're getting in and we're solving a specific problem. That's usually the number one reason one of those comes up is because, hey, I've got a business problem I need a solution today. I can't wait around and figure this out. Joe: Like that woman's account who was suspended. Steven: Exactly like that woman's account that was suspended. I offer ala carte services on my site for those that aren't ready to make a monthly commitment. Now, I prefer having monthly clients. It's an easier business model, don't get me wrong but we are going to serve wherever we can. We're going to add value where we can. We'll get our foot in the door. One of my largest clients; we did a one-hour coaching call and now they're my largest client. And it's because, from day one, we will teach and show and offer value and grow sales. That's what we do. Well, yeah, it's kind of fun doing a coaching call, you jump on, you're opening up a seller central account, I can draw on your screen. We can go in there and figure out hey, here's all the mistakes you're making, here's where you can best practice improve. We'll hand it all over. And if you don't want to do the work yourself, hire us. Joe: People, do it. I think that it's worth it even if you're just trying to learn something new and manage the business yourself. Go to YouTube, take a look at all of these three things. They give it all away. Normally, you're not ever going to hear me talking about an agency on the Quiet Light Brokerage podcast, we're here to help first and serve you first and in this way, I think we're doing that well. I think my initial conversations with Steven were me grilling him and seeing if my bullshit meter went up and it really didn't at all. So he's a straight sharer. He's helping first. He's educating, sharing it all; he's giving it all. If you want to do it on your own go to his website. Go to the YouTube channel. If you want to have a coaching call, go to the coaching tab on his Web site and spend an hour working with him and learning. Your business is very likely your most valuable asset, you should be spending time on learning how to run it well, number one. But strategically self-serving; look, this is what we do, folks, if you're not understanding the value of your business, what are you doing? You're just driving revenue for what? To put more money into inventory? How much do you take out with 80% year over year growth? Not enough. You will probably make more money on the exit, times two or three than you make running the business on a daily basis. So if you work towards that, understand the value of your business, set an exit goal, and reverse engineer a path to it, even if it takes two, three, four years, you've heard us with those types of clients that we'd love to have on the podcast that have successfully sold their business for millions of dollars. You should do it as well. Go to My Amazon Guy. Check it out. Reach out to Steven and learn as much as you can to improve your own business. I think he's one of the handfuls of people in this space that I've trusted within five minutes of speaking to him. I think you should. Steven: Thank you, Joe. I appreciate it. Joe: My pleasure man, good to have you on. I'm looking forward to working with you in the future. Steven: That sounds like a plan. Resources: My Amazon Guy My Amazon Guy YouTube Channel My Amazon Guy Podcast How to Appeal Account Suspensions Listing Reinstatements Marketplace Launch Assistance for Walmart, Ebay, and Etsy SEO Articles Advertising Articles Campaign Segmentation Articles Quiet Light [email protected]

Inspired by a video course that we had to re-record this week, we are going to discuss the top five ways buyers can gain instant equity. Tune in to hear these great tips on how to maximize your business. Topics:

• Why an Ecommerce business may be undervalued.
• What makes it hard to identify gross profit trends.
• Rewards vs. cash back credit cards.
• The less-than-obvious ways to gain instant equity.
  • Examples include:
    • Renegotiating costs.
    • Net 90 terms.
  • The China Magic Mastermind's methods and why they're so effective.

Transcription: Mark: So, Joe, recently Chris Moore, our chief marketing officer, came up here to the Twin Cities. He rented an Air B&B and he and I sat down for a day to record or rerecord the course that I recently put together on how to sell a business for six, seven, or eight-figures. I got to tell you, I'm not a fan at all of recording things at least in video format. I know you're a natural at it. You used to do commercials; direct commercials? Joe: I wouldn't say I'm a natural. I've seen you and I've seen me and I think you do a great job. Mark: Well, that's very political of you. But you know something during the course that I wanted to get across because I was going through some of the tips that we've talked about for sellers about how to maximize the value of their business and one of the points I wanted to make is that a lot of maximizing the value of your business isn't so much taking an accounting trick and it becomes magically more valuable. It's more about not artificially or accidentally discounting your business because you just don't know what you're doing, right? Or you don't know how to run the right financials or you don't know how to do an add-back calculation. Well, on the buy-side; this is two sides of the same coin. On the sell-side we want to make sure that we aren't artificially discounting our businesses and that we're taking advantage of some of the really natural, low hanging fruit that we can do to make sure that that we're getting full value or capturing full value for the business. But on the buy-side sometimes there are opportunities when somebody doesn't want to put in the work, for example, to switch from accrual to cash, which we've had. Some people say it's just not worth it for me to take that time. So today, I think you and I, we're going to talk; I mean I'm going to bug you and pester you with questions and grill you as much as I can about ways that the buyers can add some instant equity, get that instant jump in valuation by buying a business with certain characteristics. Joe: Yeah, and then for sellers it's important to listen too because if you ever think you're going to sell your business either through Quiet Light or on your own; especially on your own, you need to pay attention to this because you don't want to be taken advantage from by the buyers that are listening to this. If they're listening now, they're going to learn some things and potentially buy your side, they're going to learn some things that if you hang up halfway through you're not going to understand and make sure you're maximizing the value your business. And every time I say that I feel a little wonky. Really what you're doing is you're not jacking up the seller's discretionary earnings, you're actually getting what you deserve. You're learning to understand the true value of your business, which is your most valuable asset more than likely so pay attention to it and make sure you understand what they are. So it is just Mark and I on this podcast and we're going to talk about maybe five things that buyers can do to gain instant equity in their business. And the first one that; and this is me thinking if I'm out there buying on my own, which I'm not given the role that I'm in, but if I were, this is what I would do. And the first thing I would do is look for businesses that are presented for sale on a cash basis. Now, it has to be a business that's growing rapidly, and let's talk specifics here. This is a physical product e-commerce business that's growing rapidly and using cash accounting. I don't love accounting either, folks, but it's one of the most important things to pay attention to when you are buying a business or when you're selling your business. If the business is growing rapidly, you're trying desperately to keep up with inventory needs. And in doing that, if you're buying it on a cash basis, you are continually taking money out of the business to support the ever-increasing need for inventory volumes. So you may be spending $10,000 this month on inventory but you haven't sold it yet. That's going to depress your net income or your seller's discretionary earnings. It gets to a point where; I sold a business recently, it was Brian and Janine, they were on the podcast three or four weeks ago. They went from something like 270,000 in revenue the first year to 1.5 million the second year to 5 million the third year. And Janine kept writing bigger and bigger checks, they're actually wiring more and more money to China and kept saying to Brian where's our money? We keep giving everybody else our money, but we're not taking any. And it was because rapidly growing businesses like theirs was such a cash requiring machine. So if I'm a buyer, I'm going to look for a business that's growing rapidly and is presented on a cash basis because discretionary earnings is going to be artificially depressed, it's not the right way to present a business for sale. On the flip side, if a broker is listing a business for sale with declining revenue on a cash basis you're overpaying for the business because it's not requiring as much cash to buy inventory because it's less and less inventory. It's just the opposite. So you've got to look for businesses if it's presented properly, is going to be accrual accounting, if it's not presented properly they're doing cash. You could gain instant equity by buying the business on a cash basis. Mark: Yeah, I'll take on it and say absolutely, a quickly growing business in the e-commerce world on cash basis is typically going to be undervalued for the reasons that you stated. But the two warnings that I would give on this would be one that you already said, and that is if it's declining and particularly if the seller or the business owner has decided to take their foot off the gas; they're not looking for more inventory. The inventory that they're having in stock is either aging out or running out and they're not reordering. Now, you're going to have an artificially high gross profit on this business because they're not buying more inventory. The second thing that I would just caution people against is on a cash basis, you can't really identify what the gross profit trends are, except by taking some really large timelines and using that. So take a look at unit cos1ts at that point to see what the trends are if you can get that level of detail just to make sure you're not in a business where gross profit margins are getting squeezed by huge amounts because that'll be the other risk and the other major downside to cash basis accounting is you just don't get the same insights into your gross profit margins. Joe: We're going at math here. I know it's nauseating but real quick math folks, I've just seen a jump in discretionary earnings flipping from cash to accrual by $70,000, $100,000 in some cases. And so the instant equity here is if you're buying a business that you find some inexperienced person selling on a cash basis and it's depressed by even just $20,000 because it's cash instead of accrual and you're buying it three times, you've just gained $60,000 in instant equity in the business; simple math. Mark: Yeah, and I think one of the objections to this and I've heard this from buyers that are evaluating e-commerce is okay that's great but why would I want to buy a business with paper profits and really no cash? The cash basis is the amount of cash coming in and out of the business. And you brought it up Joe that you were speaking to somebody recently that said where is my money? I keep giving everybody else my money. But what I think a lot of sellers miss and I would encourage sellers to think about this as they're growing and evaluating an exit and for buyers as well, as far as what's a good entry point is that there does seem to be a transition point in the growth of many of these businesses where they stop becoming these cash hungry machines and the growth levels off a little bit and you get to a certain size where even if you are still growing and still investing disproportionately in inventory, you start seeing some of that money accumulate in a bank account. It does happen. There is a pivot point. Have you seen that as well Joe? Joe: Oh, yeah. There's no question about it. I've said way too many times that when you're working the hardest in your business, you're usually making the least amount of money. It's usually in those early years. At some point; I guess it's that tipping point, the business starts to generate more cash flow. It's not as much of a cash sock because the growth has actually slowed, strangely enough. But it's bigger. It's larger, and you're able to take more cash out of it. I definitely see that change. I want to move on to number two here, Mark. The number one thing that I see people miss when selling or buying a business is cashback money from credit cards. And I think the reason they miss it is because they think they're being sneaky and cheating on their taxes so they don't want to talk about it. And the reality is that the IRS doesn't know how to tax cashback from credit cards. It's actually a discount on your advertising. So you spend a million dollars, you get one and a half back on your cashback credit card. You've got $15,000 there that you're sliding with your personal account that's not on your P&Ls. That's $15,000 owner benefit cash in your pocket and you're thinking I don't want the IRS to know. The IRS doesn't know how to tax it, first of all. And I've talked to my CPA about this. Most people will miss that. So there's $15,000 that winds up in your bank account. That's real money somehow. Mark, is that an add back or an owner benefit and should be on the P&L in your opinion? Mark: Absolutely. Joe: Right. Most people don't put it on a P&L and that's okay because the IRS don't know how to tax it anyway. But when you sell your business or buyers when you're buying a business, look at the advertising spending. I talked to someone the other day. They were spending about two million dollars a year on advertising. They had an agency that was doing it for them. It was all Amazon FBA stuff. And I said, well, what kind of card are you using; how are you paying for that spending? They're like, what do you mean? I'm like well, how are you paying for advertising? We just let Amazon deduct it from our account every couple of weeks. Once we get to a certain level, they just deduct it from our deposits. I'm like that's very kind of you to let Amazon do that but what you're missing out there is two million dollars in ad spend, 1½% cashback, $30,000 cash to your bank account. So you've just lost $30,000 a year. Then you sell your business; this was a sizable business with incredible growth, probably I'd call it a simple math three-time multiple or might be four but now you're at $90,000 to $120,000 lost value on the business. So buyers look for these types of things. If you are buying a business and they're spending lots of money on advertising, even if it's a million dollars in advertising, you're buying it at 1½% percent cashback. That's $15,000 cash in your pocket times a three-time multiple so it's $45,000 instant equity. So between number one and number two, there's about $100,000 in instant equity depending on the size of the business. This one is the one that is absolutely most missed. Mark, you and I just switched company-wide; we just switched to American Express gold cards because we get four times the points of $250,000. We use points and rewards instead of cashback because we go to events and we travel and it's going to help pay for the team to travel. Mark: We don't go to events and travel right now. Joe: That's right. We're recording on June 16th, 2020. We're absolutely not going to any events. But there's often the question about, well, what about the rewards? How do I calculate the rewards? I love doing that instead. And I've talked to Jeremy from eCommerceFuel, that's what he does. And he thinks it's funny that people take the cashback because you can get a lot more value with rewards. But there's a conversion to the rewards, right? I think with American Express it's 1%, right? Mark: Mm-hm. Joe: So you might lose some if you do the conversion to other rewards. You can still accumulate the rewards on a monthly basis and do the conversion calculator of 1%. What you cannot do is say, well, I upgraded my plane ticket to international first class. The cost of that is $10,000 therefore I want a $10,000 add back. You can't do that. But you can do the cashback amount conversion. So for buyers, yeah, absolutely if you're looking for a business to buy and they're not utilizing the cashback benefit or the reward benefit and converting it, you can find some instant equity in there as well. Mark: Yeah. I want to speak to my people real quick. My people are the people that don't like details and don't like to sit there and calculate your tip down to the penny. That's my type of person. That's who I am. I can't be bothered for that. When I go to dinner with a bunch of friends, I'd rather pick up the tab than sit there for five minutes trying to figure out who owes what down to the exact amount. And so for a long time, this whole discussion of cashback and points and everything was just like, forget it, I don't want to be bothered with this. I mean, we're talking 1%, 2%, who really cares? But here's the thing about this, there are people who delve into this and understand the conversion ratios and they understand how to game this system and maximize it out and they do think of it just as a game. And then there are other people who are going to take advantage of it to some extent. And what I would just say is this, don't let the perfect be the enemy of the good here. If you're the type of person who has bigger fish to fry and have bigger things to do, this is really low hanging fruit and if you don't get the absolute perfect optimized setup with cashback, that's okay. But from a buying standpoint and what we're talking about here; how can you gain instant equity into a business this is one of those areas that you absolutely can gain instant equity. You can instantly gain extra cash flow for your business as well by just putting something in place, even if it's not perfect, and then you can optimize later. Or you can hire a consultant and you'll pay them some money but the long term is that you'll benefit from it more than you pay them. So if you're one of those people like me, just do it. Don't sit there and get all frustrated by it. Just do something and then refine later on. Joe: Yeah, definitely take advantage of whatever you can there; simple math. I'm with you on the tipping, by the way. I just round it up to 20% and I'd rather pay the bill than figure out who owes what. Let's jump to; I think we're up to number three here. We've given a couple of good options in terms of how buyers can find instant equity, and it's important for sellers to understand that as well so they don't get taken by buyers if they're selling on their own or having an experienced broker. But why anybody would ever go to Quiet Light, anybody but quite if they're listening to us right now it would be confusing for me. But here's one that I've seen recently. One question if you're buying direct or from another firm; if you're a buyer listening to this podcast and you really want to buy from Quiet Light because we do an amazing job putting packages together, building trust, making sure that you're making a good investment and our buyer is getting a fair value and our seller is getting a fair value as well. It's got to be a win for everybody. But in the event that we have not produced enough listings that are going to be a good fit for you, one of the questions you always want to ask is when was the last time you renegotiated cost of goods sold on any of the SKUs, have you done that in the last 12 months in particular? The reason for this is because it's instant equity if they have but did not do an add back adjustment. I guarantee you if you're buying direct from somebody and they're not selling through a broker or a qualified experienced adviser, that there's not going to be an add-back adjustment for that. And here's the simple math, they're selling a thousand units a month on a product that costs $10. They renegotiate that down to $9 but they just did it in the last two months. They're so excited to; yeah, no, absolutely, definitely we renegotiated two months ago and that's why you should buy this business, profits are just that much better. And then they put a period at the end of that sentence. What they're missing is the add-back of the previous 10 months of a thousand units a month or 10,000 units at that dollar savings. So it's another $10,000 that is instant equity to the business. You're buying that business. And the reason is because that expense that was there before that's not; I know this is confusing. There was a dollar expense per unit for 10 months on the P&L times 10,000 units that's not there anymore. That expense is not going to carry forward to you, the buyer of the business. Therefore, it is an add back. So it's a $10,000 instant equity if you ask that question and you see it there. And it's boosting the value of your business when you go to sell. I think it's really important. I think most people don't ask that question. They don't look at it. They focus more on the top line. And what is it that Mike and Dave say from Ecom Crew, revenue is vanity profits are sanity I think. Most people don't focus on the profits. They just talk about how big their business is and how much revenue they did instead of actually focusing on things like renegotiating cost of goods sold. So that is instant equity and it can be found if you're buying a business. It's the work, obviously, that the seller might have done prior but you can always ask about those questions if they've ever renegotiated cost of goods sold or even how often they've gotten on a plane to go visit their manufacturer wherever they are in the world. Mark: Well, again this is something that even if you don't ask, hopefully, shows up in the P&L as well. You should be able to see some of these changes when you get down to some of the granular stuff, assuming that the P&L is good. And the only thing I'll add to that because I think you made a point well, Joe, the only thing I would add, though, is don't look at just the vendors providing products. Take a look at all the vendors that are out there. It can be anything from an accountant or bookkeeper or the person providing the cardboard boxes if you're not using FBA or one of those avenues. There's a lot of vendors for every type of businesses. It's not just the people or the products and there's a lot of places where you can get some of the additional equity, especially if it's not been worked into the overall financial picture used for the valuation at the end of the day. So that's a great tip. The next tip, so that's three, right? We have look for cash-based P&Ls and quickly growing businesses. Two, take a look at companies that either are not using cashback points on credit cards or have not added it into the valuation because that's money that just simply hasn't been captured in the valuation picture. Three, renegotiating costs of goods or negotiated vendor services that are ongoing expenses would be another area where once again that's not captured in the valuation process. The next one would be flying to China if that's where the vendors are or meeting their vendors. And not every vendor is in China. I just had a great call with somebody yesterday; a UK person who found her vendor in the UK and they had a Canadian sister company as well so pretty cool there. But meeting with the vendors in person and taking that opportunity to discuss potential renegotiations, not necessarily on price but that's a natural area to go but also on terms to make the cash flow of these businesses somewhat friendlier. I know oftentimes vendors that have good relationships or long history are willing to offer net 30, net 60, net 90 terms, which can really be a huge relief on a quickly growing business. Joe: You don't take what Mark just said and send an e-mail off to your vendor saying you want net 90 terms. It's not going to work. There's a process to get through that. It's something that anytime I'm talking to buyers they ask me how flexible is your seller on the price? I'm like you know what? I don't know. I determine the price. We agree on it together, but they're never going to tell me their bottom line. Well, do you think they'll accept X? I don't know. What you need to do is get on a good conference call with the seller. Get to know them. Have a good relationship with them. Have the call end with them going man, I love that person. I just really want them to be my buyer. And then you can ask for what you want and at the very least, you'll get a counter. When you ask for something and they don't know who you are and you don't have a relationship, the answer's always going to be no; as simple as that. So that's why you should if you can at any time get on a plane and go visit your vendor face to face; your manufacturer. I have a client right no; they're still my client. They're my friends. I sold their business in January. They bought a business since. I talked to them the other day. They were on their way to Ohio, move driving from Massachusetts to Ohio because they're going to meet the manufacturer of one of the products that they sell. This is talking about getting a plane to go to China more than anything else. There's a couple of podcasts that we've had recently that focus on this specifically. One was Dan from Titan Network talking about how to work with your Chinese manufacturer and renegotiating terms. The reason you do that is, number one for this cost of goods sold, but also because it improves your cash flow. And when you have more cash flow and you do get the terms that Mark just talked about you can spend more money on advertising. And when you can spend more money on advertising you're going to get more cashback so these are all tied together and they're all critically important. One is not more important than the other; all critically important. It's little details but they all add up to a lot. The other one that we had a podcast recently was Athena Severi from China Magic. She's also associated with Titan Network. And she talked about the China Magic trips that they do. Of course, again right now no one is going to China, but it will resume again in 2020 we hope; I'm sorry 2021, where you're able to get on the plane and go and meet with the vendors directly, get to know them, spend some time with them, do the renegotiation that Dan talked about but with China Magic, they're talking about exactly how to work with your vendors and how to communicate with them. And then they have Masterminded events every single night for everybody that's there. They bring experts on the trip to talk about how to work with your vendors and get the most out of the trip including the cultural aspect but in terms of building that relationship. So you want to do what you can to build the strongest relationship possible with your vendor, get to know them, have them really understand what a strong entrepreneur you are. As a buyer, this is after you buy the business, of course, what you bring to the table and how important terms are so that it increases your cash flow and you can spend more money and buy more products. It's all tied together. You can't do it right now, of course so, Mark, do you think any of this is happening via Zoom and Skype and that a lot more of this is happening that way? Mark: Well absolutely. And look I mean everybody has the same motivation and that is growth. So I would say obviously you need to make that personal connection and you want to make a personal connection with your vendors. That's going to help you, in the long run, to know that you can trust them and they can trust you. But you can also pitch growth. I had a client who negotiated these types of terms and was able to explain some of the growth that they had in mind; this expansion to Europe that they were going to be rolling out or other growth plans, new products that we know are going to be a hit and we want to place them with you Mr. Vendor; the vendor that's been working with us and in manufacturing our product. We want to place this with you and here's what we need to be able to get there. We really want to invest heavily in this so that we have a good supply going on in this area so it plays in their benefit as well. And right now Zoom or Google Hangouts or whatever you want to use for your video service, it's there. People know it. So making those connection is absolutely huge. Joe: Yes, so that's tip number four for instant equity and it's more about renegotiating cost of goods sold and the terms on your payments that will increase your cash flow. This business is growing rapidly, cash flow is tight and squeezed and that cash flow will help you spend more money, which ties back to tip number two, which gives you more cashback on your credit cards. Number five is interesting. You touched on something a little earlier, Mark, which was when I talked about renegotiating COGS on number three, you said, go beyond that. Go look at your vendors, look at the services that you're spending money on, the bookkeeping, the accounting, that SaaS product times 10 that you signed up for that you forgot about but they're kindly charging your credit card every month. Trimming the fat is really instant equity. We always ask what type of SaaS products are you using, what are you subscribing to, what's the purpose, and how much is the cost every month? And the reason for that is that a lot of it's just wasted. And sellers will say to me, well, I don't use that can I just make that an add back? I'm like yeah when you stop paying for it and prove that you haven't used it for a period of time. Buyers can use math and logic here and look at the different services that the seller signs up for. We all try new things, right? I signed up for The Monthly Fool and I'm not cutting on The Monthly Fool; this is more me. They offer great services. I paid for it. It's an annual renewal. I'm going to forget about it. Except that I put a reminder on my Google Calendar next April to cancel it. I signed up for it two months ago. I get the e-mails. I don't have time to look at them. I'm not going to be that investor that's going to make decisions on my own. I have an advisor for that. But if I'm not careful, I will add up 10 or 15 of those things. I try every year, often without great success, to go through my SaaS subscriptions on a personal level. We do it occasionally, Mark, on a business level and just sort of trim that fat a little bit. I think that's a good way to gain instant equity. It's not a huge instant equity, but it does add up. Every little bit of this adds up. Can you think of any other areas where you trim some fat? Mark: There's a lot of these little areas and you kind of have to be creative in looking for them and not discounting any expense category as being too small. So, for example, if you're selling overseas, internationally, international transfer rates and what are you getting there? What are your merchant processing or transfer rates? And there are a lot of services out there that are designed specifically to maximize that for you and reduce some of those expenses. Secondly, understanding Amazon's FBA storage fees and the various fees related to that or processing, sometimes you can gain a lot of instant equity by using an Amazon FBA pre-processing center and other 3PLs that will work in that regard. You talked about canceling different SaaS subscriptions. The other element I'd look at would be wasteful ad spend. We all have it. And look, how many times are you going in and checking on this? Now you might say, well I have an agency. I guarantee that agency is not looking after the account as closely as you might want them to do so. So I would say the advertising spend and last I would say would be just taking a look at the fat with SKUs and ASINs on the account. I have worked with several buyers who have looked at larger ASIN companies with a larger library of products and said the first thing we're going to do to grow this business is get rid of 20% of the products because we know that these products are making very, very marginal gains. If they're taking up cash flow for adding new inventory, they're taking up cash flow for advertising that isn't really paying out. And we can put that effort into either new lower hanging fruit on new products that will have better margins and really focus on those instead. So number five is kind of this grab all and it's don't count any category on your P&L as being too small to really look at and optimize. Keep in mind, when we're talking about adding instant equity, we're talking about the value of your business so we're talking about a multiple of this. You add $10,000 in earnings by removing $10,000 in expenses you're adding $30,000 to $40,000 of valuation to the company itself. And oftentimes with these businesses that are doing one million, five million, 10 million, 20 million in revenue, these small changes, these small percentages that we're shaving off here and there translate to quite a bit on the bottom line for you. So kind of a catch-all. That's a cop-out, right Joe? It's a cop-out on our part. Joe: It's not. It's real dollars. The trimming advertising spending we are really focusing in Mark, that's really, really hard because you've got an expert telling you that you need to spend all this money on long-tail keywords that over the course of 36 months, you're going to make a profit on that keyword. It's just going to take 36 months to make a profit and it's agonizing. We had Rocky Kliburn on the podcast. A tough name like Rocky he bought a jewelry business, right? Low cost, lightweight product, shipping thousands of them every single month. The first thing Rocky did was renegotiated the shipping rates. Actually, he changed shipping companies. I think he switched from FedEx to USPS and got the packaging for free and shipped it off. Essentially, he saved about $2 a unit. It's Rocky Kliburn he was on the Quiet Light podcast at least a year ago. But Rocky ships, 2,000 or 3,000 units a month times $2 we're talking about $75,000 a year in savings instant equity. That is simple math, simple logic. I would focus on all of those things first. The advertising thing is critically important but we've talked about my story when I got mad at American Express because they back in the last economic downturn; I think we're going to have a pretty big one here coming up but my average spending went up. I was spending 60,000 a month on PPC and they said, oh, we're going to freeze your account to pay off your balance because your average is higher than the last three months. Are you kidding me? And so I went in and I slashed advertising because I was mad at America Express. I'm like I'm going to show them. I didn't do it very wisely. There are wise ways to do stuff like that. So you remove the emotion. And that's why I always talk about math and logic is because of emotion. Emotion gets us up in the morning, as an entrepreneur, we get excited about our business but with these little details, all these five ways to gain instant equity as a buyer in your business really requires a lot of math and logic. So focus on those and if you're a seller and you've gotten all the way through this and listening don't let somebody take advantage of you because you didn't pay attention to these little details. They all weave together. They all are tiny. As Mark talked about in tipping what is it? The details are for the greater good; I forgot exactly what you said, but pay attention to all of it at times. Don't get so ingrained in it that you get lost completely on it for a thousand dollars a year. But if you can add up those numbers and multiply it times three or four, you will find more value in your business that you do deserve. And buyers, you're going to get some instant equity that's going to make a big difference in terms of buying your business. Mark: And you are like about all five of these tips show? None of them require that you grow the revenues. None of these require that you just magically grow the business. Because we all want to have a better ROI with our acquisitions, that's the entire reason that we do these things. It's to get a return on our investment and maximize that return on investment just like with a website and conversion rate optimization services, which is a great way to grow revenues if you have a traditional website, is really focus on CRO. This is just optimizing the financial picture. That's really all it is. And look for those of you on YouTube, if I were to have my camera go around my office, what you would see is just a lot of little clutter that's kind of built up over the years that I've grown comfortable with. And I think with businesses, you have to do the house cleaning. You said that we do it once in a while with Quiet Light Brokerage in our SaaS subscriptions. There are areas to optimize businesses all the time, but you kind of lose sight of that when you own a business over time. You lose sight of it because you focus on the big picture. Well, as somebody acquiring a business, it's a great time to clean house, get rid of some of that wasteful spend, optimize some of those terms, and without growing revenues, at all, you can buy a business for 3x and get an effective multiple lower than that by a significant margin at the end of the day. So I love these tips. I love the fact that we're focusing on this topic as far as how to grow a business without changing the revenue picture at all. Joe: It's a great way to sum it up, folks. Obviously, Mark and I didn't have a guest here, so we've responded to some of your requests that Mark and I talk about some of these things in more detail ourselves. If you have any topics that you want us to talk about, please shoot an email to either of us; [email protected], [email protected] or if you have a guest or you think you can contribute to the podcast, either as a seller, a buyer, or talking about some of your experiences or somebody that could help other listeners or the audience reach out to us. We're happy to help. Thanks for all the feedback on the podcast and the good reviews. Resources: Quiet Light [email protected]

On this episode of Quiet Light, we talk with Joe and Mike Brusca. We discuss Ecommerce and how they built an Amazon publishing business. It's a really interesting look at one Ecommerce business model and how it works. Tune in to hear us discuss the right and wrong way to drive traffic and why their business is such a success. Topics:

• How they got their start during the "wild west" period of Ecommerce.
• How to structure your business when you get paid "per page reads".
• The Right Way and The Wrong Way to drive traffic.
• Building an algorithm-proof business.
• The "right" types of books.
• Delayed profitability and building your back-catalogue.
• How Joe and Mike are planning their eventual exit.
• The four pillars of value.

Transcription: Joe: One of the cool things about what we do, Mark, is that we're exposed to so many different business models. There are a million ways to make a living both on and offline. You can do all sorts of things offline, but online, it's not just writing content and producing affiliate revenues or building a brand and selling it on Shopify or e-commerce or building on a SaaS business. And we have the luxury and privilege of talking to so many people and learning what they do and how they do it and how they make money. There's not just one model for everyone. And you had Joe and Mike Brusca, is that how you pronounce the last name? Mark: I believe so. Joe: On building an Amazon publishing business to sell. And, I talked to somebody a year or so ago that did a similar thing and wanted to sell. And unfortunately, folks, he didn't have his numbers together. He didn't have any financials. He just had a lot of high-level details and it's not something we thought we could sell because we want to protect both the buyer and the seller. In this case, these guys were doing a very similar thing; building out a lot of content through actually having books published and earning revenue off of that. How did that call go? Mark: It was fascinating. I mean like you said, we get the chance to see different people's business models and look they made no allusions to anything other than the fact that they are looking to build this business and eventually sell it, which is where it became a really interesting conversation for me to have. There are so many different business models out there and we know most of them that exist, right? There's SaaS, there's content, there's drop shipping and e-commerce in general but what they've started is a publishing business and leveraging a different part of Amazon, which is really how Amazon got to start and that is their publishing and selling of books. We dug into what that business model looks like; how are they making money from selling Amazon Books and primarily, this is where their difference is, right? They're not just selling books for the face value of $10 to download this Kindle book but they're utilizing Kindle Free Time, which is an Amazon-specific program that's generating, frankly, quite a bit of money. In fact, they mentioned the best month so far is $25,000 in a single month of revenue for content that once it's built, it's built and it's ready to go and their back catalog perpetuates itself. Joe: That's called cash flow folks. If you're building a product business, you're constantly putting money in inventory as the business grows. That's a beautiful model. Mark: These guys are classic Internet entrepreneurs. They've sold a few dropship businesses in the past. They have some other e-commerce businesses that they're building to sell as well. So if anything else, this is just a fascinating conversation about building a business that maybe you don't know exists out there. I didn't really know much about this and I'll confess after this I spent about half an hour researching what the top books and the Kindle Free Time library are on Amazon just to see is this something that anybody can do. And I think it is something anybody can do but if you enjoy kind of digging into somebody's business models, these guys are incredibly open about what they're doing and how they're doing it. They do have a coaching program and that was one of the things that they wanted to come out for the podcast but there certainly wasn't a sales pitch for that. This is more just kind of exposing what they're doing. I asked them some tough questions as well, and I think they appreciated the fact that I didn't just throw softballs. I wanted to really challenge them a little bit on this concept and what they're doing and just interesting stuff. Joe: Yeah, I'm looking forward to listening to it. Before we go there, folks, this is part of what we do at Quiet Light. We try to bring interesting guests on to help you learn different business models and different ways to earn a living and build a better business. If you've got a story that you want to share where you think you can help the Quiet Light audience, remember reach out to myself or Mark. You can reach us at [email protected] or [email protected] and let us know what your story is that you want to share, how you can help folks, and possibly we'll be able to get you on the show as a guest. With that, let's go to the podcast. Mark: All right, guys, I'm excited to have two entrepreneurs on this week's podcast in a little bit of a different spin on online businesses; an area that I haven't explored very much but is growing very quickly. And I'm interested in, first of all, this business model in general because I see it as a potentially interesting opportunity, but also in maybe some applications that we can leverage this type of business for. But in order to do that, we kind of have to dig into what is this whole niche and this whole industry that's kind of springing up. And so with that in mind, I have Joe and Michael on the line here on the podcast. Guys, thanks for coming on, I really appreciate having you here. Why don't we just go ahead and if you could just introduce yourselves real quickly and let us know who you are? Joe: Cool. Thanks for having us, Mark. And we're Joe and Mike. We're brothers. Joe Brusca, Mike Brusca, and we're from BuildAssetsOnline.com. We've been doing online business since around 2014. It's kind of when we got started. We had regular jobs and all that, and then we ended up and somehow fell into building online businesses. And, one of the first online businesses that we ever did was publishing books on Amazon Kindle. And when we first started it, it was a bit of a Wild West situation where it was kind of new and Amazon didn't really have their stuff figured out yet and a lot of people were exploiting the systems and their platform wasn't really fully evolved but now it's turned into a really viable long term business model. And in these past few years, we've kind of put together a process that allows us to build and make royalties pretty much on autopilot. And we've seen in the past few years some of these Kindle businesses sell for over a million dollars. We haven't sold ours yet but, yeah we're going to talk about that because it really is a great business model; very, very easy to do, very straightforward, and once you get it going, very passive. Mark: All right so you guys are selling Kindle books. Is that correct? Mike: Yes. We're selling Kindle books and like Joe said, it kind of fits into anyone who has an online business portfolio. It is a really great option to have because it's probably one of the most passive models that there is where there is royalties and so it's definitely a unique form of diversification. We've sold drop shipping businesses, we've dabbled in affiliate websites and so we've kind of seen the entire breadth of online businesses that you can do and it's definitely one that we are putting extra energy into long-term. Mark: Now, I want to dig into this a bit more, because I'll be honest, when you guys first approached me about talking about this on the podcast and everything else I was like Kindle, okay, sounds fine, whatever, it doesn't really fit with what we normally talk here but then when you started to get into some of the details, it was interesting just as far as what you're doing, you're getting royalties for these books, but it's not necessarily you just going on Amazon, listing a book for sale, and then selling it because obviously, that would be; I know a lot of people who have had published books that went up on Amazon and didn't do much there. Maybe they've sold a few and everything, but nothing to write home about. You guys are now talking about selling this for millions of dollars so there's obviously a twist here. I'd love to dig in a little bit deeper here into this. What are you guys doing that might be different from the guy who signs up with XYZ Publishing Company and they add the Kindle book and then they might sell 100 or 500 copies of their e-book? Mike: The main difference is that we're creating our own publishing company and what we're selling is essentially publication company or that pen name. And so we're going out and we're making these books under specific pen names, and it's all with the purpose of generating an audience. So like you said, you can put a book out there on Kindle and nothing's going to happen. What you need to actually focus on is building that brand. And so that pen name becomes a brand just like any other Clorox or whatever brand you could think of that people buy in private equity. It's kind of the same thing. So you're creating these digital products under this pen name. You're developing an email list. You're developing an author website. You can even put your books on ACX, which is Amazon's that's how you get on audible, so it's an Amazon company. And so, you have the Kindle version, the paperback version, and the audiobook version. You're doing this with the whole purpose of generating just a big customer base and that is really where the asset lies. Mark: When you're putting these up for sale are you getting money from the direct purchase of these books; how are you generating revenue from these? Mike: So you get money from the direct purchase of the books. But Amazon also offers something really unique, and that's the Kindle Unlimited program. So there's a huge readership for fiction books and so Amazon wants to accommodate this. And so what they do is for $50 a month or whatever it is now, you can sign up to what's called Kindle Unlimited and you basically can read as many books as you want throughout the month. And so any book that's enrolled into the Kindle Unlimited program, you can download it for free. The way that the publisher gets paid through that is by the amount of pages that get read. And so doing fiction books it's even more advantageous because you can publish novel-length books or you've probably experienced with any show that you've watched once you start watching an episode, you're going to go back through the entire back catalog. And so that's what we're trying to capitalize on in order to get the most page reads. Mark: Okay, so the model here is Kindle Unlimited, you get paid per page read so, therefore, you're wanting to create content that is going to be an easy page-turner, as it were, right? I'm not going to publish some Academia throw it up on Kindle Unlimited and do very well with that sort of approach, right? Mike: Correct. And yeah if you're doing something maybe non-fiction or something more academic, it may serve you better just to have it as a straight purchase option. So, 9.99 or even though we sell books at 2.99 those books can actually still do really well as long as they're part of a bigger catalog because people will decide to buy that book. So we kind of employ that as a strategy. We mix, regular sales with Kindle Unlimited, but Kindle Unlimited still makes up probably 80% of the income. Mark: Okay. Now, you guys have built an entire business around this. I'd love to dig into a little bit longer. How long have you been doing this? Mike: So we started it back in 2015. Joe, did you want to say something there? Joe: No, I was going to say 2015, but it's evolved a lot over time like I was kind of alluding to earlier. And I think we only may have resumed it. We kind of took a little bit of a hiatus when we started getting into other online businesses. We're mainly working with building high ticket drop shipping stores and building affiliate sites and content sites. So we kind of took a little bit of a hiatus but then I think around two years ago is when we really got back into Kindle; when we kind of saw that Amazon was really improving the platform and there were there was actually a lot of potential to build a long term business on it because like I mentioned earlier, it is kind people have been publishing on Kindle for a long time but in our opinion two years ago, that was really when it became the most viable thing to do long term and that's when we kind of start seeing these types of businesses pop up for sale. Mark: Yeah. So you got started at 2015 so about five years ago, but really in earnest over the past two years and would have spent some of those iterations over the years with the things that you've had to do to adjust to make this into an actual business. Joe: So I do want to clarify that over that kind of three-year hiatus of not doing a lot of publishing, we were still actually making money. So we're talking no hours a month into this business and it was still bringing in, probably a five-figure outcome each year. So, again, it's really something that's super passive, especially once you do it right. But we were doing things that; basically Amazon has an algorithm and so when you put out a book, you want to get us as high in the algorithm as possible. You want to get that best-selling status or you want to do something to have people on Amazon find you. And so that was kind of the intention in the beginning. It was more focused on like you said you're storing the books on Amazon and seeing what would happen. And so that's kind of how we started out doing it. We weren't doing any of this actual brand building or email list-focused marketing and stuff that. And like Joe said Amazon was kind of like the Wild Wild West, there weren't a lot of rules in place, people were kind of exploiting those rules. And then Amazon began to crack down on that in 2016 and they're always kind of tweaking the algorithm and trying to make things more of a level playing field and just encourage certain behaviors. So over time, the trend has really gone in the direction of having your own external traffic source that you can drive to Amazon and so they reward you for that. And your reward is increased exposure on Amazon so you get that internal traffic. But. If you're actually getting good books and you're focusing on building a brand, these people will come off of Amazon onto your list, and the cycle kind of repeats itself. Mark: All right. So I'm getting the general idea for it. You've got into a little bit as far as if you do things right, which is a loaded phrase; I mean you guys have doing this now for five years and if you do things right is the result of a five-year process of tweaking and figuring things out. Let's first start though with doing things wrong where it is just throwing it up on Amazon and hoping and praying which is no different than selling a product on Amazon. You throw something up on Amazon hope and pray, you're not going to have much success. You need to have a plan. So what are some of the wrong approaches and then what are some of the right approaches on starting up a Kindle business that can be a sellable asset in the future? Joe: Well, when we first started doing it. Yeah, like you said we were just throwing books on Amazon but the thing is we weren't really writing the type of books that we're writing now. So when I say writing, I mean publishing, because we don't actually write the books. But yeah, it was more about just; back then, Amazon's algorithm really rewarded more so than it does now things that were new. So if you put a new book up with the right keywords, even though it was a short book, as long as it was keyworded right it would show up in the right categories but now it's not really like that. So when we say the right way and the wrong way, that's pretty much the wrong way because it doesn't really work anymore. But it did work at a time and you can kind of see this and it makes sense from Amazon's perspective, is that they want that external traffic. I mean, they're always trying to drive people to Amazon and that's what they reward now. So the wrong way to do is it's at a different time and just taking advantage of how the algorithm was back then. But I don't really see it going back to that direction because like Mike said, it's been moving in the direction that we're talking about now, which is the right way for some time now. Mark: Okay, go ahead, Mike. Mike: Yeah. If I could just add one thing, really, what we've, kind of waited all those years to serve and hone in on now in terms of doing things the right way, is building the business back up in a way that's algorithm proof so that if we're throwing all these books on Amazon and they change something it doesn't completely destroy our business. So now when you have your own readership off of Amazon, it's kind of a win-win relationship for both platforms; good books, people enjoy reading them so they come kind of into your sphere but you give that back to Amazon and they reward you. Mark: Right. Yeah, I mean, it's no big shocker that Amazon likes it when you send traffic over to them. I mean, that's kind of a rule of Amazon, you want to play well with them, send them traffic. So let's actually dissect some of this here. And you talked about the right type of books, the wrong type of books, and then we've also talked about building traffic, and we've also talked about publishing these books. So there are three loaded questions in here which is what are the right type of books number one, and what are the wrong type of books and then second of all would be okay, drive traffic; how? What does that look like? Build a brand is easier to say, it's three words, doing that is no easy task. Building up a following of people is always difficult. And then the third question is writing these things; how do you get them written? So these are all big topics and I don't want to throw them all at you at once so let's go ahead and start with that first one. What are the right type of books, what are the wrong type of books, and what are the books that you just have no idea if it's right or wrong? Mike: Yeah, and to be clear, we hate platitude as well so I don't want to just linger there. So the right types of books would be; like I was saying before you get paid based on page reads. Back in the day, people used to just draw up short books just to kind of; you're kind of throwing as many pieces of bait out there, seeing if one rises to the top and then just kind of going from there. Now we publish books that are usually 30,000 words in length at least so that would be considered novel-length. People would go all the way up to 80,000 words and more and so we say that the right type of book has to be a length that readers can enjoy nut it also has to be a book that is written towards what the market is already demanding. And so what does that mean again? You actually need to do your research and go on Amazon and see; you'd have a very, very keen eye as to the trends that are going on; what types of covers are there, are there any similarities in the covers, any similarities in the titles, going through some of the content of the books? You're trying to pinpoint what it is that readers actually enjoy. And so by doing that, you're more likely to get better conversions, more read-throughs, more people actually subscribing to your email list, and that's what we mean by the right book. And so then you're talking about driving traffic. So it's like we said when people find you and they enjoy your books you can get them off Amazon by giving them say like a free book if they subscribe to your list. And so now you build up a readership. And there's also a lot of other websites where you go and collaborate with other authors and kind of do list swaps. So you're building yourself up that way and so external traffic with Kindle is always about the list. But also, you can take that and say even put it onto Facebook by doing something like a look-a-like audience and now you can kind of ramp up more traffic to Amazon. And a lot of times you do it with the purpose of, again, giving them more referral traffic so they can boost you higher in the algorithm. Yeah, there's other ways to capitalize on it as well by making your own publishing website or you're own author website doing things like blogging there to get traffic. And now, again, you have that audience pixeled, you can use them to drive traffic to Amazon. Mark: Right. Okay, so from your guys perspective and I'm not going to ask you to open up all the doors of your P&Ls historically here but when we're talking about building a network and building a brand and everything, there's a lot of expenses associated with this. So you talked a little bit about the passive revenue, which is great, people love passive revenue. But what goes on behind the scenes? I looked at ads and sites before where somebody fills up an ad on-site and they're like look at this thing it's generating $10,000 a month in passive income. But what they didn't show you is the $150,000 they spent on content and link building over the past year. And so you're like, okay, you're just getting started now you sure hope that that lasts for you. You guys seem to have the sort of cost of authors which we need to talk about at some point; how do you find the writers and how do they get compensated and then also building up this audience? Well, what does this look like from an expense standpoint compared to what you get from Amazon? I would assume profitable otherwise you wouldn't be talking about this but what are we looking at here? Mike: Well, I would say there's really two paths you can go down. So we talked about you can use Facebook and drive traffic that way and that would be more of a kind of accelerated approach to trying to get quicker earnings on Amazon. Or you can do more of a slow and steady approach, which is kind of what we do with a little bit of Facebook ads. So what this means is just consistent but relatively low cost. Just say okay, I'm going to invest in a book a month and if you're just consistent with that, say it costs you 500 to 800 bucks a month for all your expenses, your book cover, editing, whatever. Obviously, when you put that first book out, you're not going to be profitable immediately. You have to also do some list building expenses, maybe. But over time, over the course of a few months, you start to build up quickly. Okay, now I'm making $20 a day, now I'm making $30 a day. And so it's really a snowball effect as you build up that back catalog, as you gain more followers. And so now once you have a bigger following, you put a book out and then you get a return on that book pretty quickly. Joe: It's nothing like you illustrated with that ad sense example. So, again, I don't really have the numbers in front of me, but I can give you a rough estimate. So I think it was a few months ago when we usually make between; so there's a few months ago where we made over $26,000 in royalties and we probably got one book published that month where we spent the $500 to $800 and we probably spent 3,000 or 4,000 in Facebook ads that month. That's a rough estimate of what you would see typically. But again, it varies because sometimes you're not always heavily promoting on Facebook. Depending on what month it is, maybe you put out two books but we tend to put out one book a month. But, yeah, that's generally what it looks like for us now. When you're getting started, it's obviously going to be slower. But I've made affiliate sites and I made sites that rely on SEO and link building and the expenses are nowhere near that, not even in the same ballpark. Mark: Okay, you guys lost me a little bit here. $500 to $800, write a 30,000 plus word book, I mean, I pay $500 for a single blog post on our site. So let's talk a little about sourcing authors, I know you guys are in the fiction space here, are fiction writers that much more willing to write for $800 or $500 or what's going on behind the scenes there? Mike: Yeah. So it's definitely a bit of a different market than getting a blog post written or even a nonfiction book because there's really no research involved. It's just kind of a creative process. So comparing it at a cent per word basis, it's going to be a lot lower. And there are people that invest more into that, there are people that invest less. But what we found is honestly as long as the books are good then people will read them, the audience response to them well. We've kind of gotten to a nice, sweet spot there where you can invest more and maybe that has a better return; I don't know, we haven't really experimented too much but yeah, that's really you can certainly go on Upwork or even Craigslist we found writers or you could probably go on Indeed and find writers. But it's not an uncommon rate to spend say two cents a word or even less on a fiction book. Joe: To write a blog post for your company, Mark, I mean that's a lot more expertise required than writing a fiction book for sure. And fiction writers, think about it in terms of rarity; how many people love reading fiction, love writing fiction compared to how many people have any sort of knowledge about online business. I mean, the supply and demand there is just totally, totally different. Mark: Do you guys read the books that you publish? Mike: In the beginning, I did. I was kind of bootstrapping it but these days no, we just kind of; I mean, I'll read samples like if I'm hiring someone new just so I can evaluate if they're actually good at writing. But no, it's just they send it in, it goes to the editor, get the cover design, put it together, send it out. And so if there was any real issues we also have an advanced reader team so they get the book as well to write reviews because Amazon actually does allow you to give away your book for reviews. Right now at 2020 in May they allow it. And that is because it's a very common practice in fiction. You give people the book early to let you know how it is. You can't do that with a physical product. So it actually allows you; it's much easier to develop that social proof and you also are not giving away all of your 20, hundred thousand units to get reviews back like with FBA. Mark: Right, because it's a virtual product at the end of the day. I want to backtrack a little bit because I've had this nagging question my head. You talked about the number of page reads, they pay on the number of pages read, they're not looking at the furthest amount that you've gone in the book but actual time spent on each page is that right? Do you know? Mike: I don't know their exact process, but I would say it's kind of a combination of both. I mean, there's probably a number of time that they spend on a page for it to count and then it would be the amount of pages that they actually read for that number of seconds. Mark: Yeah, because my shortcut got to cheat the system mind was thinking, oh man, what you did to choose your own adventure, you could get them to go all over the book and… Joe: Do you remember when I was talking about the Wild Wild West? Mark: Yeah. Joe: I mean that's the kind of stuff that was going on. So they've spent a lot of time on perfecting and tweaking that algorithm. Mark: You're telling me that Amazon is smarter than me. Joe: Well, I'm just saying you were… Mike: Maybe they were not really paying attention and what people were doing was; so they actually have a cap now on how long the book can technically be. So even if a book is 100,000 pages Amazon will only count it up to 3,000 pages. So what people were doing was they're really abusing the system, they will just fill these books with just the most random things and they would have these books that were so long and then they would have something like to win a free prize just click to the back and then boom, they would make 150 bucks. Mark: Right. Mike: That was part of the reason… Joe: I got a lot of trouble for that. Mike: Yeah. That was part of the reason why we walked away from it actually was because it was almost like if you think about professional sports, everyone is taking steroids so in order to even compete because page reads wards you in the algorithm so you'd have these random books in the best-selling things; this is way back in the day so we never did anything crazy like that but it just seemed too; it was between doing stuff like that or not doing stuff like that and we did it. We always thought it was risky to go crazy abusing the system like that so that was one of the reasons why we kind of took a little bit of a hiatus until things evened out. Mark: Right. Okay, well before listeners wonder how far off track we're going to go from our core type of topics here, this is fascinating, I could talk about this all day. I think this is interesting. You guys are building this publishing business with an eye towards someday potentially exiting as well. I'd like to get into some of the things that you guys are doing internally to maybe plan for that. What discussions have you had internally about that? And I'm hitting you out of left field on this. We didn't prep for this before the call so understandably if you don't have ready-made answers, that's fine but have you guys discussed buildings up for sale and what sort of things have you done to maybe have an eye towards that potential exit someday? Mike: So really, the main thing that we've done to kind of have it focused on exit is to focus on having that separate publishing site. So that way we're really establishing ourselves as a brand. We're not just getting income just from these royalties. We actually get affiliate commissions. We have visitors that come to the website and then buy the books. And so, yeah, it's kind of we focused on what can we do off of Amazon like we kind of touched upon it's good to do that for the algorithm and just for your own sake but it actually does help kind of diversify what we're doing and make things a lot better when it comes down to selling it. I don't know if you have any insight there. Mark: So we have a very simple framework that we call the four pillars of value; it's the risk of your business, the growth potential, the transferability, and the documentation. So building up a brand is key; it helps protect against the risk and it's also aiding towards the transferability of the business, which is something that we would definitely encourage. Joe, were you going to say something on top of that? Joe: Yeah, I was going to say as far as the documentation goes, because I feel maybe that's what you're asking. Maybe I'm wrong, but the documentation is not really complex at all. If we were to put together something for someone that we're handing off the business to we would probably just give them; we have like an education course on this subject, but we would just give them that. But it's really just not complicated at all. It's not like handing off an e-commerce store to someone or even an Amazon affiliate site to someone that knows nothing about SEO or WordPress or something like that. When I say it's simpler, it's much, much simpler. Mark: Right. Yeah, absolutely. It reminds me a lot of the ads on publishing days, but through a more established platform of Amazon and utilizing that program. It isn't known much is my guess. Have you guys looked into; I know you're working mainly in the fiction field, have you played around in nonfiction? Because when we first talked about this, my head sort of went to what if we were to leverage this along with our existing business and add it as a revenue stream there? Your paid on a number of pages read, I'm not sure if you can create cliffhangers at the end of a chapter of a business book so much like is this P&L going to get murdered in the next chapter? I don't know. We'll see. What have you guys done, if anything, in that realm of nonfiction books or have you played with it at all and have you thought about using it with an existing business; you have drop shipping businesses on what you're your drop shipping but is there a potential play there, in your opinion? Joe: Well, we have done nonfiction before. When I first started publishing kind of similar books online, it wasn't Kindle, it was Create Space and it eventually merged, and Create Space became Kindle Paperback or whatever they call it. But at that time, I first started doing coloring books and we've done puzzle books and stuff like that. So I think that would be also classified as non-fiction. So I think there definitely is a play there to do that kind of stuff. And again, because that's something you can also build a brand around in the paperback space and you wouldn't approach it the same like we're talking about now with the page read and stuff like that. You'll have to put every book on Kindle Unlimited. It just really depends on the sector of books that you're going after. But as far as what you're saying I think it really is more of a; I guess any book on Amazon would probably be more B2C stuff. I can't imagine a B2B play in this area. There are people that sell non-fiction B2B stuff, but I don't know if it would be a great use of time for a company yours, for example. I don't know. I don't really think so. Mike: What I would say is I wouldn't recommend doing that for the purpose of making money on Kindle. But the point is that by publishing a Kindle book, you're tapping into that audience and you're tapping into the organic traffic already on Kindle. So you're not going to make your money on page reads and you probably shouldn't be focused on making your money on sales either. What you should be focused on is putting up a good book that way it's almost like lead generation; the Seven Habits of Highly Effective People by Stephen Covey, I believe, think about how many millions of dollars off of Amazon that probably makes him just by building up his name because it's been an Amazon bestseller for who knows how long. So, yeah, when you're doing a non-fiction book on Amazon for business or for something like that you need to keep in mind kind of the back end funnel and it should be more of a complement to your business rather than the business itself. Mark: Right. Absolutely. And that's kind of what I'm getting at, right? I mean, any sort of content marketing play, in general, is just that, right? We bring a lot of content on the Quiet Light Brokerage blog, we have a podcast, I don't sell advertisements on the podcast even though we have a decent listenership. I don't sell ads on or put ads on the blog or ad thrive or anything like that because that's not the main goal. The goal is to build that audience. Although, if there was a way like with Kindle Unlimited it seems kind of a nice backdoor to make a little bit of money, I just don't know what the payouts are on that. How many books do you think you need out of a portfolio to be able to turn decent amounts of money; more than just 30 bucks a day or so? I can't imagine one book unless it's top of Amazon is going to turn in that much money on Kindle Unlimited, I would imagine you need to have a portfolio of books. Mike: Yeah. And I'd say we were kind of familiar with how to do things already because we were doing them in 2015 so we were able to start profiting really within a couple of months. And it does build but it's a lot easier to scale as well because if you're publishing one book a month and you want to do better, publish two books a month. So, yeah, it's hard to say how much you're going to make because it comes down to the execution of it. If you have a really good book that just takes off in the algorithm, if you do the Facebook ads right, and you can really have a pick-up steam then you can make a lot of more money off one book. And it also obviously depends on the length of it as well; so the term how much one customer can kind of give you off that one book. But, yeah, you'd be surprised honestly. Some books can take off and really, really do well. We've only been doing this kind of new way for two years I guess this month and we've really seen it grow quickly and it grows exponentially. Mark: Interesting. Joe: Yeah, and keep in mind that getting into the Kindle top 100 of all the Kindle store, which we have done; getting into top 100 is way different than getting into the top 1000. The top 1000 is still really good but once you break into the top 100, it just; like Mike said, the book would just take off in terms of page reads and everything. So that's something else to consider, is that you have the slow and steady approach and maybe you never have anything that breaks in the top 100 but with the slow and steady approach as that back catalog builds, it doesn't matter. So that is there is a variable there if the book takes off or not. Now, I think if you do it correctly, every book should do decent but like I said, top 1000, top 100, totally different ball games. Mark: Joe, I asked you this when we talked a week ago or so, why share this information? I'm loving the discussion. I'm super entertained. Hopefully, people listening are entertained as well. What are you guys sharing this information for? It seems like you guys would want to be just kind of be like hey, don't come in here. Don't do it. I don't want to compete against you. Joe: Well, actually to be fully transparent we do sell a course on how to start a Kindle publishing business; Passive Publishing Profits. You check it at BuildAssetsOnline.com. But the other thing is the reason why we started doing education in the first place is the guy that told us to do it, he basically said it's a great way to leverage your success. And we have a lot of different online businesses like we've talked about but the thing is, is we might not want to grow these businesses into billion-dollar companies because we enjoy the lifestyle. Me and Mike, we just work from home and we think that the courses are not so much a detriment, but a great compliment as well; teaching other people and getting paid for that. But you also have to keep in mind that especially with Kindle, we encourage our students that you're not competing against one another, because like Mike mentioned earlier, there's this factor of swaps and things like that. So these people who read fiction books, they are really, really avid readers and so if you're partnering with other publishers like we encourage and like we do in our community, it's a win-win for everyone. There's no doubt about that. And taking that back to even selling education products in general, I mean, it's been an amazing experience for us. I'm sure we've generated some competition for ourselves in some way but I think the amount of partnership we've made and things like that far, far outweigh the cons there. Mark: Yeah, fascinating. Well, I'm always a fan of transparency. I mean, that's the only way to do business and I appreciate that as well and it's linked to really fascinating stuff. Guys, I know we're up against the clock here. I've been talking for about 40 minutes; just a little bit more on that so is there anything else that you would like to cut around the discussion with anything that we didn't cover that you're like man, why hasn't he asked this question? Joe: I don't feel that way. I think you did a good job of really trying to hammer in and have us explain ourselves. Mark: Hey that definitely makes you my favorite guests. You said I did a great job. Joe: Well, not every show does that, to be honest with you. I mean sometimes; I guess we feel leaving a little bit empty because we didn't get asked the deep questions that force us to be on our toes. I definitely got that with this one. Mark: Yeah, absolutely. Well, guys, I appreciate you reaching out. I appreciate you coming on here; really interesting stuff. I'd be lying if I said I'm not going to go on Amazon and take a look at the top 100 on Kindle and see what type of books are there. And there's no time for me to jump on another project but that doesn't mean that my entrepreneurial wandering eye isn't going to spend a little bit time looking at that. So I appreciate you guys coming on. I really enjoyed the conversation. Mike & Joe: Thank you, Mark. Resources: Joe and Mike's Website Quiet Light [email protected]

During this episode of Quiet Light, we talk to the former Controller of Priceline about TACOS and the three pillars of e-commerce. Tune in to hear on discussion on these topics and more. Topics:

• How working in accounting led Matthew to where he is today.
• The three pillars of ecommerce:
  • Inventory management.
  • Website management.
  • Advertising
• Assessing your sales.
• Managing the core elements of your business.
• Tracking customers.
• Keeping an eye on the value of your inventory.
• Why commingling expenses is harmful.

Transcription: Mark: Joe, we've been kicking out these podcasts on a weekly basis. We talk about a lot of different things on these podcasts; everything from inventory management to how to work with suppliers to SaaS metrics that you should be looking at. And this week, you talked to the former controller of Priceline; a very smart guy, worked a long time at KPMG as well and you guys talked about TACoS. Joe: Yeah, it's total advertising costs for those… Mark: It's not the crunchy tacos? Joe: Not crunchy. No. We might have mentioned that, but not in detail, yes. Mark: Okay. All right, so you talked about TACoS, but you guys were specifically talking about three pillars of e-commerce. Now, we love pillars here at Quiet Light Brokerage. We have the four pillars of value, which we talk about quite a bit, a simple mechanism to understand what influences the value of an online business; risk, growth, transferability, and documentation. He has the three pillars of an e-commerce business, which are three areas that you should really be focusing on that build up an e-commerce business. You guys went into detail on it, which included tacos, but not the yummy kind. Joe: Right. Yeah, so these are his pillars. He came up with them. I asked him, what do you look at first when you work with a new client? What Matthew does now is CFO advisory services. So he's a fractional CFO if you will. We met at a local mentoring facility here in Davidson, North Carolina; it's part of Davidson College. And I introduced him to a client of ours, somebody that I'm not going to mention his name because of the details and we chose not to mention the name in the podcast, but somebody that sold the business for 7,000 and then his next one was 20, his next one was 220, his next one was just under 9 million, and his next goal is to sell a business for a hundred million. So when I met Matthew I saw him do a presentation on fractional CFO services; a very referral based business that he had done on a website and I thought, you know what, he should talk to this particular individual. The individual liked him so much that he ended up flipping from a paid per service to a piece of the pie for the eventual sale of his business. He wrote to me, hey, buddy, I can't thank you enough for the intro to Matt. It's so great to work with him and he really became one of the most important people at my company. Without him, I would be lost. No joke. So Matthew went through these three pillars and what he talks about. And it's not just a total number-crunching geek type of thing. It's looking at number analysis across your business; across your e-commerce business. And it was really interesting to see, especially from a guy that comes from Priceline, which is obviously an e-commerce business, but not where you've got a physical product. It's more affiliate digital. So it's fascinating and hopefully, the people that listen to this that get all the way through to the end are going to start to understand the importance of some of the things that you and I talk about all the time. But it's not for us this time. It's from somebody that was a vice president controller at a company as well-known as Priceline. Joe: Hey folks, Joe Valley here from Quiet Light Brokerage. Thanks for listening to the Quiet Light Podcast. Today I've got a pretty impressive guy on the podcast with me. His name is Matthew De Wald. Matthew, welcome, how are you? Matthew: I'm very good. Thanks for having me, Joe. Joe: A local here in Davidson, North Carolina; we met through a local mentoring group at the Hub at Davidson. And you've recently worked with a client of mine who basically called you a finance rock star. And that client's been on the Quiet Light Podcast. We've talked about him. I'm not going to give too much details, but he loved you so much that he said, look, in lieu of paying why don't I just give you a piece of my company which goes to how damn valuable you are. Well, let's get to all of that in a minute. Who are you? What do you do? What's your background? What's your history? Why don't you tell the folks listening a little bit about yourself? Matthew: Sure. I'd like to just think that I kind of come from humble beginnings. I'm one of nine kids, actually. Joe: Wow. You and Mark have a lot in common; Mark has got seven. Mark is my business partner. All right [inaudible 00:05:20.3] nine kids. Matthew: Yeah, so I grew up with… Joe: What number in the sequence? Not that it's relevant in any way, but what number? Matthew: I'm number two. Joe: Oh, okay. All right. Matthew: Number one if you ask me but number two in lineage. Joe: Fair enough. Matthew: And I love my brothers and sisters. So I grew up with a brood of us and I think my father is interesting. He's a very brilliant guy but he isn't necessarily business savvy. He's very smart. He can put things together but he just doesn't do the business environment. So I didn't grow up really with a business background or business family or anything like that but I was like; my older brother, who is like the complete opposite of me likes to call me a miser growing up and it's; that was always counting the money that I had and where I was going to go and trying to think about the future and that kind of stuck with me from high school into college and then beyond. So heading into college, I got an accounting degree from Pace University, and from Pace, I joined KPMG as an auditor. And most people can't cut that out for more than a few years and I can't blame them but somehow I was able to do it for 15. Joe: Wow. Matthew: And after 15 years of it, I realized it at about 13 and a half years, I didn't feel like I was learning anymore so it's time for something new. So I landed a job at Priceline.com that actually some of the partners at KPMG helped me to get. And at Priceline, which is a subsidiary now of Booking Holdings, at Priceline I was the vice president of finance and controller there. And that's where I went from, really kind of looking at an organization from an outside point of view as an auditor at KPMG looking at really kind of macro issues to really diving into operations. And what I realized is that from an operations standpoint, especially in a place like Priceline, where you're dealing with literally hundreds of thousands of transactions in a day you really need to have a solid IT infrastructure and systems and really a mechanism of keeping control of all that. And so that was kind of a really important career point for me. And I spent four years doing that. And actually, the job I had at Priceline was like really the dream job but one day I kind of woke up and said, I want something else and I don't know what that is. And so I reached out to a community people and I was telling them what I was looking to do and really what I was looking to do was leave and not have anything on the other side. I'd say about half the people who I spoke to, maybe three quarters were very supportive and the other quarter were like, what are you doing? You're making a ton of money. You're doing great. All you got to do is continue grinding through all that and that was it. I didn't want to grind anymore. So what I actually did is I got on a motorcycle and traveled across the US going back and forth two and a half times over the course of seven months and worked part-time at Priceline to transition my load, my client, my responsibilities to my successor. And then after that, I took all of 2018 off from work and then kind of fumbled around and said, well, what do I want to do next? And in doing that, I networked a lot with the Charlotte Community and realized that the startup community here really needed a lot of support and help from a financial perspective. And going back and tying in that Priceline piece is what I realized is that it's helping cost companies to scale and figuring out what does their finance operations need to look like in order to go from where they are now to 10 or 100x than they currently are. And it was that experience of Priceline that really made that difference. And since then, I've kind of created a little business doing fraction CFO work and it's been thriving and prosperous and probably more so than I even want it to be. Joe: Yeah, you got a good problem. People actually want your services. I would imagine, though, early on, they don't realize the strong need for it. But you get business through referrals and friends and clients and being on podcasts like this. It's similar in the way that we broker. Clients don't realize how badly they need someone to review their business and do a valuation and set them on a path towards achieving their goals. This is something that I preach all the time. First and foremost people probably are sick of me hearing about get your numbers in order, get a good bookkeeper, and your CPA is not a bookkeeper; there's a distinct difference between the two. But for actual CFO services are completely a step above. Our friend in common now that you're working with, what do you do; what problems do you see for an e-commerce company that you go in and you work with? And there are lots of them that are listening right now, people that are buying businesses anywhere from a quarter of a million to 20 million dollars and people that are running them, that are doing anywhere from half a million to 20 million dollars in revenue. What is it that you look for when you go in as a fractional CFO to help them improve, understand where they are, and help them get to where they need to be or want to be? Matthew: Yeah. You know the way I look at business is; I guess this is a skill I have, I don't know. But I like to look at businesses and transactions and events in their purest and most simplest form. I think that it's too easy to get bogged down with complexity. And I think the greatest mantra I live by is that the shortest distance between two points is a straight line and I'm always looking for that straight line. So the case of an e-commerce company is a perfect example is that I say it really comes down to three things and you got to do all three of them really, really well. And if you don't do one of them well, you're going to have sell up results. Number one; and these are, again, all of equal importance but number one is inventory management. You really need to know where's your inventory, how much do you have, what does it cost in order to bring that inventory in, and what are lead times? So a lot of e-commerce companies nowadays are procuring inventory from China, for instance, which might take six to 10 weeks of lead time. Well, you need to be building that and planning for that in advance. So forgetting about the numbers, you just need to have it in stock so that way, if a customer comes to your site, you're able to sell it. Which brings me to the second point is what I'll call website management. You need to understand and know where your website is and your content and be able to have an avenue that has as few clicks as possible in order to get a customer who sees a product, is interested in it, and gets you to closing the deal, the transaction. So the second is that website management and then the third component is the advertising. It's how do you drive traffic to your website and so how are you spending your marketing dollars, how are you evaluating the efficiency and the return on investment of those marketing dollars and you have to do that well. So, again, if you mess up any one of those three pillars, you're going to have problems or certainly, you'll have sell up results. Now, what I found consistently with e-commerce companies is that the problem they struggle with the most is inventory management. I've seen a number who are very good at the management of the website; they're very good maybe at marketing, such as our friend who you're talking about, who is very good at marketing but the inventory management is a problem. And so the solutions I try to come up with or what I search for are low cost, cloud-based services that connect into your accounting systems, such as QuickBooks to maybe your third party logistics companies, your 3PLs or Amazon, and connects that all onto data that then turns the lights on to make it very obvious as to what you need and what you've got. Joe: It's fascinating that this is from a fractional CFO chief financial officer that you're looking at these three different components. Let's break them down a little bit. Inventory management, why is inventory management important? At the end of the day people that are listening, I would guarantee you the vast majority of them are just using an Excel spreadsheet. They know their SKUs and they order when they feel they need to, giving them enough lead time so that A. they get it on time, B. they can pay for it, and then they continue to run that cycle. And sometimes growth goes off the charts and they find themselves doing a little catch-up and maybe doing air shipments instead of sea shipments and things of that nature. But really to the bottom line why is inventory management so critical? Matthew: Well, you named one of the key elements to that and the number one thing is scale. I always think of any company I go in to is let's say all right, here's where we are now. We're at x. If we want to get to 10x or 100x, what's it going to take? And a lot of the solutions that can help you go from 1x to 2x to 3x are the same ones that might be able to get you to 10x. So the idea is you not need something that you can scale into and in general, again, because there are a lot of this on out base theory and expense so you can afford it while you're at your current stage and then grow into it. So number one is scale and then the second thing, and this is the thing it gets over; oh, it can really get over what I've seen clients do this because they might be really successful from a financial perspective or they might be very savvy in terms of how they operate but what they miss out on is the fact that if you've got too much or too little of an inventory item you can either not be able to sell to customers or have found yourself wasting money on inventory that isn't going to turn over. And so in an e-commerce business probably would run a lot of them from home or certainly a small office so you're dealing with low fixed cost. And it's the cost of that inventory that if you get it wrong that you can really miss out on again, sales or overinvesting in things that don't turn. Joe: So if they're over-investing in things that take a longer period of turning what's the drawback to that? Matthew: Well, it's use of capital, right? So fundamentally; it's funny, I had a client about a year ago in the e-commerce space sourcing from China; all of the standard things that you have that we could talk about and they didn't have an inventory management system. And what they wanted to try to do is try to get their books in order in a way that look like nice gapped financial statements. I said guys you're missing the point here. You're not going to make a half a million-dollar poor decision because of your financial statements, you can make a half a million-dollar poor decision though because of inventory management. And if you think about how real that is, and if your sales are 100,000 and you need to build up inventory in order to sell to continue growing and you get the wrong items, that might be your one shot in order to build up the inventory to get future sales. If you make the wrong purchases you can destroy your business overnight. Joe: So it's the availability of capital to invest in the right things, which might be that new SKU that launched and it's taken off and buying more of it, it's paying yourself too. I would imagine these businesses that are growing like crazy, Matthew when someone sells it the vast majority of time the majority of money they make actually comes the day they sell the business not as they're operating it and running it, even though they might be doing 10 million in revenue when they sell the business. I just sold one in January and we went through the numbers and it aired two or three weeks ago at the time that we're airing this podcast, and I think they did like 250 in revenue in year one, 1.3 in revenue in year two, five million in year three, and then sold it. And the vast majority; well over 50% of the money they put in their bank account came the day they sold because they were scaling so fast; just trying to keep up with that inventory management they just complain that the wires get bigger and bigger and bigger going to China. All right, so inventory management for a number of reasons. So we won't get into software at this point unless you've got some favorite software. Matthew: No, I think my key piece of advice there is that each company is unique and you need to view yourself as being unique. So the practice that I go into and the discipline I think is absolutely important is to spend the time as an organization documenting what your current processes are as it relates to systems and other things that are going to interface with your inventory management. So document that in a memo; in a written document and make sure everyone's on board with what are the requirements of your future system, what are the things you'd like to have, and then share that with possible vendors. And the idea there is you want to make sure there is absolutely no confusion about how things operate. What's important to you and making sure that your vendors; I mean to me getting rid of a bad IT system is harder than getting rid of a bad employee so you really need to make sure you got the right system and invest that time to make sure you know specifically what you want and there is no ambiguity about what it is that you're expecting. Joe: Why are you sharing it with a vendor if a vendor is a manufacturer? Matthew: I'm sorry not the vendor but like an inventory management vendor. Joe: Oh, okay. Yeah, they're going to sell you hard no matter what. So it's interesting, though, as a fractional CFO advisor that you are now at step number two or the second point here is website management. Matthew: Yeah. Joe: Why and how do you jump into the website and getting from that first visitor to it's in my cart and they're giving you a credit card in as few clicks as possible? Matthew: You know, in general, I don't find myself spending a lot of time there, but it's emphasizing the importance of that. Again, it's stripping down the business to its core elements and making sure that the founders know what that is. Because if they're not managing that and they think that they're managing inventory perhaps perfectly and they're even and they're managing their advertising cost perfectly, but then customers are coming to the website and it's showing stock that doesn't exist or is complex or hard to get through the closeout checkout process if there is an efficient management of that and again one of your pillars is just failing and now you're going to have suboptimal results for your organization. So it's just making sure that the organizations honing in on that. And I may not necessarily be the one doing that or managing it, but making sure that issue is front and center for them. Joe: Okay, front and center that they're focused on it and addressed it as one of the pillars. Matthew: Yeah. Joe: The third is driving traffic and I assume we're talking about the average cost to acquire a customer here. Is that something that you focus on? Matthew: It is. Some businesses are easier than others where it becomes very obvious that they're spending a thousand dollars and they're as a result generating 2,000 dollars' worth of sales and things are going well. So I look to make sure that it's being managed again and I can help with making the nuances and making sure that they're thinking about it right in terms of what are the inputs into that calculation. So one of the things I've seen in the past; in my past is that I've seen that companies might overburden the cost structure of what they think a new customer brings. So, for instance, maybe the sales price is $100, the cost of that sale is $50, which means your gross profit is 50 and then companies might start tacking on all these other costs. So interchange costs and credit cards and maybe stocking fees and all these other things. And then they may say, well, we don't really have a gross profit of 50 we may have a gross profit of 30. Well, if you're spending advertising dollars to go chase after $30 of what you think is gross profit, what you end up doing is really shortening and hurting the long term scaling of that business because you're underspending on your advertising dollars. So I can help with that philosophy and making sure that you're identifying the right costs that you're burdening for how you view your spending. Joe: Merchant processing is a legitimate cost that it's going to be 2% or 3% of every order, isn't that something that you want to definitely work into your numbers and analysis, whether or not you're going to spend $50 to acquire a customer or $100 to acquire a customer, especially if it's a onetime order. Matthew: Yeah, so there's other factors to think about though, right? You may have customers who obviously love your product so much that they tell their friends, so referral, and there's ways of tracking this. Joe: The halo effect, yeah. Matthew: Right, exactly. Or there might be more lifetime value of that customer either its add-on services or other things that you're selling. And so the goal is to not be so narrow-focused on the single transaction that you're closing with but thinking more holistically. And again, I'm looking to; sounds ironic coming from a miser accountant, but I'm looking to help companies expand their advertising dollars not necessarily shrink them. Especially if there's a longer-term play to that profitability scheme. Joe: All right, so we're talking in this situation the acronym folks is it's either ACoS or maybe it should be pronounced TACoS but it's more TACoS, right? It's total cost to acquire a new customer. And it's taken account into account all orders, those that came in organically versus those that can be tracked specifically to an ad spend and making sure that you're not just focused on the ad spend and then cut the cost you're going to see your total orders put out as well. So as a CFO, as somebody that comes from the pedigree that you come from, which is really stuff that makes most people's eyes bleed just focusing on these numbers when you're hired what is the first thing that you do when you go in and begin your services at an e-commerce company? Matthew: Yeah, the first thing I'll do is I do a couple of things. One is I ask the client, well, what is it that you; you brought me here for a reason, what are those reasons and making sure I understand them. The second thing I'll do is analyze the company; so talk to other key reports; for instance to the CEO or the leader of the organization, look to see what their current systems are, see how long it takes them to close the books, get a gauge of the accuracy, the financial information. And then also what I'll do is I'll kind of take all that information and then come up with a priority list. Generally, not more than one to five items and identify okay, here's what I think is the roadmap of where we need to go and what we need to do to get there. Joe: That's with the CEO of the company saying what their goal is in terms of revenue or exit or something like that obviously [inaudible[00:25:21.1]. Matthew: Yeah. Joe: Let me just pipe in there in terms of the accuracy of the financial information. I find six to seven times out of 10 that it's not accurate on the initial call. People are not even doing accrual accounting. They're doing just cash. How often do you run into that and when you hit that hurdle, how do you get over it around it and fix it? Matthew: Yeah, I've encountered that... Joe: And why? Let me just the question, you know a lot of folks feel like they've got a pretty good handle on their numbers. They may be doing cash accounting. They may not or they may reconcile every month, but they've got a pretty good idea and they just do some back of the napkin calculations. What's wrong with that if they feel like they're seeing top-line revenue growth; what's the problem there? Matthew: There's a couple of things in it and it depends on the company for certain. And it depends on the stage that they're at and things like that. But in general, I think if you're going to scale, you need to really understand what's the unit cost of your inventory; so what are you purchasing it for, how much does it cost to move it into your warehouse, and understand what those parameters and dynamics are to really kind of get a good gauge of your gross margins. And I think that when you're doing that, it's understanding again; it's tying in that inventory well with what your inventory records are saying from a financial perspective and understanding what was sitting on the shelf and what's the value of what's sitting on the shelf. Again, if you're focusing on; if you got 10 product lines and five of them are selling like hotcakes and you've got two or three laggards, well those two or three laggards are really they're taking away from your ability to reinvest back to the five that are doing well so it's understanding what that is. And I'd say that from a; the challenge I have coming into a lot of companies, the first thing I see is that, like you said, a lot of them are in cash basis of accounting and the number one thing that they're missing out on is those inventory accounts and the values to really come up with a good snapshot from a financial perspective. Joe: Can't they just use an Excel spreadsheet for that? Matthew: Well that might get you accounts if you have historical numbers at month ends and then we've got to figure out pricing. So speaking of our friend that was exactly what I had to do is I was going back through and rolling back inventory counts from a point in time and going back to month ends and trying to get good financial information because that person is looking for an exit ultimately and to get there all this helps to put together a good, solid book of records that reflects your financials and your results that are important for future investors or future buyers. Joe: But my CPA does that at the end of every year. Why do I have to track inventory on a monthly basis? They just [inaudible 00:28:26.1] my tax returns. Matthew: Yeah, so let me address that. I see where you're going. Joe: I'm having fun with this, by the way. Matthew: Oh yeah, this is good. So, I think there's certainly a large misconception about what accountants do. And I'll put accountants in three different buckets and I think this is where you're heading with your comments. Number one is I'll call them the bookkeepers, they're the ones who are keeping track of your day to day transactions and making sure that things are going in for amounts that need to be paid to vendors and cash receipts coming from customers and keeping track of your book; your QuickBooks and your Xero account, bring them in. So that's number one. Number two is your tax guy and that is tax compliance whether it's sales tax or income taxes or personal income taxes. They're the ones doing all that stuff. And then you'll look at me and you're like, well, I'll tell you, I don't do it either of those. What I do is help to oversee the strategic part of the business and the growth of the business and the forecasting; where are we going with this, where is the future, and then also overseeing and tying in the pieces between that bookkeeper and the tax provider. So I'm like the guy who helps glue all those pieces together to make sure that they're all talking to each other, that the tax guy when he comes in and he doesn't have a whole bunch of problems with the numbers because they don't make sense. And I'm helping to tell the story of those numbers and what has happened so the owner doesn't have to do that. Joe: The path that I see a lot of folks go down is they just have their CPA do the bookkeeping as well. And I find that that's normally done wrong and they make annual adjustments and things of that nature. Do you see that those three different people; you CFO advisory services, gluing the pieces together needs to be in place, a bookkeeper for just the accuracy of the data entry, pulling or importing the information and setting books up on an accrual basis reconcile every single month so that you have "accuracy of financial information" and then the CPA really just does tax planning advisory services in that regard and files your taxes anyway. So don't have the CPA do the bookkeeping essentially. Matthew: That's right. Joe: Okay. Matthew: I am a CPA but yes, you need a CFO person who is helping with, again, keeping the accuracy of the financial information to make the life of the tax provider that much easier. Joe: There are lots of bookkeeping firms that are started by CPAs but they don't focus on filing your taxes or tax planning. They focus on making sure that your financial information is accurate so that you can make solid decisions like focusing on inventory management, looking at TACoS and ACoS; those types of things. So without the accuracy of financial information and when you go into a company and you go okay, first hurdle, accuracy of financial information, this is not right. What do you do? Matthew: Well, two-fold, one is what wasn't right and fix it and then number two is find out why it wasn't right and try to prevent it from happening again. And so there's certainly a continuous learning loop that you want to have to make sure that whether it's insourced or outsourced [inaudible 00:31:52.3] bookkeeping perspective is that they're understanding what it was, what happened, and learning about it and improving for the future. Joe: I got you. We've got a list of bookkeepers that are very good at what they do. Folks, if you are listening and like yeah maybe I should stop having my CPA do the bookkeeping or my mom or my uncle or whoever is doing it for you or if you're doing you really are not doing it well. Hire a professional bookkeeper. Shoot me an e-mail, [email protected] and I'll shoot you an email with the referral list. We don't get paid for referrals. We just want your books to be done right so that when you come to us with seeking an opinion on the value of your business that we can help you. If you've got a financial goal, we can tell you where you are today so you can get down that path. But if your books are wrong it doesn't really help much at all. Especially if you've got a just out of college bookkeeper that does everything a CPA tells him or her to do. That's even worse because the CPA, again, as Matthew just said, is managing towards taxes. I have a question for you with your pedigree; Priceline, KPMG, you're a CPA, the two accounting software that I continually see are QuickBooks Online or Xero, they're both pretty good in their own right but is there a third that you would recommend or should people just be looking at these two? Matthew: I'd say it depends on their size. Joe: Sub 20 million. Matthew: Sub 20 million I think QuickBooks will get you most of what you need. Now, what you may end up doing is, again, inventory management as an example is QuickBooks does a terrible job of managing inventory. Joe: Right. Matthew: So what you'll want to do is find an inventory management system. There are dozens that are out there that has the functionality that you're looking for which, again, is going to be well-documented because you're going to describe what it is you want to do. And that hooks into QuickBooks so that way you're automating your interface between that inventory management system and QuickBooks or Xero. Joe: That's complicated and painful. Matthew: No, none of the above. In general, I'd say you need two to three weeks of really documenting and understanding what it is you want and where you're going. And then usually a lot of these systems, you're looking at four to eight weeks perhaps of implementation time. And a lot of that can be parsed out to the inventory management system company itself. A lot of them will bring in consultants and people who will help make sure your interfaces are working right. And then you'll want to have a testing scheme to make sure it's done correctly. Joe: Okay, so we are nearing the end of our time and I want to say to anybody still listening good for you because this is critical information and too many people tune out when it gets to the numbers. Odds are that your business is your most valuable asset and you spend less time focused on the financials and the numbers than you do mowing your lawn every month or whatever your hobby is and you need to spend more time on this. Your business is worth more than your retirement fund, your car, your house; whatever it is savings you've got, it's probably worth more. And that's true in most of the cases that I see. And again, you're going to earn more money on the eventual exit of your business than you are when you run it on a daily basis. Services like Mathew's and fractional CFO services are critical to getting your most valuable asset on track to an eventual exit. And we all exit our businesses at some point, someday; surprise, someday I will not be an owner of Quiet Light Brokerage, right? I'm going to move on someday but maybe to the grave and I may be around that long but you never know. There are other members of the team that may step into certain roles that I play. And I've got to do everything I can along with my business partner Mark, to make sure that our financials are in great shape. You should do the same because it's the right thing to do. It doesn't matter if your business is doing half a million in revenue or five million or 25 million. Our friend in common, his first business that he sold was $7,000. He became an exitpreneur at that point. You guys have heard me talk about the book that I'm writing; Exitpreneur's Playbook. His next business was 20,000. He learned from both of those exits and then exited one at just over 200,000. His next exit was around just nine million. His goal now with Mathew's help is a hundred million dollar exit. He may get to 50, he may get to 75, but he sets his goals pretty high and he's tracking towards them. But you can't do that without knowing where you are today. And you can't do that without accurate financial information. So that's me pitching online on paying attention to the numbers. Matthew: If I can expand on that for a minute… Joe: Please do. Matthew: One of the services I provide is financial due diligence for the acquirer or I'll represent the acquirer acquiring a business. And in fact, I've got like three or four of them going on right now. And I've had instances where I've gone in, done financial due diligence, looked at their books and records and seen comingling. This is one of the most terrible mistakes, commingling of personal and business expenses together or transactions that are being purchased on a personal credit card or personal expenses that are being paid out of a business bank account. All these types of things fundamentally hurt the value of the business because of the quality of the information that a prospective buyer is looking at. It makes it harder to trust the person they're buying from if they have to start digging into personal credit cards and very invasive in a different way. And there have been instances where I've made recommendations to clients to step away from a transaction because the books and records were not clean enough and the value of what they were hoping to get as the purchaser of that company afterwards was not to going to be that. So all of that discipline is really important to have it in place I'm going to say for at least a good two years before you expect to sell. And if you're not there; and even if you're able to sell, I can guarantee you you're losing money because you didn't spend the money on making sure you have the right financial information. Joe: Music to my ears from the former controller of Priceline, folks. Matthew, thanks so much. How do people find you in terms of the fractional CFO services or what you just mentioned which is due diligence services for an acquirer of a business; LinkedIn the best approach, reaching out? Matthew: LinkedIn is the best approach absolutely. Joe: All right and we've got Matthew De Wald. That's D-E-W-A-L-D; Matthew De Wald. We'll also click to his LinkedIn profile account in the show notes. Matthew, thanks for your time today. I greatly appreciate it. Matthew: Thank you. I appreciate the time, Joe. Resources: Quiet Light [email protected]

Today's episode is another show about incredible exits. We got the chance to speak with Brian Lejeune and Janine Do. They chat with us about their intensely difficult exit and the challenges they faced. Tune in to hear our chat with Brian and Janine about their experiences as entrepreneurs. Topics:

• Brian's typical entrepreneurial journey.
• How Janine's parents influenced her career.
• When they started to see sales.
• Why you shouldn't get stuck on branding on packaging.
• Why there are no excuses for working less.
• When to consider the exit process.
• Why Mastermind groups are important.
• How much Brian and Janine made on their exit.
• Logic over emotion.
• How their level-headed nature was key to their success.
• Their emotional response to their exit.

Transcription: Mark: All right Joe, I know that Jason Yellowitz sold your business. I actually sold Jason's business before he came on board as a broker at Quiet Light Brokerage. I often referred to the story of selling Jason's business to potential sellers to explain that sometimes when you're in the process of selling and getting closer to that closing date, anything that can go wrong will go wrong. And that happened with Jason's business. His business that he was selling these baby gates and dog gates. It had the worst three day period of sales in its history and of course, the buyers started freaking out; understandably so. This happens with deals sometimes when you're in that due diligence period where all of a sudden all hell breaks loose and you kind of have to figure out what's going on. I know you just went through an incredibly painful exit with a client who had that sort of scenario but it worked out. Joe: Yeah, and it wasn't painful for me necessarily because I'm at arm's length so it was okay but, Janine, I think stopped eating at one point. It was that incredibly painful. I remember I was at eCommerceFuel down in Fort Worth this year and we were about to close and something went wrong. And I don't want to give the details away here in the intro because you've got to listen to this. What could have gone wrong; went wrong and to the nth level; this is like deal killer, account close, things are over kind of gone wrong but Brian and Janine; the owners of the business, remained level-headed. Even though, like when I called him from the ECF event trying to cheer him up and like, hey, how's it going today? We got over this hurdle and I could hear it in his voice something else happened. Like he was kicked when he was down on this second hurdle that we had to get over and it was incredibly painful. That aside, these two are incredible people. They are pharmacists by trade. Janine has her PhD and she comes from a family with six children, five of the six have Ph.D. They're immigrants. They lived in the projects in Roxbury, Massachusetts and it's just an incredible story all around; incredible story, incredible exit, incredibly painful with light at the end of the tunnel. And they're actually now under LOI buying another business so it's a full story. They launched another brand, another business before they closed this transaction and so they're already generating another income stream and now they found an opportunity where they're under LOI buying another business. And that's really within 60 days of closing the last transaction so it's an incredible story all around. Mark: That's fantastic. Let's get to it. Joe: Hey, folks. Joe Valley here from Quiet Light Brokerage and we've got another Incredible Exits episode here. We've got Brian and Janine Lejeune on the call. Welcome, guys. How are you? Janine: Good. How are you, Joe? Brian: Very good, Joe. Joe: Now, listen, we normally call this Incredible Exits but I want to change that for this episode. We'll call it the Incredibly Painful Exit for you guys because there were certain components of it that were incredibly challenging and painful. And I think at one point, Janine, you might have stopped eating if Brian was telling the truth. Janine: I stopped eating and I stopped sleeping. Joe: Well, good. Let's get a little bit background on you first. You guys are both pharmacists by training, I believe, right? Brian: That's right, yeah. Janine: I'm the one with a doctorate degree though; he's only got like a normal degree. Joe: So I need to call you Dr. Janine? Janine: Yes. Joe: Dr. J, how about that? Brian: There's just more responsibility that comes with that. I keep telling her on the plane when they if there's a doctor in the house. Joe: It's a Ph.D., right? Janine: Yeah. Joe: So I have a father in law that has his PhD and he said it just stands for piled higher and deeper. Janine: Yeah, that sounds about right? Brian: Yeah. Janine: [INAUDIBLE 00:05:28.7] loan debts when I graduated. Joe: 200? Janine: 200,000 yeah. Joe: How incredibly painful, have you paid that off with the sale of your business? Janine: We're going to. But right now with the stock market doing some fun stuff we're putting some money there. Joe: Cool. Good for you. All right, well, let's get the background and Brian, let's start with you. Because honestly, Janine's story is much more interesting so I just want to get yours out of the way. Brian: Yeah. Joe: What's your story background; the business history, offline business, and then online, I believe, right? Brian: Yeah, so pretty typical in the entrepreneurial journey. I'm kind of been dabbling in a lot of things for a lot of years. I went to college, came out, and became a pharmacist. So that was the path I took but even in college, I'm kind of always entrepreneurial and just always looking for other opportunities. I think about maybe two years into pharmacy I started saying, okay, I don't think this is quite what I want to do for the rest of my life. So I started looking at businesses; looking at local businesses. I bought my first business when I was about 26, 27 years old and it was a tanning salon. I knew absolutely nothing about the industry. I was honestly just looking for a business. It was five minutes from my house. I learned as much as I could from it and kind of grew it to a really nice level where I was actually able to leave pharmacy completely. And I left pharmacy for about seven, eight years, and in that span opened up other salons, pulled some partners in, did some distributorship. I did a lot of like brick and mortar type stores; bought some, sold some, but have never sold them at the correct time. Always kind of passed its peak like oh, we should sell or something's going wrong with a partner and always getting out not at the ideal… Joe: A little too late. Brian: Yeah, so that was a big thing that looking at what we did that was my one goal. Like, let's do this at the right time. You never know when the perfect time is, but you just don't want to do it the wrong time. Joe: True. When did you jump into the online space? Brian: Online in terms of jumping in probably not until like 2014, but a lot of little things here and there; trying to start blogs, trying to sell things on eBay or whatever. But that was very, very small. It was always kind of like, oh, what can I do next? What can I do next? But 2014, 2015 I kind of found the Amazon space… Joe: Was it before or after the young lady sitting beside you, the two of you met? Brian: Yeah, so before. But honestly, I owe a lot to her because I didn't really get super deep into it until she came along for sure. Joe: Well, she does have her Ph.D. She's a lot smarter than you are. Janine: I'm obviously smarter. Brian: It just takes me a little longer maybe. Joe: Let's hear a little of your background, Janine. And do me a favor and just tell everybody about the generation before you because I think you've got a fascinating family story as well. Janine: Yeah, sure. So my family came here in 1989. My dad was 35 years old at that time; seven kids, pregnant wife, no money, no English whatsoever. Joe: What country did you come from? Janine: We came from Vietnam. Joe: Okay. Janine: Yeah, So he fought with the American soldiers during the Vietnam War. He was of course against the communist people so they put him in jail. Things were just getting pretty rough for us back there and we got the opportunity to come to this country and he decided to take the chance. So he came in at '89. He was 35. He's making minimum wage, raising a family of probably more even seven kids in random age; so fetus to, I think 17 or 18 years old, maybe even a little younger than that. Joe: Any idea how much money the family had when you came to the country? Janine: Oh, yeah, nothing. Not even like a ring that's worth anything. Besides the clothes on our backs, we've got nothing more. My mom didn't own anything that was worth anything. No heirloom ring or just nothing like that. So we rely a lot on government help at the time. We spent 10 to 12 years in the projects. Joe: In what city? Janine: In Roxbury. Joe: In Roxbury. Okay, I spent some time up on Mission Hill myself. Janine: Well, you know the police station and radio station? Joe: Sure. Janine: So I was five minutes walking distance from the police station. That's like the highest crime-ridden place you can think of in Massachusetts. Joe: Wow. Janine: That's where I grew up. Joe: And you did this and managed to have how many PhDs in your family now with all the siblings that you have? Janine: Oh, so we have a dentist, four pharmacies, three bachelor degrees, and one masters; so [INAUDIBLE 00:10:27.4] more than one. Joe: A true incredible American success story. That's incredible. No excuses to my kids are now your kids that are second, third, fourth, fifth-generation Americans that don't want to do the hard work that you guys did. Janine: Well, it's tough to teach them and I don't know how to impart the same wisdom on them that my father did for us. But when I was little he used to tell me if we see someone who was homeless on the street he was like do you see that? If you don't do good in school, that's where you're going to end up and it freaked me out. And I actually believed him. I actually believe him so we are always doing that in school; every one of us. So I was top in my classes on like grade school. Joe: Wow. And you still married Brian? That's amazing. Janine: Yeah, and I don't know how this [INAUDIBLE 00:11:15.4] tricked me into in. Joe: All right folks, I know these guys pretty well at this point. We've gone through a lot together so, yes, I like to give them both a hard time because they give it back to me as well. All right, so your online entrepreneurial journey; and you were obviously a pharmacist. You have a PhD but at some point, you and Brian met. Did you already have online businesses before you met Brian or did you jump into the space when you guys met? Janine: Yeah. So since I was like 16. My parents opened a restaurant and that's when things kind of got better for my family. And so I saw the opportunity of having a business would mean. I mean, literally, he opened a restaurant and two years later he was out of the projects. He bought a house. He bought this brand new Lexus. Somebody has always want to fall on time. So from that, I see the incredible opportunity of owning a business but I also saw how much it consumed my parents. So they were always there. That's all they talked about and they're literally there; sometimes my dad is there at four in the morning to make this broth that takes six hours to cook. So I see how much it consumed them. So I saw the opportunity in business but didn't like the brick and mortar aspect of it. They were always gone. They were always there. So I stumbled on eBay when I was 18 years old in college. So this is 2002. I was struggling with money, so I looked around my room; whatever was worth selling, I put on eBay. Whatever I can get, like ten bucks I would do it because; you know a college student, typical story. That's kind of how I got into the whole online space and I just never left. I saw the opportunity. I was trying all kinds of things over the next 15 years. I did a feel at marketing. I tried selling cellphones. I tried selling used sports shoes. I did affiliate marketing; just all kinds of things and they made me a decent side income but just not enough to replace a full-time job. And then when I became a pharmacist making over 100K a year, it became harder to justify that $20 or $30 I'm making on the side business. And then I met this guy who told me about FBA. I didn't know anything about it. It was the first time I heard of the word private label. I have no idea what that meant so he explain it to me. We bought ASM. I think you had ASM3. So we got that and that's how our journey began. Brian: It was that private label route that really kind of changed things. Both of us were always selling other people's products or always looking for that next thing to sell whereas it was like, okay we can develop our own brand. And I had sort of done this in the tanning salon world where like we were private labeling back in early 2000s a line of skincare that we would bring into the salon. And then we started doing tanning beds and we basically brought some tanning beds in from Italy. We put our own name on them and we started selling them to other salons. So I've kind of been familiar with it but the Amazon thing really opened my eyes to kind of like okay, we can do something really big. The volume is incredible. Get a good product, get a good brand, and just try to blow it up and fortunately, it worked out. Joe: And you learned both the initial stuff through ASM3 I think you said it was. Brian: Yeah. Joe: That's a while ago, right? Brian: Spot on. Joe: Several years ago and many variations since then. If somebody is new coming into the space and let's say they're a pharmacist working and listening to this podcast right now, what would you suggest they listen to; courses that they take, masterminds that they join, anything that you can recommend? Janine: I think the most important thing is to take action. There are a lot of courses out there right now and I remember I heard one of the guys spoke on stage and he was like; so this is speaking to the ASM crowd who all paid and all wanted to be there and he said, I know 95% of you here today aren't going to take action. I sat there and I thought to myself, that's so weird. Who the hell spends that kind of money and that kind of time to go there and not take action? I thought there's no way that that's true because I knew that there's no chance in hell that I wouldn't be taking action. But then over the years, I learned that he was right. People just aren't taking action. They buy these courses and then their brand is kind of like they took it off as some I did it, kind of the same thing with when someone signed up for gym membership in their brand [INAUDIBLE 00:15:42.9] release of you actually going to the gym, even though you didn't and all you did was bought the membership. It's like a psychological experiment I read about so much will buy courses and in their brain is checked off as, hey, I did it. The most important thing is just really to take action. Joe: No matter which course, whatever it is just take some action. Figure it out, get started, and learn from that experience. Okay. So the business that we worked together on that you sold through Quiet Light is in the electronic space. Is this the largest business that you had gotten off the ground and launched? Brian: Yes, definitely. Joe: Okay. All right, let's talk about that process a little bit. When did you first launch this particular business? Brian: So that would have been the last quarter of 2016. Joe: And did you use any particular tools to research the niche; like a Jungle Scout or a Helium10 or anything like that? Brian: Helium10 at that time. Joe: Okay, do you recall how much your initial order was; how much you spent on the first batch of products? Janine: 1,000 units so that would have been… Brian: About $10,000. Joe: Did you have the money in the bank for that or did you have debt and use a credit card; what was your financial situation then? Janine: Well, at the time I was working overtime whenever I could so I literally sat there and mapped out how many hours can I work overtime and how many hours did I work and all that money gets put into the business. Because I could justify to myself that I'm not risking my "own money", this is extra money. So I was starting over. I was doing like sidestep. I was doing all kinds of crazy things. It was like the second order that I had to use credit card and some of these loans. Joe: How long did it take between; well, let's actually back up, when you got the first 10,000 units… Janine: 1,000 units. Joe: 1,000 units, $10,000, how quickly did things take off for you? When did you start to see sales and then how quickly did you go? Janine: It just started selling. Brian: Yeah, that one started selling really good but it's a little bit unfair to call it like that's when we started, because both of us had products before that time that we're marginally successful in the sense that they would sell but neither one of us could make the products profitable. So we got to decent volumes of we could sell 15, 20, 25 a day type of thing but spending more on PPC than we were getting in and it never kind of went over that hump, whereas with the electronic product that actually Janine launched, it was up to 20, 30 units a day almost immediately. So it was kind of we got sat there and we're looking, okay, what do we do next? And she was trying to figure out because there wasn't a big bank account that had all this money ready to go to invest. So she says, okay, I think if I buy a thousand now and then I save up and I buy a thousand, and she had literally a whole path of what she wanted to do. And we sat there… Janine: At an ice cream shop. Brian: We're at an ice cream shop and I said, no, that's not how you do it. You need a hundred thousand dollars. We need to do a big order. Like that's it. This product is going to work. You could see it. It just didn't take a lot of effort. It got bigger and bigger every day. And then it was loans and credit cards and scrounging. Janine: I thought he was insane. Joe: He won that argument? He won the argument of more like spend a hundred… Janine: You know I'm sitting there and I'm like where are you going to get a hundred thousand dollars; like what kind of overtimes do you think I can work? And at that point, I'd already quit my job but I knew that he was right. And this is why our partnership works really, really well. He already knows how the business road works whereas I'm kind of new to it. And this is whether you run a brick and mortar like a tanning salon or online, the principles are the same; the cash flow principles, how to allocate money, how to leverage debt. Those principles don't change no matter what business you're in. And I agree with him, even though it never occurred we would do it. He brought it up and I thought he was right. So I literally spent one day because when you apply for a loan, credit cards will know about it and they're more like three reject to you. So I had one day off of work. I sat there and applied to every single credit card that I could think of and applied to every single loan that I could think of and I scrounged around between credit cards, new credit cards, and a cash loan I was able to come up with a hundred thousand dollars. Joe: Wow. You actually pulled the trigger and raised a hundred thousand too. So we have a lot of people that say, how do we raise capital? How do I buy a business and raise capital? You just found a hundred thousand dollars through cabbage and multiple credit cards just like that. Brian: And I kind of told her, I said money is not the hard part. That's the easy part. I think we can all figure out a way to get money, whether it's borrowing from family if you have to or credit cards, whatever. The hard part was done like she found the product. Joe: She found the product so getting to the point where you buy product. Brian: Getting the money was always easier. Joe: Okay, that's interesting. I'm mentoring some students at a local college here and they had a hard time finding money to incorporate. And they need to listen to this podcast and do what you guys did. Brian: Yeah. Joe: I said to them, I said look around, just sell something, you need to do it. Come on. Brian; And I think a lot of people get stuck on I have to set up this first, I need a corporation, I need a logo, I need business cards. And all of that is way overrated. I think people use that as sort of a stalling mechanism. They need to get things set up, they need to be ready and it's not true. It's sell something first and figure out the other stuff after. Janine: Yeah, I think I was at a million dollars before I had a corporation before I was properly set up, before like a lot of things. I don't even have a domain, I didn't even have a .com. I know you e-mail sequined, I know e-mail list, I didn't have a brand, didn't have a Shopify present, I didn't have any business card. I know a lot of people to keep asking me for one and our packaging was literally this box that had that background on, had a bunch of textbooks, and then on sit Cinderella on it. It looks like someone just kind of like threw something together… Brian: It was just the stock box from the manufacturer. Joe: And just for the record, Cinderella had absolutely nothing to do with the product folks. Janine: Nothing at all. Brian: Yeah. Janine: My point is sometimes you get stuck on these things. Oh, I have to get the packaging right, I have to design this, I have to design that, I have to get a domain, I have to brand register and all these things. I didn't do any of them until I'm already well over a million. Brian: All of it is important but if you get stuck on doing that before you actually have something to sell… Joe: You have to get out of the game. Brian: Long path, exactly. Joe: I'm curious. You had said you'd each tried multiple things and you didn't get past 15 or 20 units a day. Were they all in the same Seller Account as this one or separate Seller Accounts? How did you manage that aspect of it? We'd always recommend separate brands for separate seller accounts. Brian: Yeah, so at that time we both had our own seller accounts. But then the one that we ended up building with was the one she had set up. And there were multiple products in there and they were… Janine: Totally unrelated. Brian: Totally unrelated. A lot of like; it became like test products so like we finally found the one that stuck and then that became the brand and sort of just slowly fades out. Joe: And the rest faded away. Brian: Yup. Joe: Okay, so the biggest challenge you would say is actually finding the right product and getting it to work, and don't let yourself get stuck in the gate trying to get to be perfectly set up before. Janine: Yeah. That and also, I don't want to our story to make people feel like, oh, I need a hundred thousand dollars or, oh, I need 10 grand otherwise I can't get started. That's totally not true. If I hadn't had four products that failed, if I hadn't had four products where I spent all my time; all the things I learned; photography, how to talk to freelancers, going to Fiverr.com to hire people, how to write a good listing, how to use Helium10, how to use all kinds of software; I learned all of that but all of those products that cost me like a dollar, a dollar 20 cents. I only started with a few hundred bucks. That's when I learned all of those skills so when the right product comes along, I'm ready to go. And I think that's contributed a lot of our success. I imagine if my very first product was a successful product maybe I wasn't ready for it and maybe we wouldn't have gone the trajectory that we were. So even if you have 200 bucks to buy something that cost a dollar or two and you may not make money on it, do it. Joe: Education; right, you're learning along the way. Janine: That 200 bucks is worth it. Joe: Okay, so lots of failure or enough failure or mediocre success before you head to the home run; the seven-figure eventual exit, so to speak. So you found a way to raise money, not an issue for you, as the business continued to grow were there challenges with cash flow management trying to keep up with more and more inventory demands? Well, you don't have a job any anymore Janine, you have an income. Talk to me about those challenges and how you overcame them. Brian: Yeah, there were definitely challenges but it became; so she had left her job, I was still working for about a year. I left in the end of 2018 so now neither one of us are working in pharmacy but during 2018 when the real growth really started to happen, it was always a struggle to order enough to grow because we're growing 30%, 40%, 50% month over month. It wasn't slowing down so it was always trying to stay one step ahead with inventory. We use Amazon lending extensively. So, I mean, we started with the smallest. They offered a thousand-dollar lone, we took it, and then every time we paid it off, the loan got bigger and bigger. Joe: Do you always have to wait for them to offer or is there a way that you could… Brian: Yeah, and as far as I know, the offer is the offer. There's no getting anymore. Joe: So you take it, pay it off and then you're going to get a… Janine: Yeah it was really stupid. The first loan for a thousand dollars I would have done anything for us. We were already doing; I can't remember the exact number, but at least maybe 50 or 60 grand or maybe even a lot more than that. So I remember looking at it and thinking to myself, what the hell is this going to do? Why is Amazon giving us such a cheap ass loan like a thousand bucks? But we took it and it went to 10 grand, it went to 70, and it went to 300,000, 500,000. It ended up over 800,000. It just gets bigger and bigger. Joe: Wow. Janine: So if you get an offer even if it's 500 bucks or $100, take it. Brian: Yeah, and they're short term loans so they're expensive to have on your books, but it allowed us to fund the inventory and fund the growth, and it worked out well. Like going back there would be no other way to grow the company too. So when we sold it was almost at five million a year. Joe: Okay, let's get to the niche itself and the incredible painful exit as opposed to just incredible. It's incredible, no question about it. The whole story is amazing and inspiring and hopefully, it's going to get people in that starting gate to getting out of it and taking some actions; looking around the room and selling whatever they have to, working more hours. I mean, when I was a kid, I was complaining that I didn't have enough money. That was kind of to the millionaire next door, the best friend of my parents. I never know that they are, but they were. And I worked for the company and instead of staying I'm like [INAUDIBLE 00:27:34.5] where I said at some point I was in the room complaining I think probably as my parents were playing Chinese checkers which they do. And he said, just stop your whining. There's plenty of work. Just go work more hours. There are lots to do. Work more hours. And that's exactly what you did Janine. You do the math on how to work more hours so that you can fund that $10,000 purchase. So no excuses, people, if you want to be an entrepreneur, that's what you got to do. All right. So why the electronics space? It's a space that we talk about in terms of risk and that's risk of obsolescence and again, it took me a long time to learn to pronounce that but it means that there's a fear that the product will be outdated someday in the future with changes in updates. So why the electronic space, what attracted you to that? Brian: I don't think there was a lot of thought as to that we want to go into electronics. So it just came from product research and finding a good volume product that didn't seem to have a ton of competition that seemed to be somewhat new in the marketplace with already a lot of volume. So it kind of checked all the boxes that we're looking for. Also, there's a lot of training and there's a lot of categories, there's a lot of products, there's a lot of things that they tell everybody to avoid. We tend to; especially now that we've developed a better skill set around this and we have more confidence… Janine: We do the opposite. Brian; Yeah, we do the opposite a lot of times. Don't always avoid because guess what? I mean, the space is already crowded but the things that everyone is not avoiding, everyone's in those. So the ones that they say don't avoid and maybe it's an oversized, maybe it's electronics. If it still seems like a good opportunity, go for it. Joe: Take it. Brian: Yeah, I don't like to use like a definitely do not do this. Joe: All right, so launched in 2016, 20 million in revenue before you ever incorporated, at what point from your experience selling too late; at what point did you say to yourself, okay, we're going to exit this. We're going to talk to me, talk to Joe, talk to somebody, and learn about the process of selling the business. How long was it and how far in advance do you think other people should consider the exit process or the training or planning, as it's called? Janine: Well, they always say they won, right? Joe: Nobody ever does that. Brian: No. Janine: No, no one does. Brian: I think as soon as you know that you have a business. So, I mean, it can't be day one because maybe that's never going to go anywhere but as soon as you sort of maybe feel traction, you've kind of built the brand, it's still growing, and you see like an upside to it maybe start planning. Definitely from the day one keep your books good. That was a major thing. Joe: Remind me, did you use QuickBooks or Xero? Brian: We used QuickBooks. Joe: And did you outsource to a bookkeeper eventually or do you do that yourself? Brian: Eventually. So we're doing it. I was doing it myself and then when we sat down with you, that was kind of one of the things you helped us with. Joe: Okay. Brian: So we used CapForge and they were awesome. So they went back and had to recast all the books to the accrual method. So that was a little long, tedious, painful. Joe: Yup. Brian: It's probably more expensive doing it that way than to just keeping it correctly from the start. But, yeah, I think just planning is always better, of course. So as soon as you think you have a business, I think you should at least have it on your radar because who knows? I mean, we're all in this to make money. You own a business to make money and if selling it is going to make you money, that should be part of your plan. Joe: Yeah, so one of the things; I would just try to shift everybody's mindset. Everybody's always called it plan to sell your business the day that you started exit planning, flip it, and call it training because you're learning. You're constantly learning by your failures and in launching new products until you hit that right last one that launched a seven-figure exit. Think about the exit planning as training as well. If you're going to run a marathon, you've got to train for it or you're never going to get out of the gate. You've got to learn about the process. You're listening to this podcast so that's a great start. Get a valuation. Look at other listings and how they're valued and how the packages are put together. Train as much as you can. Don't make it your sole focus and your mission, but make it part of your overall business plan and operating your business so that you can eventually exit before you get burned out and things turn the wrong way and it's too late to exit at a strong value. Janine: I think the idea was initially planted in our heads when we had our initial conversation with Ezra on our mastermind group. And then that brings me to another point, the importance of having a mastermind. Brian and I are always a part of masterminds. Sometimes we're in two different masterminds. Right now I'm in three different masterminds, but having a group of people that you can talk to is like super-duper important. So Ezra we talked to him, he planted the idea in our head. We connected with you to get the initial phone call with you. I love that you were not fishy at all. It was just very informative, very casual when we got to talk with you. And we got off that day and we decided, yeah, we're going to do this. But it took us six months to get everything set up; all the books probably correct but it's never too late. Brian: And like you said about an education, going through the process, I think allows you to learn how to run the business better anyways. So even if you were to keep it, you should be in a better position after going through it. Joe: I agree 100%. Brian: Even going through the sale there were things that we learned. So during due diligence, it's like you get asked a question or someone else organizes information in a different way and you say to yourself, oh, I wish we did that before. But now guess what? We'd do it next time. So our next business, we set up a little differently because of things we learned by being exposed to the process. Joe: Right. Did you make more money on the exit than you made while you were running the business? Brian: Yes. Joe: 50% of all the money you ever made, 90%? Brian: Cash flow is a funny thing. So there was a lot of money flowing through our business but in terms of what you end up with yeah, I definitely think the exit; I don't know what percentage, but yeah, a big amount of what we actually ended up with was from the sale. Joe: Total earnings. Janine: Every month I'm like where's our money? Brian: Yeah. Janine: We had Like 300,000 to 400,000 monthly sales so I was like where's all that money? Brian: Yeah, we'd laugh as we'd wire money. We're like the Chinese they're taking all our money. I'm like why do you keep sending it to them but yeah. Janine: So the exit is when the cash came down and it definitely… Joe: And it comes at a lower tax bracket too. Brian: It does which is incredible. Joe: Very, very helpful. All right, let's talk about the painful part of the exit. So we were a couple of days away from signing an asset purchase agreement with your buyer. The CFO of the company bought your product and his wife plugged it in and it started to smoke and catch on fire. Janine: I don't think it caught fire, it just smoked. Joe: Just a smoke; okay a minor technicality. Brian: Yeah, and not a few days before it closed it was literally… Janine: The day of. Brian: The day of that we were supposed to close. Yeah. Joe: When details in your life are incredibly painful, you remember them very, very well. Brian: Yeah. Joe: You guys can remember exactly where you were when you got that e-mail or phone call, I imagine, as well. But we overcame that. We were able to sort of get over that hurdle; get around that hurdle. Can you address how that was overcome? Brian: Yeah, the exact how so we had a lot of confidence in our product and in our business and we didn't feel that the buyer had that same confidence. And I think that's normal, right? So they don't know exactly what they're getting. There's always going to be maybe some reservations, especially like you were talking to electronic product obsolescence, safety hazards type of thing. But we had kind of built it, we had huge volume, and, of course, we had problems along the way that we were always able to overcome and solve. And every time we overcame them and solve them, the company just continued to grow and grow and grow. So all that I felt was like, I just need them to believe in the product. And we kind of really structured the deal to make them feel a little bit more comfortable. We were willing to take a little bit more of the risk on some contingent payments but we're completely willing and confident do that because we kind of know where I think this product will go. And the company that bought it I think can grow it way beyond where we would. So we just needed to kind of instill into them that we're confident so we'll take some more risk and I think it worked out. I think it was a really good negotiation. Joe: Yeah, I think they've done well with it. They started to grow it immediately after closing. And with COVID more people are staying home and more people are buying that particular product anyway so it's a double whammy for them. So what would you did was shifted some of the risk into contingent payments, meaning that you got paid three months out if things were stable or six months out on another payment. And you also shared some statistics, too, though, in terms of the total number of complaints you had in that regard. Brian: Right. Joe: And then I think they did a little research in terms of looking at other similar products in similar categories and seeing that complaints were pretty similar and in some cases even higher. Janine: Even major brands had the same problems. Apple, Google, and Samsung that fiasco with the cell phones like [INAUDIBLE 00:37:55.6] with the batteries exploding on airplanes or something, it's not unique to our products. Brian: Right, and I think that's what we just needed to kind of work through to make them feel more comfortable. Joe: And you did it with logic and level emotion. You didn't go off the rails, you didn't scream and shout, you didn't… Janine: Well I did. Joe: Well you did that with Brian, you didn't do it with the buyer. Brian: Yeah, I'm very patient and I don't give up and I knew that it could be solved and it was something we could overcome. I was confident that we could... Janine: I thought it was over. Brian: Yes. Janine: Honestly, I wasn't eating. I thought it was over and this guy is very level headed. He sat on his computer, thought about it, sent out an email negotiating, and they accepted it. Joe: They did. They love the logical approach and that you put some risk on you. At the end of the day, you're still going to get paid out but you said, okay, look, I'm going to take some risk just to prove to you that this is not an issue, But the next problem, wow, it's almost one that you could never be able to overcome. So I remember I was at eCommerceFuel down in Fort Worth and I took my phone and checked in with you, Brian, and I'm like hey man how are you doing? You were like, yeah, I'm not so good. I'm not so good. I'm like come on, we're getting close. We're almost there. He's like, well, we just got hit with an IP infringement and all the ASINs are down or all the top ASINs are down. Brian: Yeah. Joe: So someone else ended up getting issued a utility patent on… Brian: Design patent. Joe: Design patent on the primary SKU; you're hero SKU essentially because you had pretty much a hero SKU here. How did that feel? Janine: So this happened on the same day that we were supposed to sign; again like we can't even make this up. I remember waking up that morning to an e-mail from the buyers saying hey I'm looking forward to closing today at two o'clock or something like that. Brian: Yeah. Janine: And I saw my other e-mails from Amazon that was sent at five o'clock that morning to tell us our ASINs are down. That literally happened within seven hours the same day. Brian: Yeah, so it was sort of like we got this other problem behind us. We're feeling good and literally the business; I mean this couldn't have been any worse because it went basically to zero. And they took down every SKU except for I think two or something like that and they weren't top-selling SKUs. So I think we went from like $12,000 a day to about a thousand dollars a day overnight and no path to see it being fixed. Joe: None, whatsoever; it was a patent issued by the US government. Janine, did you say those emails came in from your buyer and from Amazon within about seven minutes of each other? Janine: Seven hours. Joe: Seven hours of each other. So seven hours and the loss of seven figures; pretty painful. You're pretty down and basically like you got kicked somewhere that would hurt really bad. Brian, I'm talking to you. But again, levelheadedness, you reached out to your Chinese manufacturer. You looked at the dates, you looked at the history, you looked at whether or not this is patent was issued legitimately or fraudulently; meaning the guy didn't fully share everything with the US government; the US TPL that he should have. What did you find when you did all that research? Brian: So he had sort of, after the fact, applied for a patent. So we had the product selling in the marketplace first, but there were others so it was shortly after us where there was maybe five or six of us all selling similar designs, same exact product. It never even really crossed our mind that it was a patentable thing because we didn't design it. We purchased it as a private label thing, had our logos put on it, did the packaging, yada, yada, yada. So did this other buyer, so did lots of other buyers. About a year; so after we're already over a million dollars, he applied for design patent. The path he took was… Janine: Sketchy. Brian: Yeah, a little bit devious; claiming rights to something that he really didn't have rights to that was prior on this space but none of that sort of matters in the Amazon world because he did actually get granted the patent and Amazon is not going to rule on whether or not that pattern is valid or not. One thing that I did quickly was contacted some of our other competitors. So almost immediately I think we emailed… Janine: They were also taken down. Brian: Yeah, so we tried to reach out to our competitor that took us down, but then got no response. And I reached out to other competitors and we kind of all worked together. We're all doing our own research. We all had our own lawyers. And I think that little pact that we formed, in the end, helped as well. Because it was a lot of us working together, even though we're competitors, we kind of all had had one thing to solve. And yeah three weeks; I mean, this was a lot worse than the first thing so this one actually took a lot of time. Janine: 14 days. Joe: It appeared by all imagination as something completely insurmountable. Brian: Right. Joe: But you did, you banded together with your competitors. You also reached out to your manufacturer to reach out to them and put a little pressure on them as well. And you eventually got in touch with the patent holder. I'm cutting this short a little bit and telling the whole story because it's long, folks and it was painful. A lot of e-mails back and forth, a lot of negotiations, a lot of okay, I'll think about this and I'll get back to you and then not hearing back for days on end. Brian: And I got on the phone with them. I actually was able to speak to them and tried to work it out as just two businesses competing in the same world. It didn't seem like it was going anywhere. It wasn't working, but it did. Finally, cool heads prevailed. Joe: And so at one point, that conversation led to, okay, I will allow Amazon to put your stuff back up and that's good. So your stuff was back up and selling on Amazon, but your buyer really wasn't willing to close because that issue was still out there, that this person had the patent and they could shut you down at any time. We worked with a buyer who was very good about being patient, understanding, and all this. A lot of buyers would have just walked away. In this situation, they hung out. They hung around. They trusted you guys. They saw the commitment you were willing to put in by putting some risk on your side. And they said see if you can work it out. We're good. And one of the other things that you did is you said, look, we will backdate this asset purchase agreement. Let's go ahead and get the APA signed contingent on getting a mutual release of the ability to sell the product now and forever on any platform and being able to transfer control of that right to sell the product as well but backdate it. I think we ended up closing in March, but we backdated you said effective, I think January 31st as far as the asset purchase agreement. So you are essentially managing the business, not taking any money out of it, and if we were able to close the transaction, you essentially had ended up managing it for the buyers for 45 days or so. So, again, you're putting yourself out there saying, look, we're here, we're going to fix this and it's yours as of that date back there but we're going to run it until this problem is solved and we did. We ended up with a mutual release letter. There was the strangest possible clause in a legally binding contract I've ever seen. We won't go into the exact details, but the buyer's attorney said, I don't think this is enforceable. And I said, really?! Absolutely just a little clause that this person needed to make himself feel better perhaps in the afterlife and we don't know if you could enforce that in the afterlife or not. But the key is that that you worked with him closely to accommodate his personal needs and your own personal needs and you got through it. You remained level headed. And at the end of the day, you wound up with a seven-figure exit. I want to know how you felt not when we finally got that release letter but I want to know how it felt when that first wire eventually hit your account. Brian: Yeah. Janine: It couldn't have; so right now we're going through COVID-19, I don't know if you remember, but on March 17 was when the stock market dropped by 20%. The whole country woke up and the stock market was down like 20% or more and that was the same day we got our seven-figure finally hitting our bank. Brian: Yup, this couldn't have closed at a better time. I mean it put us in such a good position. Obviously, we'd been waiting for it for a long time so it was a relief but timing was just incredible. Joe: Although the buyers seen a spike in sales because of… Brian: I mean, we, of course, follow it very closely. Janine: Oh my God I font know how they are doing it. Brian: I think they're up over 100%. I mean, they're growing. It's awesome. They're growing the way we thought they would. They have the capital behind it. They've got a good, strong team to put behind it. So, I mean, we know… Joe: Are you excited for them. Are you glad; you just said it's awesome, are you...? Brian: Oh, it's so awesome. Yeah. Joe: Right. So, folks, that's the mentality that will get you a better value and a better deal and a better transaction. Because Brian and Janine ran this business and created something that would be great for a buyer to take over. And a buyer saw that took it over, and now it's up over a hundred percent. Yes, COVID is having an impact but even without COVID, it would be up substantially. That is absolutely the right mindset to have. Brian: Yeah [INAUDIBLE 00:48:35.2] Like that brand even if we potentially could grow it to, say, 10, 20, 30 million dollar brand, I honestly don't think we wanted to. Like that wasn't our goal. We didn't want to have to leverage ourselves to get there. Take the extra time. Janine: Things were getting scary. Brian: Yeah, like we built the business to be kind of a lifestyle brand. We travel all the time. We have a lot of flexibility. In order to take it to the next level, we knew that we'd have to sacrifice a lot on that. Janine: Probably more people or more agencies, things that would mean that we need to spend more time on it and that wasn't our goal. Brian: Right, so to see them be able to do that, of course, we would love it. We'd still feel that same pride that it was ours and we built it. She was always like this is my baby I don't want to give it up. Janine: It was my baby. Brian: But you know you kick the baby out of the house eventually. Joe: You have a new baby. It's got seven figures. Brian: Yeah. Janine: And we are in the process trying to buy another one. Joe: Right. Yeah, so you guys did something smart that is interesting. When we were; was it Blue Ribbon? Yeah, we were at Blue Ribbon Mastermind in St. Pete and you had already; we hadn't closed on this yet, we were still working out the details and you had already launched another product on Amazon. Brian: Yeah. Joe: On a separate seller account you launched something new. And I think at that point you're already up to 20 or 30 sales a day which I think is brilliant. This business model that you're in has you be able to build, sell, repeat, build, sell, repeat, and continue to do it with the skillset that you have. So I think it's fantastic. It's the exitpreneur process; you all know about the book. It's a little plug for my book but it's brilliant. I'm so excited and pleased for you guys. It's been a privilege, honestly, getting to know you, spending some time with you out in Seattle. I mean, you got to meet my son. We had lunch together with Bronson and then getting to spend more time down in the Blue Ribbon Mastermind. Congratulations. It was fantastic what you guys have done and I hope that people hearing the story from both your angles and approaches will inspire some of them to look around the room and sell something others to have the hutzpah that you had to raise $100,000 because you knew you had a winner; pretty incredible all around. Any last thoughts or words of wisdom that either of you would like to share with potential listeners, both buyers and sellers of online businesses? Janine: Well, Amazon is kind of like a world where we are kind of secretive about what our product is. Some of us won't even divulge what our category is. And it's like that for a reason but it doesn't mean you can't have a Mastermind, it doesn't mean you can't network with people. And that was one of the most important things that we did. And also going to the process that we did with IP infringement made me realize, you know what? We're not companies competing against each other; we were all families, we have kids, we have a mortgage. All of us are the same so a lot of these black hat strategies where you're kind of doing something to get a competitive edge by sort of burning that person; you know, really just don't do it, because, at the end of the day, you're hurting a person who's probably just like you married with kids, probably with a student loan or a mortgage; you don't know. And I think we got through to the patent holder with our issue because we made him see that and he's also a family guy; a religious man, of course. And I think getting to know them and seeing that we're just another family just like him that's how we got through to him. Brian: And some of his actions were when we got on the phone, we were actually able to talk about this. I couldn't so much fault him exactly for what he did, because we're all business people. We're all kind of doing things to get an edge and that's what he felt. He felt he needed to get an edge. It's almost hard to fault him for that but it was making him realize that hey, we're not some Fortune 500 company. We're just like you. We're working out of our house. We have a family. This is our business. Joe: And at the end of the day, he saw that because… Brian: He did. Yeah, so we have… Janine: We were lucky. Joe: Yeah, you took care of each other as competitors and rivals and gave each other the opportunity to continue to grow in business. Janine: Yeah. Amazon is so big. There's room for everyone. Joe: Agreed. Brian: Yeah, there definitely is. Joe: Guys, I feel like I could honestly talk with you for another hour and a half. Maybe we'll have you back on with your next incredible exit but thank you so much for sharing your story and giving me the opportunity to work with you. Brian: Thank you, Joe. Janine: Thank you, Joe. Resources: Quiet Light [email protected]

On today's episode, we talk with return guest, Norm Farrar, about moving into the world of PR. Norm loves to create standard operating procedures for even the simplest of tasks, but finds that it streamlines life significantly.He owns a company called PR Reach and uses various SOP's to run his business. Today, we discuss how to get more organic traffic through PR. Tune in to hear our discussion with Norm. Topics:

• Norm's experience with Ecommerce.
• Why his company still does press releases.
• The benefits of a press release for Amazon sellers.
• The importance of consistent press releases.
• The popularity of his webinars.
• Blogging and keyword stuffing.
• Brands for which PR works best.
• What to do when your keywords drop in ranking.
• Checking in on competitors.

Transcription: Mark: For a long time, Joe, I had a number one podcast recording that we've done on our list of all time. It was with Shakil Prasla and so I thought I would have a reprise and I would bring back Shakil and it didn't do as well. I mean it's still a really good episode and I recommend people listen to it. It was on how to hire CEOs. Your challenger to my number one episode back then; I know that you have the number one right now, but your challenger was Norm Farrar, who had an amazing story, and you brought him back on to talk about moving into the PR world and over the traditional world. Joe: Yeah. Let's just get it clear that a long time as in your case, it was, what, two or three days. So in your world, that's a long time. But in the rest of the world, that's not very long at all. Shakil Prasla, a great guy, if you haven't listened to that podcast, folks, please do. Shakil is a longtime friend of Quiet Light's and just a good all-round human being. But yeah, Norm Farrar came on to talk about SOPs. Who would have thought that the audience would have gravitated so much to SOPs? And Norm is in the top 10 for a long time. He had SOPs on how to make coffee. He has SOPs on how to create SOPs; SOPs for VAs to hire other VAs. It was very, very thorough, made his life and the ability to run multiple businesses much, much easier. And Norm is an old school type of individual. He helps a lot of eight-figure Amazon sellers and seven-figure Amazon sellers with a third prong approach to rankings. The first being, people do sponsored ads, second, a lot of folks do search, find dime, many chat, things of that where you get into a little gray or blacked out stuff. But Norm does PR for a lot of folks. He owns a company called PR Reach and he finds that the third approach really helps when somebody has a listing that's doing incredibly well and somehow gets hit by competition and the organic ranking start to fall. And they go on to on a monthly subscription to do PR work to keep that organic ranking up. And he finds that it works with social media influencers; they reach out to social media influencers to get links and even online magazines and news outlets as well. It's a great story, great information, and it's a bit of throwback. People think, hey, this is an online world, online business, we shouldn't; we don't need PR, but it definitely works and Norm talks about it quite a bit in the podcast. Mark: You know, I think this whole idea of PR, especially from a buyer standpoint, is really important because when you buy a business, there's so many opportunities in that first year or two years for PR opportunities to be able to go out and get some really good juicy links, help out the SEO get some natural exposure and get that ROI back up. So it's an exciting and very relevant topic to be talking about for anyone who's looking to buy a business or recently has bought a business, use that, and use all the changes that you're making to get PR. Let's listen to what Norm has to say about that. Joe: Hey, folks, Joe Valley here from Quiet Light Brokerage. And today I have somebody on the podcast that's been with us before. Norm Farrar covered SOPs and he was in the top ten for a long time in terms of listeners on the Quiet Light Podcast. Norm, welcome back. Norm: Hey, thanks for having me. Joe: It's good to have you here. The beard still looks as long as it ever was. Norm: And it's filling in from the hamburger burn. Joe: I remember hearing about that. That's right. Today, we're not going to talk about SOPs, we're going to talk about something old school or at least what seems old school, which is PR work and your company PR Reach and helping Amazon sellers, e-commerce entrepreneurs, content developers, or SaaS companies all reach more people and get more organic traffic through PR. So let's jump into that just before we do, though for those that didn't hear your epic podcast on SOPs can you give folks a little bit of background on yourself so they understand who you are and what you do? Norm: Yeah, sure. I am an old dog in the e-commerce game. I go back to the early 90s. And by the mid-90s, the first website was up for a Fortune 500 company that we developed; helped develop and then got into some manufacturing and manufacturing facilities were in the US, and Canada, Taiwan. We outsourced in India back in the 90s. And then now we have a factory that we own and operate in China. So you can't own it, but we have a general manager and people working it for us; it's all our equipment. And that right now, by the way, we're producing travel wipes. So just coincidentally, it wasn't planned that way. We've had it for about a year; a year and a half, but we're working with that right now. I got involved with sourcing and logistics and Amazon like this was a perfect storm. So what we're talking about today actually is everything, it's the logistics, it's the e-com, it's all elements of getting onto Amazon. And one of the components; very important components is the press releases. So when that happened and when I got involved with Amazon brands and helping other brands, I always used press releases, nobody really were; unless I think it went back a few years ago at Amazon and press releases went hand in hand. And then there was some bad press and people just weren't using them right and they kind of dissolved. But I kept using them. I did it properly and kept crushing it so I bought a press release company. Joe: Just the introduction and the old school that you're an old dog in this business, it feels very much like there are not enough old school techniques that are in play today. Having an 800 number, having the ability to have your customers call you and communicate with them and especially when they're checking out and they're confused and things of that nature. It works and that's; I'm old school, I used to own a radio direct response media buying agency to market all my products on radio before I went 100% online in 2005. So I'm an old dog as well. The PR stuff just feels like and seems like old school but it's important in many ways that I think a lot of online entrepreneurs are not using today. So why don't you explain what the heck a press release really is and who sees it and how it works and it's not just, again, for Amazon sellers necessarily, but it can help people with an online business or any kind of business, for that matter? But go ahead and define what it is and how it's out there and who it reaches. Norm: Sure, so it's not a public relations company. We'll get people calling us and wanting us to promote their event or create something for them; earned media, that's not us. We work with those types of companies. So a lot of people get those mixed up. We have press releases and it covers an event or a benefit or a feature or something newsworthy about a product or service. And what happens is a press release is written and then it's put through a distribution channel. The distribution channel could be to; right now, it's usually online media, search engines, content providers. It could go through print channels like periodicals, news magazines, trade magazines. But in today's society, we have a lot of influencers and bloggers and journalists that get on the bandwagon and two and pick it up through maybe a Twitter feed or something along those lines. So it's completely different. If you were to take a look at it, there are really three types of press releases. There's the traditional press release which takes care of all the online, but it also goes out to the print magazines, periodicals. Those are typically more expensive and I would only use those if it's a launch or if it's something that you need to have out there. It will get you the most exposure however, it's the most expensive. You're looking at around $750 to $2,500 for that type of exposure. And then you have which most people know, which is the online press releases, well, depending on the service, it's strictly that. It's just online. It's going out to inaudible[00:09:52.9]. And there's the third type and this is the one I recommend and that's… Joe: What kind of businesses are going out to the second type? Norm: Oh the second type is going out to, it could be Washington Post but it's there online. It could be CNN, Fox News, any of the NBC affiliates. So it's everything online and it will go out to the search engines so they'll pick it up. Google will pick it up; Bing. The next one just adds an extra element and that's the social component. So it will take it. It will share it with Twitter, Facebook. That press release will also pick up a lot of journalists so you can go through typically, HARO, they have 55,000 journalists. So a company like ours has that on the list. We'll push it out to HARO we'll get the response back. We'll push it out to influencers and bloggers. So if you're in a specific niche, usually it's typically fine to do the social media press release and that's very inexpensive. It could be $100, it could be $300 but what you're getting is national exposure. And if you get the right press release company with the proper distribution; I'll get to that in a second, that's really important, but if they produce a video. A video allows you to repurpose everything, so just… Joe: The videos are linked within the press release or its part of it itself? Norm: Yes. Usually most press releases you can embed a YouTube video but I'll get to that in a second. Joe: Okay. Norm: With some press release companies, you can do a video, just a regular video that it's a second script. It's not what's written, but it's for an anchor to read. So it looks very similar to what you would see on the news. And then you can take that and you can make that your third of link. So the problem with microbrands in e-commerce is that they have no authority. Joe: What's a micro brand? Norm: A microbrand is these small private label brands that are trying to be something on Amazon. Joe: Do you mean they're doing 25,000 a month in revenue, 100,000, a million? Norm: They can even be a million dollars a month, these are just brands that are… Joe: They're not a Nike, okay. Norm: And they don't have that type of money behind them, but they have to get exposure. And the problem is most microbrands; and you could even say, you can expand this out to law firms or dentists or chiropractors who are just getting into the business, but they don't have a name. So they need to get that authority. So how do you do it? You do it through a press release. And you can take that press release and repurpose the written press release through social media. You can take the video and put it through social media or put it on your YouTube channel. But get this, you can write an article; a blog article that's going to get Google exposure, and you put that into your content in the blog article. So when people come to it; when you go to a blog and you're on somebody's site, you don't know these people. You don't know the company. But if you see something that's even showing that it looks like it's authority; some sort of authority, people will take it as they will start to feel trust. Joe: I got you. Well, let me ask sort of a silly question here, but what is the ultimate purpose of the press release? So let's just say we've got and let's target it, so I'm an e-commerce entrepreneur, 50% of my revenue is; I've got one of these microbrands, but I'm selling both on shops via Amazon. What's the purpose of a press release? What's it really going to do for me? Norm: Okay, so it depends if you're an Amazon seller or an e-commerce seller. First, there are two different types. The first thing it's going to do is build trust and authority. You're going to be able to take your store and you're going to be able to show it on 500 different media outlets. This is if you get a good one. If you get a good press release distribution company, they're going out to the CNN, the FOX News, the FOX affiliates, the NBC affiliates, they're going to get you the content placement like on Market Watch or through Reuters or through Yahoo! Finance. Joe: But it's out there and then they choose to pick it up and it becomes a link on their site or something like that. They could ignore it completely as well, right? Norm: Yeah, if they find it spammy they can ignore it and if you've got a crappy, cheap, free press release distribution company, you're going to get what you pay for. Joe: Okay. Norm: You're going to go out to small town USA and nobody's going to see it. Joe: Okay. So the purpose, again, is creating authority and creating influence and credibility with your brand? Norm: Yeah, I was doing a webinar and the night before I was looking and doing some keyword research and we were working with this pet product and the whole from Chewy Amazon.com, Amazon.ca, Press Advantage at that time; that's another press release company, every single spot on Page 1 was filled up with our brand. Joe: Wow. Norm: On Page 2 every single spot except one spot was filled with the brand. Joe: From the press release that you created? Norm: Yeah. Joe: Okay. Norm: So it's not you can't do one press release. It's like one radio advertisement, it just doesn't work. I put out a press release; a minimum, and this is before I bought the company. I put out a minimum of one a month and if you're not doing at least one a month, then you're missing out on it. Joe: And how much is that going to cost somebody that's doing the social media and the newer stuff or really somebody that is trying to just build more organic traffic and authority and their own reputation with a micro brand, as you call it? Norm: Yeah, you might not even get a lot of traffic, but what you're getting are those links and you're going to rank on Google for this. I'd give you an example. So just like the press release I was telling you about just a second ago, we went out and we were looking at launching a press release 24 hours before this webinar. And by the time the webinar started, 279 keywords; ranked keyword phrases were ranked on Google, and 179 were on Page 1 and 131 were number one. Now there were a lot of horrible combinations, but there were some beautiful ones that's not true. And I'll give you an example, those people that are in the pet niche, Bully Stick. So Bully sticks launched Bully Sticks Amazon Number 1 and it lasted for quite some time. Joe: I'm sorry to interrupt, an example of a webinar where you are talking about your product or helping people understand what to do with their pet in this case, the ultimate goal is to get more people to attend the webinar, isn't it? Norm: Well, the webinar was just showing people about press releases. Joe: Okay, I got you. Norm: How it affects and so now going back… Joe: But you had more people come to your webinar to show them about press releases because of the ranking system. Norm: No, this was just another webinar. It was another webinar group that wanted to talk about launch and rank on Amazon. Joe: I got you. Okay. Norm: Anyways, if you do that you're going to start to see; if you do this once a month, you're going to start to see your brand more and more and more out there. You can start targeting more keywords. And so that's the brand side and that's just like listening to a radio ad. If you hear it once, you're only going to remember it slightly. Joe: So for a company like Quiet Light Brokerage; I'm going to get selfish and I keep interrupting, I'm sorry. I'm going to get selfish on this Quiet Light Brokerage should we be doing a press release every time we sell a business, should we be doing a press release every time we publish a new podcast? Norm: You should be doing more than that. Joe: Okay, which should we be doing? Norm: There is a way to get sort of a one-two punch and that's you create a blog article, you put that onto your website and this is for e-commerce as well, you talk about; now you write it as a blog article which is completely different than a press release. Press release has to have a newsworthy title, blog article are the five reasons why. Joe: Okay. Norm: So you launch the blog article first about what you just did, then you take the press release; you have the writer or whoever is doing this for you, link over to your blog article. So now the press release goes out and it's linking back to your website. It's linking back internal link over to your blog article. Google loves it because they love knowledge and education and it's a newsworthy item. They love it. And you've got the extra juice coming in from the blog article, which, again, it's not a sales-y blog article. It's talking about the five reasons why. So to give you an example for Amazon, you've got a natural, healthy, grass-fed bully sticks; keyword stuffing. Healthy, grass-fed, natural bully sticks provide nutritious snacks for elderly dogs. On your blog article, it's five reasons why bully sticks provide or why you should be feeding elderly dogs bully sticks or something along those lines; completely different angle. When you do that, you get a one-two punch. Joe: It reminds me of link building really but you're getting organic or legitimate links that are related to the article that you're publishing and the information that you're sharing. Okay, so when it comes to the press release itself who writes them? Norm: Usually most people try to get it on the cheap thing inaudible[00:20:34.1]. Joe: How do we; who writes it, when it's written well who writes it? Does your company have writers? I mean I've written an article. When I first launched my e-commerce business back in 2005, I wrote every article every month and they were just horrible until I had enough cash flow to hire a professional writer. I'm not going to write a good press release. So is that part of a service that's out there, do we have to find somebody on Fiverr or Upwork or something? Norm: You could but usually the press release writers that you'll get are article writers who say that they can do press release. They don't understand how it works. So yeah we do have about 20 writers. Joe: It's part of our service then as well. Norm: Yeah, it's part of the service. If you do want to submit a press release that you've written we'll distribute it for you. But if you do that, you want to make sure that your title is optimized. It's not the links; like there's a lot of press release and we have no links. It's the title. And if it's properly optimized, that's where you get about 80% of your ranking. Joe: Okay. Norm: Just in the title. Joe: And when it gets to the companies that are out there that may pick it up, the news agencies, for instance, do they actually have human beings looking at these press releases and looking at the titles, or is there some sort of botnet scrapes and picks the ones that makes sense for them and whatever's newsworthy? Norm: I'm pretty sure that it's just some sort of algorithm that allow them to; I mean they would be bombarded. There might be, I don't know. But if you're going over to some of the majors, I know that we get a lot of kickback whenever; for example, some people will try to sneak through a promotion. You're not allowed to promote so they'll have a delay on their website. So we capture their website and five seconds into it, 10% off will pop up. Well, that'll automatically get you kicked off of a lot of the majors out there. And it also depends on the category. So Amazon sellers have abused supplements so a lot of the premium networks are either it's hard to get a supplement published. You can, but you're going down to the second tier networks now. And you're seeing that with; oh, what's the other big one? It just happened. There are; like supplements is the biggie that we're getting kickbacks on right now and we've got other networks that we can use but because it's been abused, they're very cautious on them. And they're also cautious on like if you're doing a reverse mortgage like there's a whole list that you can see. Joe: Okay, what type of microbrands work really well with PR? And I understand it's one part of the marketing department, so to speak, doing PRs but what kind of brands or micro brands work best? Norm: Okay, so I'm going to back up a bit. We started talking about the branding side of e-com. Well, now let's talk about how the Amazon seller can use it to promote themselves. How can we get them to sell more and get recognized? And that's with multiple press releases during a very short period of time. So you've got a product. It doesn't matter what the product is. You put out multiple press releases. The press releases are linked back to rebates. So rebates are effective way right now for any Amazon seller to show momentum depending on the network, high-quality buyer score, it's very natural, verified purchase, and you can rank very quickly. Joe: A rebate for those that are not as familiar as what in the Amazon world? Norm: It's a full purchase buy that you're buying either through a network or through an ad on Facebook or there's a lot of ways of setting it up but people are getting 100% free merchandise. Joe: Okay. Norm: And typically they'll be told, hey, go search this keyword. They go search the keyword, they buy the product, and then they get reimbursed somehow by either an Escrow account, PayPal account, or something like that but by doing that with the press releases, I find that the stickiness of the rank is probably double, if not triple. Joe: Is the rebate talked about in the press release? Norm: No. The rebate is done separately and then the keyword that's talked about or is being used in the rebate is in the press release. Joe: Okay, so how do you avoid potential penalties from Amazon? That's kind of the search, find, buy methodology, that's against terms of services. How does this get played sort of above board to make sure that somebody's seller account is not going to be suspended or shut down? Norm: It's not against terms of service to provide the product. So I was at a conference and there were Amazon execs in there and we were talking about this before I did my presentation. So every brand does this type of promotion. Every single big brand does it. Amazon provides free products. So all we're doing is providing free product. We're not talking telling them to go and leave a review. We're not telling them to do anything like that. They're just buying the product. Joe: Okay. So they're searching for a keyword, they buy the product, they're going to get 100% rebate on that purchase and they get to keep the product so it's kind of nice for those folks. But those particular purchases or the searches for that keywords is stickier and it helps the organic rankings inside of Amazon. Norm: Yeah, and we've seen it. We've done it with a knife; a chef's knife, and we did three different ways. We did it with just rebates, rebates and press releases, and just press releases. Each time we got them to rank with each of them but the best by far was with rebates with press releases. And the reason why that also works, I think Amazon; I don't have the actual reason, but I think the reason it works is because Amazon loves the authority links that you get from a press release. So your press release is going to link back to your product listing. You're going to put your product listing in there and all of a sudden CNN is linking to it, Washington Post, Boston Herald, Miami Globe. Joe: Can you give me an example of a keyword that somebody would be searching for in terms of Bully Sticks? Norm: Yeah, sure, natural Bully Sticks. So in the press release we would have natural Bully Sticks, in the rebates we would tell people to go and type natural Bully Sticks. They would go see it and then they would buy it. Now, in the press release, we're talking about natural Bully Sticks and the natural Bully Sticks, that press release is linked back. There's one link that's going back to your Amazon product page. So as long as you have a link back to your Amazon product page, you're getting all these links from all the media companies. That's why that works. Joe: Okay. All right on to the other question, which is are there any particular brands and categories that work best for press releases or certain types of press releases, or does it not really matter? Norm: It really doesn't matter. If you're local, it works the best. If you want to geo-target something; again, it could go back to Amazon and they notice that there's lots of sales in areas around Fort Lauderdale that are under 350,000 people. You can target that press release by putting let's say natural Bully Sticks provide healthy digestion for elderly dogs in Fort; or not Fort Lauderdale but something that has some city that has under 350,000. If you do that, you can nail it. So you could do that with a chiropractor, you can do that with a lawyer, any service that's out there. If you've got a charity or you're trying to get the word out about something and it's in a specific area. Oh, it's golden, you'll be able to reach number one in all sorts of search terms very quickly. Joe: Are you finding micro brands, when they launch new products, which hopefully they're doing on a regular basis to keep their business growing, is doing PR something that they should or can be doing with each product launch and it's going to help those keyword rank? Norm: I talk about press releases and content marketing a lot and I'll go and I know there's one event that I went to, it was a small event. It was about 50 people. So we were saying that, hey, look at this, it's what you can do. These are all smart people. Show them examples. Example after example what we were doing and how we achieved it. And I think one person took us up on the offer to get them going on a press release. And this is what I find is the norm. It's not the shiny object. It's not that app that everybody wants to talk about. So people forget about it and like we talked about just a second ago there's no one specific service or product. It really benefits everything. And the people that are doing it properly have always been doing it have always succeeded. The people that do it wrong and go for the cheap and just don't listen to the guidelines they do it wrong. They're the loudest. They're the squeakiest wheel. New sellers or new businesses come online and they say oh press releases don't work. I didn't spend money on a company because it doesn't work. Joe: You bought it because it works and it's profitable. Norm: I bought it because I do it every single time and for the last 20 years, I've been using press releases. Joe: And you're helping other Amazon entrepreneurs succeed as well. And so is the answer yes that when somebody is launching new products, that they should consistently do press releases or should they be doing is it yes and that they should just be doing press releases all the time. Norm: Well, you're hitting; I say, yes, I'm a little biased because I want to build my brand. But if you're doing the product launch yes, of course, you do that with the rebates. And then you continually grow it if that's what you want to do. Like, let's say you're looking at natural Bully Sticks and you noticed that it starts to drop, you're in Helium10, the keyword drops. What do you do? You launch maybe a couple more rebates, maybe one press release until you see it come up again. Joe: And that works well, consistently. Norm: And we're talking about high eight-figure salaries that are using this technique that are working it all the time, they're maintaining it. So once the campaigns are done, they're watching it, maintaining it, and hitting the keywords when needed. Joe: So if it's working for high eight-figure sellers, is it going to work for high five or six-figure sellers as well or seven-figure sellers? Norm: As long as they use the formula and the formula is very simple. So, again, on a launch and rank, we can figure this out for you but if you go over and you use a tool like Helium10 and it gives you like the Cerebro module that they have you put in, it's called a reverse ASIN tool and you get the information, you take a look at buying keywords. It's not browse; I should explain that. Browsing keyword is like dog treat, dog chew. Pet owner doesn't know what they want but in Bully Sticks they know exactly what they want. The Bully Sticks is really high. There are 200,000 searches a month; hard to work with. But if you go to natural Bully Stick or organic Bully Stick, then you've got keywords that are manageable and you can start applying the rebates to. When you look at these; if you take a look at the giveaway side of it, you take about one-third of it. So in Helium10, there's a column that says giveaways. If it says 100 then do 33 and see what happens. And there is another trick to this and I don't want to overcomplicate it, but we take those keywords, natural Bully Stick, we call that a primary long tail and we create a silo from that. And let's say it says a thousand giveaways, which you probably would, we'll go and we'll take the natural Bully Stick, we'll put it in to find more. So again, in Helium, it's advanced filters. We put natural bullies. We hit apply and then we'll see every term, keyword term that has natural bully, six-inch natural bully, 12-inch natural bully. That way we only have to take a fraction of the amount that has natural bully in it. Those keywords, those long-tail keywords move up almost instantly and it bumps the natural Bully Stick primary. Joe: Yeah. Then you're not spending as much PR dollars, I would imagine. Norm: Not either. Joe: Yeah, that's just what I used to do in my old paperclip days back when it used to cost 26 cents to rank on a keyword like colon cleanse, and by the time I was done inaudible[00:34:18.5]. Hell no, it's probably $10 now. I sold it. Who knows? Yeah, there are different approaches for sure. Cost-wise, look, you're talking about eight-figure sellers doing this on a regular basis. They've got people that focused on keywords and look inside a Helium10 using Cerebro as you talked about. But for somebody that's really just starting out or somebody that; I recorded another podcast yesterday with somebody that had an exit and our original call was 24 months ago and I had to be the bearer of bad news, which is, listen your business is not worth what you think it is because it's trending down. You've got to hold on. You've got to fight here. And one of the things that they can potentially do is PR and fight. But if they're trending down and money's tight and they're worried about it, is this something that somebody can afford if they're doing a million dollars a year in revenue and they've got 15% to 20% profit margins? Norm: Well, the first thing for any new seller is they've got to be properly capitalized. So if you're going into this, you have to understand what your marketing budget should be and you should be looking at it as jumping into it with two feet. If you're going into plastic shoe stretchers and you've done your research and you see that most of the plastic shoe stretcher people out, there are three-star reviews that they only can sell $3,000 a month that is probably not a good idea for you to do press releases and rebates. If you go into a competitive product or even a mid-search volume, I'm going into it with two feet and what the clincher is proper competitive analysis. Go and check out what your competitors are doing, see what the search volume is, and then you've got to do an investment. And I don't care if it's; like for us we do three things. This is off-topic, PPC, rebates and press release, and Amazon posts. If you're not doing those three, you're not optimizing your listing for your sales. So anyways then I have to jump into it with two feet. I don't have to spend cash that I have to use for groceries, but I can start by doing a smaller launch. You don't have to go in with 100,000 bucks. You can do a small launch, like maybe four press releases under a hundred, depending on the keyword, but under a hundred units and you're off to the races. And if you continue the momentum going, then you're going to be picking up. So here's what we do. We'd start off with main keywords. So if it's Bully Sticks and then we'll stray; I just did this one for carving knives or for Chef Knives. So we started out with Chef Knives, got them up like number one to number three, number one to number six for chef knife, kitchen knife then we spread it out the next month to sushi knives, carving knives and now we've got this really wide base. And over a period of one year and three months, we've got it rock solid. We've nailed it down for this company because we're constantly spreading and making it wide. Most new sellers, they look at going after the most competitive terms and they spend either on PPC or rebate's just through the nose they're bleeding money because they're just not doing it right. They've really got to know what they're doing. Now for press releases we let people go out and do their own rebates and go out and do their own press releases. And then they come back and they cry that it didn't work, this sucks. Well, let's take a look at your listing. If I had your listing on page one and we got you there and it's terrible and you've got iPhone photographs in your listing; everything is just its terrible. Then you're not doing; you're not winning the Brady bunch. If you can't win the Brady Bunch, which is beat your competitors, go out and use PickFu or whoever and do a split test then you're priming your listing to be optimized. And all what we're going to do with press releases and rebates is get you to the listing. We're going to get people to the listing. Joe: Can you tell me about your onboarding process in terms of somebody that is thinking, okay look this guy Norm sounds really smart. I want to have all three prongs here and press release is one of them. Do you have an onboarding process for somebody that really has no experience in this whatsoever, what is it like? Norm: We had to get that going because we were getting that type of experience. So we call it the AMZI concierge. So we'll go in, we'll do a complete listing on it and we'll tell you what you should improve. We can help you. We can help like with the manage listings. We can help with photography. But it's up to you. And then if we look at them there are many listings we look at and go oh, this is awesome. We'll let you know. But it's about a $300 cost and it's the best $300 you'll ever spend because at the end of it, we'll tell you no or we're going to give you the green light. And if we give you the green light, most of the time it works. It works well. Joe: I got you. Okay, this has been great Norm, how do people learn more about PR Reach and that concierge service and reach out to you to get more information? Norm: Well, first they have to spell the name right. There's two R's in it so it's PR Reach. Joe: PR Reach. Norm: Okay, so again I get people telling me that they've tried to reach me at Preach but PR Reach and you could reach me at Norm@PRReach and we'll be; like the whole sales team, we've got an excellent sales team, great customer service. They'll reach out. They'll have an appointment. You get a free 30-minute call with them and they just go over everything just so you feel comfortable. Joe: That's great. All right. Norm: And to make sure you're doing the right thing. Do you want brand, do you want launch? It just depends. And you don't have to be an Amazon seller, you could be that chiropractor that's looking for help. Joe: Yeah, I think it's one arm of the marketing arms that somebody should be using instead of just one or two. It sounds like a great approach. I appreciate your time, Norm. I'm looking forward to having you back on the podcast again soon. Norm: Hey, no problem. It's my pleasure. Resources: PR Reach [email protected] Quiet Light [email protected]

Joe Cochran had a rough start in life, but eventually came out on top. Through perseverance and a hard struggle, he finally has a success story.

Tune in to hear our chat with Joe and learn about his process, his early struggles, and why he finally decided to sell his company.

Topics:

• The emotional rollercoaster of being an entrepreneur.
• His early struggles.
• Launching his business with $5000 in credit.
• Sacrifices Joe had to make to keep his business afloat.
• Siphoning vs. reinvesting.
• How he ran his initial campaign.
• Which accounting resources he used on a tight budget.
• His competitive nature and how it drives him.
• Making the decision to sell.

Transcription:

Mark: Joe, we've had the opportunity to work with some pretty amazing entrepreneurs over the years and I never get tired of hearing about these success stories, especially for people that have gone through some of the dark periods of life that come out through the end. And often we get to be a part of the process when that reclamation, that coming back from some difficult times in their life comes to a head and comes to that real big victory point of an incredible exit. Joe Cochran is one of these stories.

Joe: Yeah, he had his first child two days after his 17th birthday. I think that changes somebody's life forever. He didn't quit. He stayed in high school and he says his girlfriend at the time does his homework, helped him cheat to graduate.

Mark: His girlfriend helped him cheat?

Joe: Doing his homework, yeah, she did his homework. He helped in graduate high school.

Mark: True love, I love it.

Joe: Yeah, he worked full time. He just got out and hustled and went through some dark times after that in terms of business with his father, major debts, substance abuse, and came out the other end of just fighting and launched an Amazon business in 2016 when he had about $40,000 in debt. He thought through it and came out the other side in January of 2020 with a seven-figure exit. And as he said at the beginning the podcast interview, he said he felt like an incredible burden was lifted off his shoulders. So it's a great story; great success story. A lot of golden nuggets in there throughout the whole interview that I did with him and just one of these inspiring people that you just got to listen to the whole thing.

Joe V.: Hey, folks. Joe Valley, here from Quiet Light Brokerage, and today we've got another episode of Incredible Exits. This one is with Joe Cochran. Joe and I've been working together for I think I want to say, a couple of years Joe, in the process of planning your eventual exit or as I like to call it, training. You came to me as a referral from our good friend Mike Jackness in EcomCrew and I think you were living in one state when we first chatted and eventually moved to another. And then I think we closed the transaction in January of 2020 is that right?

Joe C.: That's correct.

Joe V.: All right. Well, welcome to the Quiet Light Podcast. The first question I have for you; normally, by the way, I ask people to introduce themselves and give a little background but I want to actually just know how you felt when you finally closed this transaction. I shouldn't say finally because you weren't under LOI by the time we listed it to the time we sold it was 45, 60 days something like that. How did it feel? I don't want to know about the money and that kind of zeroes and this is a seven-figure exit but how did it feel when you finally had the money hit your account and you knew that this was real and the transaction was closing and assets were transferred?

Joe C.: Yeah. So, I mean, that was kind of a roller coaster, to be honest. I think since I started the business all through the business to selling the business and even shortly after selling the business, emotional roller coaster. I just think as an entrepreneur, it's probably one of the hardest things to do is manage your own feelings and emotions around your business and what's going on. I would say the second that I signed the paperwork, it felt like the weight of the world kind of lifted off my shoulders because a big part of my why was always to be able to provide for my family and kind of have a security if you will. That was something that is always very important to my wife and I as far as something that we strive for. It's just having financial security and things like that so it was definitely that life-changing feeling. But shortly after, other fears and worries crept in. It was short-lived, but it did feel great.

Joe V.: Yeah, life of an entrepreneur, it's not necessarily just because you sold the business and you've got some money in the bank that you don't stressing about other things. It is what it is. So your big why was to be able to provide for your family; we didn't talk about this. You haven't given me permission and cut if we have to but your story is interesting. You ended up becoming a dad while in high school if I recall correctly. Is that right?

Joe C.: Yeah, I got my high school sweetheart pregnant when I was 16 and had my son a couple of days after my 17th birthday.

Joe V.: Wow. And you finished high school, kept working, provided for your newborn family at the age of 17. You were working and going high school at the same time, right?

Joe C.: Yeah. I basically cheated my way through high school at that point because I was working 30 to 40 hours a week going to school as little as possible. My girlfriend at the time was doing my homework for me, helping me through. And it was important to my family that I finished school and it wasn't as important to me that I do, but just felt like I needed to finish that. That was my junior year when my son was born.

Joe V.: How many years ago was that, Joe?

Joe C.: Well, I was 17 when he was born. I'm 41 now.

Joe V.: Okay.

Joe C.: I don't try to do math in public.

Joe V.: When I do I usually get around but I would say 23, 24 years-ish.

Joe C.: Yeah.

Joe V.: So you went from…

Joe C.: It's a bit easier this way, how old is my son? He's 24.

Joe V.: I was hoping you were going to just go there. Yeah. We're doing math instead. So you've gone from a situation that is the worst fear of parents that you're becoming a dad a couple of days after your 17th birthday to 23, 24 years later, you're having a seven-figure exit of your own business. The weight of the world lifted off your shoulders. You're able to provide for your family, which is very, very important; a great success story. Let's talk about your path to it. I'm going to shorten it a little bit because we just talked about that and I know that you went to work into sales and eventually with your dad in the hot tub parts business, pool parts business, and eventually exited that. But then you started this brand that you built primarily as an Amazon business. Talk about how you came up with the idea of selling on Amazon and building your brand and what that path was like a little bit.

Joe C.: So when I was working for my dad, we started to get into the Amazon business model in his business probably around 2009, 2010. Somewhere in there we dabbled, didn't really jump into it seriously until closer to the end of that business cycle. But we had kind of been playing with ideas. We started our own brand at one point in the fireplace and arts niche. And so I had some experience there, but I just wasn't ever passionate about any of the products my dad and I were selling. I was passionate about business. I was just a student of business. I studied all the time at marketing, sales, e-commerce in general and so when I realized that he was going to sell the business and I was essentially going to be out of work and need to define and figure out an income, I started really focusing on what kind of business would be right for me? If I was going to start my own thing what would be the best model? How can I get into it inexpensive, because I didn't have much money, matter of fact I have a pile of debt. And it just ticked all the boxes for being I want to work from home, start small and scale and potentially exit in a large exit. So I wanted kind of all those things; I needed all of those things and it just ticked all the boxes for me.

Joe V.: And you're 41 now, how old were you when you started the business? I'm going to make you do math again.

Joe C.: So I started a business in 2016 so it's been like four years ago.

Joe V.: Four years ago. Okay, and how much money did you have when you launched the business in terms of cash? I know that you had a pile of debt at the time, but how much money did you pull together to make your first order?

Joe C.: So I had about $5,000 on credit card that was available.

Joe V.: You did it with $5,000, you had a pile of debt and you took $5,000 on a credit card to launch this business and four years later, you got a seven-figure exit. Am I doing this right?

Joe C.: Yeah.

Joe V.: Wow, incredible.

Joe C.: I've had about $40,000 in debt personally. We have just started making progress with paying off credit cards and stuff because we started doing Air B&B and kind of renting out bedrooms in a house that we were renting. And so by doing that, we had started to make some progress in paying off our debt and like any good entrepreneur person as soon as I saw the light at the end of the tunnel I decided I'd took on more debt and started our business.

Joe V.: Was it a success out of the gate; did you immediately start selling and say oh boy now I've got an inventory problem, I've got to buy more and keep up?

Joe C.: Yeah, so I have the; I don't know what to call it, good luck also good sense that I did develop a product that really spoke to my target market. That was kind of easy for me at the time because I was my target market. And so I simply created the solution that I thought was amazing. When I showed it to my friends and family, they all kind of agreed that it was amazing. And so it was kind of like I knew the product was great and I knew how to create the offer because, again, I was the target market. So I literally was able to craft a story that really hit home with my ideal customer. And so when I launched, it was hockey stick growth. I mean, in the first six months we broke a million dollars in revenue.

Joe V.: In the first six months, incredible. For those listening on audio, we decided not to mention the brand or the buyer and things of this nature just for confidentiality purposes. But if you want a hint, go to YouTube and watch the video or go to I think it's Quiet Light Academy on YouTube or go to the Quiet Light website ant take a look at our podcast. There's a hint in the background; a big giant silver one way back there somewhere in the video at Joe's home office there. Let's talk about the how; okay, you had hockey puck growth, you said in the first six months you did a million dollars in revenue by creating a product that solves your own problem in a niche that you knew very, very well. How did you get to know and learn about Amazon; what resources did you utilize to become that person that knew how to create the right photos or videos or ads and things of that nature?

Joe C.: I basically do what I've always done, which is tried to cheat. And at first, I bought several courses, which kind of worked. Yeah, so the first course I really bought was the Amazing Selling Machine. And then for a short time, I decided I was going to create an information product and I started thinking about doing uninvolved course on e-commerce because of course, that's what I had experience in for the previous 12 years. I came across guys like Andrew Youderian from eComFuel. I came across as Ezra Firestone from Smart Marketer, and somewhere in there, I think in eComFuel I was put in a Mastermind with Mike Jackness and a couple of other guys. And so that was sort of my network and I bought all their products and I just dug in and followed and studied everything I could.

Joe V.: So for those listening a lot of times from the thousands of entrepreneurs I've talked to that sell physical products in e-commerce, they're part of a Mastermind group. And I think it's critically important that you connect with peers either on the free Facebook groups to start off with and understand that free means free and the quality of information that's shared there is not going to be as deep as a Mastermind group like eCommerceFuel or Ecom Crew or Smart Marketer or Ezra's Blue Ribbon Mastermind group but there's a lot of podcasts that you can listen to as well. Mike, at the time, did he have Ecom Crew podcast, or is that something new since you met him in 2016 and connected with him in ECF, which is eComFuel?

Joe C.: Yeah, so that was new for him. He was starting to work on the project but didn't have the podcast yet and it was just kind of an idea in the background that they're working on. Mike was still very involved in his e-commerce business or businesses at the time.

Joe V.: Okay, cash flow; what I see is when you've got a hockey puck growth, there's always a cash flow problem. How did you manage to keep up with the inventory needs, which is a cash flow drain on the business?

Joe C.: Yeah. So my first order I think was $1,500. I placed that order. Well, when I received that order and launched the product, I did a really dumb thing and went on vacation to my parent's house here in Florida, which I now own and in right now. But so I came here and within the first couple of days of launch, I could see that I was going to run out of inventory very quickly. So I placed my second order for $1,500 now the vacation was five days and that happened on day one when I got here. So like I literally launched the product day two or day three after launch I came here. I stayed here for five days and by the end of that week I had to place a second; a third order. So like I was here on day one when I realized I was going to have to place another order and by day five I realized that wasn't going to cover it and I'm going to have to place another order and I didn't have any money. The first call to my wife for that first follow up order was like hey dear I know we just opened this new credit card for this business and we just spent 1,500 bucks but I think it's going to work. We need to place another order, send me another 1,500 bucks. And she was like yeah do whatever you think.

Joe V.: Awesome.

Joe C.: And I'm behind you, so cool. So then by Friday when it was time to come home and I realized this isn't going to be enough, I had to make that call again. And I said, hey, you know…

Joe V.: Wait a minute; hold on, for all those people listening in the audience I want to just ask a question that they're asking. You're on vacation in Florida without your wife.

Joe C.: Yeah.

Joe V.: Why?

Joe C.: Well, it was just to see my family. My mom and dad were here and we were both working and we've had this kind of Air B&B business at the house. We have two dogs and it's just difficult for us to both leave at the same time. She couldn't get the time off work. I wasn't working at the time. Essentially I have my own business so it was just yeah say hi to Mom and Dad, hangout for a few days, go fishing the whole time.

Joe V.: Fair enough.

Joe C.: She wasn't that into it anyway.

Joe V.: All right so that third order, what did you do?

Joe C.: That third order I was like, hey, the last order is not going to be enough. We've got to place another order and we're going to have to like triple down. We're going to need to spend like five grand on this next order and we don't have it. So can you call the credit card company and see if you can get our limit raised? And she did. And she got it raised to like 10,000 and so I was able to place that third order; so really having no money coming back in yet. I mean, we're starting to make sales. I don't think I ever got my first payout at this point, though because it's bi-weekly from Amazon. So I went from 1,500 to 7,000, $8,000 in and now I'm thinking, well, I don't know how I'm going to place the next order. And so by this point, I had been communicating a lot with my manufacturer. I placed three orders now and they could see that my orders were growing and so I just called them and I said, look I need to place bigger orders but I'm going to need some sort of terms. I can't operate without terms. You told me that I had to place a few orders before we could talk about that and I will say I planted that seed from day one. So I planned on the product being successful. I didn't just hold and not do anything. So from the very first interaction with the supplier, I asked for terms and they said no. And I said, okay, that's fair but what do I have to do to get terms? And they said, well, you need to place a few more orders, we need to be comfortable with each other and I said, perfect, fine, no problem. So it was a natural process at that point. I placed three orders. Yeah, it was a short period but I placed three orders. I showed that I was serious and so I said, look, I'm going to need new terms or I'm going to have to find another supplier and it really was kind of that. I don't want to be threatening but it was kind of like hey if you're not going to give me terms, I'm going to go somewhere else. And so they came back and gave me 30-day terms.

Joe V.: So you were able to actually…

Joe C.: Yeah, so it was kind of ridiculous, actually. What they are giving me was 30-day terms and I was able to renegotiate and say, yes, 30 days from the day I received the product.

Joe V.: That solves a big cash flow problem right there.

Joe C.: Huge. Because most places will give you 30-day terms, but it's from when they shipped the product.

Joe V.: Right.

Joe C.: So I wanted it from when I received it. And I wanted it from when I received the product in full. And I say that because I was doing air shipping so I would receive shipments in bunches. So I might place one big order and I might receive 10 shipments over two weeks before I get the complete order. So I kind of knew that I was working the system a little bit, but they were happy. I was paying on time and so we were able to kind of grow using that structure. But it was only about a month later before we got into another big cash crunch because the size of the orders were growing, the volume was growing, all the money was going back and inventory as you know and it was to a point where 30 days wasn't enough. I needed to buy more than 30 days' supply to cover everything and it was like round two of the next challenge as the business grew…

Joe V.: How did you solve that? Was it just living off your wife's paycheck, doing Air B&B, and scraping dollars together and living a conservative financial life at home? How did you do it?

Joe C.: Yeah so I have reached out to friends and family. I asked for money. Everybody told me no. I start reaching out to other investors, people that I knew that would maybe do hard money loans. All of them that agreed, which was I think, one or two said they'd do it but they wanted 50% of the business which I wasn't willing to give up any percentage of the business. And so I just kind of scrambled. I think at one point I sold my car and we just continued to scrounge and scrape.

Joe V.: I love that. I love that you sold your car; that you got to do whatever you got to do to feed the business and feed that cash flow problem. That is brilliant. How long was it, Joe, before you were able to take any money out of the business for yourself or did you in that three or four year period?

Joe C.: I did and probably looking back, it was one of the biggest mistakes I made. It was siphoning money from this company versus reinvesting. I think we could have been talking about a much larger exit had I reinvested versus taking the money but the bottom line is I needed the money. And my goal still was the hardest thing. So hindsight in 2020 that's fine but at the time my goal was financial security and not to get too far into the story but when my dad sold his business and when we had to basically move on from there, we sort of lost everything. We built our dream home. We had all the toys. Of course like good Americans we had overextended ourselves as well and gone into a bunch of debt to have all of that stuff. But when he said he was selling his business, there were no job opportunities in that area that we lived. We lived at a small northern Michigan town, there were no jobs, and I knew we were going to have to move. So we sold the house. We sold everything we had essentially. We packed up what was left into a moving van and we moved to Raleigh, North Carolina, without having any clue what was in Raleigh other than my wife had lined up a job with one of those suppliers that we had bought from the last business. So we were sort of starting over, but we had sort of lost everything and to be completely honest it wasn't the first time I lost everything. It was the second time that I completely lost everything and went into pretty significant debt so it was a big driver for me; it was to get financially free. And to me at that point, I was also following a guy named Dave Ramsey, I was following his debt snowball and so my number one focus was get out of debt. And so I was pulling money out of the business to pay off cars. I didn't buy myself another car until I could pay cash for one. I didn't buy a house until I could a big down payment down because we were renting at the time. When we bought a house, we bought a five-bedroom house for me and my wife and we rented out three bedrooms. And so we just kind of continued that path of doing whatever we have to do and it was super uncomfortable living with people really sucks and it's really tough on a marriage. And running a business is tough but you just keep working and finding your way through it.

Joe V.: Now I understand why the feeling; and this is why I ask about how it felt when you sold the business when it's finally done and you said the weight of the world was lifted off your shoulder because you've gone into debt, the wrong way two times and you've got Air B&B to strangers coming to your house and taking up three bedrooms while trying to run a business and survive a marriage as well. So congratulations on fighting through it all and doing whatever it takes to succeed because that's the bottom line. You know I'm mentoring a couple of entrepreneurs from a local college now and they're 21 and 22 years old. And one of the conversations I had recently was that they need to file for a business and incorporate and one said it's $300 and they don't actually have the money for that and I'm like suck it up. Look around your run and sell something. You can scrape together $300. You're not going to ever become an entrepreneur if you can't do what you did, which is anything you have to do to survive and sell your car and credit card loans and whatever it takes to do it. And you did smart; you had a business that was already taking off so that's good. I want to talk about two things. I want to talk about the first few days of how you put together a launch and how you learned to do that and launched the business but I also want to talk about your goal. So let's talk about the launch first. What marketing techniques did you use or put together and what would you recommend to others in order to put that initial campaign together? Did you spend money on advertising, did you just do organic traffic, did you do outside traffic; what did you do?

Joe C.: Yeah. So it wasn't what I would consider very sophisticated. I was, again, kind of fortunate that the market that I went into was not highly competitive. The listings that I was competing against were very poorly created in Amazon so my listing from day one just crushed everybody. And it was just before this particular market got a lot of competition. As a matter of fact, my product is what launched the competition in this category and now there are thousands of competitors that are highly optimized and it's very challenging to get in to. But when I first started it was very easy to beat all of the competitors in that space. And so all I really did was run ads. I ran some Facebook ads, but mostly it was just Amazon ads.

Joe V.: Facebook ads to the Amazon store or to a specific keyword or something like that?

Joe C.: Yeah, mostly Facebook ads went to my own website. I did have a Shopify store and I had some Google ads that were going directly to my Amazon page and I had the Amazon ad platform and Amazon ad platform was the big driver. The Google ads did a little bit. Number one, what they really did, though, is they helped the page get a ranking for the keywords that I was targeting.

Joe V.: Get ranked on Amazon or in Google?

Joe C.: In Google. So after we launched that product, it was maybe two months until our Amazon listing was the number one listing for our target keyword.

Joe V.: I got you.

Joe C.: So there were strategies like that that I learned so that was conscious. I didn't do anything super sophisticated with the launch, though. I didn't have an audience. I didn't build an audience beforehand. All things that I think are necessities now with the competition being so much higher than it was then.

Joe V.: Yeah.

Joe C.: But yeah, at the time it was not a super sophisticated launch. Essentially what drove the revenue was the Amazon ads in their network just going direct to my page.

Joe V.: And in a not necessarily highly competitive space at the time; it is now because you created the niche or the better niche as you will. All right, let's talk about your goal. You and I, I want to say we first chatted in 2018 and you were living not in Raleigh at that time, but you were living on the coast of North Carolina. How important is it in your opinion for an entrepreneur to learn about again, get trained on what it takes to sell your business; that exit path, and to set goals? How important was it for you and how important is it on the priority list of things to do for entrepreneurs, in your opinion?

Joe C.: Yeah, so I think the best time to think about when you're going to sell your business is the day you start planning to launch a business. And the second-best time to do that is right now if you haven't done that. So the earlier you can start the better. And a lot of people, in the beginning, it's difficult because you have so many other fears; fears that the business isn't going to be successful, I'm going to launch it, and I'm going to get traffic and so many other things in your mind that's taking up space. It's hard to think about how I am going to sell this business down the road but you don't have to put a lot of time in the beginning, you just have to know that eventually, that's where you want to go. And so when you know that and if you know how to structure that business for sale then you're just going to be starting off on a much better place. So I got the privilege of watching my dad go through a sale and I did get to listen to him complain about all the things that were going on with the sale like oh we had to clean up the books. And that took three months to get the books cleaned before they can even move forward with the due diligence properly. And there were so many aspects that were kind of snags for him to actually get that exit. So I kind of have the benefit of watching what he went through and realized day one, I need a CPA. I need somebody who's going to watch this money because I know I'm not organized enough to do it. So literally, I launched the business within the first couple of weeks when I saw I was going to be a successful product I hired a CPA. Could I afford to? Not really but I knew I had to do and I know I really couldn't afford much.

Joe V.: What did the CPA do for you? Because I always say the bookkeeper manages your books on a monthly basis, the CPA files your taxes. In this situation what did the CPA do for you?

Joe C.: Yes, so the CPA did a combination. My wife ended up eventually taking over the books when she was able to leave her job.

Joe V.: Did you use QuickBooks or Xero?

Joe C.: QuickBooks.

Joe V.: Okay.

Joe C.: Yeah, and we kept pretty simple. So it was the CPA was more important of just setting up QuickBooks for me so when they charged the fee it was ridiculously cheap, really. They charged a fee to just set up QuickBooks and then once it was set up, my wife could do the bookkeeping. So they weren't expensive in the beginning. I still couldn't afford them but it wasn't expensive. And so I remember like literally at that time I was like whoa they're going to charge me 50 bucks a month or something. I don't know if this is a good idea we can't afford that. We have to go elsewhere when I say we can't afford it. That was my mindset, my frame of mind. But I was happy I did it. It helped us get started on the right foot. The QuickBooks was really pretty clean from day one. The business was not complex anyways so it was I think a good move. But the more complex you are the more important that is. And just those small things like planning to be successful is hard when you're not successful yet. But it certainly, I think in my case, paid off to start that way. So a CPA or a bookkeeper or somebody that can help you if you're not good with it was important. If you're great with it, you can do it all yourself. That's fine. But you're going to be doing many other things you got to figure out where it makes sense to spend your time.

Joe V.: Yeah, I think it's really important to do that bookkeeping part because like you say it snags at the end. If you wake up one day and decide, okay I'm ready I want to sell my business but you haven't done your bookkeeping, guess what? You're not ready to sell your business. You've got to do that bookkeeping and get it done right in order to exit the business.

Joe C.: You might be ready to sell but your business isn't.

Joe V.: Right. Yeah, so if you've got a seven-figure business, even if it's six figures, if it's only $100,000, there's someone out there in the world that has worked very hard to save $100,000 and they are going to buy your business. They're not simply going to look at your merchant processing account or your seller account and say okay, yeah, here's the money. You really need to have your financials together; vendor invoices, cost of goods sold, all of this stuff, cost of goods sold on an accrual basis people, really, really important stuff that has to be done in order to exit without those snags. You can always sell, but you're going to be able to sell for more if you do what you did which is 18, 24 months in advance we started having conversations. And each time the value kept going up that we had conversations. Let's talk about that for a minute because I always say let's reverse engineer your path to success. Set a financial goal and a happiness goal; happiness goals and setting financial goals. Thank you, David Wood, for the happiness goal. I think it's really important. Yours, Joe, was a huge burden off your back that made you happy and you go fishing now and enjoy it without thinking about the debt that you had because you don't have any. So happiness goal, financial goal, and then reverse engineer a path to that. Sometimes it's 12 months, sometimes it's 24. You can't do that successfully without knowing the value of your business today. You can't do that without having good financials. So it all is interwoven together. But your financial goal, if I recall, moved. You set that goal and then you moved that goalpost a little higher or further down the road. Can you talk about that path? Because you had I think you said $40,000 in debt when you started this business and then you took more debt out eventually. Did you pay off your debt while the business is growing and that's the money maybe you shouldn't have taken out because you followed Dave Ramsey's program, which I think is brilliant too, by the way, and then what was your mental process for setting that exit financial goal and once the value of the business was there did we list it or did you move that goalpost further down the road? I honestly don't recall the details.

Joe C.: Yeah. So starting the business, the goal was man this would be cool if I could pay a car payment or something like that and we got to that part pretty quickly. And then, of course, again, you move the goalposts constantly, right? So, man, it'd be cool if we could make a house payment. And then it became, man, it'd be cool if we could pay these cars off and pay off our credit cards and boy it'd be really cool if we could pay off our mortgage and over that first two-year span, we accomplished that. And so when I started talking to you, I don't think we can quite pay off our mortgage yet but we were debt-free otherwise. We were just working on our mortgage and that is the money that I was pulling out of the business. And so when I started talking to you and started talking about exit, it was actually during the time that we had had a big hiccup in the business, a big stumbling point and I was frustrated and I just wanted to be done and I didn't know how I was going to do it. But after speaking with Mike first, he recommended I speak with you. And so that was kind of our first introduction and you stomped on my heart. You said you're not ready. Your business is in a very bad position right now.

Joe V.: It must have been trending down at the time.

Joe C.: It was trending way down. This was essentially right when the mass competition came on board. I went from having no competitors to one or two to hundreds. And I've come to find out a big part of the reason for that is that Amazing Selling Machine used my product as an example in their course.

Joe V.: Oh wow.

Joe C.: And I reached out to them and said, hey, what the hell, guys? You know I'm one of your students, right? And they were like, oh, we didn't have any idea you were a student of ours, sorry, we won't do that in future releases but what's done is done, you know. And so they're like the biggest Amazon selling training course out there.

Joe V.: Yeah.

Joe C.: Literally overnight we just had hundreds of people copy our product and hit Amazon. And the business started to tank as far as our revenues it really started to go down. I was burned out at this point. I was frustrated. And I was hopeful for whatever reason, I was going to be able to still sell for some big number. And you were like no, it's not going to happen. If you sell right now, you're going to give it to somebody.

Joe V.: Yeah.

Joe C.: What you told me was you'd be better running it into the ground then you're just not going to get what you want for yourself.

Joe V.: That's right. Take as much money out as you can and let it inaudible[00:38:34.4] Yeah, those are hard conversations when I'm telling you that, being relentlessly honest as we say at Quiet Light and not tell you what you want to hear.

Joe C.: But you know what if someone was my, I guess, drive that was what I needed to hear because I realized again if I wanted to hit my goals of having that financial security, I couldn't just give up. And so that turned me around. That turned me from being down and being depressed to being pissed off and realizing you know what, you've gotten this far, you can beat these guys that are just starting and you've got two years off. Figure it out, quit worrying about what everybody else is doing, and figure out how you can win. And so, I mean, it was literally I think we hung up the phone and that shift in my mindset happened and I just went right to work on how am I going to fix this, how am I going to beat these guys? I'm very competitive. I played hockey my whole life growing up. I'm just super competitive. So when that shift happened from kind of loser to, hey figure it out; yeah, we were able to turn it around. And so it took about six months to get back to that number one position and back to where the revenue was decent. That took about another six months before we were where I felt we should be in terms of the revenue. And to your credit, you reached out every quarter or so to check in on me and that was always super helpful because it just reminded me of the goal. And so sometimes it's just so easy to get caught up in everything that's going on in your business that it was great to feel like I had some people in my core. Mike was another one that I could reach out to at any time and he would jump on a call and talk me off a ledge or give me some input. So having those resources to be able to reach out to when things aren't going well is just; I don't know how else to put it, it's just super valuable. Yeah, so it took about a full year to really; it took six months to basically turn things around, it took another six months to gain back what we had lost in sales and get back to where it felt like we could potentially exit. Then we had another call and you said okay, good, now you need to run it for another year. Because I was like oh great, we're back, now we can sell it and you're like hey man, you need a trailing 12 months at this level if you really want to sell it. So you crushed my heart again.

Joe V.: I am sorry about that.

Joe C.: But the reality was; no, it's fine because things were good. And so I was up and I was just like oh yeah okay, fine. I can run it for another year. Maybe I can even grow it a little bit. So that's what we really focused on and pushed through. And so you started that question really with what kind of got you there and what made the decision to actually sell? And that was literally hitting like the 10 month part period where for 10 months nothing went well. That's literally what made me realize we need to list this in because you told me, hey, you need a trailing 12 months of solid numbers and then you're good. At 10 months I was like, holy crap we're two months away from that. There's nothing in the forefront that makes me believe that we won't hit that. Let's call Joe. So I reached out to you and boy, what an interesting time to make that decision, right? Because look what happened just a few months later.

Joe V.: Yeah, we closed; we're recording today on April 13th, 2020 folks and we ended up listing the business in mid-November, headed under LOI within two or three weeks, chose to close in January for tax purposes. Good for you, Joe, because you had moved to Florida, partial tax year down there, no taxes on state level and then, a grace period of another 15 months before you had to pay your taxes for the sale. Yeah, and then COVID hit. So I think in your niche sales probably went up though but still, the world is incredibly unstable and maybe better of peace of mind that you sold versus holding on. There are a lot of folks that waited and now have to wait even longer to see relatives come back. It's a tough situation all around.

Joe C.: And you know it doesn't matter that your business does well in these times because if you can't get inventory or you can't get inventory on Amazon, you're still not making sales so there are so many challenges. And the other challenge is that I lived with; lived and breathed every day, day and night I mean, so that decision to sell was based on a lot of things. But yeah, it was definitely the right time and it worked out well for me and it gave me the freedom to now look back and say okay, what did I do, what made that successful, how can I repeat that in my next business, and how can I do it even better maybe? For me better means a better lifestyle. I don't want to do it again and work the way that I worked and worry the way that I worried before. And surprisingly when you have some money in the bank, a lot of those worries do go away. A lot of things do get easier and so now the big thing is make sure you don't make a big, stupid mistake because you've got money to spend and go about it like a clean start up again and remember what it takes to do that and then start from that.

Joe V.: Great advice all around, I love your story, Joe. What is your next adventure, any clues or hints that you can give us? Because if anybody out there is in the audience that might have an interest in it or can contribute to it in any way maybe they'll reach out.

Joe C.: Yeah. So what I kind of took away from my last business is that being passionate about the products for me is important. Some people are just passionate about business and so they don't have to really be passionate about the product so much. In my last business, I was passionate about the business, but I was also passionate about the product. And even more importantly, and this is just through self-reflection that I kind of realized recently I was passionate about my customer and I was passionate about that customer getting success. And so for me, it was realizing that it's not just the business, it's not just the product, and it's not just the customer. It was kind of a combination of those three things that I think helped push me through the hard times. Because there were so many more ups and downs that we didn't even get into that if you're not passionate about something within that, you're going to struggle. And for me, if I wasn't passionate about all three of those things, I might have faltered. So as you said I'm a fisherman and I'm looking in that market and seeing where I can contribute my value. And so I just registered a new trademark last week and we're starting on working on those offers and seeing where we can beat the competition.

Joe V.: Excellent. Well, I look forward to having you back on the podcast and telling that story of your next exit although you've just started; you've just begun. Thanks for sharing your story, Joe. It's amazing going from being a dad at the age of 17, 17 in two days, if you will, to a seven-figure exit 24 years later, supporting your family and getting a big burden off your back and living debt-free. Congratulations. It's been a privilege working with you and an honor to know you. I look forward to getting out of Florida and maybe go fishing with you someday personally.

Joe C.: Absolutely. Well, I appreciate all your help as well and I look forward to being back.

Joe V.: All right man, talk to you soon.

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