The Quiet Light Podcast

In today's part two of two Chuck is talking once again to Mike Nunez about his tips for being a successful buyer. We first heard about Mike's nine tips for a successful acquisition, and today he delves into the types of things he looks for in a business he is considering for purchase. We're also diving deep into one tip that Mike shared on part one of this two-part series. Finally, Mike also shares some great efficiency tools he's loving these days.

Episode Highlights:

• What Mike looks for when buying a business.
• What he brings to the business with his own expertise.
• Examples of things that stand out to Mike in a listing.
• Advertising account criteria he checks for in a potential new business.
• Goals and intentions he has and the opportunities he looks for when on the hunt for a business.
• The importance of keeping criteria lists.
• Tips for content sites looking for affiliates.
• Certain synergies to look for in a search.
• Lessons Mike has learned through his acquisitions.
• Tools Mike is using and recommending these days.

Mark: Chuck in the last podcast episode that we had we had Mike Nuñez on. He offered nine very actionable tips on how to be a very good buyer; how to be a buyer that can win deals by having the right disposition. And I know you guys talked; you guys are friends, you live close to each other there in Florida and all that. So you guys are friends and naturally, your conversations are long but also Mike's got a ton of content to share with us and you guys got into a second episode. What can we expect from the second episode with Mike Nuñez?

Chuck: Yeah, so let's start off by saying if you haven't watched the first one or listen to it make sure you do because it kind of leads into this. On this one, we talked about what are the types of things that he's looking for as a buyer and you should be able to get some stuff out of that to help you figure out maybe some ideas for the types of things you're looking for. We also talked about; there was like one tip that we gave that he gave us somebody at Rhodium conference a year or two ago and it gave that guy a 25% boost in his revenue like overnight. So that was a nice little take away there and then at the end of the call, one of the things I always like to do is just ask for any special tools or things that he uses so he gives us a list of additional tools he uses so a pretty little bonus at the end.

Mark: Fantastic. Mike is a great guy. I'm super glad that he was able to come back on the podcast. Let's get right into it.

Chuck: All right welcome back everybody this is Chuck Mullins here with Quiet Light Brokerage and this is part two of a two-part segment with Mike Nuñez. Welcome, Mike; welcome back.

Mike: Thank you, Chuck. Thanks for being accepting of my long-windedness.

Chuck: No, I think we had a lot of great stuff in the last one. If anybody didn't get a chance to watch it you might want to go back and watch that one first. What did we end up on; nine super-secret tips?

Mike: They go to 9, yeah 9 super-secrets.

Chuck: 8 or 9 super-secret tips of how to be a great buyer which Mike Nuñez is a great buyer. Now we wanted to segway in and Mike wanted to make sure that everybody know that he's not wearing, or he is wearing the same suit but only because we're recording these back to back because the last one went pretty long. So you still look great Mike. For anybody who didn't watch the last one, Mike purchased a custom-tailored suit business from us so this is probably why he's wearing the suit because I've never seen him wear a suit before he had purchased that business. So he's definitely stepped up his wardrobe game since then. So today we wanted to talk about what you're looking for when you buy a business and maybe some of the lessons you've learned along the way. So again maybe let's start off; before we jump into that just give a brief introduction for anybody who didn't watch the first part of the series about you.

Mike: Well, so I think it's important if you're listening to this one you probably should listen to the first one first because it does set up a lot of the things that we're going to talk about here. But for those that just don't listen, I've been in internet marketing for about 20 years now. I spent most of it working for an agency or owning an agency. I worked for Google for four years in their paid, search division. And so today I own a company called AffiliateManager.com that manages affiliate programs as well as the performance company which manages paid search for companies as well. So that's the super brief synopsis.

Chuck: Perfect. So let's jump into what is it that you look for when you're buying a business? Always people come to me and they; Chuck what kind of business should I buy? And I say okay well what are your interests, what are you good at? So I think you probably you're looking…well, let me just let you tell what are you looking for.

Mike: Yeah, so I think it's important to say what I look for or what we look for; so I do have a pretty solid team around me but what we look for is going to be very different than what somebody else looks for. And so please take that with a grain of salt; everything that I'm going to say today and I think is important for everyone to just recognize, just be self-aware what is it that you are incredibly good at? If you're good at sales go find a company that has an incredible product and but they're bad at sales and you plug yourself in and you now have an incredible business overall. Or if you're fantastic at operations go find a company that's selling like crazy but their operations just can't keep up with all the offers and plug yourself in there and that's going to work. I like to say that real opportunity is at the intersection of two different expertise or two different types of expertise. So for me, it's online business and online marketing and I'm not so great at everything else. So I'm not an operations person, I'm not a finance person so I don't look for companies that are lacking in those areas. I look for companies that are strong in those areas and that are; I don't want to say lacking because I think that's potentially disrespectful to either the people that I purchased businesses from or will in the future but it's more where I see opportunity where they wouldn't know unless they worked at Google for several years or they wouldn't know unless they've been in online marketing for 20 years or they never had an affiliate program. They never thought about it and we're incredible at it. So plugging what we are really good at into things that maybe they've tried that they're above average at because you have to be above average if you're going to own an online business but they've spread themselves so thin that they couldn't be an expert at just one thing. Another nice side effect that I've seen with buying these businesses, some of the previous owners they just worked so long and hard in the business that when you're so down in the weeds like that it's hard to pull yourself out and kind of take a 40,000-foot view picture. When acquiring a company it's almost a natural thing that happens along the way and you start to say okay let me take a step back and look at this not so closely; so close I can't tell exactly what this is and what's going on. And then as you start to peel that back and say okay this is something that the previous owner did, is this something that I need to take over, do I bring the value? The previous owner either maybe they enjoyed it, maybe they liked it, or maybe they were really good at it but I'm not and so the answer there is who else within the company can take that over. And I got to say that's probably one of the biggest benefits of purchasing an online company not only for the buyer but for the seller that they're able to peel themselves out and all the while that's the transition of okay these are the daily duties that this person does and this is who can take that over. So the new buyer; so myself as an example can go focus on what we're good at. So with that caveat to what it is that you're asking some of the things that I look for and I think just another quick note on this; this is an ever-evolving list, just because I've written this today doesn't mean that there's not more to come. Every time we go through a business or every time actually we have a call we run into an issue with the current business. I say okay that sounds like an opportunity that when we purchase the next business that we need to look at and say can we help there. So some of these are super simple and most listeners might say oh well that that's kind of common sense. Well, it's not always common sense. Somebody on this call is going to really or somebody listening to this podcast is going to really benefit from it but I listed because it's things that I want to make sure that I go and check every time that we're looking at a business. So, for example, we are like I said really good at online marketing specifically affiliate marketing and paid search. So we'll go look do they have an affiliate program? Are they overpaying? Are they not paying out commission based off of the influence that each affiliate had on that actual transaction? It's actually super interesting to see how much people overpay for things. And even more interesting to see when they're underpaying affiliate. So for example affiliates, they are business just like you, just like me and they want to maximize their revenue for their inventory. A lot of people get stuck and they look oh my competitor pays 5% commission, that's what I'm going to go pay. But a really good affiliate is equivalent to an upper-funnel page search keyword. And if you're paying a two to one for an upper funnel page search keyword; let's use my custom suit business, if I'm willing to get a two to one for the keyword custom suits or men's custom suits, if I'm willing to take a two to one return on ad spend for that I should be willing to pay an affiliate who is upper funnel; who's educating customers about me, I should be willing to pay them a 50% commission because they're upper funnel.

Chuck: Alright so that makes a lot of sense to use something that you do on a day to day basis with your main business to look to acquire a company. So can you give some examples of specifically what something you might look for is?

Mike: Sure. I'll give two examples one of where we succeeded at this and one where we failed but then you use that failure to learn and regroup. So the first business that we acquired we identified that there was a significant amount of overspent. It wasn't the previous owner's fault. They had hired an agency who was just; they were doing good. I would give them a six out of 10. But within 20, 30 minutes we can evaluate a Google Ads account and say we can save this account 10, $15,000 a month.

Chuck: And you were talking about like an Ad Words account as opposed to affiliate stuff?

Mike: Correct. Yeah, a Google Ads account that maybe this ad, the Google Ads accounts is spending 50, 60, $70,000 a month and if we can look in there and say we can save 10, 15, 20,000 on this and still get the same level of sales based off of our expertise we're adding 1 to $200,000 straight to the bottom line; straight to EBITDA and we did exactly that. We actually just finished reviewing January through October and we actually generated more sales than the same period last year and we spent I think it was $160,000 less to do so in that period.

Chuck: It kind of goes against the thought of ad expenses are going up, right? There's more and more competition every day for ads so people think that but yet you're able to cut ad spend and make more money with it.

Mike: That's 100% correct. You have to know what you're doing. There are very, very few good paid search companies out there. And I know because I used to work with a lot of them when I was at Google. Kevin who's on our team; his job was to go out and train agencies on how to appropriately use Google Ad Words. Pat who's the mastermind on our team has been doing Google paid search since Yahoo or as Yahoo started before Google was in existence. So it's just such a level of expertise that we have on our team overall that we can go and then apply and get these level of savings overall. And again it's straight to the bottom line and we take that money; the first acquisition was partly done via an SBA loan and the savings that we've got doesn't quite cover the SBA loan but it's about 75% of it. It's almost like we acquired the company for the price of the down payment and a much smaller SBA loan so to speak. So that's got to be our number one criteria; same thing with an affiliate program again with the first acquisition they weren't doing attribution based commissioning. It was a smaller effect on the overall business. We probably saved somewhere between 30 and 40,000 for the entire year on that one. So it's again a much smaller effect but that's a part-time person. That's an initiative that we can go fund now because we're saving 30 to 40 grand that we wouldn't have to spend otherwise.

Chuck: So let's call out specifically there what it is you're looking for. So Mike looks at a company, requests access to their ad account, and then Mike looks for what?

Mike: So in their ad account I'm looking at are they using negative keywords appropriately, what bidding algorithm are they using on Google, what matching types are they using, are they using segmentation correctly. And this is all super 40,000-foot level things but as Pat, our behind the scenes masterminds like to say, a poorly run paid search program is typically death by a thousand paper cuts. It's not one of these things. It's a thousand of these things that we meticulously go and identify, find, correct, and improve.

Chuck: Alright so you will go into an account, you see all these things and they're doing everything right does that mean okay it's a great company I'm not looking to buy this one; like are you specifically, if there's not something you can fix you're not going to acquire it?

Mike: Yeah, that's a fun question. The good news is for me at least I've never seen one. That's good. And to be fair I've seen; when we are getting an RFPN for the agency business I've seen two or three that were so well run that we tell them we can't help, they're doing an amazing job. You're going to look to us for growth in three or four months and we're not going to deliver because your current company is doing fantastic so don't leave them. But when acquiring a business and the research that I do before making an offer I have not yet come across that. If that were the case yes it's not a kiss of death but it is a factor in whether or not we feel like we should purchase the business because we know that there's so many out there that do it so poorly. Investing; I know I'm not teaching anybody on the call anything new with this but investing is where's the next best place to spend your dollar? And if they're doing a bad job with paid search that's a good place for me to spend my dollar because I know we can fix that. If they're doing an incredible job well there's probably a better place for me to go spend my dollar.

Chuck: Sure. And I don't think it's a negative thing for you to say nope I'm just going to move on to the next one they're doing everything right. Like you're looking for specific things in order to want to acquire and like you said you've only got so many dollars to spend. You need to place it where it's going to do the most good for you. And if somebody else is doing everything right like that's not your area of expertise to grow the business. Maybe again they're not doing sales well and that's not what you're specifically looking at so sales is where the person that is going to end up ultimately acquiring the business is good at. And there's also people who maybe they don't have necessarily an expertise at something and they're just looking for an overall good run business that can keep chugging away for the years to come. And that's not a negative like just because you don't have some really specialized thing that you're good it doesn't mean that buying a business would necessarily be a bad idea for you.

Mike: Yeah it's one of those things begin with the end in mind, right? And if the if your end goal is that you want a super stable business but it's not going to grow because everything is so well optimized and you're willing to pay the same multiple for it and you just want to kind of run that business day to day as is without expectation of growth then that's it. And there are people that want that. I would even consider a business like that if it was strictly almost a lifestyle business. But the businesses that we're buying; our goal, our intention is to take this 15 million dollar company and turn it into a 25, 50, 100 million dollar company and so there has to be opportunity when we're purchasing and the bigger the opportunity that we identify that we can do so fairly quickly with what we have the more we're willing to pay for it and the more we're willing to compete for it overall.

Chuck: So we were talking recently we had lunch and you said that you recently discovered something with one of your businesses that was something you know I'm going to start looking for that and it revolved around shipping. Do you remember what we were talking about?

Mike: Oh yes I have it. It's on my list. And that's funny and that's yet another reason to have a list right, right?

Chuck: Right.

Mike: And so as we're talking like; I know I'm not alone in this, right? I know you're like this Chuck. I'm sure you, the person listening to this right now is the same way. And I'll wake up in the middle of night and I feel like sometimes not thinking about things or telling yourself think about this in the back of my mind and you'll solve problems; like I'll get things out there just to solve them. I'll wake up in the middle and be like that's the answer to this and literally I'll roll over, I'll pick up my phone, and I'll just type a note to myself and say this is the answer and I'll go back to sleep. And the one that you're talking about is we have a warehouse for both of the business but the one that we're talking about now has a warehouse, a large warehouse; tens of thousands of square feet, I'm not sure exactly how big it is but we were getting fined by the shipping company because the dimensions of our packaging was incorrect. And so as we printed out the shipping labels for it, it was off maybe by an inch or whatever it was. And so when we send it to FedEx who was our shipping carrier and they would measure it we would be off by however much and they would actually fine us and so it added to tens of thousands of dollars in fines that we are receiving; not shipping costs, fines because our dimensions were wrong. And so for less than $10,000, we purchased a dim scanner and basically eliminated that. That dim scanner pays itself in one to two months and then from that point forward we now recovered yet another 20, $30,000 back. So you see the recurring theme here; paid search, this is how much we can save by doing it better, affiliate, this is how much we can save by doing it better, shipping, this is how much we can save by doing it better and then here's the freaking key. Like this is the thing though; don't just sit on that. And again I guess this depends on your goal. If your goal is to just absolute squeeze every penny out of these companies that you want then go and do it. My goal is growth and to turn these companies into large companies so that one day I may list with Chuck and get a great multiple on these companies. But take those dollars that you're taking and now do all of the things on the list; in that plan and the things that the previous owner said I could never afford, I could never get to, I can never pay somebody to do it. Now you found the funds to go and actually do those things. Use that money to fund that growth. Again I'll refer to Pat who runs our paid search; he calls that feed the winners starve the losers, so just taking the wasted money and putting it back into reinvest on growth and winning.

Chuck: So with the shipping fines that you discovered how long have you been running this business; it's been a year and a half?

Mike: A year and a half, yeah.

Chuck: And you just discovered it now. Is there something that you are having; we don't know what we don't know, right? So we don't know what to look for. Is this something that you could have identified on day one to have seen even more value?

Mike: Yeah, thanks for pointing it out Chuck. It's always painful to look back and say oh we could have made an additional 30 to 50 grand in the last 12 months if we just would have found this.

Chuck: And this is probably not a common problem, right? But it's something you're going to look for in the future. Where would they have identified that; what due diligence would you have done in order to have seen that?

Mike: Yeah, looking at the shipping invoices and seeing exactly what those are. And there are some pretty cool companies out there that will A) look at that for you and B) they'll actually monitor your shipping and make sure that it arrives on time. There's one called Late Shipment it's I think the one that we use; LateShipment.com and if FedEx doesn't deliver within the agreed-upon time; the one to two days, they'll actually refund; we get a refund on that shipping cost. So that's another example if they're not using; if you send out a million dollars or if you pay a million dollars in shipping costs every year and I think I know ours is above a million but I'll just use that, so a million dollars, if you can recoup 2, 3, 4% that's 20, 30, $40,000 back in your pocket that just appeared out of nowhere. So that's another one on my list. So are they using a dim scanner? Are they getting fined for this? Are they using LateShipment.com and getting a refund on anything that's late? Again stacking up this $160,000 in savings in paid search, $40,000 in savings in affiliate, 30 to 50,000 in dim scanner, late shipment another 30 to $40,000 just stacking and stacking and stacking. Another one is credit card fees; are they using a good credit card process? Have they negotiated their rates since they grew from zero to 15 million dollars in sales? And if they haven't that's an opportunity like just a one or two; what do they call them? Bits I think is what they call it but it could mean a huge difference in your overall company. Just one or two bits is 15 to $30,000 on a 15 million dollar business.

Chuck: And so in your defense, I think on the shipping thing the company that you purchased did have one of those companies in place that were looking at the delayed shipments but that company wasn't looking at the penalties you were receiving.

Mike: That's right.

Chuck: So even if somebody is using a company that is monitoring the late shipping and getting those refunds they may not be looking at the fees which is strange. You think they'd be doing it but they weren't. Something I've heard you say at conferences when looking at it from a different type of business, so right now we're kind of talking about e-commerce but you also work with people who are doing content sites and their affiliates with other people. So what's your number one tip if you purchased a content site that makes money off affiliates; what's your number one tip for those people?

Mike: Go ask for a raise.

Chuck: What does that mean?

Mike: Go to the affiliate management; either the advertiser or the affiliate management company who's managing them and say I want to make more. And there's many ways that you can position that. One is if you're a content site just know that my affiliate company, AffiliateManager.com is always looking for more content sites. We want to bring that value to our clients and you are in a position; it's a content site's market, let me put it that way. We all want what you have and some make the mistake of because they've been beat down and offered 1, 2, 3, 5, 10% commissions in the past day they just turn away affiliate marketing. Don't do that. You're leaving money on the table. If you find a good advertiser or a good affiliate management company that knows what they're doing and they know that this content site is upper funnel and bringing incremental business to the table they're going to be willing to pay for that and they might pay 20%, 25%, 30%. One of our clients pays 100%. Another one pays up to $150 for an acquisition and they might make zero on it. So it's just one of those things where you have to go and be willing to ask for a raise. And again a good affiliate management company they're going to look at the incremental value, we; not to get too much into us because I know this is more about acquisition but we actually have an attribution tool that we built because it didn't exist that shows where in the clickstream each of these sites are. And if it's a content site going back to your point and we look at their overall numbers and 70% of the time they're the first touch for anybody who's making a purchase on your site, yes we want that incremental traffic and sales coming from that content site. So to you content sites out there you are in a position of desire. We all want to work with you more and go and ask for raises. Somebody who recognizes your value is going to very much be willing to pay it. And if they're not go find somebody else; they're going to be willing to pay it. You are valuable.

Chuck: And just to give an example of something like that. I've got a number of content sites and one of them the affiliates that I was getting paid from is a Canadian company and they send me a Canadian check. So every time I cash the Canadian check I get hit with like a 10 or $20 cashing fee. And it's just like annoying and it's small amount of money but it's annoying so I emailed them and I said hey can you just like PayPal me the money or wire me the money or do something else because I want to get ahold of the $10 fee every time I cash your check and they go oh how about we just double what we pay you? Okay, that'll work. So they really are willing; if they see the value in what you're providing them they are willing to pay more, so just a nice little tip there from Mike Nuñez.

Mike: Yeah. And there was a guy Greg; I won't say his last name at Rhodium one year and I said that at a table and one year later he came back and said by that one tip that you just said because he was a content site or is a content site, I have grown my revenue by 25%. All I did; I didn't do anything else but go back and ask for a raise and the revenue on my site grew 25%.

Chuck: Amazing.

Mike: Free, yeah.

Chuck: Alright, so we've talked about shipping, we've talked about affiliate, we've talked about ads, is there anything else specifically that you're looking for when you're acquiring?

Mike: Yeah if they're not on Amazon I think that's a pretty obvious one. If they are on Amazon and either doing a poor job or no job at Amazon ads; Amazon ads I probably the biggest opportunity right now for everyone that sells on Amazon.

Chuck: And this is kind of new to you in the last couple of years, right?

Mike: Yeah. Well, I mean it didn't really exist a couple of years ago or it was very nascent. So it's still one of those things like if you remember Google back in the day when clicks used to be available for a penny or five cents and such.

Chuck: Yeah man they sent me a refrigerator. I had spent so much money I got a Google refrigerator.

Mike: So I'm not saying that pen that clicks are available for a penny on Amazon but if you incorporate the right system and how to manage it you can gross it; like I'll give you physical numbers year over year in November even those Cyber Monday fell outside of November this year. We grew Amazon sales on that outdoor brand by 50% using Amazon ads. So it's another example of having expertise in this paid search world and finding opportunities within it. Amazon ads; I think maybe that's super-secret number 10. I think we've gotten away from the super secrets but maybe super-secret number 10 and it's probably one of the most powerful ones I see right now available for people.

Chuck: So what else are you looking for?

Mike: So besides being on Amazon and Amazon ads, me personally I'm looking for a strong operational foundation because I'm not an expert at that. I'm not good at that but thankfully the businesses that I purchase have that. I'm looking for a barrier to entry like how replicatable is this business and what is the barrier that people have to get through? And this is a little bit less quantifiable but this is just a general do I want to be involved in this business; how hard is it for somebody who's just as good at paid search as me or Amazon or whatever, if they just got a hold of my supplier could they replicate this and do I want that? And if the answer is it's too easy then I move on. Is it a learnable industry? One of the things I was worried about with the custom suit company was maybe before purchasing it I wasn't as sharp a dresser, Chuck. Maybe my wardrobe might have consisted of free conference t-shirts but I was worried about that and…

Chuck: You're pulling it off still.

Mike: Thank you. And once I got into it I learned no this is a learnable industry. I can do this and it's worked great since then. Is it Amazon resistant? And I know that's a little counter to saying are they on Amazon. Is Amazon going to move into that space? Are they going to want to replicate what it is that you're doing? And on the outdoor brand, it's more of we joined to them; we couldn't beat them so we joined them and a good 50, 60% of our sales are on Amazon on that brand. On the suit brand, we're looking to sell accessories; expand our brand awareness because you can't sell custom suits on Amazon and it's unlikely that Amazon is going to get into that realm. So we're thinking how can we use Amazon to expand our brand awareness, generate some confidence in the brand, and yet not have to; since we're not able to send custom suits and sell custom suits on Amazon directly so is Amazon a threat to the business is something that we look at overall. Inventory management optimization; so leveraging just in time inventory because anybody that's involved in an inventory-based business knows that a lot of times your profit can go straight back into purchasing additional inventory. And if you want to realize any profits before you sell the business you've got have inventory optimization. Is the current ownership leveraging that inventory optimization? Are there conversion rate optimization opportunities; have they ever even tried it before? I just had a call today for the suit company and this is going to be ultra-specific but it is an indicator of what we've done. We launched a new cart in early November and we just ran the numbers and today on desktop for new customers we have doubled our conversion rate which anybody knows that the lifeblood of a business is acquiring new customers. So to do that is pretty amazing. Now on mobile, it was pretty static but we've also generated significant amounts of more traffic on mobile to the suit company. So that's a little bit misleading to say that it's exactly the same. Well anybody who knows conversion rate optimization and knows how traffic works; if you increase traffic the quality is potentially a little bit lower and so the fact that we slightly beat our previous conversion rate on mobile is a huge win. So are there conversion rate optimization to opportunities in the acquisition? Here's one that you know is near and dear to my heart, Chuck. What is the current platform; are they on Net Suite, on Shopify, on Magento? Because the one thing I never ever recommend is changing platforms. So can you accomplish all of the things on your list that you want to do on the platform? We use Net Suite as one of them and it is extremely difficult to get changes done but we are not moving. So it's just something that I think everybody should really consider. Or are you on an archaic platform like at Yahoo stores; something that's not being updated anymore and there's seven people in the world that can code to Yahoo stores? Now you're beholden to them. You have to pay exorbitant rates for their development because they're the only one that knows it as opposed to a Shopify or a Magento that developers are plenty.

Chuck: If you're on Yahoo shout out to Rob Snell, look him up if you need help with your Yahoo business.

Mike: There you go. See I didn't even mean that. That helps. And I think the last thing; us particularly we enjoy custom products, so custom made suits is a really good example or even for the branded products; things that other people makes, turning them into custom products. We really think that that's a good market to be and again slightly more defensible against an Amazon. And then finally this is my last on my company acquisition algorithm that I'll share today just I know we're limited on time is what synergies can you participate in? So if you listen to the last call you heard me talking about a brand that we made an offer on that it was a full price offer, quick close, no due diligence because it was a trusted brand. And before Chuck chimes in, he recommends that you never do that but the reason why we wanted that brand is because it was geared towards outdoor enthusiasts and we have tens of thousands if not hundreds of thousands of outdoor enthusiasts that come to our website every day. So looking for synergistic brands that are out there to acquire and diversify the income and now not only sell other people's brands but also sell your own brand; white labeling things like that, finding things with opportunities like that, that's the last opportunity that we're looking for in our algorithm.

Chuck: Awesome. Alright, so now let's maybe move into what some of the lessons you've learned from the various acquisitions you've done. And you had acquired some stuff before Quiet Light as well.

Mike: Yeah. So I think a lot of them are listed on what I just said but I will say there's; because every time I learn a lesson to me it's an opportunity for the next acquisition. So again I will buy another business on Net Suite but I wouldn't have bought the first one knowing what I know now about Net Suite. But now that we've had to learn it, now that we've had to; our developer is familiar with it now and can make the changes that we need and want, now I'll buy another one. And so to me there's an opportunity there, right? It's harder for people to do that than it is for me. It's yet another level of expertise. So that's one thing is a lot of the lessons are kind of listed already in that but there's one I would say recently and again it's with the custom suit business, don't get so caught up in your own expertise. Again we are really, really good at paid search and one of the reasons why is because we're so return focused. A mistake that we made with the custom suit business is we went straight for a return. If a dollar didn't turn into five; I'll just use that as an example, we didn't spend it. And because of that, we saw sales drop. And I talked to the previous owner about it and said hey we're seeing this, why? And he's like well yes cross-device tracking is good however it doesn't capture everything. And mobile devices; think about who buys suits these days, and it's somebody with a mobile life. It's a lawyer that's always in the courtroom. It's a doctor that's always walking about. It's a financial person that's not necessarily sitting at their desk, they're going to meeting after meeting after meeting and where are they searching up for their next suit? Well, it's probably their mobile device. They find it and then they go on the desktop and they go on and they purchase it. And we had pulled back pretty significantly on the mobile spend because the conversion rate just wasn't as good. And so that's one example of us kind of getting in our own way. But to our credit, we were able to kind of step back and say okay we learned a lesson here, let's get better at it and change our approach. And since then that's when we now had some of our best days that we've ever had. So I like to think of it as a lot of these owners or the previous owners they had levels of expertise; they were doing something right and so it's our job as experts that are better at it to take the lessons that they've learned and apply our expertise to it to just throw some gasoline on it.

Chuck: Alright Mike so one of the ways I like to usually end these things is just to ask if you have any kind of tools that you use on a regular basis; just some things that can either help with productivity, it could even be outside of work. One example the other day I was kind of upset about it because you ordered the chicken sandwich from Popeye's through Uber Eats so that you didn't have to wait in line and you didn't bother sending me one. That's a great little life hack. So what else do you have? Do you have any tools that you might recommend or any other little things?

Mike: I did the same thing with Amazon two years ago when they were operating like the one-hour delivery and we had a hurricane coming to Florida and I just ordered all the bottled water and had it delivered while everybody else is fighting each other at the store. But now that secret's out. That's no longer an advantage but yeah some tools that I like that we use; so for Google Ads, I'll say if you're using things like maximize for clicks run we prefer an enhanced CPC bidding algorithm or a target CPA. We always test to see which one's better. Prioritization, I love Air Table. I got to give a shout out to my business partner Daniel for that. Air Table is a prioritization tool and basically, it can help identify what is the easiest to implement to get the most impactful change that you can make. And so it just really helps to prioritize what it is that you're doing and the changes that you're making to the company because obviously, we all want to make the biggest impact as quickly as possible. I love Grammarly for sending emails so that I don't sound silly.

Chuck: That one saves me all the time.

Mike: It's so good. I haven't used their pro version but even just the regular version is fantastic. For the affiliate management company, I got to give a shout out to Mail Shake. We love Mail Shake. We use that very often. It's a terrific tool. I love Moz. So the Moz toolbar is something that I use a lot. And then I think we use a lot of the things everybody else uses like the Evernotes and Google apps and things like that. So I think the first ones that were probably some of the others may not have heard them.

Chuck: Awesome. Well, I think everybody who's been listening appreciates your time. I'd love to have you back at another time. We can talk about some more stuff once you've hit that next goal of purchase through us we'll talk about that one. But again thank you for the time today and we'll talk to you again soon.

Mike: Thanks, Chuck.

Links and Resources:

• Affiliate Manager

Some of the most popular episodes we've aired have been with guests who have experienced the buying or selling process firsthand. Today's guest has acquired several businesses and is genuinely good at the acquisition process. In part one of a two-part series, Chuck is talking to Mike Nunez about his various acquisitions and his 9 super secret to tips to being a great buyer.

Mike has been in the online marketing space since 1999. After gaining experience in affiliate marketing, he launched Affiliate Manager with his brother while he continued to work full time for Google. More recently, Mike has purchased several e-commerce businesses from Quiet Light. We'll hear about how Mike is becoming one of our top buyers, how he's realizing his dreams, and that one last goal he may just reach.

Episode Highlights:

• What it means to be a good buyer.
• What values the seller looks for aside from the monetary value.
• Ways to put the seller at ease by focusing on what is important to them.
• The importance of having a plan in your approach to the seller.
• How to accept and value of the previous owner's advice during the transition.
• Why you should avoid poor positioned questions when working with the seller.
• The buyer needs to find what he wants – the fit has to be right for the buyer too.
• Finding the component that will help make the business yours and not focus solely on the money piece.
• The relationship of trust in your broker is also a key factor in being a good buyer or seller.

Mark: Some of the most popular podcasts that we've put out here at Quiet Light Brokerage are the episodes where we get the chance to interview either a seller or a buyer on their background or their journey of going through a buying an online business. And Chuck I know you had a good friend of ours, a good friend of Quiet Light Brokerage's and a previous podcast guest as well, Mike Nuñez on because he's acquired a couple of businesses from us and more specifically from you in the recent months. How did that discussion go?

Chuck: Yeah it went great. Mike is what I would consider probably one of our best buyers. The way he's able to get on a phone call and just talk to people, and sometimes I use the word tactics throughout the call. I don't feel like when he's doing it he's being tactical, I feel like he's just a very genuinely friendly guy who is just really good. His experience is that he's been in internet marketing for 20 years I've been in it for 24 so he's almost up there with me.

Mark: He worked at Google so he's got that on you.

Chuck: Yeah, he worked at Google for four years in the paid search department. So he talks a lot about on this one so I ended up having to split this up into two podcasts because it was just going so long. So the first one we talked about his nine super-secret tips to being a great buyer and there was a lot of really actionable stuff in there that I think everybody is going to be able to get a lot out of.

Mark: Guys that's awesome and you talk about the difference between tactics and just being a good guy and look they can blend together, right? I mean Mike isn't the type of conniving guy saying here's what I'm going to do, I'm going to say this phrase and that phrase to make sure somebody absolutely loves me and then I'm going to be able to get an additional 20% off. That's not the way he works. He is just generally a good guy. He helps a lot. He's got that help first mentality. We preach this all the time and Joe is the one that coined a lot of these phrases which is nice buyers tend to do better. And it's just really, really true that sometimes we need tips on how to do it. This is why Dale Carnegie wrote the famous book How to Win Friends and Influence People just to give us some actionable tips to be like how do you actually encounter people in a business environment in a way that will benefit you. And if you read the book you find out that a lot of it is; well it starts with that right disposition and who you are. And Mike is a good person. I love that you broke this out into nine tips. Are you able to give me any preview of any of the nine tips or do you not remember them offhand?

Chuck: Yeah. So one of the questions is around positioning the way you ask questions I think it's a really good tip. I won't get into all the details but you'll see it in the video.

Mark: Okay, so not just going out there and hammering people with questions in a very kind of combatant way but I'm sure Mike has a very unique approach to that.

Chuck: Well, Mark I just said I'm not going to get into the details. Don't try to pressure me.

Mark: Alright. You know what I was talking to Joe the other day and he's like do you listen to the podcasts, Mark? And I said no, I don't because I hear enough of you Joe I don't want to hear more of you and he records all the episodes. So he said your intros are getting to be too long so let's cut it out. Let's get to it.

Chuck: Hey everybody today on the call we have Mike Nuñez. Welcome, Mike.

Mike: Thank you, Chuck, it's great to be here.

Chuck: So people may have heard your name before because we mentioned you quite frequently on the podcast. And the reason we mentioned you so frequently is because you're what I would consider my number one buyer. I think probably one of Quiet Light's top buyers and not from a monetary perspective. You do purchase a lot of businesses, you purchase a lot of large businesses from us but more so just from your personality; the way you interact with clients on phone calls like whenever I'm telling somebody how to be a good buyer I'm always in my head thinking what does Mike do and then I'm telling them what Mike does in order to be a good buyer. Because we're friends and I know you outside of Quiet Light but like I really do mean that. Like you are really a great buyer and you're easy to talk to. And if anybody's watching the video today they're going to notice that you look somewhat like a sports commentator with that headset on and you've got a suit and tie and the suit and tie isn't the normal way I see Mike but one of the businesses he purchased was a custom-tailored suit business so I guess he's got to rep that brand now.

Mike: That's right.

Chuck: But maybe you could tell everybody a little bit about yourself.

Mike: Oh great. I'm happy to. And first, let me say thank you. That was super just kind of you to say. I always whenever I have any of these phone calls I just take an approach of what I want to hear and recognizing that these business owners have been working on this; their babies, right? And you just have to be careful as you ask questions because we all want to know where the opportunity is and I'm sure we'll talk much more about that here but we want to know where the opportunity is and the way that you find that is by asking questions. But it's a very fine line between asking questions and becoming insulting and so you just have to walk that fine line. But there's absolutely a way to do it and there's a way to lead these sellers into that and realizing that you're both kind of on the same team. But again; well I think we're getting ahead of ourselves or at least I am so I'll tell you a little bit about me to start this off. I've been in online marketing since 1999, I was in college at the time and I know that dates myself a little bit. The first job was in lead generation, online marketing. I moved in to travel doing affiliate marketing and travel. I eventually launched my own affiliate marketing business along with my brother that's still going today so its AffiliateManager.com. Last year we merged with a company called Rhino Fish to create the performance company which is our page search division. Overall that marketing company is about 22 people. We have 3 former Googlers myself included on that staff. So we're quite good at both affiliate marketing and paid search. I like to say so. We also have two other businesses or I have two other businesses; one is an outdoor equipment seller that I purchased from Quiet Light, another is a custom made to measure suit company that I purchased from Quiet Light as well. So overall I'm about 20 years down it hurts to say experience in online marketing and business and online businesses in general and it's been a really fun journey. I always like to say Chuck my dream used to be I want to be able to work from anywhere and now I'm there. The new dream is that I want to not have to work. So someday I'll realize that second dream.

Chuck: I don't like to hear that because I think the term not working would be not buying additional businesses and you're one short away from a special goal that I; I told him if you bought a certain number that I would buy him a specific thing. So he's just shy of that goal.

Mike: Yeah it's just without getting into too many details like we're talking about less than what is it 4% on millions of dollars that I'm short.

Chuck: But I set this goal early on, right? So it's your fault that you haven't reached it. If you have just paid a little bit more in that last acquisition you would have hit that goal.

Mike: We need to round up Chuck. That's what I'm saying. We need to just round up and I should hit that threshold.

Chuck: I'll remember that on the next acquisition. We'll just round up.

Mike: Right. Yeah. Only when it's in my favor, please.

Chuck: So part of the reason I wanted to have you on the call today was one just to talk about maybe some tips or just maybe even not tips but just discussing what it is to be a good buyer. But then also from your perspective what it is you're looking at when you're looking to buy businesses. I know you have a specific criteria that you're looking for and your criteria is different than other people's. And I wanted to also maybe talk about some lessons you've learned along the way. So I guess to kick it off maybe let's just dive in a little bit about being a good buyer. So I would start off just by saying that you know I talked to a lot of people; constantly I'm on the phone and people are always asking me what it is to be a good buyer? And some people I talked to think that in order to be a good buyer it's about being aggressive in trying to negotiate. And maybe they're not thinking that as being a good buyer but they want to try to get the best deal by doing that and they'll say negative things about people's businesses. And you take a very different approach than that. So I think you already addressed it a little bit but maybe you want to dive into maybe the approach you take to negotiating and to speaking with others.

Mike: Sure. I think it's important context to say both of the businesses that I've purchased from you Chuck and Quiet Light had multiple offers, were very much generating a lot of interest and so there were multiple potential buyers. And I don't want to say we were the lowest offer. I don't think we were. I know in both cases we weren't the highest offer either.

Chuck: Yeah just maybe to add a little context before you dive into further, one of the; I think actually both of them said I wanted to sell to Mike. So they're talking to multiple people and they said get Mike up to this number I want to sell to him. Even though that number was lower than what some of the other potential buyers were offering.

Mike: Yeah.

Chuck: So I think that speaks a lot to you.

Mike: Thank you again, Chuck. But I would say that therein lies the quote-unquote the secret which is money is valuable, right? They want money. If you're nowhere near what they're asking or if you're nowhere near what their magic number is, the rest of this conversation goes away. Let's put that aside. I think Quiet Light does an incredible job overall of valuing companies fairly and appropriately. And you know that walking in. So if you know that walking in okay this is a fairly and appropriately valued business now it's a matter of percentage points maybe either way and in either direction of that. The purpose of the call, at least the initial call is to identify; one of the purposes of the call is to identify what value is this seller seeking beyond the dollars because the dollars are going to fall within a certain range. So a good example for the suit business is the seller really cared about his people. He really cared about his co-workers that he's had for the last however many years; almost 10 years that have put in their blood, their sweat, their tears into this. And he wanted to know that they were going to be okay. And I think actually in the ranking of why I won the business even though I had a lower offer than other people had, that's probably number one is just feeling comfortable about that the new owner is going to come in and take care of the people that were there. And I made no promises. Let me say that. I didn't say I promise I'm not going to let anybody go or I promise; I said no, I promise I'm going to be fair and appropriate with everybody and evaluate everybody based on performance. And he was confident knowing that he had hired stellar people. And it was part of what was so attractive about the business is he had incredible people that were already working there so it made it even more attractive for us. So I think that was number one for him. Second I think there was a sense of patriotism maybe. So this is a European company. It was based in Europe. It's in a European country. And this European country is kind of known for textiles and for creating things and such. And so I think one of the other buyers; and again there's multiple people in here that you're kind of competing against and so you got to think of like a pros and cons checklist and I'm being compared to each one of these other potential buyers in their pros and cons checklist. One of the other potential buyers wanted to move the production out of Europe and into China. There's nothing wrong with that if that's where their connections are if that's where their factories are and such; great. That's where they want to move their production, good for them. However this particular seller wanted to keep production because of his pride for his country, because of his desire to benefit his country, he wanted to keep production in his home country. I didn't have any alternative contacts in China or in any other potential production areas and so I felt like that was important to them and so I made it known. And I think a lot of, and I think it's the second thing is kind of just listening on the calls. Maybe that's super-secret number two is listening and hearing what's important to them and asking that question okay let's move money aside what's important to you in the future of this company? And another good example of that is potential branding or taking care of the customers. I know this may sound a little bit cliché but this is their baby, right? They've grown this baby. They've watched this baby grow. They've poured their love, their sweat, their tears, their hours. The seller of the custom suit company is an example. I remember him saying like I can't remember the last time I took a vacation. He just poured everything he possibly had into this company. And so when you're that invested overall they just kind of feel a comfort level that the new owner is going to come in and do right by what they've built. They just don't want to see it go away and it's they've already got their cash at that point and they still care. And I will say one positive side effect and please know that this is partly or mostly; not even partly, mostly because of the owner and this is one of the criteria; we can talk more about this later, but one of the criteria that I look at is an owner that cares and they're selling for potentially a different reason other than they don't care about the business anymore. I think those are the ones that kind of phone it in afterwards. The two owners of the businesses that I've purchased are still very much invested. One of them still works full time in the company and works as hard today as when he owned it. And I am very appreciative for that. Same thing for the custom suit company, he chimes in all the time. Like hey, this is how we did things, this is how we did it. It's so helpful in the transition of a company to have the context of somebody who built this business from the ground up. And I think the super-secret number three there is when somebody is on your side, let them be. Both of their intentions aren't to harm the business in any way. They want to see it grow. And even though in both instances there's been times where we didn't quite agree on how to take things to the next level, we absolutely welcomed their feedback and sometimes they were right. Sometimes we were right. Kind of checking your pride and moving it to the side for a second when you're good at something and allowing them to tell you, yes I know you're good at this, let me tell you how what you're doing applies specifically to the business that you're purchasing from me. It's a really important lesson in the growth of the business which might be a good segway Chuck if it's okay with you to start talking about the lessons learned for some of the businesses or did you want more on…?

Chuck: Before we move on you mentioned that both of the owners of the businesses were kind of still somewhat involved in the company. Is that something you're specifically looking for or was that just a happenstance of you buying a good quality business that had an owner that actually cared about the business?

Mike: So in neither instance was it a requirement beforehand that the owner would stay on with the business post-acquisition. The first acquisition, the owner requested it. They said hey I see the plan and I didn't intend to call out these super-secrets but let's call it the super-secret number four is have a plan. Don't just walk in and say hey I'd like to buy your business. In that instance, I just so happened to be in London and as I'm trying to buy this business the owner of the business lived in an island off of the coast of Morocco. I had a free weekend while I was in London and I flew over and met with him and his wonderful wife and they were gracious. They took me to dinner. I insisted but they wouldn't let me treat for dinner. I think they were just thankful that I flew to go visit them and talk about the business; so just again that personal connection there. So while it wasn't a requirement that they stay with the business post-acquisition I'm always open to it if they're open to it. And I started talking about the plan; having the plan and being able to approach them. In both instances they got excited. One of them and I'll try to talk vague because I don't want to say anything about either one of them that they wouldn't want me to share. But one of them said when I said why are you selling it they said well I'm almost running out of ideas. Like I don't know what the next thing to do is. I don't know where to take this next and how to make it grow. And so for me, it's a choice of whether we stay at the level that we are now and continue happily down that path. Or do I allow my baby to grow by giving it to somebody who's going to take it to that next level? And so to be able to show them okay not only can we take it to next level here's how; yes, you recognize we have the experience before this on how to get this to that next level but here let me lay out the plan in front of you. And all throughout the while of reviewing the business and going to the website I have a checklist and I'll go over some of the points with you later today, here's all the opportunities that we think that we can have. And based off of those opportunities that's how we create the plan. And then we plug that into our for lack of a better word, our company acquisition algorithm to say okay is this worthwhile? And based off of the competitive advantages that we have with this business can we offer a little more? Do we need to offer a little less? Like where do we think that we're going to fit into this overall picture? So I feel like I didn't fully answer your question. The answer is no we don't require the owners to stay on post-acquisition. We are completely open to it. We prefer it. In both instances, they're both quite engaged overall. And just to reiterate the point maybe super-secret number five is if somebody wants to be on your side let them be. And in this instance, both the previous owners want to be on our side. They want to give us the feedback. We 100% remain open to receiving that feedback even if it's counter to what we want to achieve we'll at least receive it. I have a philosophy that you're not entitled to have a point if you can't justify it. And so if they come to me and say hey I think you're doing this incorrectly or I don't think you're doing this right. I tell myself okay, here's an expert that's owned this business for a long time, they feel strongly enough to come to me and say I think you're doing this incorrectly. I feel strongly that I'm doing it this way. But feeling trolling isn't good enough. I need to go pull data, go look at numbers, go say why are we doing it this way. And then I go back to them and say okay here's the reason why we're doing this way and they can poke holes in it or say no you know what that looks good. I wish I would have known that when I had the business. So I think that answers your question, Chuck.

Chuck: Yeah I think so. And maybe secret; what number are we on, number six?

Mike: I think we're on number six now.

Chuck: Okay, so I would say super-secret number six, what you kind of just alluded to and what you didn't is you know when in school like high school or whatever and the teacher is like oh there's no such thing as a dumb question. There 100% is such a thing as a dumb question when you're talking to a seller. I would say super-secret number six is be prepared when you get on a call, be dedicated to the call that you're on, don't be in a car with a lot of background noise. Be at a desk, be in one place, do some research, if there's an interview to watch, watch the interview with the seller, read the package, ask intelligent questions about the business. It's okay to ask something that's already been addressed in the package if you want some additional information but show that you've actually researched the business because constantly when I'm talking to my sellers and we get off a phone call they're like that guy is not serious, don't connect me with him again. They want to know that you're serious and a way to show that you're serious is to have done some research ahead of time and ask intelligent questions about the business. And that's something that you definitely do.

Mike: Thanks, Chuck. And I think that goes with having a plan. Like I don't have the time, I know you don't have the time, I don't have the time, I'm sure the sellers don't have the time to just sit there and answer questions that for somebody who clearly isn't prepared for the call it's a horrible signal to the seller that you're not serious about this that even if you do have the cash, even if all other things fall into place you're not going to be an organized person handling their business moving forward. So it's just an awful signal to send upfront. And I think one of the other things that you said; I don't want to say that there's bad questions, there's unprepared questions.

Chuck: There are bad questions. I've had them on my calls.

Mike: Okay.

Chuck: And I know you're; Mike again this gets back to Mike being a super nice guy and doesn't want to; there are dumb questions and I've had many of them on my calls.

Mike: I'm still going to stay that there's poorly positioned questions. And one of them might be hey Chuck I feel like this is a really dumb question and so forgive me for asking what's going to seem like a dumb question but it's just weighing on me and I need to ask it. That's a well-positioned dumb question. Another really good example of that is starting a call. I have a big belief and maybe this might be in one of the other super- secrets but we'll call it super-secret number seven, are we on seven now? So super-secret number seven, figure out what they want and give it to them. And again part of that is money but that's the beauty of working with a broker especially Quiet Light, that part's already figured out. That's almost done. They've declared that this is the multiple that they want now it's up to you to figure out does that fit within your company acquisition algorithm. Can I afford this based off of all of these criteria? And again I'll go through some of those in a little bit. Move that aside and now figure out what do they want. Do they want to stay on with the business? Do they want to hand it over to somebody who's going to keep the work within their country or somebody who isn't going to start selling poorly made products to their customer base that they've built up over time? Figure out what they want and give it to them. It's the best negotiation technique. If you walk into a call or a negotiation and you're trying to think how can I squeeze every dime out of this person on the other side of this phone call; I mean good luck to you, you may win or you may not. I have the philosophy of; I took a course from the Wharton School of Business one time and we talked about negotiation and one of the things we talked about was the difference between an average hitter in baseball and a Hall of Fame hitter in baseball is one in nine hits. If you can get one more hit in nine at-bats, that's the difference between average and Hall of Fame. The same thing with negotiation, if you can get one more hit in nine at-bats it's potentially a huge difference in the overall success that you're going to have. So same thing here, and so I approach the call as hey let's figure this out together and I'm listening the entire time trying to figure out what's important to the person on the other side of the call. Also, another; super-secret number eight is going to be disarming the call. It doesn't have to be this contentious conversation where I'm battling you for information. That's not the case. I start out almost every call and you can attest to this Chuck, and by the way, I've purchased a couple. I've probably had maybe less than 10 but several phone calls with people. Some of them after the call I decide this is not the right fit for me. I can't give them what they want so I just walk away and I go on to the next business. Other ones I've made offers for and maybe somebody else was giving something that they wanted and I didn't get that. But the two that I've got I'm very happy with thus far. But when I start the call I say hey I need to ask some questions and some of these questions might come across the wrong way. They may seem offensive or it may seem like I'm trying to prod or I'm trying to poke, all I'm looking for is opportunity. What opportunity exists in your business? And I'm trying to use it to go justify pulling this money out of other places and spending it and handing it over to you. So I'm looking for your help in bridging that gap here. And so when you position it that way and say help me get there it's amazing how they almost start to fall over themselves to tell you all of the potential opportunities in the business beyond what they've already written into the marketing package. And I'll even call that out. I've read the marketing package. I see that you see that this is an opportunity, this is an opportunity, this is an opportunity, based off of some research that I've done I think that this might be an opportunity. Is there a reason why you haven't attacked that market? Is there a reason why you haven't advertised on this channel? Is there a reason why this or this or that? And after you've position that I'm looking for opportunity, I want to make this happen, help me get there, usually they're quite open and willing to volunteer that information. So I'll call that super-secret number eight.

Chuck: Yup, number eight. I can see the headline of this interview now; eight super-secrets of Mike Nuñez. We've got to get it to like 9 or 10 maybe. So yeah I think that those are some really good tactics. And I hate to use the word tactic because I don't feel like it's a tactic. I guess it is but like that's just your normal personality and maybe some people don't have it. But I think one of the major takeaways there is don't be super aggressive with a seller. Like the businesses we sell at Quiet Light, they're generally speaking super high quality with owners that care. It's not we generally; like sometimes we do but often it's not people that are just starting a business to flip, to flip, to flip. These are people who started a business because it's something they're passionate about and they're ready to move on for one reason or another and they want to pass on the torch to somebody who cares. And when you come in aggressive and if you try to beat down their business or things like that, that doesn't work. Maybe if you're working on a 100 million dollar deal and you got to like get in there and be super aggressive like that doesn't work with what we're doing at all.

Mike: I just have to add to that Chuck because I think it's like if it works you should be worried. If it works it's probably not the right business. Like that's not; feel free to take this out Chuck if I shouldn't or can't talk about this but in the last offer I made I did not get the business. I made an offer but in our call, I recognized that what they were looking for was a quick close and a short close. They wanted to make sure that it closed. They wanted to do it quickly. And that was beyond the dollars and it was very fairly priced already, beyond the dollars that's what was important to them. And so for the caller just to give you an example of how much I personally trust after physically spending millions of dollars with Quiet Light already I made an offer, all cash so that they knew that this was going to close. I offered close at your convenience. And third I offered no due diligence. Now I wouldn't recommend that for everybody and all things.

Chuck: I don't recommend that either. Do not offer to close. This is a certain special deal with a person that is a known entity that was trusted. You should always do your due diligence. Don't listen to Mike. Don't rely on us to do due diligence. It is your job to do the due diligence.

Mike: 100% that was my decision that I was aware of this company, the numbers were small enough where even if this was a complete disaster it wouldn't be a disaster for me. But it was a complete cash offer, it was a complete quick close and I offer that with the hope that that was the value that they were looking for that was not a cash value that would allow them to choose me because they had; I mean I don't even know how many Chuck.

Chuck: There were nine offers on the deal and you were; because of that they wanted to sell that component to you but the other offer was just so much; it was more money, the guy was willing to do a quick close as well so it just beats you out. They wanted to sell it to you. The other guy was just; it was a better offer with the other person.

Mike: Understood. And so I got close right with the untangible non-monetary aspects of the offer.; it got me super close, right? I almost got that extra hit and that nine tenth bat. So just a good example of listening to what they want, trying to give it to them, and it's going to save you dollars in the long run. And the fact that they were considering me sounds like even though my offer was lower; yet again that seems to be the MO here overall. And by the way, I made a full price offer so it wasn't even like I made an under offer. I made a full price offer but somebody beat the full price offer and I'm still under consideration.

Chuck: And just to let maybe another super-secret number nine; this isn't Mike's this is mine so I think that's like two of the nine. Listen to the broker. If I'm telling you something there's a reason I'm telling you it. Like when I say this is going to sell for at or above asking, it's probably going to sell for at or above asking. I'm not just trying to increase the price, right? I do represent the seller and I'm trying to do my best to get as much value for the seller but I'm not going to do that by lying. I'm going, to be honest. There's things I can't say to you. If you say well what's the other asking price is or what's the other offers, I can't tell you that but I will try to lead you in the direction of making an offer that's going to be accepted. Don't think that we're just; if I tell you there's multiple offers, there are multiple offers. I'm not just B-S-ing you. And we get it all the time where I tell people there's multiple offers put your best highest final offer in and then yeah okay asking price and I'm like put your best offer like I'm just telling you and then it goes for above asking and then the person is mad oh why didn't you tell me? I would've put a higher offer. And it's like I did tell you; I told you to put your best offer in. Like I don't want you to stretch, I don't want you to put an offer that makes you uncomfortable but you need to put your best offer in if you want to win this business.

Mike: So I just want to say to that people have been kind of beat down and trained to not be trusting especially to brokerages. And at the risk of sounding like a Quiet Light commercial, it's just not the case with Quiet Light. And is it okay with you if I tell the story of how I found Quiet Light and why I just trust you guys implicitly?

Chuck: I'm not sure of the story but please do tell it.

Mike: I've had the affiliate manager and the performance company; the affiliate managed business overall since 2002. I started it with my brother and we built up the business. And in 2015 my brother passed away. He passed away fairly unexpectedly. And I was working at Google at the time and I had a decision to make; do I leave Google and come back to Affiliate Manager or do I sell the company? And so through some mutual contacts, I was referred over to Mark and Joe. This was before Chuck was there so I totally would've went to Chuck. But I went to Mark and Joe and just talked about the business and they asked me just great questions and they asked me for the P&L and they asked me what does the growth rate look like over the last few years. And we had been growing at like a 50%; no I'm sorry 100% rate year over year. We had doubled every year for the previous three years from '13, '14, and '15. And this is in January 2016 that I'm talking to Mark and Joe. And they even though this would have been a multimillion-dollar deal to sell that company; and I'm sure they do many, many multimillion-dollar deals which makes it easier to; I don't want to say turn it away but to give this advice.

Chuck: So I will stop you there before I was with Quiet Light which was I've been about three years they weren't doing a lot of multimillion-dollar deals. So at that time a million, two, or three million dollars was a lot. It's just been in the last few years that we've really got up to where we're selling some of these really large businesses.

Mike: So that makes it even more impressive, right? And I just remember this phone call with Mark and Joe so clearly where they said Mike when you sell this we'd love to be the brokerage for you. This is the wrong decision to sell right now. If you keep growing at this rate you will get what you want. Because of that conversation; I talked to other brokers who are ready to list my business or promising me the world and because of that especially now knowing that it would have been a very high multimillion-dollar deal for them and that they weren't doing as many at that time, for them to turn away that commission just gave me a level of trust with them that this is the company that I'm going to do business with. I am not comparing myself to Warren Buffett, Chuck. Not in the least. But one thing that he does that I love is he makes things easy and he; I don't want to say he takes shortcuts but he has built-in shortcuts. He can go from looking at a potential deal to executing a deal very quickly. And I don't know how he does it but my interpretation of how he does it is he identifies businesses and companies that he feels confident and he trusts. And so to me the implicit trust that I get from working with Quiet Light is a shortcut. To me, it gets me from here to this point. My comfort level right off the bat knowing that Quiet Light is not going to take a company that's shady or take a company that doesn't have solid P&L numbers or things of that effect, it's just such a comfort level. And if my comfort level was at a 90 pre these two deals because of what Mark and Joe did when they told me go continue to grow your business. It's at 100 now that I've actually purchased two companies and both of them are better than what I had expected. Now granted I'll take some credit for that that I've done the due diligence on it; I hired Centurica actually for both due diligences. We did the due diligence and we got into the company. Both of them feel; were over a year in on the first one, we're almost a year on the second one and both are solid. Both are growing. We just ran the numbers and after a little bit of a rocky start with the suit one because of some of the changes that we were making and that's what happens but we are now; November is our biggest month and we were up 30%. If you shift to include cyber Monday because everybody is obviously one of our biggest days.

Chuck: How long have you owned that company?

Mike: Since April of this year. So to go from there we beat our biggest day previously in the company not once, not twice, but three times by over 25%. So to beat your previous biggest day which was Black Friday; I'm sorry Cyber Monday last year, we beat it Black Friday this year, we beat it the Sunday after Black Friday this year, and we beat it again on Cyber Monday this year. So we literally doubled Black Friday. So it's been amazing. And again if my comfort level was a 90, it's 100 because of that. Like I'm not walking into a business that's a money pit or that has craters I didn't expect or potholes that I didn't expect. So I think that's just super important overall.

Chuck: Awesome. So we're running a little long on this call, we've got a ton to talk about. So would you be interested in having this become a two-part segment where we'll end it here and then we'll keep going but we'll put that as a part two, to be continued?

Mike: Yeah. But in case people are watching this on video just know that we cut it into two parts. I didn't wear the same suit on two different days.

Chuck: We'll make a quick wardrobe change.

Mike: Okay, I'll go change my jacket.

Chuck: No.

Mike: But that's fine. Yes, I'm happy to do that.

Chuck: Alright. So, everybody, Mike Nuñez thank you for the interview today. And for everybody watching stay tuned. Next, we will discuss some of the lessons you've learned and what you're looking for when you purchase a business. So, for now, bye everybody and thank you, Mike, for joining us.

Mike: Thanks for having me.

Links and Resources:

• Affiliate Manager

We often discuss is the importance of the person behind the business. When leaders learn the value of their business and set goals for success they are positioning themselves to profit, whether they plan to stay in or sell. Today we are discussing standard operating procedures for leaders that run different types of ecommerce businesses. Our guest realized from day zero of being in business that creating SOPs helps business owners stay in the game longer with a focus on working on the business rather than in it.

Trent Dyrsmid is the founder of BrightIdeas.co and host of the BrightIdeas podcast, where he has interviewed numerous CEOs, marketers, and entrepreneurs and has gotten them to share the processes they use to achieve results. Trent is also the owner of an Amazon ecommerce business and creator of a SAAS tool called Flowster, an app that helps business owners track, manage, and delegate business processes.

Episode Highlights:

• How Trent got his start and how Bright Ideas got an INC 5000 254th fastest growing business ranking.
• The Amazon reseller model and how Trent makes it work via SOP.
• Trent's mantra of "document and delegate" and when he realized this was the key to success.
• Feedback loops he employs to optimize the procedures.
• Hiring challenges and how he's affronted them.
• How Trent's app Flowster was born and how it works.
• Ways to introduce new elements in the existing SOP for any workflow.
• Flexibility in the SOP templates.
• Implementing SOP with a team not accustomed to this type of work culture.
• Advantages of SOPs for sellers and buyers

Joe: So Mark one of the things we always talk about is how important the person behind the business is when they do eventually sell. And the fact that when they learn to value their business it actually becomes much more fun to operate and run because they've got some goals set out in the future. And one of the things that helps them are SOPs and above that, we had Norm for our own podcast, it was quickly shot up to the top 10 podcasts that we've done. And I understand you've got back to that and had Trent, and I'm going to get his name wrong, Trent Dyrsmid, is that how you pronounce it?

Mark: Dyrsmid; yeah.

Joe: On the podcast and he's got some great SOP stuff both for people that run SaaS, content, Amazon businesses, all sorts of different aspects. What was the general call about?

Mark: Yeah. I saw the Norm for our episode and that was one of the ones that we did early on that really took off because Norm was running an eight-figure business largely on the backs of SOPs and virtual assistants; VAs which is really cool to see somebody be able to do that. Well, Trent Dyrsmid is very similar in that regard. His company was ranked on Forbes 5000 as the 254th fastest-growing company in the US.

Joe: Wow.

Mark: Amazon based business, reselling other people's products and just exploded and I asked him and I said when did you start to realize that you need to put SOPs in place? Day 0; it's like I don't have any special talents other than being the big idea guy and picking the direction but as far as executing those things that's on my team to do and my job is to give them the processes to be able to do that and to give them the tools to be able to execute on these ideas and this general direction. A really, really disciplined entrepreneur in this regard. He's not just an Amazon seller either he's got his own podcast. I was actually a guest on his podcast BrightIdeas.co. He's got a SaaS company Flowster.app which is an SOP software. I've played around with Flowster, a pretty cool SaaS product here where you can develop and roll out to your team a complete operating procedure for pretty much anything. So you can create this nice collaboration but what really sets it apart is there's this entire marketplace what he found was happening among both when he started his company and also once he started coaching some other people is they're asking how do you do this part of your business? What's the process that you use here? And instead of writing it down in word and all that sort of thing and trying to transport over he said well there should actually be a marketplace where people can collaborate and sell their best processes to each other or give them away for free. Most of the stuff in this marketplace is free so it's kind of cool on that. But what we focused on Joe is not a pitch for a Flowster; I think there's a lot of ways, you and I talked about just put a video together as just kind of a minimum type of SOP. We talked a lot about how do you write an SOP that is specific enough to really tell people how to do things, will be adopted by your team. How do you make it adopted by your team, and how do you create it general enough so that it can absorb differences when people are seeing maybe exceptions to what the standard process would be. Why is this so important in the process of building a company and can you actually scale a business to eight figures like he did very quickly without them and the answer is no.

Joe: Yeah, and that's why so many people sell because they take it as far as they can and then they have to bring on staff and get into areas they're not as comfortable with and I think these SOPs will help those folks hold on longer and get a higher value. I think SOPs will help buyers as well when they buy a business and take it over and if there's no SOPs in place they can do that and instill more confidence in the next buyer and grow that business to the next level. So let's get to it.

Mark: Trent, thank you so much for coming on the Quiet Light Podcast. I'm super excited to have you on. I recently appeared on your podcast. Somebody actually reached out to me recently about that episode as well so that's always an encouraging sign when people contact you after appearing on some of these podcasts. But I'm excited to have you on today because you've got so much experience in the world of online business and you cover a lot of materials. We're going to be looking at just one area that you covered pretty heavily and that would be SOPs; procedures and operating procedures to implement things. But you cover a ton of territory and a lot of the bases of what you do is based on your success with your company. And congratulations on Inc 5000 ranking that you had recently. Why don't we start; just give us a little bit of background on yourself and also where your company was ranked recently in Inc 5000?

Trent: Sure. So the company was ranked number 254 which was a very pleasant surprise. And as you might guess it's a wonderful bit of social proof to kind of reinforce what my whole brand message is about which is systematizing your business so that you can delegate a lot of the work that you really shouldn't be doing to other people on your team. And the net result of that, of course, is an accelerating growth rate. So how did all this start for me? I've been an entrepreneur for two years now. When I started my first company back in '01 I really had no idea what I was doing. I knew how to sell but that was it. And I figured everything else out over an eight-year period. And it was pretty painful but thankfully I was able to get a seven-figure exit out of that business. And that put me on a track to have a bit of time and bandwidth and so forth to figure out this online business thing and I've been making my living online now for about nine years and roughly just over three years ago I switched from being a service business; I'd been running a digital agency for a number of years because my podcast built an audience and people would reach out and can you help me with this and can you help me with that and we were making a decent living doing that. But the last couple of years have been just a stratospheric kind of change up the hockey stick and it started with this e-commerce business. So we started a business three years ago where we would partner with US manufacturers to sell their products on Amazon ideally as one of their exclusive sellers. So in doing so, we were able to avoid all of the risk of launching our own brands and the time that it takes to do that and I like low risk. I love Warren Buffet's number one rule Don't lose the money and rule number two is see rule number one. And so the reseller model is a very, very low-risk model because you're buying proven products. But the problem with the reseller model is there's lots of sellers on each product and so oftentimes the margin can go away. So instead of making money you just end up kind of getting your money back which is pointless, so by forming these relationships with the brands directly and getting them to kick off all the other sellers or having a very small list of approved sellers that actually can be a very profitable model. The challenge is finding these suppliers require a great deal of grunt work; massive, like you, can't automate it all. There's just a bunch of labor because you need to send hundreds of emails a week to hundreds of suppliers. And what made me a little bit for lack of a better word famous in this particular industry was just how quickly we were able to scale the business. We went from doing 0 to over $100,000 a month in five months. We did at one point one million in the first year and we grew at 20% per quarter for eight consecutive quarters which was a huge contributing factor obviously to being 5000 at Ford. And how did I do all that? Well, that's the secret sauce. And essentially what I did was I realized I can't be the one doing all this labor. So when I launched the business rather than sitting down to do I sit down to document. And as soon as I'd created documents for all these; like I would do it one time or maybe two times and I would make my operating procedure while I was doing the thing and we would delegate the thing and never ever do it again. And that was a huge, huge advantage over everyone else in the space who was really kind of trying to do it all themselves.

Mark: Yeah and I know we've got an episode a while ago with Norm Farrar. I don't know if you know Norm but the entire episode was how he grew an e-commerce business to over 10 million dollars on the strength of doing exactly what you're talking about; hiring the VA's and putting in strong SOPs in place so that the procedures are what you're working on rather than trying to master every little aspect of your business yourself and run the day-to-day. And I think procedures; in my world, in my opinion, I think a lot of entrepreneurs see procedures as important but they don't necessarily put the time into the procedures with a business so I want to delve into that a little bit. When you're growing this business when was the moment where you switched over and thought I should really be putting my time into writing awesome procedures for people to follow?

Trent: Day 0 because I'm not a first time CEO, I had started to drink the Kool-Aid back in my very first business that I started in '01, somewhere in maybe '03 or '04 or it could have been '05, somewhere in that period of time I read E-Myth by Michael Gerber and my life as an entrepreneur was transformed at that moment. And I said to my co-founder at the time; I said I want a written procedure for absolutely everything our engineering team does. And then I handled writing procedures for what I was doing on the sales and marketing side and that business was twice ranked as a Profit 100 fastest growing company in Canada. And so I got a decent exit out of it for a relatively small business. And so for me having documented procedures was just kind of normal. So when I started my business on Amazon I never thought well I'm just going to go and do this and get really proficient at it and then maybe I'll make a training video or maybe I'll have a training session for somebody else. I don't think that's an efficient way to eliminate and delegate it all for a whole bunch of different reasons and so procedures were written literally from Day 1.

Mark: So tell me how you go about writing your procedures and starting this and my first question is if you're not proficient in it how do you write it?

Trent: So thankfully I did have a bit of a mentor in really a bit of a mentor; not really a bit of a mentor, I had a mentor in that business. I'd interviewed a guy by the name of named Dan Matters on my show and that's how I discovered this whole wholesale model and he has a training course which is a really high-quality course for me. So I had access to his material and I also had access to Dan because he'd been a guest on the show. And so I foundationally understood what I needed to do. And so as I mentioned before I would just start doing what his training told me to do and then I would document it as I was doing it.

Mark: So when you're developing a procedure for a new task I mean you obviously we're staying off somebody else's work to some extent; I mean you were taking some inspiration but if you come across something that you haven't dealt with before especially like in the Amazon world I'm sure there are elements there that you needed to come up with, what sort of feedback loops do you employ or do you employ feedback loops to be able to maximize and optimize some procedures?

Trent: Yeah absolutely we do. So a perfect example of that is I recently for my software company, a content marketing SEO is a huge focus as a part of our growth. And I've never been an SEO expert and so I wasn't really a keyword research expert and I had never used this tool called Ahrefs before; Ahrefs is a wonderful tool. And they provide training videos. So I would watch these videos but rather than just kind of sit and consume it and take sort of random notes over the period of the video I kept hitting the pause button, pause button, pause button and I would take screenshots of what they were explaining in the video. And at the same time in my Flowster software which is where I create all my standard operating procedures, I'm literally typing out the instructions that they're giving me and then I'm taking screenshots from the videos. Because my goal is this I want to; I don't about you but I can't watch a ten-minute training video and remember all the details, it's just too much. Not only that I only want to do it once or maybe twice and then I want to delegate it. So what am I going to do; ask somebody else to watch the training video and they have the same problem as me and what if they interpret the video differently than me? Because the training videos they kind of give you guidelines and I have to choose of those guidelines well how exactly do we want to do it? So by the time; a 10-minute training video would probably take me an hour and a half to turn that, to repurpose that content into my standard operating procedure which is a checklist essentially, it's a step by step by step do this, here's how you do this and do this, here's how you do that, do this, here's how you do that. And by the time I was done now I had a way that I never had to watch the training video again. Anyone that I was going to delegate that task to never has to watch the training video because the procedure is broken out so clearly in the document. And so that's how you can create a standard operating procedure for something you've literally never done before.

Mark: Right. So you would start with somebody else's training video. Break that up into basically an outline and a step by step process in order to do that. When you're delegating procedures how do you identify who you're delegating something to? For example, I've talked to entrepreneurs who want to delegate a task but it just doesn't seem to fit the current team member and hiring somebody new for that doesn't really make sense. What have you done in the past when you've run into these smaller jobs and tasks that should be delegated but maybe they don't have a great home?

Trent: It's an interesting question and I don't know that I've really run into that scenario because I live my life every single day thinking about what can I eliminate from my workflow and in order to eliminate it I need to document it and delegate it so I don't really think; I don't see anything in my business aside from; so as a CEO I see my job as working on the business. I'm the one who's supposed to go get the Big Ideas. I'm supposed to come up with the big vision. I'm supposed to build the team and help them to define and execute on a strategy. So that's the high-value activity and the minute I get sucked down into working in the business that high-value activity suffers. So I'm a delegating theme. So you said well what happens if I can't find somebody? I'll find somebody. I'll hire another virtual assistant or I'll hire an employee or I'll give it to an existing employee; like for most of the day to day, repetitive processes that are part of working in the business somebody else can do it. Like I'm not the genius of the universe that oh I'm the only guy that can do this; I don't really see it that way. Now, are there occasionally tasks that are somewhat non-repetitive, like they only happen every once in a while and they require judgment that comes from experience in addition to following a process? Well, I'm less likely to delegate those to somebody else because the return on investment of doing so is going to be slim. But for those highly repetitive tasks that are every day or every week if you spend that; in my case, I spend an hour and a half making a video for how to use and do keyword research on Ahrefs, well guess what? How many times is that going to get done for every single blog post that my software company publishes which is three a week? Just think of how much time I saved myself.

Mark: Yeah. Oh absolutely. I mean that makes a lot of sense. That makes complete sense. You mentioned earlier; I want to go back a little bit to what you mentioned with Flowster and also how you got started. You leveraged knowledge of your mentor and some of the procedures that he put together to be able to scale up pretty quickly. And this is kind of the idea behind Flowster and I know this is a full disclosure, this is your business, this is something that you're growing right now a really cool software that really focuses on workflow especially in the e-commerce realm. Can you tell us a little bit about Flowster and how you can use Flowster to be able to leverage other people's experience?

Trent: Sure. So the thing about like when I very first started out to create my procedures they were in a Google Doc because I didn't know any better. I thought well that would be a great place for them. They're easy to update and I can share them and so forth. And then over time we realized that that wasn't terribly efficient and so we moved our content into a competitor software application. And then as a result of speaking at an event I ended up becoming someone that sells SOPs. I was speaking to one of Dan's events and there was hundreds of people in the audience and I'm talking about SOPs and they all say hey I love it, I don't want to make them though can I buy yours? So we started selling ours and that's why Flowster got created. And the functionality of the software is really; because really you have two pieces when it comes to workflow process management. You have your content which is the set of instructions. Think of it like the recipe book. You want to bake a chocolate cake it's on page 68, flip to page 68, bake the cake. But what happens when you have multiple cake bakers baking cakes and they all have different due dates and they all work in different places so you have some issues about workflow management. And so what the software does is it allows you to say; so we have in our vernacular we have what we call an SOP template and then we have a [inaudible 00:19:02.3]. So the SOP template is like the master copy of how to do the thing. So we'll call it in my world one of the things I produce a lot of these podcast episodes; like this SOP template for podcast episodes well in the week that I recorded episodes, I might record 4 or 6ix episodes. So now that's 4 or 6 workflows each workflow being for one episode. Well if I have; and I have various people on my team who are involved in the post-production process of taking those raw recordings like you and I are doing right now and then turning it into an episode and then getting it on social media and running ads for it and do all of the things that we've got to do. So that's all defined in the workflow and then various portions of that workflow get assigned out to various people on my team with differing due dates. So the software provides you the ability to do all of that delegation and give deadlines and so forth and everybody gets notifications in their inbox or they can just look at the calendar and see what to do. Because the more people that you have on your team and the more concurrent workflows that you have going like how do you manage all that? How do I know Mark if I've delegated something to you and I've told you I need it done by Thursday; if I just sent you an email saying hey reference the Google Doc, see the instructions, make sure it's done by Thursday if you don't finish it by Thursday I'm not going to remember that by any stretch of the imagination. So I need us closing the loop system. So that is one of the primary pieces of value that the software does. But aside from that I actually have one thing that I like even better and I call it the magic button but it's really the edit button. So remember I mentioned how my job's to go and get the big ideas etcetera, etcetera? So I'm not a mastermind weekend this past weekend in San Diego and I'm getting a lot of big ideas and some of those ideas I realized I need to implement those in my workflow because they're really great ideas. I don't want to forget them. Without the software and without the standard operating procedures I would be faced with the challenge of having to change the hardest thing in the world and that's people's habits. I'd have to sit down. I'd have to explain to them and have meetings and tell people that this is the way they need to do it now and then hope and pray that they actually make that happen which as you well know the human habit is really hard to change; that would be difficult. Thankfully in the software so I learned that I wanted to create; I'll give you a specific example, for my podcast I want to now create a little 1-minute ad and I want to retarget my audience on Facebook to say hey I just recorded this episode with Mark and it was really awesome because of this, this, this, this, and this. So I fire up my SOP template for producing a podcast, I hit the edit button, I go and I make those changes, I hit save, the software says would you like to update all the active workflows based upon this change? I say yes. Well, guess what? That new idea is now going to get implemented in every single workflow that is active at that point in time. So with essentially no effort on my part this new idea or the strategy of this process has literally been pushed out to everybody in my organization just like that. And for me, it's the best part of the software because you're able to have your team collectively get more efficient, smarter, and more effective over time. Those ideas that you pick up don't get lost. They don't just stay in the notebook they actually become reality.

Mark: When implementing a new idea like that do you find it ever causes confusion among your team? Or let's say that they've been doing the blog production workflow for the past two years and they know the steps that they may not even need to consult the software because they've done it. They know that I do keyword research and then I do this and then I do step 3 and step 4 and so maybe they're doing this independent of the software. Have you ever run into a situation where your team trips up on something like that?

Trent: They're going to have questions. So it's a part of our culture and it's a part of our DNA. People know that the workflows are always changing and they're always being updated and it's just like in our company no one would go and try and drink a glass of water without a cup of water. You'd just be weird. The same thing with our workflows; everybody understands that everything happens by logging into the software first. Looking at the workflow, following the workflow, you're not supposed to do anything by memory. Now does that mean that you're not going to get questions? No, you're absolutely going to get questions. And all questions means that you didn't provide clear enough instructions. So when I get questions I then think okay well how can I update my workflow or my SOP template and in turn the workflows so that that particular question doesn't get asked again. And if you've written great procedures and you've provided enough detail you really won't get very many questions. I like to think of it like the mom tests or all of our moms are not particularly tech-savvy when I'm writing workflow I think to myself is there sufficient detail not only in the what to do but how to do each of those what's that my mom go through this and probably get it all right without asking me any questions.

Mark: You answered my next question a little bit here but maybe we can expand in that a little bit. In the world of programming there is this idea of coupling, right? You can be either loosely coupled or tightly coupled. And what it basically means is a program can either be loosely coupled; it's very broad and allows for a lot of different possibilities and tight coupling is very specific as to how you do things. And there's benefits and drawbacks to both. You want to be somewhere in the middle in the world of programming probably my old days when I used to write code here. But I love these kinds of; writing and SOP I would imagine that there's something similar there, right? If you're too specific and they run across an exception they're going to wonder what should happen here because the SOP is specific. If it's too broad then you end up getting people doing things all sorts of different ways. Do you have any tips to find that sweet spot in the middle of where you can be nicely of both sides there?

Trent: So the SOPs themselves are pretty tightly coupled. However now we go back to the whole hiring aspect. Ideally, I'm looking to hire people especially in the more senior roles who have a higher level of expertise in a given topic than I do. And the loose coupling as I say to them look you now own these SOP templates in your department. It is your job to improve them over time so that the people who report to you when they are doing these workflows that they're able to follow them and you're able to improve them over time and that has worked very well for us. And it also, of course, frees me up from having to be the guy that writes every single SOP. Because there's lots of stuff like for example in my e-commerce business that my wife runs on a day to day basis, there's lots of stuff I've never done but we have SOPs for it all because somebody else wrote them.

Mark: Yeah well on that one of the things; so I've played around with Flowster app and one of the things I love about it is the marketplace that you have. The ability for people to contribute in SOPs that have worked well and for somebody else to come in and say you know what I really need right now what I could really use well right now but let's go use an example, how to use Ahrefs for keyword research. This is one of the SOPs with new marketplace. So if you've never done this before and don't want to sit there and write your own procedure or you don't know where to start you can use this marketplace. In your past, growing the businesses that you've grown; I mean you've grown e-commerce businesses, Amazon businesses, SaaS businesses, a podcast, I mean you've got a really wide range of online experience here, how much have you been able to draw on other people's materials? What role has that played would you say in the growth of some of these properties?

Trent: Oh massive. Honestly, my secret of being a podcaster is yes it is nice to have an audience and as I'm sure you're already well aware it's the world's best networking tool and it also allows me to get free advice from really smart people in other areas. So yesterday was a perfect example. Yesterday I interviewed a woman by the name of Erin Corn. Erin worked for Facebook. She worked for Instagram and she worked for Amazon. So do you think she's got some skills? Absolutely she does. And particularly in the area of online advertising which is one of my big focuses for 2020. So at the end of that interview, I'm saying to Erin, hey Erin I think we should collaborate. And I think you should develop a whole bunch of SOPs around advertising on Facebook and Instagram; something I am not an expert in. We'll figure out how we can monetize that knowledge to your benefit and to my benefit going forward. So the whole idea of the marketplace is when people come to Flowster nobody wants to build an SOP from scratch. It's just a lot of work. And I was willing to suffer through it but not too many other people are. So the marketplace allows to come in to buy; so there's free ones you can download and then you can edit them to your heart's content. If you're a creator like me you can put your own in the marketplace and you can sell them to other people. And I've generated millions of dollars in the last two years in sales of SOPs for Amazon sellers. So there is a huge market for pre-made standard operating procedures and that's the big reason why we created the marketplace. I thought to myself there's all these other experts, there's all these other companies who would benefit from having SOPs that they could either give away or sell to their audience like a software company. We've formed partnerships with software companies for example. We've got one happening with a major player in the Amazon space by the name of Viral Launch because I said to them; I said look if you're only providing training videos to your new users you're putting a pretty significant burden on them because much like me with Ahrefs I had to watch the videos over and over again and I got to take notes and it just sucks. It's not an efficient way to learn highly detailed processes. So we're now collaborating with them to create standard operating procedures for how to get the most out of their software. And they're going to tell their 200,000 email subscribers about those. So how does that benefit us? Well it benefits their users, it benefits them as a company, and it benefits me as a platform. And so if anyone is listening to this who runs or owns a software company or you're an expert in a particular niche I definitely invite you to reach out and talk to me about some type of collaboration because that's a huge part of our growth strategy going forward. And for everyone who comes to Flowster the more and more content that's there; think of it a few years down the road like the Amazon of SOPs. No matter what business that you're in you can come there and you could SOPs that they might not be perfect but they're 80% good enough and you can hit the edit button and tweak the areas that aren't exactly the way you want and you're off to the races and it's so much better than creating it from scratch.

Mark: Yeah I mean especially if you've never written it before and don't know. We talked about the idea of this loose and tight coupling; how do you find that sweet spot, well, follow somebody else's lead like somebody who's written one that's really successful. And I think for the audience listening here I know a lot of you guys have SOPs in place, why not share some of these and also use it as a revenue-generating aspect to your business especially if it's something that's tried and true. Of course, unless you think the SOP is something where you want to keep it proprietary but there's a lot of common SOPs that would be really good to share.

Trent: There really is and if someone's running an agency as an example let's say your minimum retainer is $5,000 a month and you're on a classic line or like well we can't really afford that. Well if you don't have a down-sell they're gone; you generated zero. But if you say well you can't really afford that I'll tell you what we have a collection of SOPs and you can buy those for 2,500 bucks or we'll pick a number out of the air. At least you're giving the opportunity for A. to capture some revenue that's going to be 100% gross margin because it's kind of like selling software, build it once sell it a thousand times and B. more than likely as that buyer or that customer starts using your stuff you're at least giving them the opportunity to come back to the trough later on and say well actually now we're ready to put you on retainer because these are great but I don't actually want to do all this work and I want to hire people to do this work and you're opening a door that wasn't necessarily previously open to you.

Mark: Right. Just a couple more questions for you. And this one here I think would apply to a lot of the people that are listening. You said that you were SOP heavy from Day 0; I'm sorry not Day 1, Day 0. How do you implement in your experience and maybe you haven't had to do this; maybe this can be difficult to answer but how would you implement SOPs with a team that is not used to following SOPs especially when you have a step by step software and you want them to live in that SOP on a day to day basis?

Trent: So yes that will be more of a challenge because there is a cultural shift and I think the way to do that; there's a couple of ways, first and most when the SOPs, so you got to get the SOPs created. So as the boss I mean maybe you could create them all yourself but that wouldn't necessarily be the most efficient. But you might start off with creating SOPs for your direct reports and you're just saying hey look this is how it's done. I'm going to start assigning you these things; this weekly recurring thing or whatever and you're ingraining your direct reports into using and becoming dependent upon the software. And then you tell them alright so now for your subordinates who have to do this, this, and this over the next 30 days you have to develop 8 SOPs or 10 SOPs and if you don't you're just not going to fit in the company and you're going to get fired. That would be the way I would do it because I'm a pretty direct leader. If I have my culture and you're not in my culture then you're not on my team. Other folks are probably going to take maybe a softer approach to it and I don't know that I'm the best; I know then I am not the best expert on leading cultural change because I didn't do this with 50 people on staff already and then saying okay guys we're going to start drinking this SOP Kool-Aid.

Mark: Yeah I just like to wrap up here and then ask you one final question but you mentioned early on that a big influence for you was Michael Gerber's book E-myth and I read that book and I can; everything you're talking about stems from what he wrote in that book and so it makes complete sense. So if you want to delve deeper into why SOPs and really I think sort of a philosophical look at how you build and scale a business and the hiring models that you would follow there, that would be a good foundation for anyone that's really going into this world. I think the product itself is fantastic. We preach a lot at Quiet Light Brokerage when talking about building value in an online business. One of the key pillars that we talk about is transferability. What's really important with transferability? Well having procedures written out. And for a lot of people it's intimidating so we just say just do a video recording if nothing else; just kind of a minimum [inaudible 00:34:21.6] product but how much greater would it be if you actually had everything written down in steps with timelines, with due dates and you could apply it to a team and literally just plug and play. A fantastic product and something that would really increase the value of a business just based on the fact that that you have all these procedures written and a buyer doesn't have to come in and try and figure out processes on their own. They already exist. If somebody wants to check out Flowster what recommendations or do you have anything for them to check out first?

Trent: I do. I put together a page just for your audience. They can get to it at BrightIdeas.co/quietlight and on that page, I will put a promotional code and along with a couple of links. So there's one of our products that we sell in the marketplace, we sell it for $299 and it's what I call it the blogger content production pack. So any company that is producing blog content or video content or podcast content would highly value this collection of SOPs because there's my SOP for podcast production, there's my SOP for video production, there's my SOP for text blog post-production, for webinars and for email and obviously, the email is specific to one particular application. So if you don't use that same application you would obviously have to make some edits and so forth. But if you go to BrightIdeas.co/quietlight all that good free stuff which we normally sell for 300 bucks we'll be there for you.

Mark: Yeah and just disclosure I actually have that workflow because I was checking out Flowster. It is so detailed. Like the SOP that you have here is great. It really does; when you're talking about being a little bit more towards the tightly coupled sort of SOPs, it is. I mean there's just on the weekly broadcast email I'm seeing 29 steps here labeled out which is fantastic. I mean that that level of detail makes sure that nothing is getting dropped. Trent, thank you so much for coming on. It's definitely a pleasure to have you on the podcast here and thank you for the offer. That's really really generous for our clients. I appreciate you offering that over to them. So we'll link to that in the show notes everybody so that you can take a look at it. I'd highly recommend you check out the app, it's really cool. And if you haven't implemented SOPs now's the time to do it. If you don't know whether or not you want to, read E-myth by Michael Gerber first and then you can build up from there and start implementing some SOPs.

Trent: Yeah and I think mentioning the E-myth you asked me how would I transform the culture? I would hand E-myth to everybody on my management team and I would say you got two weeks to read this thing and we're going to sit down on our future. I think that because that way you're using that third party reference. You're not saying hey I'm the expert. I'm saying this has been proven to work in every industry on planet Earth. This book has been a bestseller for years etcetera, etcetera.

Mark: Absolutely. Okay Trent, thanks for coming on.

Trent: Thanks very much for having me, Mark.

Links and Resources:

• Bright Ideas
• Flowster QL Listener Offer
• The E Myth by Michael Gerber

There is always a recession coming, we just don't know when. The US is in one of the longest expansion periods ever known but many predict a recession in the next twelve to twenty-four months. Business owners can make money in a growing economy and they can make also money in an economy that is pulling back.

Today we are talking to Jonathan Slain, founder of Recession.com – a company he started in 2008 when he lost his fitness-based business. He saw an opening and borrowed the money to launch his successful recession-proof consulting business.

In his new book, Rock the Recession, Jonathan and his co-author highlight ways savvy entrepreneurs can bounce back from internal recession and make plans to be buyers when opportunity knocks.

Episode Highlights:

• Jonathan's recommendations for owners of online businesses to start assessing themselves as recession ready.
• How to benchmark a small online business with smaller revenues.
• Importance of board of advisors and mentors and how to find them.
• The cost and time involved in choosing advisors and mentors.
• Other actionable advice for someone running an online business to prepare for economic downturn.
• The importance of having access to capital and credit now rather than waiting for the pull back.
• Why Jonathan wrote his book.
• Internal recessions and how to avoid or rectify them.
• How to research whether what you're selling will survive or thrive.
• Advice for the business hunter in pre-recession times.
• Some final tips in Jonathan's own words. Hint; plan now.

Mark: Joe there's a recession coming.

Joe: Is it? I'm not sure I thought it was here 18 months ago or was coming 18 months ago and now it's going to be fall of 2020. What's the story? How do you know this?

Mark: Well there's always a recession coming, right?

Joe: Oh, yeah.

Mark: I mean we know we just don't know when but if you look at; I would encourage people listening; when you're in your car don't pick up your phone but when you get back to your office or get back to in front of a computer do a search for a graph of recession gaps and you'll get to see from 1900 until present when the recessionary periods were and when the non-recessionary periods were. And we are in a period of time right now, one of the longest expansion periods in our economy and so it's not really soot saying or you know looking in a crystal ball to see that there's a recession coming. We know it's going to happen, we don't know how bad, we don't know when exactly but we do know it is. And I had an investment professor in college who would say all the time bears get rich, bulls get rich, pigs get slaughtered and I always thought well bears get rich too but you need to actually plan for; I screwed that up, it's bulls and bears and pigs but whatever you need to plan for this…

Joe: I'm just trying to think through what you just said so thank you I thought I was not keeping up with you.

Mark: Well you know what I failed that class so maybe that's why I don't know the right answer. But bulls get rich, bears get rich, pigs get slaughtered. And the point was you can make money in a growing economy, you can make money in a declining economy don't get greedy; that's the lesson but there is an in lesson in there, you can make money in a down economy but how many of those listening right now are just looking at their last year being like that was awesome without any idea of what they're going to do when; not if but when the economy pulls back or they haven't pull backed within their own company. And I know you talked to somebody who specializes in this; he owns recession.com for goodness sake.

Joe: I know what a great URL, Recession.com, it's Jonathan Slain and he's been through this. He started his own company in 2008 and just had to fight through meeting payroll and all these different things and learned so much in terms of being ready for the next recession and preparing for the next recession. And he's expanded beyond the actual economic recessions that we're talking about and focuses a little bit in helping companies with internal recessions so that if they had a client that had a subscription or SaaS business but only had 10 major clients and they lost two or three within a month or two that's an internal recession. If you've got a hero SKU that you're selling and 70% of your revenue is from that hero SKU you are setting yourself up for an internal financial recession with your business if competition comes in and hurts that. So he has a readiness assessment test; a recession readiness assessment test on his website and it goes through and compares how you are prepared compared to others and helps people take advantage of upcoming recessions and avoid the major pitfalls in being one of those pigs that get slaughtered.

Mark: Well let's get right to it because I think this is an important topic for anyone. Anyone out there that has an online business, don't get too fat on your current earnings. Understand that businesses go through cycles, economies go through cycles, let's all survive this next cycle and thrive in the next cycle and it sounds like that's what we're going to learn here.

Joe: Hey folks Joe here from Quiet Light Brokerage and today I've got Jonathan Slain with us. Jonathan is the author of Rock the Recession and is an expert in preparing for an economic downturn either in a worldwide situation or a nationwide situation or possibly in your own business. Jonathan welcome to the podcast.

Jonathan: Let's rock. Good to be here.

Joe: Can you expand on that background a little bit? We don't do any fancy introductions here. Can you tell the audience who you are what you're all about and where you come from?

Jonathan: Yeah, so I come to you today from my home in Cleveland, Ohio but I really started my career; I have to disclose that I'm a recovering investment banker. And so that's where I started. From there I went on to own my own business which was five gyms all located in Cleveland. I think you mentioned earlier that I borrowed some money from my mother in law in the Great Recession so we can talk about that. And since then now I am full time doing consulting for large companies looking to grow revenue in or profit and that is what brought me to writing the book. And then when we were talking before we started the show getting me on Fox News lately. So we can talk about any or all of that but that's my story.

Joe: Well congratulations on stepping up to the Quiet Light Brokerage podcast from Fox, it's a big show you're on now.

Jonathan: Understood.

Joe: Are you nervous?

Jonathan: A little bit.

Joe: We've got some pretty impressive people in the audience believe it or not; they're both buyers and sellers of online businesses, entrepreneurs that are building businesses that they're solopreneurs in some case sometimes they have remote VAs working for them sometimes they have staff. But what would your recommendations be for those that are; first we'll talk about the owners of online businesses and how they prepare for a potential economic recession.

Jonathan: Yes. So the first thing that I would do is to assess where you are. So as a business owner it's really to benchmark how you're doing compared to where everybody else is in the market. So if you don't know where you stand then you can't figure out what you should do first to start to get better and improve. When it comes to benchmarking that was where my business partner and the co-author of the book; that's where we started. And so we put up a free tool. It's on our website so if the audience wants to go to recession.com they can go there. It's 20 questions. It only takes about 5 to 10 minutes Joe and you'll get a score from 0 to 100. If you're a zero then it's likely that you're going to go bankrupt in the next recession, if you're a hundred then you're licking your chops; can't wait to pounce when we hit the next downturn. So that's where I'd start.

Joe: How do you benchmark in an industry like the online business with a lot of smaller businesses doing less than 10 million in revenue when none of the information is public?

Jonathan: Yeah. So what I can tell you is that from all of the responses we've received to the recession readiness assessment, the average score right now is a 37. So I think for people looking to benchmark themselves with other private companies 37 is where we're seeing the mark. If you're above that score that relative to we've got a thousand plus responses you're probably doing better than the average and below that can be nervous. So I think that's one piece but it brings up a good point and I think part of what I was listening to on some of your other episodes is that private businesses, small businesses need to have their own board of advisors. And so that's one of the questions actually on our assessment is do you have a board of advisors? And I'm not talking about your lawyer, I'm not talking about your accountant, I'm talking about people that have a proven track record of making money in business preferably in a similar business to what you're doing to your online business and that will just give you straight feedback. Again I know that some people bristle when I say don't have your accountant or lawyer on the team. My issue is that your paid professionals may not want to tell you what you need to hear all the time for fear of losing your business.

Joe: And I think that's a great idea. I call them mentors or board advisers whatever it might be. The question is I saw something on the hustle the other day, we focus on or I watched that and I know Sam and that was a question that someone came up with so like look I'm trying to find a local mentor or board of advisors; how do you find them? A lot of people gave a lot of different responses but what would your advice be in terms of trying to find the right type of mentor or board of advisor and is there a cost associated with it?

Jonathan: So I always have a list. I call it the list. I keep it with me at all times. It's the 10 people I'd love to have on my board of advisors; the people I'd love to have as a mentor or a coach. And the issue is that most of them are not going to work with me right now. These are all folks that are super busy; they're overcommitted, and so they're on my list because once a quarter I bug them. I send them an email, I text them, I give them a phone call, I just drip on them and I try to wear them down until they finally get to the point where they're like fine I'll coach you; I'll mentor you. And that's literally I think how I've gotten a lot of my mentors because the people that I'm chasing don't have discretionary time. And so I don't think it's as simple as we listen to the podcast and we decide I'm going to do this thing and you just all of a sudden have a board. It's going to be a process that takes some time. In terms of the cost associated with it, I do think it depends on who you're working with. But I would think an honorarium of 500 to $1,000 per board member per quarter is fair. And I'll tell you that they shouldn't need the money. If the reason they're doing this is turning a little bit extra money I don't think you have the right person on your board. I think that in most cases they should be donating whatever you are giving them to their favorite nonprofit. And I think they should want you to pay them the 500 just to keep you honest and actually listening to their counsel and to keep them honest so that they feel like they have some skin in the game that they need to do some research; they need to read your financials before they get to the meeting.

Joe: And how much time a quarter do you take up with someone like that?

Jonathan: Yes. So my thought would be a four-hour meeting once a quarter and that they should do anywhere between two and four hours of prep of reading whatever packet that you send to them before the meeting.

Joe: Okay, not too bad. What actionable advice can you give people that are running online businesses now in addition to the board members what could someone do now thinking okay, if there is an economic recession I want to do everything I can to prepare over the next 6 to 12 months. What can they do now?

Jonathan: Yes. So the second step in the whole process would be to tune yourself and your business up. And by tune up I mean you're going to be doing things like looking at your line of credit. So do you have the right line of credit to be able to grow in a recession?

Joe: Why do they need a line of credit?

Jonathan: So by that, I simply mean capital access to cash if we get into a downturn and you see an awesome opportunity to buy assets to buy inventory for cheap, to be able to afford talent that you couldn't get access to during the recession or maybe they find a bolt-on opportunity for their business to purchase another business then you're going to need access to capital in order to make all those things happen.

Joe: And what forms of credit would you advise someone seek?

Jonathan: Yes. So I think that the best would probably be a line of credit that isn't secured by personal assets. If you can't get that done then look at a home equity line of credit and if you can't get that done then look at credit cards. The thing is to have access to capital; you don't have to use it. But here's the deal like right now when the economy is good this is the best possible time to go to your bank and ask for credits. When we're in a recession, when we're in a downturn the banks are not going to loan you money. They're going to laugh at you if you come and you try to borrow from them. I mean one of my favorite sayings is that you can go to a bank; it's like asking for an umbrella except when it's raining. So banks operate in the same way. They want to extend credit now because all the banks are competing for your business. When we're in a recession, when we're in a downturn they're going to start to contract their portfolios. They're going to start to mitigate risk. They're not going to want to open up new lines of credit especially for online businesses; especially for newer online businesses that they see as riskier and not asset-backed.

Joe: I'm going to back that up, folks. I sold my business as you all know in November of 2010. I bought a house in June of 2010. I paid mostly cash for it. I sold my business in November and then got busy got delayed and didn't apply for that home equity line of credit until sometime in May the following year. Well, guess what? I had filed my tax returns. I didn't have employment. I had a ridiculous amount of equity in my home and I got declined for a home equity line of credit because of timing. It was ridiculous. It was 2011 at that point as well. So the economy was just coming back and I had a ridiculous amount of credit but because I didn't have a quote-unquote job or income at the time I got turned out for hillock. And I had been given previous advice exactly like this and this is from my mentor; a business person, a business advisor, always have some sort of line of credit available to you. Jonathan is right. Make sure if you can it's not tied to personal assets but the reality in this solopreneur world that we live in for the most part that's really hard to do. If you can't get that non-secured get secured and get it backed up as a credit line with your investment advisors or on your home equity line of credit or any other way that you can. What about credit cards and revolving credit cards; do you advise people to mess around with that at all or is that something that they should avoid?

Jonathan: Well I would as a last resort. Again for me, you don't have to use them. But I'm a business owner too; I'm an entrepreneur I always want to have a backup in case things don't go as planned and so part of this is that I want everyone to look forward to the next recession. I know that's weird but that was the idea behind why we wrote the book. I mean the traditional plan for a recession is fire people and cut overhead and just survive and that book's already been written many times over. The idea here was what if we studied people that leverage recessions and use them as a way to hack the system to escape the usual need to hustle and grind to be able to grow your business and then sell it for a dream outcome. And so I'm always thinking of how can we use credit in downtimes to be able to buy assets to buy businesses from other people that weren't smart enough to listen to our podcast; from everybody that didn't prepare. And at the same time if all the stuff we're talking about isn't working; Joe, if people are listening and they're like look my business isn't growing and I'm in a recession myself then you need access to that capital just to survive. I mean at the end of the day we all need to protect the beehive as entrepreneurs because if the business doesn't survive then none of the rest of this matters.

Joe: And that's almost moving into the second type of recession and that's just an internal business recession when someone has key employees that leave or hero SKUs where competition comes in. How do you help people in that regard or what actionable steps can you recommend to them that they take to avoid a situation like that or rectify it if it happens?

Jonathan: Perfect. I mean I know a lot of people don't always agree with my predictions. I do think that we're going to have some sort of a downturn in the US economy towards the end of 2020. I don't think it'll be a full-blown recession but I do think as we get closer to the election that consumers and businesses will hold up in terms of spending and that will slow our economy down. But if you're rolling your eyes right now, if you're saying I don't agree with this guy I don't think the next recession still 2021 or 2022 and you're about to tune us out then just wait one sec. The idea here is that you brought up non-economic recessions so if your biggest customer leaves that would usually put most businesses into a recession. It could apply to a hero SKU in our case. If you have a competitor come in and attack your hero SKU; same difference, you're in a recession. If your best one or two employees leave and they go start a competing business, you are in a recession. The other one that has recently come up is what about government and regulatory changes? I mean I know the audience understands that vaping is a huge new business and everybody wants to get into marijuana, get into vaping well in New England they recently passed a law putting a moratorium on vaping while they studied the after-effects of it after there were several deaths. All of a sudden all those online businesses that were selling vaping cartridges were vaporized. And that happened overnight. It happened very quickly. So I want everybody listening to have a plan for how they can leverage those opportunities.

Joe: Well the tariffs I guess could be considered a recession for some businesses. I've got a client who's tariffs are 42.6% on top of his cost of goods sold; a pretty big impact.

Jonathan: They sell online?

Joe: No, they don't.

Jonathan: Okay. Well so it's thinking through if you're in one of those businesses what can you do? So the question then becomes you want to start to think about how you can diversify. And I know that the more practical tips for this are that I like to use online research. There's a site called Ibis World and it's a paid site.

Joe: Is that I-B-I-S?

Jonathan: I-B-I-S. Ibis World. You would have to make an investment but they provide industry reports on where they believe the future of different industries are going. So if you're selling line online they've got a report for that. If you're selling widgets online they've got a report for that. And the idea there is that you want to think about industries that will do better in the downturn and industries that will do worse. So in the book, we write about some of our favorite; some of the ones that got pummeled in the last recession, in the Great Recession and the ones that did well. The ones that got pummeled think like jewelry stores not good in a recession. If you're selling high-end jewelry online or in a store; not good, same thing with things like travel and tourism, discretionary goods. That's why I was selling personal training services in the Great Recession; not good. We all know that insurance and finance got hit especially hard in the Great Recession. Not good. So the ones that did well would be things like consumer staples; so if you're selling consumer staples like toothpaste, people are still going to need to brush their teeth in a downturn. If you start to get more exotic with your thinking; think about like veterinary clinics and veterinary supplies, people still spend money and take care of their pets in a downturn. And people don't care; if their dog is sick they'll put it on a credit card, if their dog likes Eukanuba and that's one of the most expensive brands, people will not change their dog food brand if we're in a recession. So if you're an online seller of those high-end pet products; I actually like that market. I think it will continue moving forward. My point just to answer your question though is that if you slow down, if you do some of the deep work of thinking instead of just being busy then I think all the answers are actually out there for how I will position myself, how I would start to diversify if I am in that hero SKU situation.

Joe: In other words I had a neighbor tell me once; I was asking him, he was a bit of a mentor as well, he said Joe, you know exactly what to do. You just need somebody else to tell you to reinforce it. Same thing here folks; you've heard Mark and I say it and almost every guest that's ever been on the podcast, focus on the business. It's not about driving top-line revenue only, focus on the nuts and bolts of the bottom line part of the business and that's going to bring value; improve transferability, the documentation, the growth trends, the data behind the business and that's going to bring you more value in the short run and in the long run if you eventually do sell your business. And that leads Jonathan to talking about the other half of the audience; the people that are buying online businesses, those people that tune in week after week as they're on the hunt for that next business that they want to buy and they listen to us. What advice can you give to someone if they're out there hunting for a business in terms of looking for that business with a potential forthcoming recession?

Jonathan: Yeah. So I want to start with the story and that's that Paul Belair who I wrote the book with; right before the Great Recession started Paul bought a business. He invested a million dollars with his management team to purchase the business and they grew it during the Great Recession. It was an HVAC business, so a business that helped out with heating, ventilation, and air conditioning; not a sexy business. And they sold it 63 months later. They sold it for over 70 million.

Joe: He bought it for a million and sold it for over 70.

Jonathan: So the purchase price was higher than a million but they put in a million in cash.

Joe: I got you.

Jonathan: And then they had some debt to fund the rest of it.

Joe: Fair enough. That still sounds like a hell of a return on investment.

Jonathan: Yeah well it's 70X on your cash plus; I can't tell you the exact number. He's under an NDA but in any case, it's even over 70 million. So that's why Paul writes the book with me but in terms of being on podcasts, you would prefer to be off playing pick-up ball in Florida.

Joe: So hopefully he's using Amazing Aces. We've got a client that bought that business and it's a great brand.

Jonathan: Really?

Joe: Yeah.

Joe: Jonathan: I love it. Well, it's Amazing Aces?

Joe: Absolutely.

Jonathan: All right I'm making; you know what? I'm still Christmas shopping for him.

Joe: There you go.

Jonathan: So I tell you that story because part of the way that they did that huge one million to 70 million dollar exit is that they picked a business and then they moved it such that it would have a tailwind in a downturn. And so if you're a buyer right now it's thinking about what kinds of businesses would get an economic tailwind if we were in a downturn and then like my mom says you've got to put yourself in the middle of the street if you want to get run over. So Paul…

Joe: Very bad parenting; I don't know what the deal is with your mom but I got to say that's not very good advice. Alright.

Jonathan: Paul put himself in the middle of the street because what he did was when he bought that HVAC business they moved it from doing mostly construction; so by construction I just mean when you buy a new HVAC system and they install it on the roof of your building that's a construction project.

Joe: Yeah.

Jonathan: Those units cost 5 to 20,000; that's a big project, a big investment. They moved it to doing service. So how could they take the equipment that was existing for a business owner and repair it because in a downturn; in a recession, people would rather repair their equipment than replace it. And so Paul saw that trend coming with his management team and totally changed the business to really capitalize on that. And that's how they were able to grow it into this recurring revenue business which again is another big thing I'd be looking out for your buyers.

Joe: Yeah.

Jonathan: Yeah. How do we get into a business that has recurring revenue? How can we be selling the razor cartridges instead of that one-time transaction?

Joe: So find a business in a niche that's not going to be impacted by a downturn whether it's a critical service business or something like the pet space where people will spend money on their pets no matter what and adding some sort of recurring revenue aspect to it. Beyond that any thoughts in terms of their own personal financials and how to prepare for it in terms of buying; is it the same thing lining up as much line of credit and purchasing power as possible?

Jonathan: Yeah well actually my favorite tip there is on the personal guarantee side. So I know right now with the economy booming; I mean consumer confidence is at record highs, unemployment is at record lows, the economy is still booming so banks are still willing to do more than they will at any other point in our economic cycle. I love the idea of capping, reducing, or eliminating personal guarantees especially for your buyers. So what does that look like to go to the bank and ask them to do the deal but to do it without a personal guarantee or to put a cap on that personal guarantee? Right now I think bankers are willing to have that conversation. You don't have to give up a blanket personal guarantee on all of your stuff. So this isn't possible generally with an SBA loan so don't worry about writing to me about that because I get it. But if you can do a conventional loan product can you get it so that you can cap those personal guarantees or reduce them? And it may mean that you have to shop banks, maybe you have to go to four or five banks, maybe you have to talk to your local credit union to make that possible. I just think it's worth having that conversation so that if we get into a downturn; if your business does go sideways that you've mitigated some of the risks that you would otherwise have. And it's free to ask.

Joe: And on that aspect folks we've had Shakil Prasla on the podcast and Shakil has bought half a dozen businesses and he's done it mostly with non-SBA money and building up credit with banks and probably is avoiding that personal guarantee as well. So Google Shakil Prasla and Quiet Light Podcast and you'll find that episode. In fact, I think if you Google Shakil he's got a new course on how to purchase an online business as well so check that out. Jonathan before we go any last-minute thoughts or advice for anybody listening in terms of rocking the recession that may be coming in like 2020 in your words?

Jonathan: Yes. The main thing is to put together the recession plan in the cool rational light of day as opposed to the emotional heat of the night. I want the audience to be thinking about putting together a plan now and then putting it under glass and then if you do have a recession in your business or you see on Fox or CNN that they're announcing that the economy's in a recession you can go over the glass break the glass take out your plan and start to execute it. The issue most of the time is that we don't have a plan and so when we get into a recession whether it's personal or affecting the entire country you're huddled in the fetal position in the corner of your office like I was when the Great Recession hit. I didn't have a plan. I had people knocking on my office door asking me what was going to happen with the business. And I just spent months trying to figure out what the plan was while all my competitors were executing and taking the best opportunities off the shelf. Well if you're still graciously listening to us that's what I really want for you is to be one of the people that can actually be looking forward to the recession and that can just move into execution mode when the next recession is announced.

Joe: That's great advice. Thank you, Jonathan. How do the audience find out about more about what you do online and helping them rocking the recession? How can they find you?

Jonathan: Sure. Recession.com is the website and yes we really do own recession.com. All my contact information is on there. They can get me at [email protected] or all the infos are on the site if they want to go do that. Recession Readiness Assessment. They'll see all my contact info right at the site.

Joe: Excellent. Thanks for your time today Jonathan. I appreciate it.

Jonathan: Alright. Rock on.

Links and Resources:

• Recession.com
• Free Assessment Tool
• Rock the Recession
• Ibis World

Cash-flow forecasting can be the key to running, building, and eventually selling your e-commerce business. Today's guest is an accountant and successful business builder who helps owners run their businesses with successful financial results. Aside from traditional accounting, his firm offers fractional CFO services to his clients.

As we have said many times here on the podcast, bookkeeping is not something business owners should do without an expert. Today we are talking to accounting expert Tyler Jeffcoat. Tyler built and sold a healthcare company and has experienced the acquisition process firsthand. In building his current business, Seller Accountant, he made sure that his focus was razor sharp on what he could offer to clients in order to deliver top results.

Episode Highlights:

• How Tyler's fractional services work for the clients.
• How his service cost is offset by the value why it's less expensive than inhouse.
• Cash-flow forecasting and how it helps owners with profitability
• Ways operation data plays into the full forecast.
• The impact of not forecasting.
• Refinancing and SBA lending as an option in a moment of need.
• The importance of SKU grading to keep on top of product performance.
• The difference between cash and accrual accounting
• Tools that can help the layman forecast on his own.
• Why you need to track your numbers on an inventory value.
• The benefit of outsourcing while focusing on core expertise.

Mark: So Joe I'm normally not a big advocate of business but I'm becoming more and more of one and in the entrepreneurial community people always ask what book are you reading now and I'm usually thinking well it was actually on World War II or some other kind of obscure topic. Because when I'm off of work I like to be off of work. But this past year I picked up a few different business books based on some recommendations. And one that I read that I would recommend to anybody is Shoe Dog by Phil Knight; the founder of Nike. And I don't want to give away a lot of secrets with this book because honestly, it's a great read; it reads more of like just a novel or story of how he started Nike but one of the things that really resonated with me specifically because we deal with so many people that have Amazon businesses was how long Nike had problems with cash flow and how long that they were living on the float. And they were living on a very large float where they were writing checks that weren't in the bank account yet and they were counting on that money being in there. It's the nature of any growing business especially a physical product business is that the cash flow comes in, you reinvest in the product, you keep growing at a rapid rate. It can be really hard to manage that cash flow. And I know that we talked to Scott Dietz a few weeks ago on forecasting but forecasting doesn't really matter if you don't have any cash in the bank and you're closing the loop on this or kind of continuing this conversation today with Tyler Jefcoat about cash flow forecasting.

Joe: Yeah Tyler and I have been working together off and on with a variety of different clients. Tyler owns Seller Accountant and he's just a smart guy. He's built his own company, sold it, and then started any commerce bookkeeping company specifically focused for the most part on his own businesses.

Mark: Is that a phone I hear in the background?

Joe: No, that was not a phone at all. No.

Mark: I figured that you're so busy people are calling you all the time.

Joe: No, that's my wife actually. Sorry folks. Sorry. Tyler, yes but the really cool thing about what Tyler does is cash flow forecasting, right? So he does fractional CFO services on top of is bookkeeping services and only for his own clients. And he does in the different levels. He does monthly reviews with some, quarterly reviews of some, and then gets into deeper reviews with others. But the cash flow forecasting model that he went over and shared with me I saw it on another video in a webinar that he did and then I had him show it to me and then he's sharing it in the show notes of this podcast. It's a cash flow model along with the video that talks about it and I know going back to my e-commerce days before I sold I did that; I did the float just like Phil Knight, a little smaller level of course.

Mark: But just like Phil Knight.

Joe: Just like Phil Knight, but it was the same thing. You are paying for that inventory with a credit card or you're just playing the flow and it's ridiculous. Fortunately for me, I didn't have a big staff but those that are growing beyond that solopreneur aspect and they have to worry about payroll and things of that nature I think it's really, really important to focus on cash flow. So Tyler goes over that quite a bit here and the links in the show notes will help anybody that's having issues in that area.

Mark: These are fantastic tools to put in our war chest of things that we can use as business owners to be able to plan the growth of our businesses. So forecasting is something I've been skeptical in the past. Again the conversation with Scott Dietz and my experience with forecasting through his company has really turned me around to this and now I'm super excited to see this because again cash flow forecasting might be one of the most important things in a business as it's growing.

Joe: It's important but what else is important? I've got to call my wife back so let's go to the podcast.

Joe: Hey folks Joe Valley here from Quiet Light Brokerage and today well I ranted in the intro with Mark about bookkeeping. I've talked to at least 5,000 entrepreneurs over the last seven years and the vast majority of those when it comes to bookkeeping they say I got this and the reality is they don't. So we've got an expert on the podcast here, Tyler Jefcoat from the Seller Accountant. Tyler, welcome to the Quiet Light Podcast.

Tyler: Thanks, Joe. Thanks for having me.

Joe: I could rant and rave for hours on time about this because it's the number one reason people don't sell their businesses or sell them for a heck of a lot less. Somebody said to me the other day Tyler that when they think about their P&Ls they bleed from their eyeballs and I think that sums it up for how a lot of people feel. Alright so as you know on this podcast we don't do fancy intros, we want to hear from you so tell us about yourself and your business.

Tyler: Yeah, well thanks again for having me. My company is Seller Accountant. I'm coming at this as a guy who sold a health care company about two years ago. We had a good run; zero to a hundred employees in about four years and I was a minority guy and I went through the M&A process and it was interesting. So as we built this accounting firm; I'm an accountant, we really built it around two ideas, Joe. One was we wanted to have a very vertical focus so we only do e-commerce and the second thing is that we want to focus on not just the price of admission of just having clean books but having the ability to use data to drive profitability. So I think that's why you and I have resonated with each other so well was I want to partner with brokers that really have the best interest of clients at heart and your clients all have the same issues which is we got to have investor great books so we can go to market and so yeah man it's great to be here.

Joe: Cool. Everybody that's listening knows how I do feel about the books but I want to go beyond what you do at Seller Accountant. You manage people's books, you do an incredible job with that, do you streamline it? It's not expensive. It's much better for their bottom line than if they had an in-house bookkeeper. There's no question that that math works but let's talk about some of the additional services you do. I saw a video where you talked about your fractional CFO services, where you talked about cash flow analysis, Cost of Goods Sold analysis and some of those things. What are the top two or three things that you focus on with clients on I guess is your fractional CFO services that you do that for?

Tyler: It is and is still part of Seller Accountant but in addition to just doing the bookkeeping each month for a bunch of Amazon and other e-commerce sellers we provide a fractional CFO service. And so I think what makes it powerful Joe is that we're just crazy focused; again we're crazy focused, my eyes don't blink when I look at a P&L for e-commerce but I do it all day long. And so our ability to step into somebody's business and see things differently because we look at it kind of like you do Joe honestly; you're looking at P&Ls constantly also but then focus on kind of the big things on a macro level. How does a seller really understand how their sales channels are performing over time? So that kind of goes back to the visibility of the book but it's more important than that, it's understanding okay, is Amazon the right channel for me to focus on versus Shopify? That's kind of one of the big discussions. And then we tend to the other kind of macro discussion as you allude to is around cash flow. This is a cash hungry business that we run; this e-commerce retail and a lot of the sellers tend to be undercapitalized meaning they're not coming to the table with 2 million dollars in free cash to just dump in inventory. And so our ability to understand not just what we think our sales are going to be next year but what we think our actual cost are going to be related to inventory when we're going to have to spend that money, that's critical. And so that's a discussion we have with our clients and then honestly just understand the profitability of our different product lines and SKUs. Those are areas where we can really help our clients not just know what the bottom line is for a given month but help them get the data they need to make better decisions as a CEO.

Joe: And you do this as part of the fractional CFO services. You meet with these clients once a month after you review their P&Ls and you do a deeper dive. Are there other different levels of fractional CFO services where you're spending more time with some than others; how does it work?

Tyler: Yeah there are and at this point, most of our CFO clients are bookkeeping clients that have chosen to layer on the CFO service. The reason for that is it is very challenging for me to add a lot of value efficiently for you if I don't understand your books and you just have a really nice way of doing the books. So yes they can choose to have quarterly calls. We have some that will meet even less frequently but it's basically normally quarterly or monthly. And we have some things in the pipeline that may allow us to just generate some value and it'd be a little bit less can you get on Tyler's calendar because I think that can be something that can be prohibitive. But at this point, we've got a great monthly service, a great quarterly service, and I think maybe it'll be somewhere around the neighborhood of 70 million dollars in e-commerce sales that I'm responsible for; me and my team for just the CFO side of it this year. And so it gives us an update that we can speak intelligently about what's happening in the business.

Joe: You must be very expensive then, yes?

Tyler: Oh man we're so expensive, yeah. No, you know what I mean. I would say we provide extreme value to our clients. And I would just say this we're not cheap; I don't want to be cheap, you want the provider that you can partner with us providing superior value. But I will say this we are way less expensive than actually trying to hire somebody. And if we can generate the kind of value that makes your business grow or allows you to get maybe a better multiple when you go to market in a year I don't think we're charging nearly enough for that to be honest with you and I love it, man. This is the fun part of the business; it's really understanding how to help business owners make money. How do we actually turn this pile of work into a profitable business? And so for me, this is kind of what gets me out of bed. So it's really I'm an accountant, of course, it's about money; we want to make a living but this is a part of the business I'm passionate about.

Joe: Well let's talk about some of those individual things you do as the fractional CFO provider. I saw a cash flow forecasting video that you did. This is an enormous problem for e-commerce business owners and a lot of will just go the way of an Amazon loan at 14, 15%. I guess it's lower when you do the math. But talk to us about the cash flow forecasting that you do for these clients and how that helps them in terms of profitability.

Tyler: Yeah. So when it comes to cash flow forecasting I think where most entrepreneurs stop is they take the time to open a spreadsheet and say what do I think my sales are going to be in the next six months? By the way, I would caution you there, if you ever run a forecast in the future of your business and every month in the future is way more profitable than your last six months of them, there's a good chance that you are kind of suffering from optimism that happens. All of us entrepreneurs we love running our businesses and we're like just tomorrow we're going to make money, now next month that's going to be wildly profitable.

Joe: You're delusional. We know that after doing this for so long that there is great years and bad years.

Tyler: You may run into a P&L and somebody hasn't made money in a year and they're like but guess what Joe tomorrow we're going to make money. And so my encouragement is to go ahead and be honest with yourself about how your business is performing and take a minute to say okay based on our seasonality, based on the products we're going to launch; as the actual owner of these e-commerce businesses you guys are in the best position to guess what your sales are going to be next year and put them in a spreadsheet Expected Sales, ding, ding, ding, ding, ding. And then if you look at your historical data you can say okay our cost of goods sold, our margins have tended to be at a certain level. And so most entrepreneurs are pretty good at building a forecast around what their operation is going to generate. We kind of know what our overhead is. We kind of know what our advertising budget is going to be. We know if our rent's going to go up next year. And so you got to do that work but a lot of entrepreneurs stop there and you can't stop there. Because of the impact of debt and the impact of inventory and the impact frankly of taxes you need to take that operational data and then work it into a full cash flow forecast for maybe the next year or the next six months. And so the way we do it is we take that baseline info that I just mentioned; how much profit are you expecting your operation to generate each month over the next six months or a year. Okay, great, now tell us what your loan payments are going to be, what's the cash coming out of your business for; for that Amazon loan or for your SBA loan or for your line of credit. Okay great, let's take that into account each month and then inventory forecasting can be kind of tricky. The more I thought about this I think it just needs to be simple. You have an average amount of days that it takes you to; you're going to issue a PO and you're going to get your container sent from China or wherever you're getting your goods. And so if I have forecasted that in April I'm going to have $30,000 in cost of goods sold then I'm going to have to pay for that $30,000 in inventory probably about 90 days before that. And so if you know what the waiting times are in your inventory you can use your forecast that you just did for your quote-unquote P&L; your profit and loss to basically guess okay I'm going to need to have that 30 grand in the bank in January so that it's ready to sell in April. And I mean they're going to have to fund that inventory purchase with some kind of great terms with the supplier or I'm going to have to have a loan, I'm going to have cash in the bank. And so what I advise the clients to do is to kind of what are my inventory purchases going to be? This is not a surprise. It's going to take a few months to fulfill it. Let's get that on this cash flow picture and then the other thing that you might consider is if there's going to be any owner distributions including your CPA may have you take a tax distribution once a quarter to keep Uncle Sam happy. And so this all goes together; your operations, your financing activities, your inventory, and then lastly the investing kind of from your owners and it's going to give you; it's not uncommon to have a picture where you expected to make money in the month of January, on paper you have profit but because of your debt payments or because of your purchases of future inventory your cash flow is actually negative for that same month. And so we just blew a spreadsheet; in fact, I'm glad to share it with you. I just have it in a Google Sheet here where we try to understand the impact of all of those factors on cash flow. So if there's going to be a negative on the sheet I knew it now instead of it being an emergency.

Joe: We'll link that up so people can use it and try it themselves and then reach out to you for help if they need it. But what's the impact? You talked about good money at good rates versus bad money at bad rates. So what's the negative impact if they didn't do the forecasts and they come up against the month of January and they need to get a loan somewhere; what do you see people do and what's the drawback of having little to no notice of it?

Tyler: Yeah. So there's two major impacts. One is if I know that I'm going to run out of cash in six months I can make two important adjustments that I don't have the luxury of making if I'm right on top of that shortfall. So if I've got six months I can cut expenses. If I need to actually lower some overhead if I need to renegotiate my rent if I need to do anything if I need to slow down if I need to go to my suppliers and renegotiate those payment terms. I've got some internal leverage. In other words, I know how important it is to me because I know I'm out of money say in April if I don't figure this out now. The second thing is if I know I'm going to run out of cash in four to six months I've bought myself a bunch of time to go find the right kind of loan if I have to pick up some debt on the balance sheet. And just as you alluded to I've got six months and have a pretty good business I might be able to get through SBA underwriting, I might be able to get all sorts of favorable lending options but if I wake up and realize oh crud tomorrow I'm out of money I don't have a lot of options. I'm going to take whatever money is going to fund me in the next week. And I would say that's where a lot of sellers get in trouble. They haven't forecasted effectively and so now they're out of money. They've got to fulfill that PO tomorrow and so now they're in a bind where how are they going to get stuff on the shelves to be able to sell it. And so yeah that's what I would say to that.

Joe: So on the SBA underwriting, if somebody owns an e-commerce business and they've got good financials, they've owned it for a while and they use services like yours you're seeing them able to go out and get SBA financing to help with cash flow of their current business.

Tyler: Yeah I think there's; I don't know that I've seen; I've seen more SBA lending when the deals come together for an actual exit but I will say this if you have a couple of years of good financials and you're carrying some debt I've definitely seen some of our clients refinance other lines of credit using SBA lending once they have a couple of years of good financial history.

Joe: That makes sense.

Tyler: You can go through the underwriting and what ends up happening is the bank has a much lower risk profile because the SBA; the government is going to back a certain percentage of that loan. And so it's always going to be your best terms, your best interest rate; the underwriting is a bit of a pain but again if you have six months you can get through that process and explore that as an option instead of having to take whatever emergency lending process.

Joe: Yeah for those that don't understand the terms on the SBA lending it's generally 10 years and the interest rate is somewhere between 5 ½ to 8 ½%. Compare that to an Amazon loan where the term is somewhere between 14 and 15%; I'm sorry the interest rate and the term is generally 12 months. They take it out of your account as they make deposits.

Tyler: And I've seen Amazon be as high as 19, 20 percent and they will underwrite it down to 11 but it never gets anywhere close to touching the SBA.

Joe: Yeah, it's incredibly convenient. There's no question about it but there's a pretty steep cost that comes along with it.

Tyler: The only one that steeper is when you have to get more of what's called like a payday funding option maybe like a Payability; nothing wrong. It's a good service in the right context but those cost capital numbers end up getting up in the 25, 30% range if you're not careful and that can really crush your business.

Joe: Okay, cash flow taking, money off the table, these things are what keep entrepreneurs up at night so I love the fact that you help them with that and we'll share that in the show notes. Let's jump on to something that I think is incredibly important when we talk to people about selling their business. Well ultimately we're going to help them when they're ready but we'd prefer to talk to them 12 to 18 months in advance so that they're working with someone like you in order to prepare the best exit possible. And we often talk to them about renegotiating their cost of goods sold, focusing in on those inventories that are hero SKUs and those that are just okay. We always say you can break even doing nothing so why bother but often when it looks like they're breaking even they lose money. You help them focus in through your fractional CFO services on hero SKUs, cost of goods sold, things of that nature; yes?

Tyler: Yeah I think something that's really important whether you have a fractional CFO or you do it yourself, it's extremely important to do a SKU grading. So I don't even care if you have a thousand skews you have to have some kind of a system for understanding which product lines are successful and which ones are losers. Which ones are the heroes like you said Joe, which ones are duds? And I have been shocked; I've been continually shocked as we do these analyses for clients to see that a guy's favorite SKU is taking them like an 80% advertising budget to move the SKU.

Joe: That doesn't sound profitable. Yeah.

Tyler: No, that's bad. Yeah. And just in case you're wondering, an 80% advertising budget is terrible. But they didn't know that because it's buried in this entire pile of SKUs and so it's extremely important to understand at least occasionally how each of your products is performing so that you can support the good ones, renegotiate the bad ones, or kill them.

Joe: Yeah. So revenue insanity profit; no revenue is vanity, profit is sanity. So it gets down to understanding your profit and loss statements, digging into revenue by SKU, profit by SKU. I get most people don't get this. A lot of people that I work with that come across like I did early on I tell people openly I fell asleep in accounting class in college. I've since had to adapt and learn and now I understand it very, very well. But most people don't understand the simple difference between cash and accrual accounting and that when you're selling a business the books need to be presented on an accrual basis. Can you describe the difference between the two in layman's terms? That's the challenge; layman's terms.

Tyler: Sure. So simply put if you have cash going out of your business, say you're buying inventory to actually stroke the check and you have a deposit coming into your business say the deposit from Amazon and you book that sale when the cash hits your account and you book that expense when you pay the money that's called cash basis accounting. And from a compliance tax standpoint, for most small businesses that is acceptable. But here's the problem and you got anyone who's looked at their P&L and saw a negative gross profit for a month. When you look at there and say why did I sell $100,00 this month but all of a sudden had $200,000 of inventory expenses? That doesn't make any rational sense. The reason is that you book the entire inventory the day you stroke the check instead of having the inventory asset and expensing it slowly as you sell the goods. And so in an accrual accounting method, you are on a quest to attach the sales dollar to the expenses that are associated with that dollar. So if I sold; let's just use that same number, if I sold $100,000 on Amazon in November I want to know how much it actually cost me; what the actual inventory expense for those units were that I sold in that month. And so you can kind of tell me and hear me say it's a little more difficult. Getting good accrual books takes a little bit more work. You have to deal with receivables. You've got to book things a little bit more sophisticatedly but it's the only way to be able to answer the question Joe did I make money last month? Because if you're doing it on a cash basis you really have no idea. You know when you've made your investments but you don't actually know whether your business is profitable unless you have an accrual system.

Joe: And is that something that; I know it's hard to set up in Quick Books online but what do people have to have? Their landed cost of goods sold or their cost of goods sold the freight might be separate in your P&Ls; is it something that a layman could set up and figure out and flip to or does it really take a tremendous amount of experience like you have?

Tyler: Well it could. I mean I don't want to; let me just say it's worth the effort. I will say this for everyone who's listening to this to this podcast if you haven't explored a tool called A2A accounting; literally the letter A, the number 2, the letter A. So A2A Accounting, I think it's A2Aaccounting.com that is a tool that lets you kind of pre map Amazon journal entries and it makes doing the accruals a lot easier. Well, what makes e-commerce so challenging is that Amazon pays us every 14 days normally and some of those sales might have happened in one month but I'm getting the entire paycheck from Amazon in the next month. And so I would say Joe yes normally having somebody that really understands e-commerce accounting is very helpful but for smaller sellers or sellers who don't have the budget to hire a team like mine it's worth learning how to do it and it's worth trying to understand; you mentioned the term landed cost of goods sold if I spend $100,000 on inventory, I've stroke the check, I've sent the wire, I have that inventory now, it's really important that I try to understand what that fully landed value is per unit. So let's say I bought a thousand of a particular SKU I can't just say I spent $100,000 divided by 1,000 so I've got basically was that a dollar SKU, right? It doesn't work that way.

Joe: Because you pay the extra 10 cents to ship each individual unit; yeah.

Tyler: Yeah you got shipping, tariffs, duties, everything else you need to just do the math. Make sure you have a spreadsheet; call it kind of a Master SKU Spreadsheet and understand what it really costs you per unit to get your product to the customer. And that's probably one of the biggest keys to understand.

Joe: And let me just put some reality to this in terms of the why. Look anybody out there listening is like why the hell do I need to do that? The reason is because eventually, you're going to sell your business. You're going to get bought out. You're going to sell it to a partner. You and your partner are going to get in a fight and you're going to want to move in different directions. Or you own it with your wife or husband and you're going to get a divorce or at least half of you are. Or you're going to die. It's all going to happen eventually so you need to have your numbers on an accrual basis because when you sell your physical products e-commerce business you're going to get paid a multiple of your seller's discretionary earnings plus the landed cost of good sellable inventory on hand at the time of closing. Landed. If you're not tracking that landed figure and you're paying an extra 50 cents per unit you could be losing tens of thousands of dollars in inventory value at the sale. The other thing in terms of cash versus accrual and doing it yourself versus hiring somebody like Tyler is that if you're off by a couple of percentage points; let's just say that you're spending a million dollars a year in revenue. It's not a small business, it's a sizable one. And I've talked to these people that do this and have in-house bookkeepers and I'll give you some math on why you shouldn't admit it but if you're off by 2% on a million bucks that's $2,000 right? That's not right; that's $20,000 that you're off by. Your business is probably sizable selling it 4, 4 ½ times that would mean that your numbers; your profit, your discretionary earnings are off by $20,000. The value of your business is $80,000 off if you're a four-time multiple. So you're either overpricing the business by 80,000 because you overestimated or underestimated your cost of goods sold or worse yet you're undervaluing your business because you're off by 2% and your business is worth $80,000 more than you've got it listed for. These things matter. You worked so damn hard on driving more revenue and looking at your bottom line. But if you don't get the details right like this you're just wasting a whole bunch of money. Okay, that's my momentary rant now I'm going to go into another one. The services that you provide Tyler and there are others out there like you that's just like there's other brokers out there besides Quiet Light; it is what it is but I talked to somebody last week, they spent $24,000 a year on an in-house bookkeeper just out of college that does everything the CPA tells her to do. The numbers are all wrong. They're recording deposits; it was on a cash basis, it was completely and utterly incorrect. And this person thought they were doing something like 1.2 million in discretionary earnings, it really was about 800,000. If they fired the bookkeeper; we'll do the quick math for everybody, fire your bookkeeper is my message, $24,000 a year, hire somebody that does the e-commerce bookkeeping like Tyler and Seller Accountant, even if it's let's call it 600 bucks a month and you're doing an all-encompassing service it's only $7,200 a year, right? So 24,000 minus the 7,200, it's $16,800 in annual savings to the bottom line numbers of your business. If your business is worth four times that adds $67,000 to the list price of your business when you eventually sell it. It's simple and logical math and you don't have an HR problem anymore; you don't have that bookkeeper in-house, you've got somebody like Tyler helping you who's a Bulldogs fan by the way. For those watching the video, stand up just a little bit; what's that logo on your shirt say?

Tyler: Man I'm a University of Georgia guy. I'm across the street from the campus here in Athens and Double Dog. I have my MBA and accounting degree here. Joe, I will say this it really is it's not even so much what you could pay per hour because, to be honest with you the client that's doing a million in discretionary earnings is unlikely to be 600 bucks a month for any service even me if we're getting it done right. But the reality is that if you're paying someone your full-time salary; I know this when I had a company with 100 employees. We always had somebody sitting around. If you're going to carry someone you're always having to get them at a rate where you can't use their full capacity or frankly if you're using your full capacity you got to hire somebody else. And so it's inefficient because; and there are some businesses that need to have a full-time controller. I think if you're doing 15 million a year in revenue you probably need to have a high-end controller on your staff. At that point, that's a six-figure job you're looking to hire for. I think the issue that the seller may be that you're describing would come across is not only are they spending the 24,000; even if they paid me the same amount to do it it's actually going to be done correct and when I go to market those books are going to be stated in accrual basis and they're going to have everything the way they want it. And we can scale with them without them having to hire an entire new employee. So I think that really is a big benefit unless you are; this is what I've learned in general. And this is every business I've worked in or own, I want to make sure that I inhouse my core competency; whatever my competitive advantage is I'm going to make sure that I have teammates that allow me to perpetuate that competitive advantage. Anything that isn't my strength I want to find someone that that is their strength; someone that can do it more efficiently and can do it better than I can. I'm not a broker if I need a broker I want to go to someone like Joe that gets the broker business and can do it more efficiently I'm going to pay Joe but I'm going to make a lot of mistakes and lose a lot more money if I try to do it myself. It's really the same with accounting or PPC or anything else. I'm a big believer. That's what my dad always told me. It's just spend your time where you're making your money. I want to get so focused that I can be the best in the world at something and then I want to outsource as much as I can so that I can be better at my core rather than trying to fix my errors all the time and fix my screw-ups and that kind of thing.

Joe: I think that's incredibly well said. I don't have a whole lot to add to that. I think it's just brilliant. I think it's a great business methodology and mindset and it's what everybody should be adopting. Tyler, how do the audience members learn more about your services?

Tyler: Yeah so thanks again for having me, Joe. So SellerAccountant.com is our website. You can learn more about our services there. Feel free to reach out to us. We'd love to have a discussion with you. And yes it's been a pleasure to being on the show.

Joe: And you're going to share that cash flow forecasting spreadsheet. We'll put that in the show notes so everybody can do their own numbers and if it's confusing reach out to Tyler he'd be there to help you. Thanks for the honor man, I appreciate it.

Tyler: You got it.

Links and Resources:

• Tyler's Wedsite
• A2X Accounting
• Cash flow forecasting spreadsheet

How important is content marketing strategy to your e-commerce business? Crafting valuable content helps build brand trust with both existing and potential customers, allowing you to successfully grow your brand. Today we're talking all about content and smart ways to ramp up your strategy.

Jeff Coyle is co-Founder and Chief Product Officer of MarketMuse. Coming from twenty years in the SEO and content strategy arena, Jeff's products use AI to accelerate content planning, creation, and optimization. With their spokes-of-a-wheel keyword approach, MarketMuse's content marketing strategy connects ideas, allowing clients to demonstrate product expertise.

Episode Highlights:

• How content relates to growth and where to start assessing the need for your business.
• Strategies that help tell the story that you are trying to tell.
• How to gauge the success rate.
• Where the news dynamic fits into your content campaign.
• The breadth and depth of your content.
• Figuring out where the gaps are.
• When to hire an expert.
• How the Marketmuse suite of services help the writer.
• Using smart content to illustrate expertise.
• Why search volume is not the only strategy for content valuation.
• Some quick win strategies – aka one-page plans.
• Packages MM offers for different sized audiences.
• Tools and hacks Jeff recommends.

Mark: So there was a time early on in Quiet Light Brokerage when I was doing all of the Content Marketing for the firm and I was writing on average eight blog posts or articles per week averaging about 18,200 words in length. And I underestimated when I started on this kind of venture of can I do these eight to 10 per month; I underestimated how much work it was going to be and it was a lot of work because it's not just writing down your thoughts it's writing for the web and writing for SEO and understanding what do you write about next. It's amazing how quick the writer's block comes in. I know that you had a conversation with Jeff Coyle a mutual friend of ours from Rhodium and one of the founders of MarketMuse which is an awesome company; a great tool from an SEO and content marketing standpoint. You guys talked about everything content which is relevant to buyers, anyone looking to acquire a web-based business and grow it. I know it's been a huge part of our marketing plan. What are some of the things that you and Jeff talked about in this conversation?

Chuck: It's quite great. I had a great conversation with Jeff and we're talking about if you've got a dollar spend where to spend it. Most people they're doing basic keyword research, they're looking for what's the keyword that's getting the most searches versus the keyword difficulty. And he takes it like way beyond that and they're looking at not just the specific keywords but what keywords are actually tied to other keywords that show that you're an expert in the topic. If I'm talking about like a specific thing but I fail to mention other words Google then thinks that I'm not an expert because anybody who's an expert would be using these other words or when you're just looking at keyword tools to look at the ones they're getting the most traffic you often miss the additional keywords that are in there.

Mark: Right. And I know full disclosure I use MarketMuse with Quiet Light Brokerage and actually with my other company as well. I use their service and the general sales pitch is pretty simple. It's this idea of setting up pillar pages and having this kind of spokes on a wheel branch now so the example that they use I think in some of the marketing materials is if you're going to have a website on craft beer you should have a blog post on craft beer but you should also have an entire section on hops and an entire section on barley and malts and then even from there if you want to be all about hops and afford it to do a page on hops you should also have some satellite pages on imperial hops or these other types of varieties of hops and being able to have this kind of wheel with different spokes coming out. And you know what a bunch of SEO tools use this. Like I've been using Sight Bulb recently; a really cool software that diagrams out your site and the sort of hub sort of format. What MarketMuse does is they take a blog post and had topics so you say I want to focus on craft beer and they say okay if you want to really be known as an expert, make sure that you're talking about hops at least 10 or 15 times in this blog post. And make sure that you're also talking about different types of barley. And then you can use that and say well okay I'll talk about this in this blog post but what do I write on other blog post? It's made for me and I don't do a lot of the writing anymore but it makes the content creation process super easy; like the ideation part, I mean that's the hard part about all of this. How do you come up with new ideas on what you should write about? But I don't want people to think this is just a sales pitch for MarketMuse. It's a great piece of software, obviously, I believe in it from that standpoint. But I think from a buyer standpoint also from a seller standpoint having a solid content strategy is really really key. If you were to spend money; Chuck you've had a bunch of businesses in the past and I know you've used content, if you're going to spend your money somewhere for long term marketing dollar I'm kind of leading you to the answer here, where would you spend it? Would it be in the content marketing world or would it be PPC or what are the advantages in your opinion of this content marketing versus other types of marketing?

Chuck: Yeah I mean it really depends I think on the type of business you have. Obviously, if you have a content-related business then you want to hop out as much quality content as you can. If you've got an e-commerce business there's different funnels and then buckets may be that you need to put your money in but you definitely need to be investing in content. Even on Amazon when you're thinking about like selling something on Amazon you go to some people's pages and the content is just horrible and it's so important. One of the things we didn't talk about but like when you're looking at Amazon you'll look at the questions people are asking and then answer those questions. So content is definitely important. We talked just a lot about what you should be writing about next. When you're looking at competitors sometimes you can actually see the direction they're going and then beat them and write a bunch of content. Actually, get in front of them because you look at their keyword list and you know the direction they're headed and you can actually get in front of them.

Mark: Yeah for my money I think the two areas that are the most important for a marketing strategy at least long term return will be content marketing and CRO, conversion rate optimization. Those two things alone have such staying power where you invest now and you're going to benefit for years to come as opposed to PPC which is great because you can throttle PPCC; that's the reason people love it. You can throttle up and down. You can really find some gems and it's very immediate. But long term success I think is predicated on this content strategy frank that's something we've even bought a little bit at Quiet Light. I just got to give you a quick shot out Chuck because you are wearing a Quiet Light shirt. So for all those people that are watching on YouTube and I know it's not a ton of you that are watching on YouTube but those that are you can see that Chuck actually has a really cool shirt. I don't even have that shirt. Did you give me one?

Chuck: I think I kind of bought Joe one but I didn't get you one so maybe I'll have to get you one as well.

Mark: Okay, I think Brad gave me one and it was like enormous. I was swimming on the thing.

Chuck: I think that's the one I have with Joe when I bought his it was too big for him so I have to get your size.

Mark: Make sure you size it down and hey if we get a few extras of these maybe we can set up a contest for people that actually want a Quiet Light; I don't care what you do with it but it's kind of fun to give that away as a prize. Let's get into the episode. Content marketing is where I cut my teeth early in the Internet world. I love this topic. I think Jeff is one of the smartest people in the industry when it comes to content marketing [inaudible 00:07:02.0] good market views and this is definitely one to learn from.

Chuck: Yeah absolutely and two things before we dive right into it; one they're giving a special discount. Again we're not trying to promote it. It's just a good product if you want it great but in the show notes, there's going to be a discount code to get a nice percentage off. And stay tuned to till the end of the video because I also asked Jeff for some additional tools that he likes to use. I always think it's fun to ask entrepreneurs what are some various tools that are unrelated to our discussion from what you're using so.

Chuck: All right hi everybody Chuck Mullins here from Quiet Light Brokerage and today on the call we have Jeff Coyle the co-founder of MarketMuse and chief is it, product officer?

Jeff: Yeah, Chief Product Officer, I manage the product data science and engineering teams as well as the marketing team at Marketing News.

Chuck: Awesome. So I've known Jeff for a couple of years, we run in the same circles. I've been on the Internet world for quite a while. Jeff do you want to tell us a little bit about yourself?

Jeff: Sure. I am as you mentioned the co-founder and chief product officer for MarketMuse. Prior to this, I've been in this space as Chuck mentioned for quite a long time; about 20 years as scary as that might sound in the search engine optimization content strategy game. I have generated like 50 million leads and not as an exaggeration for B2B technology primarily companies in the early part of my career. I worked as an early employee at a company called Knowledge Storm which sold to Tech Target which is also a great B2B publisher and an intent data and ABM platform for enterprise and mid-market B2B companies. I worked for them through their in-house team and in-house capabilities while I was there really focused on driving engaged users through content and content strategy. When I left Tech Target having already spoken with my co-founder about ways that we could grow MarketMuse I came on as a bit of a late co-founder and we've since grown the company to almost 50 people; really, really an amazing story about growth, building a new category about content strategy, what should you write next, what should you update or optimize next that's going to have the biggest impact on your business and everything that goes along with that from how do I assess my own authority, how do I understand where my gaps are, how do I know where my strengths are. And that's been the mission of our business is really to tell the story of I could spend a dollar on content; creating, optimizing, blah, blah, blah, tomorrow what should it be? And that's what MarketMuse is for; to tell that story.

Chuck: Alright so kind of you alluded to it but today we'll get you on a call to talk about SEO and maybe more so how content is applicable to SEO. So maybe starting at the base when somebody either acquires a new site or maybe is looking at a site trying to think of how do I grow this site like where's my opportunity, what kind of analysis do you think somebody should start off with?

Jeff: Well I think that traditionally the way that people have assessed sites for their strengths sometimes is only by looking at their current and existing rankings or their historical rankings. So it's a bit of you know kind of a tail wagging the dog assessment of where you're at, where you have been, but that as a starting point does provide some value as to where you are. It just doesn't tell typically the entire story about what it means to be about something. So when I'm looking at assessing a site for the merits of its; the collection of its content or its inventory of content, when I'm looking at is to say yes certainly I want to see performance. I want to look at also things that I might get out of my analytics package engagement. I have to understand the goals of the company the key performance indicators of the business. Am I driving those things? Can I peddle out of them? But divorcing those concepts for this point in discussion about conversion rate optimization and such from a search engine optimization or authority perspective I want to see where I've written great content so how much content have I created on core topics that I care about. When I do cover those topics how in-depth do I get and how successful does that; what kind of success does that yield when I write about a concept I care about when I get deep when I write high-quality content on concepts that I care about. Those two things really tell the story of your existing momentum on a concept. And so that when I'm assessing a site that's one thing I want to want to figure out is where do I have momentum? What concepts can I write about and I expect to be successful. And that's Stage 1.

Chuck: Before we move on from that one how do we gauge that success rate; what do we think is successful, what are the indicators that say hey I'm already doing well here or I'm not doing well here?

Jeff: Absolutely and that's the hardest part. And to run an effective content marketing team and a content production team for any company you've got to start at what are the key performance indicators? If I'm an e-commerce site the key metrics that I have is my average order size, it's my conversion rate close to a closed cart, it's my cart abandons, it's my total revenue. If I'm an affiliate site it might be an RPM metric and I have to be agnostic of and when I have agnostic a reference of affiliate and then I want specific combinations of affiliates because sometimes you can actually fake your books accidentally if you've got great affiliates on one page and not great affiliates on another. So it's really about I think engagement with affiliate opportunities in addition to revenue. You get a look at both of those things. If you are a publisher it's going to be RPM but also it's engagement with those pages. Because again how your ad server validates is do you have paid ads? So if you have a bunch of house ads and those have a different rate you want to always account for that because you might have great content this shooting off impressions engaged users clicks and such. So I always like to look at my current value per visit and then by the way from a B2B tech or something PI attorney; all these places are where MarketMuse does business so I like to kind of list a full fledge. I'm looking at my conversion to lead. I'm also looking at as far down the funnel as I can track and attribute. Every deal no matter what every situation you're looking at you always want to get it back to current value per visit and aspirational value per visit from a channel. In this case, let's say organic. So if I'm in a scenario I want to always be able to back that up. That's the only way I can truly define quantified value. And for MarketMuse obviously, that's the only way we can truly walk in the door and be confident in that ROI analysis. And that's why we've had to do this hundreds of times. When we talk to somebody it's to say how much do you really value each one of these visits? And if you can't answer that question it's okay, let's back into it, let's figure it out. How much is that truly about? Because then if you grow your traffic 20% you can say okay well that's worth this much to me. How much am I willing to invest in that? And that's how I define. So that's a long way of answering a short question that was actually really duped question. But the answer then is my quantified value metric. How much did I publish? How much did I update? How much do those act motions cost or those actions cost? And what was the efficiency rate on the content achieving some sort of baseline goal? I like to use recurring traffic from organic search as my goal. So I might get a boost from other channels and then it dies off. So I want recurring traffic at or above a particular baseline. So if I wrote 100 articles and 10 of them achieved my baseline of ongoing recurring traffic when I have 10 percent efficiency rate in that zone. If I updated 100 articles and 40 of them grew in traffic at or above a particular level. Then I've got a 40% efficiency rate on optimization. So when I talk about effectiveness of content I want to see how much should I publish, how much should I update and how often did that achieve my goals? I see ranges by the way just it scares the crap out of me sometimes, 1 to 2% of efficiency. Like I write 100 articles and only 2 get rankings. Quite often 40 and 45% at best practice that it's so wide. So you need to take stock today whomever you are and say how often did I write, how often did that yield recurring traffic; that's my efficiency rate. Am I in that 10 percent zone? I got some work to do. Am I above 20, 30, 40? I'm kicking butt. Now how do I take advantage of that? What do I do? No matter where you are there's always steps you can take to really maximize your earn. But it's a great question because so many people talk about ROI and they can't explain how they calculated.

Chuck: Right. And it sounds like what you're saying is maybe like diving into your analytics but not looking at like how much traffic this page is doing but what is the segmented traffic; how much is coming from Google or Bing or whatever you're targeting. Maybe you're targeting link acquisition with an article then you got to figure out what's the value of a link that's coming in, how many did I get on this piece of content, and then maybe kind of summing up the value of all the different components. Like knowing what your KPIs are for the specific content.

Jeff: Absolutely. And so the ways that I do that so it's manageable; there are ways where you can do that so it's manageable because [inaudible 00:16:38.2] I have thousands of pages or I published hundreds of pages how could I possibly do that? It's do it for the site level. Do it by site section; it's the way Google thinks about your site anyway. Do it by site section and then take your marquee pages and do a more thorough analysis of them. And marquee could mean your best pages that you feel are the best but they punch below their weight class, stuff that does really well, stuff that you invested a lot of money in. So build your plat; this is the stuff I'm going to do with deep dive but I'm also going to get my section level and sight levels metrics. An example might be that when Chuck writes an article he's on a 20% conversion rate to my effectiveness metric. But when Ron I don't know who Ron is but well just say Ron, when Ron writes an article he's 5%. So you're to get; you could do person level, you could do section level. You really want to get that slice and dice to know what's the thing that is causing success to happen or is it luck. A lot of sites a lot of B2B companies they rely on all of their authority for 5, 10 pages and they've got hundreds. Not only is it completely scary and unhealthy from a competitive space situation but if you're a Quiet Light listener it's an opportunity. I mean it's an opportunity to see a site that has a risk of ruin. It's an opportunity to see a site that has huge opportunity if they just publish the right content. So all of those things are what we're typically looking at. It's when I publish about Chevrolets it does real well when I publish about smart cars it doesn't. So when I get that site I'm shooting off about Ford and about gosh as my adjacent so I'm talking about; so it's really getting into when I get in how can I write about tangential or semantically related concepts, really expand my inventory in ways I know we'll have more success, and if I do want to cover other things. I think a reasonable expectation about investment need because I can't just go right kitty cats and crush it. But I know that if I cover what hubcaps should be on the PT Cruiser I can. And so those are the types of conceptual analysis, editorial content strategies I have been doing with years. Now you have data to support it. And that's where I think that the next phase of great Search Engine Optimization outcomes comes from this type of content strategy analysis for sure.

Chuck: And one of the things I was reading the other day was just and I think everybody already knows this but they were talking about news websites and why don't news websites rank for everything. Like a news website gets all the links because everybody's linking to articles but yet they don't have the ability to rank for all topics, right? Certain news agencies actually get a lot more traffic for specific topics because that is maybe their topical relevance of their business.

Jeff: Yeah. Oh, I mean news is so unique. The news algorithm has so many components and so from a Google news perspective and Google top stories there's components of real-time boosting. There's the concept of the fact that news articles appear in organic search. And they're coming from different channels of information. So they cross the chasm from just being news to being appropriate in search results. So then there's the dynamic of some of those items stay forever. Some of them are temporal and they're going to bounce out when that thing becomes less of a temporal story. We actually have a solution for that. MarketMuse allows you to analyze both serps and overlay analysis and it's called newsroom but that's neither here nor there. But the point of the message is what if you write news articles about this topic you care about but there's four to five aggressive publishers also publishing in that that have authority for news and you're just picking up the scraps. You can see that with solutions that are out there now. You're going to just see what those things are and then tracking that back to assessing performance. If I'm looking at my content items and I write 80 articles about some topic I get no news referrals and I get trickles in of organic and I'm writing it for the purposes of news, is that great? Let's say they get other KPIs, let's say they do gather links and they become powerful. But I'm not winning news, I'm not getting the organic search value that I think I should, how do I use that? How do I use the power that those pages are acquiring to my benefit? And most of the time when I see problematic content strategy; document the content strategy at a company they're not looking at their existing power pages. What content are they publishing that is gaining some value and how do we use that? Because I've got something that's a link magnet that every SEO in the world will go we need to do something with that but they don't necessarily know what that is. And a lot of times you see these link magnets and they're out there. They got a little bit of traffic upfront. They're not valuable enough to get recurrent traffic or it's not; it was a temporal staged story so they don't know what to do. And so weaving that article; weaving that item into some real good content strategy, that's the win. That's building my thought leadership, building my clusters of content, and hey this powerful battery. Plug the battery in here, plug the battery in here, and weave it in with internal link, weave it in with appropriate content, upgrade opportunities for conversions, there's so many things you can do to repurpose but when you get a winner use the winner. And we see that older people are scared to touch them because they're like it might break up. So these are the main dynamics that we run into with kind of the Assessment Authority and news as a special case. But it's so misunderstood what to do when you get a news winner. Because if you can predict that every time you publish a news story on Linux you're in the top three of Google top stories. Like, open that wallet every darn day. And I have clients that are in that scenario and we're like you must write about this every day and they cringe at first and I'm like here's the value that this produces; it's not just traffic. It's all the good stuff that comes as a result of that. It's also a long answer to a short question but I think that's usually a theme with me.

Chuck: Alright, so number two you're about to say before I ask you a question?

Jeff: Oh gosh I don't even remember what it was now. No, I'm just kidding. So it's kind of breadth and depth and then is the things that you see as being really high quality that you've written. These pillar pieces, the centers of the universe, the things that have acquired the KPI. How are those KPIs; they've acquired some metric that gives you that sense. So we've talked about how your existing momentum, well what are these cornerstone pieces, what are the center of the cluster pieces that exist and how are you using them today? Are you weaving them in? Are you using them to write then support pieces, etcetera? And how do you combine that with analysis of your target readership or user or buyer intent? So what's their purchase cycle; do you have coverage in the information phase, do you have coverage in the middle of funnel, do you have coverage late in the funnel, do you have post-purchase troubleshooting and adherence in ownership? So when you have a beacon of power really that's the time your mirror needs to be the most clear. I always say this. Like, stop tilting the mirror your way because you think you have success. The garbage in the game right now as I call it is people looking at search results and saying I need to write articles just like that search result item regardless of whether you want to argue differentiation it doesn't work. It only works if you have existing power to start to do things like that. What you have to do is just say with my site that I'm assessing, do I have coverage at all phases of the cycle that people would care about who are in this motion; I mean research, intent, decision, conversion, adherence, troubleshooting, whatever the metrics of the buy spying journey would be. And that comes to the why I say this way because the pragmatic approach is to say does this site truly represent my business as an authority and as an expert? What about this collection of pages or this content inventory tells a story that I actually am an expert? And so when you're looking at coverage, you're looking at momentum and what's been validated that I am an authority. But then it's also going to be like aspirationally if I truly were an expert what would I have covered? I can do that by doing competitive analysis or I can do that by doing semantic analysis and manual research. And so when you cross-reference; the punch line here is cross-reference the aspirational model against what you have and that's your gap analysis. So think about the outcomes there. I have gaps in this part of the bio journey. I have gaps, I have blind spots I don't ever cover these topics. I have blind spots here blah, blah, blah. I also have ranking gaps where I have striking distance keywords like I'm on page two that's that the SEO trick, right? Go tell them to update the pages where you're on page two and they'll go up a little and hey you did your job. So but if you weave that into this type of semantic analysis; this gap analysis, your content strategy becomes 2, 3, 10x more impactful overnight. And so compare that to keyword gap analysis, think about the outcomes. You get a word out of it. You get a word where you're ranking 12th and you think you should rank 5th. Well, now you know why. And then you know what you need to do. And that's the secret here. It's get yourself out of just keywords; get yourself into the content that's needed to plug the holes.

Chuck: So we don't know what we don't know so how do we figure out what the gaps are? Are there tools you can recommend? How do we figure this out?

Jeff: Yeah. Well I think that they're certainly on it and they're obviously not just the ones I present with MarketMuse but there are ways if you want to see. You want to be able to look at using your analytics, using any off the shelf Search Engine Optimization suite whether you are a higher-end person in a more enterprise or kind of using an [inaudible 00:27:29.2]. Looking at those pages; again all of your pages trying to organize them or you're looking at you don't want to buy those things, you've got analytics and you look at something that can crawl and analyze the structure of your site like a screening frog or a [inaudible 00:27:45.5] or a solution like that. Get a true understanding about your site and what it's about. What are the things where every time you publish it it's a winner or more of the time versus what's the stuff where you've been tilting at; aspirational goals. So looking at that or even looking at just traffic and revenue versions by section or by page type or by publish state because last year this was under this person's management this year this is under this person's management. Just a combination of this basic information from analytics and page-level data from a [inaudible 00:28:23.7] can get you at least started. And just to start thinking critically about your content inventory. A solution like the MarketMuse obviously is going to give you the sniper rifle to say go write this page, go fill this gap. But even if you if you're just looking to get kind of a basic understanding it can be easily put together to say gosh Chuck I don't know if we should publish any more articles about backgammon we're a chess site, it just hasn't extended. But when I write about you know particular defenses, we crush. Why don't we just lean into that? So you can make those types of decisions but then how do you get where we want to be a backgammon site. What are the ways that we can bridge the gap between chess and backgammon? How can we become more of an authority on strategic board games in general? So those are the types of questions that are out of this type of analysis, if you're real with yourself you stop publishing stuff that's not going to succeed. Try to figure out why it's not succeeding. That's where a person like a business like ours operates. But there's many out of an agency that knows the answer to these questions that can do that introspection that can do that analysis. But if you're analyzing your site I think it's truly to step back and say am I putting myself out there as an expert? Am I really showing it or was I chasing keywords? And it's always that oh man I haven't even thought about; I've just been looking up keywords, building lists, writing articles, keywords, lists, articles, keywords, lists, articles especially in the affiliate side not knocking always [inaudible 00:29:58.8] so much. It clearly comes out of a keyword list. And then I wrote the article some of them get linked together. Some of them don't. It's not leaving the web of somebody who actually knows their stuff. A great example of this; I've got uprise for every product in the world prices or reviews combination; bottom of funnel. That encompasses my contact strategy against this topic. It could have helped with that and then people wonder why they get hit when there's a quality change in the algorithm. It's because they're looking for that thing. They're looking for that stuff. You haven't told the story about buying that thing. Why are you the expert on pricing it? It doesn't make sense. And so that's the thing that; think about; get out of these search engine optimization shoes get into an editorial shoe. Hire an expert to say hey if you were writing an inventory of content about sound bafflers what would you cover; what are the things you need to know? And then cross-reference that against your stuff. Obviously, there's ways of doing both of those things taking technology like what we do.

Chuck: So let's talk about that I know we don't want to like hardcore pitch your product but you have a great product that I think is a lot of value to a lot of people. So let's talk about like how your product can help and maybe even hit it as like these are the things that my product can do and some of the stuff people can do without the product so they could do it on their own but you're offering a service that makes it a lot easier. So let's talk about that.

Jeff: So if I'm going to assess the value of a site; for example, if I want to see where there's areas of opportunity to create content or update content and be more successful. If I can get that hit list immediately and go execute on those plans; really move the needle quickly, that's a direct value of what one of the components of MarketMuse Suite. So MarketMuse Suite is a collection of; a combination of an automated content inventory and content auditing solution. We'll also take it to the next level and say after you build; after you say I want to create this page or update this page we'll build a comprehensive content brief for your writer. So it acts as a blueprint or an outline or a brief if you're familiar with what a brief looks like. And it tells a story so that the writer can be creative. So that the writer can research imagery; so the writer can research their sources and doesn't have to worry about is this thing going to have success after I hit publish. So many writers the anxiety they have; this is a huge pain point in the writing space is am I doing my keyword research correctly. Ask them. I mean that's the part I don't know. That's the part I really don't care about. I'm speaking from their standpoint. So take that mystery out of it. Take the SEO mystery out of it. Here's the outline we need you to follow. Be super creative. So we answer that question with that side of MarketMuse. We also have some point applications for doing competitive analysis so I can look at any search engine result page and understand who's got great content; high quality, who's got weak content, what are the gaps. And if I were going to put out true best in Class content on this specific intent, this specific topic what would it look like getting into the gritty details.

Chuck: So what are some of those details?

Jeff: Yeah. So what are the concepts that need to be included, what are the variants to consider, what are the questions to ask, what are the questions to answer, what are the internal linking; things you should do to internally link to other pages to tell the story that this isn't an orphan page on left field that actually weaves into your existing inventory and then grading your existing coverage and understanding how to interweave and to weave those things together. I have this great page; the one that you talked about, the news one, I want to make sure that it's linked. So all of those things we have point solutions so you can do a one-page analysis and get recommendations to improve it. You can get that one-page analysis and recommendations to make it equal to or better than your competitors every time and go head to head or against the whole field; questions and answers analysis, internal and external linking recommendations, and then we have for premium; one of our premium offerings is the newsroom solution specifically for Google News optimization. So basically the story is what should I write next, can you give me details as to how I would execute that so that you're getting me as close as you can to publishing? And then for all of my adjunct workflows; this specific analysis, this one-page analysis, we have applications to solve those specific goals to say okay why is Quiet Light Brokerage beating me for this topic? Is it because of quality; MarketMuse will tell you. Is it because of links and they have a worst page? Darn, they're more authoritative than me; what do I need to do? I need to go write a package of content. Tell me more of the story that I'm the expert because I don't have that off-page authority. So no matter where you sit it's giving you the advice as to what those next steps should be. And that's kind of the spirit of what we do.

Chuck: So one of the examples I've heard you say before is like you're writing about a specific topic blue fuzzy widgets, everybody who writes about blue fuzzy widgets also includes pink monkeys and if you're not writing about pink monkeys then you clearly don't know about blue fuzzy widgets. You're not an expert. So maybe can you talk about that a little bit?

Jeff: Sure. So our core technology is built on it. It's a topic modeling technology and it tells the story of what it means to be an expert on a concept. So it tells me by analyzing in some cases hundreds of thousands or millions of content items that people who know a lot about blue fuzzy widgets also know a lot about pink monkeys and so if you write about blue fuzzy widgets and you don't include pink monkeys you're not telling the story that you're an expert. So often in the market people have just looked at like the top 10 results to do this assessment. For so many reasons that I could get into there's a great article online called TFIDF is not the answer to your content and SEO problems and it goes into detail of each one of these logic challenges that exist. It's great for information retrieval. It's been around for 30 something years. Obviously, it's still being used. The challenge though is don't base your business content strategy and thousands of dollars of investment on that. And so what we were able to do is to say that but we're also then because we're analyzing so much data we're able to say that well guess what the top competitors aren't talking about orange donkeys and it's very relevant. That's a way for you to differentiate yourself. So you're covering the blue fuzzy widgets, your covering the pink monkeys but then you're going to differentiate yourself by also illustrating that you know all about those orange donkeys and that's what makes you special. And how does that drive back to true expertise? In this, we see constantly being successful with the best content strategies. They're writing about the table stakes content but they're also illustrating that they really know this stuff. And I always use more detailed examples but a cool one I always use for content marketing is a lot of people that write about content strategy don't talk about buyer personas. They don't talk about target audience. They don't talk about the roles on a content strategy team. Do you know why? Because they're chasing keywords. And if you can look at a search engine results page and go ooh, they're chasing keywords, there's my opportunity. Even if they're 9,000-word articles by HubSpot if you can find gaps in their game you can really take advantage of that and you can punch above your weight. And if you can pop a page that doesn't have as much traditional off-page authority link profile to build that beautiful cluster you can start ranking with undersized off-page pages and sections. And that's niche hunting. That's what the niche hunters talk about. That's what the UN fencers of the world; that's what they're really focusing on. How can I punch above my weight with undervalued off page sites? That's the way you get there; great content illustrates that you're an expert every time.

Chuck: So we're thinking; traditional people when they're thinking about articles they're doing keyword research they're finding those low difficulty versus high search volume relative and then they're just going after that but what they're missing is just because people aren't searching for a specific word doesn't mean that it's not important.

Jeff: You shouldn't have it in there.

Chuck: Right.

Jeff: Oh yeah.

Chuck: Or specific words within content that you need to have to show you're in authority even though people; the average Joe may not be searching for that.

Jeff: Exactly right. And that is the funniest thing about to watch the evolution in this market. When we first launched four years ago everyone when they would see a list of topics; this is the most interesting thing I'll say today, four years ago they used to look at that list and go why isn't it sorted by search point? And I said because that's irrelevant to what we're trying to do here. We're trying to tell you what it means to write that golden article to be an expert. Why does it matter what search volume is because you're so ingrained to use volume and PPC competition which that's another story for another day; crazy. Why don't do it? By the way, I'm not correlative to organic competition. I can get into that in a second but they're so ingrained; heavily so ingrained to use search volume as their North Star. They want everything to have search volume next to it so they can sort by it. So if we sort by that and then you discredit the stuff on the bottom, that's bananas. You're thinking about this from a content strategy perspective or from an expertise perspective. And that's what we see time and time again. Fun fact and I think you've heard me speak about this; it's totally exploitable. If you see competitors who clearly take topic lists and sorted by search volume you can; we usually call it chopping down a tree, you can chop down the tree. Every time it works because they have this strategy gap. You can predict what they're going to do. You can also chop down the tree in areas where they have blind spots. They will never fill them because they're using search point as a North Star. And so another way to say it is stop using that four square; that volume competition, you've all seen it. Alright, let's try to find those low competition high volume words. Sure those are great. Lean into those but that's not the whole picture of how you should write your content. Because the last thing I'll say about this is if you have no content at one stage of the purchase cycle and you think that you're not at risk with having content at another stage you've got another thing coming. It's going to catch up to you. Someone is going to fill that. Somebody is going to fill those intent gaps and crush you. It's just common. And we see it with publishers that have been resting on the laurels of their powerful content. They're just getting their tail handed to them by real content strategies every day.

Chuck: So what are some quick wins you think people can have? Like okay, I have a let's say a site about; I don't know, let's just say a general content site, you pick the topic. What are some real quick wins I can get?

Jeff: I like to call them one-page plans. So I'm going to find a page of interest. So something that's special about my site and maybe it's a small collection of pages. This is my page that's for some reason it's special. It's really long form, it's beautiful, it converts very well.

Chuck: Are we defining special meaning like it's already getting traffic or I just think it's pretty?

Jeff: I like it and it gets me some KPI that I think is legitimate and is giving me value. So it could be traffic already. It could be rankings that I am already getting; it ranks for lots of words. So that's a signal of comprehensiveness. A quick win could be to look at what that page is ranking for and pick out the words; this is using SEM Rush; using that to pick out the words in that list that the page doesn't actually satisfy the user intent for rewrite those pages; quickest win ever. So that one-page plan I rank this; I'll use a great example. Content Marketing Institute; I love that site, they have a wonderful page on LinkedIn profiles. It dominates LinkedIn profile marketing. They also rank for marketing profiles, not very good. And the site; the page just covers LinkedIn profiles. It doesn't cover generally marketing profiles. So they could beam their other zoom higher and now cover marketing profiles in general and write about other marketing profile presences as a cluster. All boats are going to rise. So you do that exercise, a quick win every time. You can find it. We call them content mismatches or unaddressed intent plants; always a win. You can always find one on your site because you've probably got pages that rank for hundreds of things. No one page can answer a hundred things beautifully. So when you go write that page people are like won't that cannibalize? No. I mean [inaudible 00:43:23.2]. Do I have to explain myself no?

Chuck: So the key there is again you've got that one page; it's linking for a lot of words, you've got tons of words, you'll pick out the few that it's not ranking well for and then you'll link through that keyword to a new article that is specifically about that content?

Jeff: Or expand it if it's a fit. If it's not a fit writing new but the key is it's not just that it's not ranking. I mean if it's not ranking for that's important but it could be ranking reasonably but not satisfying like user searches for that on Google and then they land on that page and like this sucks this isn't what I wanted. So if that intent mismatched so can you correct that and improve the page or do you need to do that in a new creation motion? So that is a tried and true technique. That's a recycle, recycle, recycle. Inside MarketMuse you just press a button and it tells you those plans which make life a lot easier obviously but you can do it. It's just that manual labor to use that one technique. And if you ask me for a quick one it's always a quick one. Look for that hundred word or more ranking page, find the word that this; read the page. You'd be surprised how many content strategists and CEOs don't actually read their sites; it's amazing. Read the page, know what value it has, and does this page get people to achieve that value. It can also be done on the back end. Andy Crestodina who works at Orbit Media; he is an expert in Google Analytics and content strategy. He wrote a book called Content Chemistry. Inside his analytics book; parts of the book, it shows you how to do this in Google Analytics by looking at exit rate and engagement gaps. So you can do it there or you can do it from keywords or any other ways but those are some quick ones. Look at your worst exit rates. So many people don't break those down by; they don't cross-reference those two things. So they've got a page, this thing is broken it's 90% in exit rate. Go back to the words that are driving the users to that page. What if all of them are out of alignment? You can just flash the content double engagement overnight. So there's so many wins that you can do with just a quick one-page plan analysis. I like to say pick one you like, get started, put few wins on the board, prove it out, and then decide is this something I want to get serious with and invest in technology that can support it.

Chuck: I got you. Now when I started first looking at your product a couple of years ago and seeing kind of the wonderful amazing things you were doing, it was at a price point where I actually kind of like when high price points because it keeps; on really good things it keeps other people from being able to do it. But I guess you just launched a new price point for a self-service.

Jeff: Yes. It's actually something we've been looking forward to doing. And we are a mid-market enterprise large publisher; people who have really invested in content that's traditionally been our target market.

Chuck: Could you give an example of some big players that you work with?

Jeff: Yeah sure. I'm trying to think of who's on this site. G2 Crowd is a customer and they're on there; we work with divisions of the Walmart Corporation, Home Depot, large e-commerce but also just great publishers. Business.com; love them so there's a lot of people who are publishing content. A lot of people I can't name and I wish I could. But if you type in MarketMuse case studies you can find a cool example from Tomorrow's Sleep on that one and how their site grew from 4,000 to 400,000 in a year with their agency that works with us. So that was always a big focus of ours. It was make sure that they can write content. Make sure that they can update content, that they've committed; they actually believe content can get them there because then life's going to be a lot easier for everybody. But we then also said let's look at the mirror. I'm always about looking in the mirror and look at the demand that we have. And so we really looked at who's coming in the front door saying we want to be MarketMuse customers. And right now having made that case internally or I just I'm not a profile of a customer that can spend tens or in some cases hundreds of thousands of dollars on software. And so what we did was we right-sized for a specific target market, we right-sized a self-serve offering. And there is also a trial experience that everyone who's listening can go to the site. Go to MarketMuse trial. Go to MarketMuse, see the trial and you'll get an experience with your data; we've actually set this up so you can use your site, optimize a page, create a content brief, update some existing content like I mentioned, get that content brief and then there's also a special workflow baked in there that'll amaze you that I'm not allowed to explain but you'll see it when you get there. But you can do a competitive analysis, you can update a page, you get a content brief; by the way, take that with you it's free and make that decision of whether you want to become a MarketMuse Pro customer which is our self-serve offering at 499 a month. Quiet Light Brokerage Podcast listeners have a promo which Chuck will include in his notes which gets you a discount there. Or if you're a larger team, if you have four writers, if you write 10, 15 articles a month it's going to make more sense for you to be in one of our other packages; a bronze, a silver, or a gold, or a higher offering. So it gives you an understanding about the value that we provide, the opportunity to buy, to see if that's a fit, or to immediately recognize oh gosh this is what I need for all of my content items. I need one of the larger offerings. So the experience we typically is that people find the right car on the lot. Or they begin using and saying oh wow I need more of this. I was successful with the first thing I did. I know this makes sense. Making your content higher quality, that's the fun part about being in Market Muse; it's you never look at it and you're like oh man I wish I hadn't made that page better. You're always on this ongoing quest to do a better job, write better content that resonates more with your audience. And that's what we do every day.

Chuck: Awesome. So to wrap this up I always like to ask people could you give us a few random tools not really related to what we're talking about but just things you like to use in your daily work or just regular life. What are some of the hacks you may have?

Jeff: Man, there's so many. I love this. So a couple that I use, when I had some personal time management issues I tried everything. I tried boards with; con bomb boards and everything. And one thing that helped me analyze where I was spending my time was called Tomecular and it looks like an eight-sided dice and you put stuff on it. And as you're working on stuff you move the dice around and it seems so; maybe it's because I like touching things like that but it really gave me an understanding about where I was spending my time and I fixed some stuff within MarketMuse like the business organizationally just from that information. So that's cool. I love Boomerang. I think it's a beautiful solution for making sure you don't forget stuff if you get a lot of e-mails. It's a really good productivity tool.

Chuck: Before you move on from Boomerang I think Google now have something similar built-in where they have the…

Jeff: They have don't let me forget this.

Chuck: Yeah. It's like a little reminder you can set for different dates and it comes back in.

Jeff: Yeah. Boomerang has some features that I'm so used to being able to set and forget things pause so I don't know if Google's ever going to pause Google so that's something that, but I like Boomerang. It's not that expensive. You do need to watch your SaaS subscriptions though. That's another story. Another one I love, love, love, love is Full Story. Full Story isn't; they keep going a little bit a little more expensive each time you look at them. Good for them. It's like having a DVR on every user that ever comes to your site. You can watch the experiences; obviously anonymized but you can watch their experiences, build pattern matching, look at segments, and really get an understanding about why people are doing things. I mean I think that that's really valuable.

Chuck: It's kind of like what is it Crazy Egg?

Jeff: It's similar to a Crazy Egg but it's more of like a heat map reporting. They've got this capability and a handful of other solutions that are out. I just think Full Story has this like really robust like I can go in and I can find users that went through this specific sequence and just watch all the sessions. I mean so many times. Just learn from that to really tell a story and it really is powerful when you are already doing a new multivariate testing to really catapult that into the next level. I mean if I told you what conversion rates we have you'd blow up. But yeah I mean you really have to think critically and fly the flag of your customers so that when you do get these solutions they don't just sit on the shelf. I mean my goal every day is to make sure that the next article that every one of my clients publish is more successful than it could have been without us. And I think that comes through in our online messaging. It's not just that we're this secret weapon of the elite agencies which I know for a while that's what we were. It's that if you use MarketMuse your stuff will do better more consistently and then I will be happy. And if it does not happen then I and our entire team will not be happy. And we hope that our messaging comes through and we couldn't do it without these other solutions that we work with Full Story, like Pendo; Pendo is a beautiful thing, and some other metrics, some other things we use to really dive deep into our customer experience.

Chuck: Awesome well I appreciate you taking the time to talk with everybody today. Is there a way that people can reach out to you or the company?

Jeff: Yeah, absolutely. So MarketMuse.com, Chuck's going to post a promo code that's for the MarketMuse Pro self-serve offering as a discount. You can email me directly [email protected], Jeffrey_Coyle on Twitter. I'm pretty active. LinkedIn, please. I typically don't say no unless you've sent me a weirdo request that tells me in an unreal way that you like my profile and you'd love to connect. If it's clear that you bought or sold a website before in your life I'm probably going to connect with you and want to talk in any light. So yeah please reach out and go check it out. We have a lot of content. I have a lot of; this conversation is like this throughout the web that I think can really level up your game and give you the ability to assess deals quickly without just hunches. You got to go with your hunches but it's nice to have hunches and data.

Chuck: Yeah for sure. And a quick pro tip from me, if you're trying to get somebody to accept your LinkedIn profile and they don't know who you are, write a message. Don't just send the like later. Personally, I feel like if I've LinkedIn with somebody and I'm connected then I'm somewhat vouching for them so I don't just accept random LinkedIns. Like, everybody, I've accepted for the most part are people I've actually met in person. But then we go to these conferences and somebody sent me a request and I don't remember them so it's like just send a little message with them, take the two seconds to write.

Jeff: Yeah, and make it from the heart. We can smell of that. Come on. I think MarketMuse is cool. Oh really do you? I do too. So I guess we are connected I love the thing but you know.

Chuck: There you go. All right well I appreciate your time and thank you, everybody, for taking the time to listen and see you soon.

Links and Resources:

MarketMuse

MarketMuse coupon code (mentioned in the podcast): QLBMM

Email Jeff

Twitter

LinkedIn

Getting control of your business is the key to navigating towards a profitable future. The most common obstacles for successful eCommerce businesses are inventory and cash flow. Today's guest is an expert in providing forecasting tools to help skirt those obstacles to grow your business and prep for a successful exit. Scott Deetz was one of the advisers whose input was crucial to a successful overseas deal we discussed on a previous episode. In this episode, we explore the ways Scott's forecasting techniques have fact-based evidence to support predicted ROI for potential buyers.

Scott is the founder and CEO of the Northbound group, a company that helps eCommerce businesses uncover the value in their businesses and prepare a successful exit. With a background in corporate transactions, Scott got into the amazon selling space in 2013. He soon realized his interest remained where it had started, in mergers and strategic advising. He now spends all his time assisting eCommerce businesses on how to maximize the value of their company for either keeping or selling.

Episode Highlights:

• Whether forecasting is based on a wish and a prayer or if there is science and methodology involved.
• The importance of forecasting as a regular part of any growing business.
• How Scott's tools can help establish the supplier as a partner and diminish cash flow problems.
• How the forecasting can change the discussion on strategy.
• The value of the planning and structuring a deal around the forecasting.
• The buyer's effective multiple and what it means for their purchase process.
• The importance of speaking the buyer's language.
• Scott reveals the levels of building from forecasting.
• How hard data coupled with owner wisdom can the best formula for forecasting as well provide a roadmap for a successful exit.

Joe: Mark, one of the things or a dozen of the things that I always see happen with entrepreneurs that we speak with is that everyone runs out of inventory, everyone has cash flow problems, in fact I was just on a call prior to recording this podcast with someone that does an amazing job with their business to the point where it's growing 150% year over year which causes what? Cash flow problems, inventory problems. I did a webinar yesterday and one of the questions was have you ever run a stock? Yes, no, or I'm so amazing I never run out of stock. Oddly enough no one checks the third option which is really good. But a lot of people run out of stock. It seems to be the status quo. I understand that you had our friend Scott Deetz on the podcast talking about forecasting, talking about cash flow management; what it does for your peace of mind number one but inventory management and how you can use all of these forecasting tools to renegotiate with your suppliers to build a more valuable business and to grow it with more confidence. How did the call go?

Mark: Yeah. So, Joe, I know the podcast episodes that you do are so well packaged that you have an amazing podcast, right? I just want to start out with that. You have an amazing podcast and you package these together so well with their incredible exits series that you've been doing and actually, in all honesty, it is a really good series that you've been doing where you're interviewing some sellers. With my less desirable or appealing package, I've been doing essentially the same thing with the UK deal. We really had Joseph Harwood on. That episode aired I believe in August and we talked about Joseph's exit as a UK company. And one of the things that we brought up on that call was how many advisors helped us through that process. Well, Scott was one of these advisors and I'm going to also have another podcast with one of the other advisors on that that helped us through that. One of the crucial aspects for shows of sale, one of the things that really made it run was the forecasting that Joseph and Scott did with the business now forecasts. A lot of us see them and think they're just kind of a wing and a prayer and they're kind of hoping and hey, if my rosy assumptions work out this business, is going to have a hockey stick amount of growth. And so they get discounted quite a bit. I remember I spoke to somebody else about this; Andy Jones from Private Equity Info and we asked him about forecasts and he said look you look at forecasts they are all hockey sticks. I guarantee the buyer is going to do their own forecasts. Well, Scott has a different approach to forecasts. They're very very conservative. He ends up doing scenario analysis to see Scenario A, Scenario B, Scenario C; one's very pessimistic, ones very optimistic, one is what they actually expect to happen and there's actually a methodology here. Now we spent the first half of this call going over why is this important. He explained how he uses this to negotiate supplier terms that don't pinch the supplier but actually help a partnership with that supplier. He talks about how it was crucial for Joseph having the ability to order a really sizable amount of inventory as we're going into a busy season so that he didn't run out. And then finally we talked about how it has an impact on the actual selling process. And he brought up a point; super simple, you and I talk about this all the time, when you're talking to a buyer for an online business you need to be able to speak to the return on investment they're going to get. And their buyer is constantly doing that sort of analysis. Well, Scott was able to go through an analysis that was based on reason and logic and numbers and it had been refined if we could take a look historically to see here's what we were forecasting, here's how close we were, right? We were off and so we've modified our assumptions. So about half of it is on why the second half is on how and kind of giving people a little bit of a jump start on how to actually do forecasting. And it's something that I would highly recommend. We had Ben Murray on from the SaaS CFO and he talked about the importance of forecasting in a SaaS business. So this is a really important thing for any online business and frankly any business to start doing.

Joe: And these guys are all connected with running multi-million dollar businesses that will have a multi-million dollar exit. And that's they've; I want to say grown up into forecasting. A lot of people bootstrap things and sort of do the best they can. Those that hold on long enough or mature enough to get to the forecasting part. I think it makes a huge difference. The folks that I just had on the call prior to this they've got an incredible business and they've grown up into that as well. I think that this podcast will help them tremendously. I know Scott personally he's a great guy, very smart, very very good at numbers so let's jump into it.

Mark: But before we get there, I just want to throw out there to the listeners in case you didn't catch it. Mark Doust is an expert at very subtle wise assery; here's why, I told him I was going to read this quote, quote-unquote this is from a listener, a guy named Chris Rock is his last name. Thank you, Chris. I just want you to know you are my favorite listener at this point. Quote, I've been impressed by several podcasts with Joe Valley; no space there for Mark Daoust, no mention of Mark Daoust at all, Joe Valley and we'd like to set up a call this week to discuss the process and valuation. Thank you, Chris. You are my favorite without a doubt. Let's go to the podcast.

Joe: I was being sold. I just want to make it clear.

Mark: Alright here we go. Scott Deetz, here we go folks.

Mark: Alright I'm really excited this week to have Scott Deetz on. Scott you and I worked together for a long time and frankly it's been way way too long for this to even happen. I should've had you on the podcast probably a year ago or so but I don't know if you've listened to the podcast at all. We have a tradition of guests introducing themselves mainly because we don't do show prep so I'll hand it over to you. Why don't you introduce yourself to the audience?

Scott: Sure, perfect. Yeah, I'm excited to do this Mark. So my name is Scott Deetz. I'm with Northbound Group which is a company that I founded. I was an Amazon seller starting in 2013. I was ASM3 for folks that may know what that is and I got into the Amazon selling side of things but my background has been in more corporate transactions, mergers, and acquisitions. And once I got into the industry for a little bit, I realized that I liked helping people and looked at the industry and thought I could help people in a series of ways with strategic finance and with corporate development work and with being, in essence, a strategic advisor to people that may want to consider exit strategies as well. So I started Northbound Group about three years ago and now that's what I do full time; it's just assist Amazon and other e-commerce businesses on how to maximize the value of their company for whether they want to hold it or whether they want to sell it.

Mark: Yeah. And you worked on; actually, we worked together on Joseph Harwood's deal. We had him on the podcast a few weeks ago talking about how to sell a UK based business and that was a complex transaction. We talked a lot about that on that podcast about how complex it was at least compared to what we typically see in the spaces as to how these transactions go. The topic that you and I are going to discuss today is forecasting. And I really think with Joseph's business and the way that we presented that business to potential buyers there was so much that it hinged on the forecasting that your group did to be able to say what are we looking at for sales coming from the future. Now this is a bit of a touchy subject because within Quiet Light we don't rely on forecasts all that much, right? We would never sell or trade necessarily on a forecast on its own. However, your forecasts were a bit different than what we've typically seen in the past. If I could just kind of put it bluntly most forecasts that we see are kind of a wish and a prayer. If someone is saying hey here's what I like to do over the next twelve months or it's even more simplistic than that; well this is what I did the first three months of the year, a straight-line projection shows that it's going to be this so that's going to be my forecast. And it's just very unreliable and that's why we've never used it. Yours tended to have quite a bit more specificity and we really put a lot into that forecast including structuring the deal around the forecast as well which meant that our client, in this case, Joseph really believed the numbers that were coming out because he was riding a lot on that. So I wanted to talk about forecasting and I want to start out with just kind of a basic question, is it just a wish and a prayer to say this is what we're going to be doing in the future? And again this is a softball question. I'm leading you into the answer pretty easily here. Or is there actual science and actual methodology here where we can use these forecasts with some level of reliability?

Scott: Yeah. So to me, that case study really showcased the power of how forecasting can ultimately affect the amount that you receive for your company. But I would say the short answer to your question is if an Amazon seller came to me and said would I rather have a simplistic forecast than no forecast at all I would say yes. But the answer to it really is that I think forecasting is not a one-time event but something you implement. So, in other words, people don't build a forecast and then it collects dust. You implement a forecasting methodology in your business that is continually being updated as new information is coming into the business. And when your self as an owner or when an outside party can see that not only is it a science and it's around a tool but it is also an ingrained methodology for the business, I think that's really when the power of forecasting takes hold. And particularly in Joseph's case, for example, the first forecast that we built and if he was on the call we would laugh together, it started out like you would expect. I have no idea. Let's put some numbers on a board. Let's start looking at it. Then we started implementing it on a regular basis and we would get it down to the point to where we could update a complete forecast for the business in under 60 minutes. And every time that we realized we were either short of our forecast or over our forecast we started tweaking it and we got more and more and more accurate so that by the time that we, for example, got in front of a potential buyer for the business the buyer could sense our confidence in the forecast and obviously then that in turn gave them their confidence in the forecast and ultimately helped facilitate the transaction.

Mark: And I want to get into methodology here in a little bit but I want to start at a maybe a little bit of an earlier point because we talk a lot in Quiet Light about how having a good exit strategy and preparing a business for sale often gives you a really good business to own, right? And this exercise of forecasting is not just for an exit. It's actually really good from a business ownership standpoint. What are some reasons that people should be implementing forecasting as a regular part of their business?

Scott: Yeah. The easiest way I can answer that is that I say there is no cash flow planning without forecasting.

Mark: For anybody out there by the way it felt like a good rhyme.

Scott: It does, doesn't it? Yeah, there is no cash planning without forecasting or something like. But everybody out there that is in this industry struggles with the fact that as you grow because you have to front a lot of your inventory oftentimes or at least a portion of that you have to invest in the business. Everybody is doing this dance between growth and having enough cash to grow. A forecast fundamentally is the link between the two that doesn't look at what your accounting numbers were in the past but looks at what the next six or twelve months forward of your businesses and we'll answer the question for you do I have enough cash to succeed? And the way I look at if you use Xero or Quickbooks or a good accounting program is very simply that gives you a gorgeous picture of what's in the rearview mirror but you don't drive your car based on what's in the rearview mirror, you drive your car based on what's out in front of you. And really what forecasting is that capability. So whether you ever want to sell your business or not if you want to have an accurate cash flow of your business you by definition have to be good at forecasting. The second reason that I think that it's really really critical is because forecasting helps you determine where you're making your money and where you're not making your money. So very often in our forecasting tools that we have built for Amazon sellers, we'll build a forecast for people and it doesn't only forecast the revenue but it forecasts the profitability. And it's not uncommon at all for example to see somebody who's selling a product in the US that's making a great amount of profit and they take that same product and when you add the VAT or other costs in the UK it's not profitable at all. So why put the gas pedal down so to speak and grow an area of your company that's not as profitable? So I think it's really helpful in two things; well three things actually, the first one is cash flow planning, the second one is analyzing your profitability, and then the third one is once you have an accurate forecast we have found it's the single most important thing to help you get better supplier terms. So when we go negotiate with suppliers on behalf of our clients or we give them the tools to do it themselves we are incorporating forecasting to show the suppliers a forecast that they then believe. And if your supplier believes an accurate forecast then what they'll do is they'll say to you, okay wow we're going to grow this much. That is the basis for the conversation of getting payment terms after shipping. And it's also the basis for being able to ask for a better price for your product. So those are really outside of even selling the business; as far as running the business those are the big three.

Mark: Yeah. This idea of cash flow planning; I mean the number one problem with Amazon businesses is what it's cash flow, right? I mean people are growing, their business is growing and they're putting all the money back into inventory and I think a lot of Amazon sellers are really just sticking their thumb up in the air and saying okay I think I should order this much. Maybe there's some level of estimation going on there. But the number of people that we see the number of businesses we see where they have inventory shortages or they have a busy season and they end up ordering too much and so they're sitting on just a big pile of inventory that's there for another year waiting for the next busy season. I mean it's kind of a rule; it's not an exception that we see this. Your supplier terms that you mentioned in the third point that plays into this cash flow problem as well. I don't want to get into the details of exactly what Joseph's structure with his business and his supplier terms but suffice it to say he eliminated all of the cash flow issues that you would normally have with an Amazon business because you guys were able to negotiate really good terms with the suppliers. I assume that was based on the forecast that you're able to put together.

Scott: Yes absolutely it was and the key part that we were able to do was bring in the supplier in essence in partnership and have them realize, and this is what I'd recommend anybody that's listening to this, this is not about beating up a supplier. This is about being upfront with them and saying if I had no cash flow problem this is what the growth potential would be for the products that I sourced through you. We were able to make that case with this particular supplier. And in essence, it rapidly accelerated the growth of the business prior to then ultimately exiting the business because we eliminated the cash flow problem which also became a competitive advantage against other people that had cash flow problems because when they run out of inventory we get our sales. So it's absolutely critical and the number one reason that a lot of suppliers don't want to give better terms is because like you said they don't trust that either the business will sell that many units. So then if they know the business doesn't sell the units they may be stuck with them. Forecasting helps eliminate that concern and we were able to go to the supplier and say look at all of these trends, look at all of this information if we sell this many units of these many products this is how fast we could grow. But the problem is we don't have the cash to order that many units, can you help us out? And ultimately we are able to come to a very favorable situation for frankly both the supplier and for Joseph.

Mark: Yeah. This idea of profitability as well. I mean this is just a common area where we see a lot of waste being spent on ASINs that frankly aren't that profitable. And these are the areas where people are spending time, resources, maybe they're spending money on this and it's really just diluting what their efforts should be as well. So this idea of going back I liken it to something that again we preach over and over at Quiet Light which is it starts with having good books, good data that you can go back and look at. Personally in my personal life like when I review my finances and if you do this at home and you look at your credit card statement, how many times have you looked at your credit card statement and you look at something and say oh my gosh I have this subscription; I didn't even realize I still had this subscription on there, right? Going back over and over again and like you're doing revising assumptions of what the business is doing helps you think about your business more critically in a different way than maybe we would normally think of you know especially with a product-based business you're thinking about product variations, you're thinking about customer service, how can you make that customer experience better but maybe not thinking strategically about your business as you might want to. And I know with Joseph's business looking at his inventory purchasing history he made a couple of purchases in there which I looked at and I just thought oh my goodness this guy is brave. Because he was taking huge chunks of inventory on at the time but he was able to do that because you guys had worked on this and he felt very confident about what was coming up plus he got great supplier terms that came with kind of a safety point there.

Scott: We simply would not; two notes on that, one without going to the suppliers for the supplier terms we wouldn't have been able to grow as fast because we wouldn't have wanted to take on the personal risk that comes when you sign a letter of credit at a bank or anything like that. You've got a personal guarantee. So good supplier terms allowed us to have a business partnership that while we had a good-faith guarantee that we were going to pay them for that it's not the same as putting up your house or putting up all of the other assets that you have in the business. And forecasting was sort of a key aspect to that. Here's the other thing and I've seen it go the opposite way as well and I always like to stress this is that if somebody is thinking about eventually selling their business you have to understand that every dollar of profit in the year that you sell costs you three to four times as much. Because when you apply the multiple to your valuation if I am a company that's making $200,000 a year and they go out of stock and that stock going out of stock costs them $10,000 of profit. You not only lose the $10,000 of profit because you went out of stock you lose three times that amount and if your multiple is three and we're not here to discuss multiples. But the point is that just going out of stock we had somebody that we work with that went out of stock during a busy season for only two weeks, it cost them about $30,000 of profit and instantly they lost $100,000 off their sales price by one outage that forecasting could have prevented by knowing that they needed to order more. So I think if you needed a fourth reason out there why this is so critical I always say the most expensive way to finance your business is by running out of stock and not ordering enough not because we've all seen that yo-yo. Forecast at least allows you to see the problem so that you can address it proactively as opposed to all of a sudden boom you're out of stock and you're in a scramble and you're shipping by air which also costs you on your valuation and those things. So for those reasons that's why I think it's just so absolutely critical to running a business successfully particularly on Amazon.

Mark: Yeah and I want to comment on that real quick because I was about to say obviously we're going to be Amazon-specific; that's where you really know your stuff extremely well. The forecasting is an exercise that pretty much every business should be doing. I know I had Ben Murray on the SaaS CFO and he talks about the importance of forecasting in a SaaS business. And I know at Quiet Light we just recently implemented some forecasting models as well. And it's super helpful when I can look at; our major expense is conferences, right? So when I can even look out and see what our expense profile in the forecast for that over the next six months is it really helps us understand how to spend our money and gives us a different way of looking at this. Alright; forecasting, we could talk a lot about why we should do it for just running the business. When it comes to selling a business the impact of having a reliable forecast and the impact that it has on a buyer, I'm going to just comment on this real quick because with Joseph's business I was obviously working with buyers directly on that and I can tell you that oftentimes forecast get met with some skepticism. People look at it and they don't really trust them. When people look at your forecasts partly because of the way we structured the deal and there was an earn-out that we were upfront with saying look we expect some pretty big growth in this business so we're not asking for everything upfront. We're willing to do an earn-out type of structure here but also because of the way that the forecasts really seem to have some specificity to them. That became an integral part of that sales process where people wanted to delve in and understand the forecasts. And as we were going through an update in months people were checking the forecasts as well. And when they saw that you guys were right on them or in some cases maybe a little bit wrong but here's why. It changed the discussion dynamically. This was not just kind of an amateur business of somebody who found a product that sold well on Amazon. This was a business that was being run strategically and had a real plan moving forward. And so on the sales process, I think the very simple conclusion is you added a lot of value to Joseph's business by virtue of having the strategic planning and the strategic background that you were working on and then structuring a deal around this as well.

Scott: Thank you. Yeah, so I think a couple of points on that; one of them as you transition over to the sales side of things, the first thing I always want to state is that most buyers like you said will say to you we can't buy on future projections. As a general rule, there's a lot of risk in Amazon and all of these reasons for it but I want to make this statement and I state it so boldly when I talk with sellers because I think it's so critical in forecasting such an important part of it. The only multiple that a buyer cares about is not the historical multiple, the only multiple they care about is what I call the buyer's effective multiple which is what is the price I pay divided by the earnings that I get which by definition is something in the future. So while they're not sharing their forecast with you if they don't believe they are building a forecast on their side which is helping them calculate what's called the return on investment in various ways. So the notion I want sellers to understand just as how when you build a listing you need to speak in the language of your customer in order to have your product listing make sense. It's the same thing when you go through a transaction you need to be able to speak in the language of a buyer to have the most credibility for that particular buyer. So the forecast that we built with Joseph is built very very much with that purpose in mind. We think of ourselves as an outsourced CFO to a business with the responsibility of communicating in the language of a buyer. So when I think about sort of forecasting and what I'll call more advanced forecasting what we were able to do was not just to say hey if you give us a bunch of cash we think the business will double what we were able to do is to look at every product on a per unit basis of how many units it's doing right now. We would then apply seasonality to it so that we had all the historical information to apply seasonality. We did that for every current product in every market based on the margin in that market whether it was in dot.com or in Europe or in the US. And then we were able to build in each of all of the product launches of new products that didn't exist today but we're coming out to market. And we were able to be conservative on those but in essence, show that even if we hit conservative numbers of that we're gonna be in a pretty positive situation. So I think the message is when a buyer sees all of that underlying logic in the forecast it's more than just an idea. It's really a strategic communication tool between the buyer and the seller. So they were able to go okay, and you bring up another great point which is that this is absolutely a process through the life of getting the transaction done. If it takes you a few months to sell your business every month you're updating that forecast; you're having that dialogue as to where things are at. So I think what I would encourage people is that when you want to be in front of a buyer the same way that you want to be in front of a customer and think about it from their lens. You want to do the same thing for a buyer and a buyer needs to understand what the potential is of the business in order to pay the highest price for it. And if they don't know the business as well as you do I look at it as we're sort of obligated in our minds to provide them that picture. They can agree or disagree and we can structure a deal accordingly but unless we have a common view of what we think reality is in the future that's really the only effective multiple that they can use to calculate their return on their investment.

Mark: Yeah. And the phrase I've always used for that is buyers buy for ROI. And you see it's got that rhyme so it's more memorable.

Scott: Yeah, I love it. I love it. Exactly.

Mark: No one buys a business to lose money. People buy a business because they want to make money. And speaking in the language of the buyer it really does boil down to that and the more firm that we can make that ROI pitch of here's why you're going to see a return on your investment; the more fun you can make that the more certain a buyer is going to be, the more willing they're going to be to pay a higher price for the business. I feel that we spent a lot of time speaking on why and that's my fault here. I want to get into how to do this because it's one thing to say okay here's what my historical sales were and maybe we're going to assume certain growth; I mean what sort of assumptions would you start with when you're doing some forecasting on an Amazon business? And then I'm going to wrap in multiple questions here and just kind of let you go to town on this, how would you do like a new product launch as well? I'm interested in both of those questions; like existing products in the next year and also new product launches.

Scott: I got it. So here's the way I think; I'm going to refer to this as the building blocks of a forecast. So the building blocks of a forecast first is an understanding that there are two types of forecasts that you need. One of them is I'm going to refer to it as a product forecast or a product sales forecast and the second one is one I'm going to refer to as a P&L forecast or an overall profit and loss or income statement forecast and here's how they relate together. The first thing that you need to build is you need to build your product forecast which is, in essence, each one of your products. And part of what we've built over the last two or three years is toolsets to do this. But even if you weren't going to use our toolsets and just think about it conceptually every one of your products you need to know what the margin of that product is. You need to understand what the historical sales of that product have been. And then very simply you need to be able to project out; we do it on a per-day basis because that's generally how people think about it and then multiply times 30 but you need to be able to project out how many units per day or per month of each one of my current products am I believing that I'm going to sell. The second thing is most of the time when we build a per product forecast for people and they say that they want to double the size of their business or that they could, the first thing that they realize when they look at all their existing products is that that's not going to get them where they want to go. And that's where new product forecasting comes in. And the way that we do new product forecasting is exactly the same way but we build in what we call a launch budget and then a launch ramp up for each one of those new products. So we'll build in an upfront cost of let's say $5,000 to do giveaways or ads or review gathering; those types of things. And then we'll build in that if I eventually get to 30 units a day of this particular product then it's going to take me four months to get there so we'll start at 10 units then 15 then 20 and then 30 over each particular month. So visually the way it looks is in the product forecasting all of your current products we have out on the top and then down below that over time you have a bunch of zeros but then you eventually have revenue coming in down below that if you list out all of your new products. And that gives you what I refer to as your product forecast.

Mark: So how do you project out with some of these products on a per-day basis? I mean obviously; let's say I'm selling 10 units a day right now and I want to get to 17 units per day, where do you look at to say I think I can get here. You have to be looking at; we have to do X, Y, and Z to get here almost working backwards to be able to say we're going to do X, Y, and Z to get here or are you looking at here's what we're doing and here is just kind of the trajectory and where do you see the limit as well? Because that's more aspect of it where if you're doing 10 years a day you might want to sell a thousand per day but that market just isn't there for that.

Scott: Yeah. So the way we think about that is first of all you have to look at what the overall market potential is. So pick whatever tool that you want to use. We use Helium10 for example when we say okay if I was in first spot for this keyword, this keyword, this keyword, and this keyword what is really a realistic assessment of how much I could gain? And then let's look at the product trajectory of where this product is at and if we're rank 15 then we believe that we can get; and we usually say start conservative. Start your product forecast on if I could eventually get to the top half of Page 1 but don't necessarily build a forecast based on I'm going to outtake the competitor. A more advanced forecast what we want people to do is literally situate themselves compared to the competition. So it's pretty obvious sometimes when you go into a market and one of the clients I was speaking with yesterday while we're doing our forecasting work he said yeah for me to get to spot one or two is I'm going to have to have literally 4,000 reviews, I'm gonna have to do massive giveaways, so we said really for this product and this keyword and this niche we're going to keep the forecast is based on being in positions 3 to 6. And then let's look at where you're at now and if you're in position 22 but you're working your way out then you can build your forecast up to that particular level. But you really have to do it that way. And then the other key that we really really focused on a lot is every month has a seasonality factor to it. So you have to understand what is your seasonality factors when you're building your forecast. So in our tools for example we have the ability to set up to 12 different seasonalities because we want to basically allow you to understand when it gets to August how much should I order for the holidays or for a lot of people they have summer seasonality when should I place my orders. So you really have to assess not only the units per day but assess the seasonality side of things. And then the only other thing that we look at in terms of building that sort of bottoms-up forecast is don't always plan that a product is always going to stay level. You have to plan sometimes over a two or three year period based on the product life cycle to start to even put in a slight decline. There might be competition there might be price wars and those types of things and I think that's absolutely critical to forecasting because it encourages you to always innovate. Where sometimes people get a few; and I'm sure you've seen this a ton of times, you get a few hero SKUs that are doing great but then they don't invest in new product and we've talked about this before, you have to keep doing that even if you're thinking about selling your business because you can't count on those products always being the big winners that they might be today.

Mark: How many influencing variables do you typically look at in a mature forecasting model and are they working together in a formulaic way or are you really just taking more subjective assessments of these things? And what I mean is let's say that you're looking at I know this is what my keyword volume is for particular products, I know what my [inaudible 00:36:08.1] says so I can kind of back into some projected numbers here from just the paid model and here's the organic models so you can almost approach this formulaically or you could sit back and again have more of this the subjective look at all the different factors. Are you taking more of this variable approach?

Scott: Yes. So here's what I would say. I look at formulaic as tools that provide insight but do not provide wisdom. You as the owner of your business need to become what I'd refer to as wise. And my way of thinking about it is you have a bunch of data that eventually leads to information that then information leads to decisions and then decisions over time leads to wisdom. And so the way that I think about that is sort of like a pyramid building up. The tools provide you the data and the information but it's your insight and your time and experience that provides the wisdom. So the way that we think about it is every one of your products with our best clients that we force them through the discipline of looking at all of the data out there but committing to units per day in the future going forward on this particular product and think of it as sort of a manual override. All of the forecasting tools out there are great but every one of them every time; and we built all these tools because I built that originally for my Amazon business and eventually what ended up happening in every conversation we have with owners of businesses they say oh yeah I know that I used to do this the last three months but I've really taken a hit. My review rating went down to 4.2 and I lost 20% of my sales. Oh good, then we better put this one down at 20 units a day down from 30 until we feel more comfortable with it. So once you get the process down, that's what I want to encourage people, as you get the process down to where it's a half-hour a week the one that we do that takes an hour a week they have 75 parent SKUs out there and we can go through that in an hour and just yup, yup, yup, yup, and just continually refining what that particular process is. So I always think of it as tools versus wisdom and you need to apply the owner's wisdom to it. That's the only way we've found; same thing with launches you have to build into a launch what do you realistically think that it's going to take. And then oftentimes that's why this cashflow thing is so important is that we have multiple clients that will list out 15 different products that fit the brand. Then we'll look at the cash flow and we'll say here's the first five, the second five, and the third five, and we're going to roll them out over the next year so that you can then implement them in a way that is cash flow acceptable to the business.

Mark: How do you recommend people get started? I know we're getting up against the clock here but starting something like this can be terribly daunting because there are just so many factors to be able to consider. Any recommendations on how somebody can start out maybe with some simple forecasting?

Scott: Yeah. So here's what I would say there's four levels to forecasting and if you take nothing else from today implement Level 1 which is look at every one of your products, what it's done historically, and implement what you believe that it can do over the next 12 months. And if you want to do it by using the historical sales via ASIN report or the business report that comes out of Amazon for the last month and then just project what that is in terms of units and then in terms of sales build yourself a very simple spreadsheet in order to do that. That will at least start to give you an idea. And if you commit 30 minutes every week to looking at that sheet that you've built and you build that and just continue to update that I guarantee you you'll learn more about your business. So step one is just do that every week. Pick a time that you're not frustrated and you want to just kind of look down and see what the potential of the business is because frankly, that's a pretty exciting goal for you to then say hey if I want to get here; that's what we always…another action we say is you can't manage what you can't measure. So you have to build it to that. Level 2 then is to apply seasonality and new products. So layer on new products you're thinking about and if you don't know what they are right now still layer in I want to release 4 new products in the next year, I'd like to think that they could be as good as my current one's etcetera, etcetera, and then look at your seasonality trends. The next level beyond that and I want to describe this because you do have a lot of advanced sellers that are thinking about selling on this podcast is transition from a product forecast to then look at the rest of your income statement on what I call a percentage of revenue basis and project out that if the revenue doubles or grows up by 20% does my cost of goods sold go up by what percent. And so each one of your line items I always look at it as product costs are 19% of revenue, Amazon selling fee is 15%, FBA is 21% and get to where you can easily know every one of your; overhead and tools is 4%, paid media is 12%, know every one of your numbers on a percentage basis and you'll now have the product forecast and then the budget forecast and you'll be at what I'll call it an advanced level. And then the expert level what we build for people when we want to take them to market is we apply what we call a scenario analysis which is where we're looking at worst case, middle case, best case so that we can show it to a buyer that hey even if this thing doesn't do everything it's still going to have a positive ROI for you. But if it hits either the middle or the advanced case or the more aggressive cases your ROI is going to go up to 70 or 80% IRR. So the most advanced one then is to take a base forecast and then create scenarios and that probably building a toolset to do that all by yourself unless you really like doing that might not make the most sense. There's folks like ourselves or your accountants or other people out there that you probably want to work with but that is sort of the ultimate level because now and my closing comment of this will be relating it all back to the topic of selling your business. For most people, more than 50% of the money ever put in your own pocket will come when you sell your company not when you run it because you're always having to finance your inventory. And forecasting is the simple thing that tells you when is the right time to sell because it answers the question when does my value reach a level at which I go oh wow if I could get that much for my business now is the right time to sell. So we haven't talked about that at all but the number one question you get is the number one question I get; what is my business worth and when should I sell, and is now the right time to sell? Forecasting is the answer to that particular question and not some answer that Scott gives you or Mark gives you. But my goal for everybody on this podcast would be implement forecasting and give yourself some time to get good at it and you'll be able to answer that question for yourself which is a very powerful enabler for your business. So that's why I'm so passionate about the topic because it ultimately answers the question what should I do with this business and when; should I keep it or should I sell it and if so for how much.

Mark: And even on top of that I mean Joe says all the time he says don't decide to sell your business plan to sell your business, right? Don't just wake up one day and be like I'm done because you're leaving money on the table; guaranteed you're leaving money on the table if that's the way that you go about it. If you say my goal is to get here to this number then like you're saying you can work towards that goal, you know how to get there, you have a roadmap to get there as well and you know that you're going to maximize the value of your business at the time of the exit which is frankly what most of us want to do. That's usually the goal. Scott, we could talk a lot on this and really get more in-depth. Thank you so much for coming on. I hopefully can have you on in the future we can spend less time on why and more on the how because it seems like we just started to scratch the surface on this but I really appreciate it. Where can people find out more if they want to ask you questions about forecasting or frankly anything else that Northbound does and I'll just make this quick plug; you guys do great work. I love working with you guys. Where can they find out more about you and your group?

Scott: Yeah so I'm always happy to answer questions so people that want to get a hold of me individually [email protected] or if you want to get in contact with us just in general do I[email protected] and I'm happy to answer any questions. You're right there's just so much to this but it's to me the most powerful thing that can put you in control of your business. So if there are people that are out there that feel like they're kind of bouncing along and they don't really know where their business is going or what its true potential is, forecasting is the thing that gets you back on the horse where you've got the reins firmly in control and you can see your business as opposed to just feeling like you're reacting to what's in the rearview mirror. So thanks for having me on. I look forward to obviously working with you on [inaudible 00:45:28.5].

Mark: Thanks, Scott.

Links and Resources:

• Northbound Group
• Email Scott
• Email Northbound Group

One of the privileges we have as the owners of QLB is that we have a panel of experienced entrepreneurs that act as advisers and also happen to be our brokers. On today's episode, we are hosting our first Podcast Panel, these in-house experts are here to answer key questions regarding buying and selling.

Jason, Bryan, Amanda, and David have a combined 40 years of experience in brokering e-commerce businesses and are here to share some great insights into their first-hand transaction experience. The discussion today focuses on the sell side and how human behavior can influence a transaction, balancing being a good seller without being a pushover, and finally on valuation and managing expectations from the seller side.

Episode Highlights:

• Can a seller increase their sales amount just by being a good seller?
• How to handle challenging sellers and tips for approaching the negotiations with them.
• Thoughts on where seller behavior fits into the entire valuation process.
• Some of the principals of a good seller and behaviors they should avoid.
• Where the line is between two being too private and being proactive as a seller.
• Ways certain SaaS elements can be revealed in due diligence without giving away too much before the handover.
• Specific contingencies that sellers can hold onto until the signing.
• The importance of the buyer/seller face to face meeting.
• Things sellers tend to put too much emphasis on during a transaction.
• Staying on for extra consult periods as a way to earn buyer trust and confidence.
• How to temper unreasonable valuations or unreasonable expectations for what market can bear on the part of the seller.

Joe: So Mark one of the privileges that you and I have as owners of Quiet Light Brokerage is that we have an unofficial board of directors and highly successful entrepreneurs that are our advisors slash brokers. And we joke often that most of them are more experienced and smarter and more successful than we are. And I think with the panel that you put together in this upcoming episode it's absolutely true. We've got Jason, Brad, Amanda, and David all sharing their experience as advisors, brokers about how to be a good seller and beyond that with the entire transaction. How did the overall panel go? Did everybody behave and give nuggets of wisdom throughout the whole podcast?

Mark: Well, naturally I started this all first well it was a pretty interesting idea. I was talking to Amanda about going to a conference down in Austin where she lives and she was invited onto a panel and she said that she'd be really interested in doing stuff like that. So I thought well why don't we do a panel here at Quiet Light and bring forward some of the advisors that have been working on deals. I mean I think the combined number of years on that panel alone was something like 40 some odd years of experience combined.

Joe: As buyers or entrepreneurs?

Mark: I didn't even get into the; I have no idea how to calculate that. That'd be a much bigger number. My math abilities stop after about 40, 45.

Joe: So everything is 40 years of experience for you.

Mark: Well I become 42 so yeah everything is; that's going to be the limit. Every year I add one number to my math abilities. The panel was pretty fun. I didn't know how it was going to go. I didn't know if it was going to be too many people on the panel. I was hoping for some discussion between them and we did get into that. We got some great discussion between people who have been doing this for a really, really long time. I wanted to keep the topic pretty simple and just kind of dig into their actual experience in doing deals. I wanted to find out what are they seeing on the sell-side specifically and working with people; humans that can really influence a transaction by their behavior. How much are they seeing that actually come into influencing the price? Jason right out the gate is like look we can sometimes influence the price but the bigger worry here is having a primary effect. If you're a crappy seller you might make this an unsellable business. And that kind of launched off this conversation of what is it; how can you be a good seller? How do you balance this idea of being a good seller who is open and proactive? David talked about being proactive as a seller. How do you balance this proactivity and openness versus being a pushover? What elements should sellers also not necessarily open up on their business right away? And where should they stick their foot down and say we shouldn't be sharing this? A pretty interesting conversation on that front to see what other people's experience was in these different questions that came up. I didn't lay it out right away. Joe just to let you know I asked them to pick out a URI moving forward for the company and I won't tell you what the result was of that.

Joe: So I have to listen to this to get the answer. What was the question again specifically and what wiseass comment did Jason make because I'm sure that's exactly where it came from?

Mark: You're going to have to listen.

Joe: Alright. What was the question though?

Mark: The question was choose Joe or Mark.

Joe: To do what? And you're like hosting the podcast so you could totally edit it out and tell them no, no, no, no, choose me so it's…for the audience, I want to know Mark has full editing control of the podcast so whatever negative things said about him were completely edited out.

Mark: Well, that's actually not true. I don't touch it, in fact, there's a point in there and I'm hoping the editors…

Joe: See he's fabricating he's making this up. It's totally true. Chris and Podcast Motor; they do what he tells them to do.

Mark: They're the only people in my life that do what I tell them to do.

Joe: You man have seven children, that's the way it is.

Mark: Yeah, I guarantee nobody in my household does what I tell them to do.

Joe: There is teenagers.

Mark: There is a point in there; I hope the editors catch this where Amanda cuts out and I awkwardly interject so we'll see if the editors catch that part. If they don't just bear with it because she's actually giving some really good advice during that point in the podcast.

Joe: So you and I always joke about or I always joke about the fifth pillar. You always correct me and tell me it doesn't exist. And for those that don't know the pillars, it's growth, risk, gross transferability, and documentation and I always say there's a fifth. It's an invisible fifth and it's the person behind the business. Who you are and how you behave and what you post on Facebook and what's your LinkedIn profile says and it's silly pictures and things of that nature. It has an impact on the overall value of your business. People are going to stroke a check for enough money that is going to make a difference in their life savings and the risk they're going to invest in their future. They need to like you number one, they need to trust you number one; both a number one. That is so so valuable so I love this topic. I absolutely have to listen to see how quickly they all said your name instead of mine. And then I'm going to have to have another panel on with the other four advisors and see what they say.

Mark: Sounds great.

Mark: Okay, welcome everybody. We're having our very first podcast panel or panel podcast. I don't know what we want to call this but basically, we have a bunch of people on this podcast here. We have Amanda, Jason, David, and Bryan all joined me for a conversation. We've never done this before so we're going to see how this actually works out. The format is going to be pretty simple, I'm just going to ask questions and pick out different people and see what sort of conversation comes from those questions. So, guys, I'm just going to start off with a very simple question. You've got to pick one personally Joe or me; me or Joe? No, don't answer that. I'm just joking. Don't answer that because I already know what the answer would be. You guys would want Joe. Alright so let's; I want to focus this panel on more seller questions because we obviously work with buyers. I know a lot of buyers listen to the podcast but we work with a lot of sellers as well. And so I want to focus a lot on that. What is it like to sell a business? What are some of your experiences? You guys have a ton of experience working with sellers, preparing their businesses for sale, helping them go through that really difficult emotional complex process of exiting their companies so I wanted to try and tap into your collective wisdom here, get some good information and insights into sellers and that process of actually selling a business. And I want to start out by looking at how much influence a seller can have on the value of their business just by how they act with their business. Let's start with you Jason because you are the longest-tenured member of QLB here so I'm going to start with you. I'm going to ask you just a pretty basic question here and that is do you think that you can increase the amount of money; can the seller increase the amount of money they get out of the exit of their business by being a quote-unquote good seller?

Jason: Absolutely 100% but it may not be in the way that you're thinking about it. I don't know that your value goes from a million dollars to a million one because you're a good seller. I think it's more binary. I think it's either a million dollars or zero. Meaning if you're not a good seller I think it's likely to spook a buyer to the point where they simply don't want to complete a deal. So I think it's incumbent to be a good seller, to be ethical, to be honest, and very very important to be transparent. So like any little thing about the business that in the back of your mind you think gee I really don't want to talk about that, that's exactly the thing that the seller should talk about with the buyer. Get it out there.

Mark: Yeah. Amanda, I know over the years you've also been with QLB for a really long time, we've worked with all sorts of different people. Some people are really easy and a joy to work with and while not dumping on any previous clients, some people are a little bit more challenging. And I want to take a step back and just say something real quick. When we talk about challenging clients, difficult people to work with, the one thing that's always important for us to keep in mind is I get why some people are somewhat challenging. They've built a business, they have a valuable asset, they want to make sure the deal goes through well. So they have a right to a certain extent to be a little bit more challenging. But what has been your experience, Amanda, when you've dealt with a client that might be a little bit more difficult to work with and maybe a little more abrasive in the negotiations? Have you seen that impact the deal that they're able to get?

Amanda: Absolutely. I think it's important to actually take those clients and take them aside and say it's really important to look at the feedback that we're getting from buyers and to be reasonable with their expectations. Otherwise, we're not going to deliver for with the deal successfully because the buyer's feedback is super valuable. If you get a lot of feedback that's consistent and a seller is not willing to hear it, it makes it very difficult to take those items there that could be actionable, make them happen, and then get a deal done. I think that also working with abrasive sellers can rub buyers the wrong way because obviously after a deal is done they have to work with the buyers. The buyers work with the seller for extended period time for training and support and it certainly is concerning if a seller is not easy to work with and has a difficult time getting along with the buyer for that matter. So yes it definitely can impact the deal.

Mark: Yeah. And I think Jason your point about it being somewhat binary I think is interesting. At the end of the day obviously, we're valuing the business not necessarily the business owner and so Bryan what are your thoughts on what Jason is saying as far as it being somewhat binary? Do you agree with that or do you think that the seller is just one other element of the entire business mix? Obviously, we're valuing the business on its own to a certain extent where does the buyer fit in; I'm sorry, where does the seller fit into that entire valuation process?

Bryan: Yes. So I think Jason makes a really, really good point and I'd like to touch on his point about honesty first [inaudible 00:11:30.1]. I think that's probably the most important quality that a good seller can have. But in terms of sort of being a good seller, being more binary than affecting the valuation I think it can be like this and if the seller is really difficult to deal with then disconcerting there is something that's not happening. But I think that being a really good seller can actually also increase the ultimate value that the seller gets out of the transaction simply because being likable and getting along well with buyers is in my opinion likely to induce better offers, induce better conversations that lead to better offers, and thereby can lead to a better and more profitable deals for the seller itself.

Mark: Yeah, I think the only issue that I would just if I'm going to comment on this here would be that the buyer is going to look at a business and look at the element of risk. There's always a perceived unknown of what am I actually getting into here. And if you have a seller who is shifty, if you have a seller who is maybe withholding information or is being just kind of; I think Jason to what you're saying, if they're being really abrasive or just mean or whatever yeah that becomes a very binary sort of situation where if I'm a buyer I don't want to get into that because who knows what's going to happen after the sale.

Jason: I find in the real world though it's not necessarily that that a seller is abrasive it's more the word you used is good shifty. A buyer just gets the sense there's something that the seller is not telling me. Are they planning to start a competing business the day after they sell? Do they know that this industry is about to hit a brick wall? Are there issues with the supplier? It's that shifty element more than the abrasive element is what I find in the real world.

Mark: I would agree with that. I mean the thing that I think people on the sell-side need to understand is that from a buyer's standpoint risk plays into a valuation perceived or real. It doesn't matter if the risk is real or if it's perceived it's still there. And so if you are giving off a sense of risk to a buyer that's going to play in the valuation that you get. So I guess we can put this out there as a plea to be a good seller; to behave correctly. But what does that actually mean to be a good seller? David I'm going to throw it over to you because I haven't got you in on this yet. And sorry, I didn't get to turn in you in the first question here but I want to ask you what are some ways that you've seen from sellers that make them good to work with and things that maybe sellers can do to maybe reduce that element of risk; that perceived risk that they might give out otherwise?

David: Yeah, it's a great question. For me, it comes down to three core principles and the guys have touched upon perhaps the most important one right away which is honesty. And then after that, I think it's diligence and knowledge of your own business to the extent that they understand their own numbers in great depth. They understand the reasons, the trends, the way things happen, the problems that they've had; like fully understanding then business. When you have that and have someone with that level of knowledge come on the call with the buyers it's incredibly reassuring that they have this gross knowledge about their own business. And then to a company both that depth of honesty with expertise in their own business. And you know that's not taken for granted because sometimes many entrepreneurs are running multiple businesses and they haven't had the time to focus a lot on one specific thing. So when you have that knowledge it's really helpful. And then the third piece, of course, is productivity. I think that it's easy to come into a selling process perhaps when you are quite emotionally spent even being in the business for a while and to underestimate that a lot of clients will ask some questions and they will want to go back into past historic information and having like a positive mindset about putting that information and realizing that it's also the benefit of the ultimate end goal of the transaction which is to get the best deal terms. Going at that formula very proactive and positive perspective really just creates that like perfect cluster I think of the best seller like proactivity, positivity, honesty, and diligence.

Mark: Yeah, that can be a really difficult line to draw because from a seller's standpoint you hear some of these questions and you think I don't want to share this. But at the same time, you don't want to appear shifty. I mean where do you guys think that line is for a seller when they're going through; especially like initially, right? We put up the listing out to the market. I think Brad who is not on this call recently put a listing on the market and had like 300 inquiries on it. We had to shut things down and that client is going through multiple calls one after another after another. And some of these buyers get on and they start asking some pretty pointed questions pretty quickly. What do you think the line is? Amanda I'm going to throw it to you, what do you think that line is where between being a shifty yet still open and honest and proactive as David says? Because I agree with you 100% David that being proactive makes a big difference. So where would you put that line, Amanda?

Amanda: I think it has to do with creating expectations for when you're going to open up certain information and letting them know upfront what you're comfortable with. So there are certain things obviously that you want to keep pretty close to you like your suppliers or certain proprietary information that you just don't want to open up to everybody. And so possibly you say okay I'm going to give you all this information; my financials, this is how I do this, this, and this but creating a timeline of when they'll have access to that information based on certain steps being in place and finalizing the deal. And keeping some of that information towards the end I believe has worked really well for most sellers and buyers because if you have that trust level that you built between the two along the way and then you're just basically following the course of actions that have been set out ahead of time then I think that creates a nice flow. And obviously, that's what we want. We want sellers and buyers to both be comfortable through the entire process so that we can get to that finish line. And so I think it is obviously definitely a fine line. But also when a seller and a buyer are working together and they're meeting in person I think that makes a huge impact in what information is shared because you can just feel whether a person is trustworthy or not and what they're going to do with that information. It often comes across just in energy and so oftentimes the seller will let their guard down just when they get to know the buyer a little bit more. But upfront I think obviously you don't want to give 300 people everything you have for obvious reasons.

Mark: Yeah and I think for…

Amanda: It's about creating expectations.

Mark: I would agree 100%. For the buyers that are listening to this, I think the insights that you can take away from this as well is understanding that. Amanda your suggestion is something that we use quite a bit here at Quiet Light during the due diligence process of ordering your requests and understanding some items are going to be more sensitive than others is a really good tip there. It does a great job of helping that seller get put at ease and from the sell-side is a great way for you to protect your more sensitive data by promising this saying I'm more than happy to share this with you but let's first go through these other items first just in case that torpedoes the deal. Bryan, I'm interested to know what your thoughts are where you think the most sensitive sort of data is that sellers might want to consider maybe safeguarding a little bit more than others. Obviously, different sellers are at different levels of comfort. Some don't want to share a single thing about their business and other people are like I don't care. You can't replicate what I did because I got the magic sauce. What sort of information do you think sellers is kind of the main stuff you would probably want to hang onto until the end?

Bryan: Yeah, that's a great question. I think it depends a lot on like I said an individual seller. It also depends a lot on the type of the business and the business model, to begin with. So I think with that with an e-commerce business the most closely guarded secrets so to speak might be like Amanda mentioned the vendors with any any business that depends entirely or for the most part on a single or a couple of traffic sources the seller might hold the details of those traffic sources confidential such as for instance in indication of PPC traffic they might not feel comfortable disclosing their full keyword lists and that copies and so forth in the early stages. So it really depends on the business model. It also depends on the business itself and how defensible the business is. Like you said there are some business sellers who are happy to open up absolutely everything because they are fully sourcing that nobody can replicate the business no matter what they sold on but businesses are different and so does comfort level is different.

Mark: David and Jason I'd be interested to know from you are there any elements that you have ever run across that have been off-limits in a due diligence process and if so how have you handled getting around that? For example vendor names, customer names, talking to employees; if you're able to share any details on that please do. And I didn't prep before this so if you're not we'll just move on to the next question.

Jason: No, that's fine. Well, one thing if I may I just want to add onto what Bryan said. He mentioned about whether a business is replicable. One thing sellers hopefully are aware of, any buyer that's going to see the information has signed I think it's about a five-page non-disclosure agreement which specifically says they're not allowed to scan for ideas to steal. So if a buyer did that they would be blatantly violating their NDA. And a seller would potentially have legal recourse. So hopefully that will give sellers a little more comfort. In regards to what information is truly off-limits, the thing I found is by the time of closing it all has to come out. But some of it does come out essentially at the closing table. So one of the big areas of sensitivity I found is if a business has employees a lot of times the seller doesn't want to mention the sale to the employees literally till the last minute. The reasoning is it could really make them panic and look for other jobs if the deal doesn't go through. The buyer who might be inheriting these employees will have some obvious consternation. They're going to want to know who's about to work for them; are those people planning on sticking around? That can be a really sensitive area. And I've had situations where it feels like we're a lock on that or some other small issue and it always seems to get resolved at the closing table at the 11th hour when finally everyone feels confident that the deal is actually going to happen.

David: Yeah and I think to add to Jason's point it's something that comes to mind a lot. Me over the years that's owing a lot of SaaS deals you can imagine the code base is just a really cool secret sauce component of SaaS business and the buyer very naturally wants to see that annotate to see what kind of code quality is annotations and see what kind of architecture is and that creates a lot of shrikes naturally in the owner right away. And it was an interesting bridge trying to think about how we could do that in a very safe way to get to that point that Jason is talking about which is the eventual reveal at closing. And what we did that's worked very effectively over the years and what we do at Quiet Light is show a snapshot of that code base and just provide enough insight and then a high-level like architectural look so that they can see how this sort of modules are put together. And then just a small snapshot so they can analyze the code based on a very discrete basis. Or also consider using a third party due diligence advisor to come in and review the code base and that way the owner is never really hands-on with it. It's being reviewed by a third-party specialist and there's a non-disclosure agreement in place and so you really can actually go into something that looks like quite a difficult issue and something to verify with a lot of credibility and integrity. So that's one of the ways that we've done most to do that with SaaS.

Mark: Yeah I think one of the things I've learned over now 13 years of helping people through this is that during the due diligence process oftentimes a buyer comes in and says I need to understand X. And rather than saying in the due diligence process that I need to understand X they say okay I need to understand X and the way to do that is Y. And so what they say is let's do Y. And the seller says I can't do Y. And then the buyer says well what are you trying to hide, right? And so one of the tricks for you guys that I know you guys have done so well over the years is figuring out what is that X; what is the person actually trying to achieve through this request? What are they trying to learn through this request? And David to your point I'm glad you brought up [inaudible 00:25:11.7] because I was going to bring that up. That's one thing that I would consider to be kind of a non-negotiable. If I had a SaaS business and a buyer came in and said I need to get the codebase I would say no. I don't think that that's reasonable mainly because we can satisfy the same information that you're seeking in a way that does not involve handing over the entire code base through a third party due diligence requests or otherwise. I think there are other elements that could be non-negotiable such as if you have a business that has only five clients. And if the buyer wants to speak to those clients there might be a reasonable request there. But it can also be pretty dicing so how do you overcome that sort of friction in a due diligence process. Jason, it looks like you have something that you want to add onto that.

Jason: Yeah I mean just touching on that. One thing we were talking about earlier was being a good seller and the corollary is being a good buyer. But one thing I've encountered on occasion is somebody will have experience with having done other deals in the past; either business acquisitions or dispositions or real estate or something. And a person might have an attitude of I've done a lot of deals; this is the way it's always done. And one message I would try to get out to people is just because you've done a deal in a certain way that's not the way it's always done. This panel has done literally hundreds of deals and probably in dozens and dozens of different ways. So I think Mark what you're saying is try to figure out the core of wants and then get creative about how to supply it is probably the most appropriate answer rather than being rigid and saying this is how it has to be.

Amanda: I also think to David's point about bringing a third party to do due diligence and possibly a financial audit or an audit of some technology or code it brings a lot of value because it gives the buyer some time to focus on actually what they wanted to do at a business point or it takes the nuances of the financial load because it's so tedious when you're going through financial due diligence or looking at code. And to have somebody else do that who's professional and experienced with that while the buyer can focus on future opportunities and getting prepped and ready for your transitioning into the business then I think there's a ton of value in doing that. And oftentimes it helps the seller feel more comfortable sharing that information with a third party as well.

Mark: I'd be curious to see what experience each of you has had with conditional purchase agreements. I've used them sparingly and just I'm going to take a step back, whenever we do the podcast I introduce something that is a little bit outside the normal. Oftentimes I hear from you guys they're saying why are you saying that now everyone is going to want a conditional purchase agreement. So I'm not necessarily encouraging this but I've used it on occasion when somebody really doesn't want to disclose vendor names or really doesn't want to disclose something else. So we say alright let's put together a conditional purchase agreement where basically this thing is binding conditioned on a very specific term. Have any of you others worked with those?

Jason: I mean I think like I said I've had some deals where it really seems like it's either going to close or fall apart at the closing table and they've always closed. It's always whatever is that one condition has been revealed right at the very end.

Mark: Yeah, and I think I'm going to wrap this up. Amanda, I think one point that you made that I kind of went right on over is meet in person. If I could give one bit of advice to anyone doing an acquisition on the buy-side or sell-side, get together and meet in person. It solves so many problems. If you can spend a couple of days with that person in the same room going over some of the due diligence materials I think it solves a ton of problems or it creates a massive problem that deals shouldn't happen anyways. And that's an outcome that might be okay if the deal is going to be bad anyway. And so a meeting in person is a great suggestion. It's something that I would definitely recommend. Alright, I'm going to ask and move on to another topic here. Bryan I'm going to move this over to you here and that is talking about what's important in the negotiation. When somebody is looking to sell their business oftentimes what we do is we think well I want to get money out of this. I want to get X out of it. I want to get as much as I can possibly get out of it and forget that there's a lot of elements that you have to negotiate. You have a non compete agreement, you have an employment or consulting agreement on top of that. And there's literally probably about a half dozen different things that get negotiated through the process of selling an online business. What are some areas that you've seen maybe a wrong emphasis from sellers in the past where they might put too much weight on one element of a transaction?

Bryan: Yeah there is definitely a lot going on in terms of what makes an offer than just total price of the offer. There are things you mentioned and there are seller notes, equity rules, you mentioned an offer can be structured in so many ways. In terms of wrong emphasis, I think sellers are often a little bit perhaps too much against carrying a seller note especially if it's a small seller note. I've seen this sentiment changing over the recent years though and it used to be the case years ago that most sellers would basically only want to want to deal with good cash offers. It's now getting more and more common for sellers to be okay with a 5, 10, or 20% seller note. And the reason why I believe a seller should be more okay with carrying small notes is because that's what I often explain to sellers themselves is that oftentimes those offers that they get that are structured this way are actually going to have bought them more money at the end than a full cash offer route to the extent that they can even easy to consider the seller note to be sort of a bonus on top of what they get anyway. So they can keep pushing for an all-cash offer but it's likely that this all-cash offer would actually go to turn out to be lower than the cash part of the offer that might go to small notes.

Mark: Yeah to that we have a podcast I think it probably would have aired a couple of weeks before this episode here with Shannon Stewart who's a tax advisor on the sell-side. And she has an example of a business that sold for 11 million dollars and that she was able to; the net proceeds increased by 43% largely through deferring some of the payments that came in. And when you're talking about an 11 million dollar deal a 43% increase in net proceeds is not a small amount of money. So I would agree, seller notes and knowing how to structure those the right way is is something. Jason what would you say; is there any element that you think sellers tend to overemphasize when they're negotiating?

Jason: Yeah I mean I think like Bryan said headline price gets a lot of focus when in reality it's more about how much are you going to get overtime after-tax that you get to keep. And then I think another thing that gets way too much emphasis is multiple. I think a lot of people get hung up on multiple both buyers and sellers and it kind of boils down more to bragging rights than to a discernible business reasoning meaning ohI sold my business for 4X or whatever so I can tell my friends. The reality is okay let's say you pushed the multiple for your particular industry; let's say you're selling an e-commerce business and they normally sell around three times earnings and you managed to push it to four times like you're taking a lot more risk to get to four times you had to accept an earn-out and it's depending on performance and this and that and the other. Even if you collect it all you're earning what you would make in four years anyway. You wouldn't be selling the business if the sole reason was the money that you're getting paid. There are clearly other reasons otherwise you're better to keep the business. So the big advice I give to sellers is the market will determine the value of your business better than anyone on this panel, better than you the seller, better than any individual buyer. We have thousands and thousands of buyers and for most businesses, we get multiple offers. That's the market. If you're not willing to accept what the market will bear you're better to keep the business than to sell it or to try to push the market beyond what it will bear because it very likely could backfire.

Mark: Well Jason you're begging me to go into a question that is also on the list. I'm not going to go there yet because I want to stay on this one here and then we're going to get over to that question to wrap things up here. David, I'll be interested in your thoughts on this as well here. Are there elements; I mean you've got a ton of experience in working with sellers just like everybody here, what are some things that you see people often negotiate maybe more heavily than they should and what advice would you give to them on that?

David: Well I think certainly on the emphasis question I would say to sellers when they're reviewing any offer that 50% of the decision; only 50% of the decision should come down to purchase price and terms and the other 50% should be based on the execution certainty of the buyer that's actually presenting the offset. Because there's an ocean of difference between coming out with an LOI for your business and actually closing it. And I think it's part of the; well a huge component of hiring a broker and an advisor to help you take that bridge from there to there and I think it's for me sellers that have been really receptive to guidance and advice at that point whether they should take the focus off the headline price off the headline multiple that Jason is talking about and consider the wider context that is this still going to close because the buyer has experience, for example, they have a readily available source of funding their due diligence requests are miles and miles long they're not reliant on any kind of outside financing [inaudible 00:35:22.8] all of these things introduce risk into the deal and ultimately that's risk needs to be looked at properly in the context of the whole deal so I think that's really important. Negotiating terms, one thing that I always recommend for sellers to be open to is the prospect of keeping the window open for like the minority kind of consulting arrangements after the sale. Honestly, we had enough every business through a standard transition period and depending on the size and complexity that can vary. But I think one thing that's actually really good for sellers to think about is maybe staying on to do like an hour or two a month to just say six months longer with the sale and that goes a huge way with buyers knowing that they just have a slightly longer line which the owner has to ask a half an hour-long question in four months time. And to that point about getting the trust and getting the deal over the way, that's a huge point that I think sellers are sometimes like they're spent and they never really want to spend more time on the business. But just that tiny little time investment for just a few moments goes a huge way towards getting a deal on the way and a great value.

Mark: Yeah I would agree to that 100%. I remember when I sold my business now a long time ago they asked me to stay on for six months afterwards and they paid me for it; so a regular monthly consulting fee and at first I was like man this is going to be a pain but what I found pretty quickly is it wasn't. It was really easy. It was very easy money that I was bringing in as a result of that. And it really helped with their transition as well. Alright, we're at 35 or about 30 minutes here on this so we're going to round it out with one last question and this is one that is pretty important to me because I think it's what we all do here. We all earn a living in some capacity through helping people exit their businesses and from our standpoint it can be really easy to treat people's businesses as inventory that we're simply moving. And obviously, we don't ever want to go there because we're all business owners ourselves. We've all been through that. We know what work it takes to build these and then how difficult it can be and how stressful it can be to sell them. So one of my pet peeves that have grown over the years is just hearing people say oh man is this seller I was approaching them I wanted to buy their business they weren't selling it but I was doing outreach and I asked them how much they'd sell it for and man his expectations were crazy. It's a pet peeve of mine so I'm kind of implanting here the answer that I want to hear. Amanda; we're going to go left and right on my screen, Amanda, you're first here. Do you think that there is such thing as an unreasonable valuation or is it only really unreasonable expectations of what the market can bear?

Amanda: Well I think both actually I think unreasonable expectations for where the market can bear; I mean when we're seeing that right now. Certainly, we're seeing a lot of growth in multiples over the last two years and there's been a push to constantly drive that multiple. And I think we've done a really good job of doing that. But sellers, of course, have their own expectations on what they think that multiple should be because they hear things from other sellers or they possibly got an offer four years ago from a strategic and they decide to pass that. And that has dried up and gone away and is no longer a viable option. And so I think the market evolves really quickly. And I'm actually one of those people who may have unreasonable expectation professional with expertise and proper data to bring somewhere like that back to reality. And I think that that's; actually, the core of it is having realistic expectations with what the market is; the ability of the market at this time because obviously, that may change in six months for better or for worse. I think that whether the expectations are reasonable is less important than the seller being able to be open to the feedback and coming back down to reality. And I think that makes a lot of difference because we see that quite often where sellers will come in and they think their business is for X multiple but then they're open to hearing what we're experiencing, what we're seeing because we do a lot of volumes and then having those realistic expectations is super important.

Mark: Yeah and I think one thing I've been trying to remind people as well especially in the sell-side when we get up into the high seven and eight-figure territory; you brought up Amanda that the seller might have gotten an offer from a strategic years ago but obviously never went through or they heard about so-and-so who got a 6X on their business what they never really hear when they hear these big prices is what was the composition of that offer. How much was there actually cash? How much was equity that can be the phantom value? Jason, I know you have a lot of stories about phantom values in equity, right? And so that's something that we don't hear about. It's like the sports contract of oh my gosh they got o120 dollars but it's only 10 million dollars guaranteed and like it's so much in incentives. Jason, what are your thoughts on this aspect of unreasonable expectations on the part of sellers?

Jason: I think part of it depends on how you define unreasonable because I look at myself as an example. Most people say I've got very unreasonable expectations of the value of an hour of my time and I will concede absolutely positively. What I expect to earn is way more than what my job will provide and all that means is I need to adjust how I use my time in order to achieve it. So if you're a person who believes your business is worth a lot more than the market will bear, that's perfectly fine. I just think don't be a seller because the market won't provide it. It's important to understand the people on the other end of the transaction are buyers. They're seeking a certain rate of return. You're comparing your business not only to save alternatives like or I mean to a spectrum of alternatives and various safety like bonds, stocks, municipals, real estate. They're also comparing it to other businesses for sale that earn roughly the same amount. You might have roughly the same growth plans. And it can be really frustrating if anyone is banging their head saying no, no, no, no, my business is special and deserves more when the market simply won't bear it out. I think most of us on the panel have kind of learned that there's a range. There's a spectrum where a valuation could be within a certain range depending on certain factors. Sometimes it's worth it to test the market to put out something at a bit higher valuation just that so you see the seller understands that the odds are going to go down the harder you push. And then one other kind of important point I want to bring up, we talked about this on an internal email the other day. A lot of times a seller will call multiple brokerages; they'll call Quiet Light and then two or three of our competitors and that's perfectly fine. We want you to talk to whoever you want to talk to. But one common thing I'll hear is a seller will say to me how much is the business worth and I'll quote a price. I'll say I think it's worth about a million dollars for the sake of argument and they'll say well wait I just talked to Brokerage X and they quoted me a million two, can you get me a million two? My answer is I don't know and neither do they. It's not the broker that's buying your business. It's a buyer that we've not yet identified and all that all of us are doing is giving an opinion. And in some cases, it can be really detrimental to the seller to try to play brokers off each other because the broker's tendency might be well gee if these three other people told you it's worth more maybe I'm wrong and the price gets bid up in the sellers head. And then when you get to market the buyers; the people that are actually writing the check for the business are like what are you talking about you're way out of bounds? So it's really important to remember who's the decision-maker. In my mind the decision-maker is always the person that's writing the check for your business; sometimes that's the buyer, sometimes that's the banker who's funding the buyer, but you always have to cater to that ultimate decision-maker to figure out what's the true value.

Mark: Absolutely. So in regards to the value of your time Jason I appreciate you putting it on a payment plan for this little podcast panel because it is pretty crazy. Alright, David, over to you I want to get your opinions on this.

David: I think Jason said absolutely the best. I think the market ultimately informs everyone to pick up on what Amanda said it's all about receptivity to that. I mean you can continue on as a business owner with a maybe like a grand ass perspective of the value of your business for a long enough period of time and as Jason said potentially go with the broker that's gone for a particularly inflated valuation. The problem is as Jason and we all know here is that if you come out way too high you will flop in the market and it will be a long long period of time before you then eventually have to come off the exclusivity pulling down the listing and then return back to market at a later point in time often with another advisor and how many times do we see that at Quiet Light with people coming to us from a very correct or whatever having spent an awful lot of wasted time and to cut in to Jason's point all of our time is valuable and we love the perception of it. If you're a business owner with a great business that you want to exit your time is especially valuable. So that decision right out the gate in terms of your receptivity and so what the market will bear is arguably the most important decision when it comes to respecting your own time and getting a process done and completed and money in the bag.

Mark: Yeah, I remember probably about a year ago I was recording a potential client and then he came back and said another broker quoted me and said that they could get me this much and it was substantially higher than what I was going to; what I was quoting him at. He said and he's going to reduce his commission to this. I looked at it and I called him and said yeah you should sign with them. How do you counteract that, right? You couldn't really counteract that too much other than say if you really think they can get that and are being less commissioned then you should sign with them. He ended up signing with me later and we ended up getting a really good deal for him. But I think you guys point about valuations being a predictive exercise is on point. Alright, Bryan, I saved the best for last. What are your thoughts as far as these unreasonable expectations or is it just unreasonable expectations for the market?

Bryan: I think Chris and David both absolutely nailed it. And I'm glad that they took the conversation the way they did. I think the market is always going to be brutally honest and any valuation mistakes that are being made, any unreasonable expectations are going to be corrected by the market. But I think the one most important thing on this is it is going to be the market who will buy the business it's not going to be the broker. There's no point negotiating the valuation of your business with the broker because it's not in the broker's power to value your business it's the market that values your business ultimately.

Mark: Absolutely I'm going around this out and close it up by saying one thing and that is Jason, you said this in what you brought up, if the value of your business in your head is 10 million dollars but the valuation of the market is 1 million dollars just don't become a seller. That's kind of the result. As far as Quiet Light Brokerage, look I know where the value of Quiet Light is. If somebody came up the street and offered me the value; the market value of Quiet Light I would say no. If they are offering me two times the market value of Quiet Light I would say no. If they offered me three times I would still say no because the value of my head for what this business is worth to me right now is way more than what the market value is. I'm not a seller; not going to be a seller for a long long time. And that's totally fine because I love this business. I love working with you guys. Thank you so much for coming on this podcast panel. Guys give us feedback on this. Let us know what you think. If there's something that you want us to do a panel on as far as topics let me know. If you want it to be specific in industries such as e-commerce or SaaS or content sites we can do that as well. We've got a wealth of experience here with the advisors and we're about to be able to tap into them more with these podcasts. So again, thanks everyone for joining this. Let's do it again hopefully sometime soon.

Bryan: Thanks, everyone.

Amanda: Thank you.

David: Thanks, Mark.

We have sold over 120 businesses here at Quiet Light but this is the first time we've employed the term text list. Does texting make your business blow up? The young entrepreneur we are talking with today is at the forefront of mobile marketing with his company, Conversmart. When done right, mobile marketing gives customers using smartphones personalized information so that they can get what they need exactly when they need it. SMS subscriptions have begun to bypass email subscriptions with their elevated engagement and conversion rates.

Arri Bagah was a computer science major who learned coding to make money as a side hustle in college. After college, he got into messenger marketing with Facebook messenger at an ad agency. He started Conversmart and began to explore looking outside traditional marketing channels for his clients. Arris has quickly become an expert in the mobile messaging space, helping his customers generate millions in additional revenue.

Episode Highlights:

• The difference between message marketing and email marketing by numbers.
• The advantages of message marketing.
• How the tool allows for easy customer opt-in.
• Specific examples of the client conversion rates.
• Growth opportunities for potential buyers.
• Categories or spaces where message marketing works best.
• Ways to collect subscribers.
• Average return on ad spend.
• Messaging frequency of a successful text messaging campaign.
• Costs to get started in message marketing.
• The ins and outs of opt-in compliance.
• Advice for all types of eCommerce businesses looking to use message marketing.

Mark: Joe recently you asked me to make a change to our site; a pretty simple change. And that was to give some of our buyers, the people that want to know when we release a new listing and put it back up a little bit, anyone that's out there wanting to buy they want to know when we release a new listing and they want to know first, right? Everyone wants to be first in line for that. So you made a suggestion which we're going to implement here in the coming months which is to add text messaging; SMS alerts when we release a new listing. And I know this didn't just come from you sitting around and saying hey…

Joe: Yes it did. I come up with all these great ideas in my head. I don't get any help from anybody else; just a clarification.

Mark: You know I'm not sure I want to; okay fine, this was 100% your idea based on somebody that you talked to on the podcast.

Joe: Alright, that's true.

Mark: Alright who did you talk to and why are we talking about SMS texting? It sounds invasive to me. It sounds like something I wouldn't necessarily want but the data doesn't really agree with me at all as it often doesn't.

Joe: Yeah, it doesn't agree with you at all or me. Talk to teenagers this is what they do. And actually, they don't even text now it's just a snap. But in Seattle…

Mark: You have to get on the TikTok train, that's where it is now; Tiktok.

Joe: Actually that's true.

Mark: Yeah so there you go.

Joe: I'm hearing about that as well. You have a teenage girl so you know. Should we be talking about our kids? No, they don't want to hear about our kids.

Mark: So we talk about my kids will be on here forever. And like it's two minutes each that's like 15 minutes. Alright, SMS text messaging let's get back on that.

Joe: I was at a Blue Ribbon Mastermind in Seattle with Brad and Chris and this young kid gets up on stage and he presents on SMS text messaging and how it impacts engagement with customers and he starts talking about 98% open rates and much, much higher conversion rates. And the average order value in all of this stuff and somebody we know, somebody we've sold a business to engaged with him afterwards and hired him afterwards and his business has blown up. I don't want to give his name because people want to talk to him and we keep referring people to him and he's just trying to make a living and people want to talk to him about how he's doing it. So I'm not going to give his name but his business has absolutely blown up. So I ended up connecting with Arri; Arri Bagah, he's a kid guys. Yeah, he's a kid to me. I got gray on my chin. He's like 24 or 25 years old but he's at the forefront of the next evolution of e-mail marketing which is SMS marketing. It's capturing mobile phone numbers, doing specific marketing directly to that mobile number, and it's amazing. When you're online shopping now; this is how he describes it now, if you're online shopping on your mobile phone and someone says subscribe and you click on it and it's the old school way to subscribe it's your email address and then you've got to go confirm in your inbox and then all these multiple steps. Now with SMS and if it's done right and you subscribe you can confirm it right there on your phone and then you get that coupon code right there on your phone and then you could place the order right there on your phone. It's like so quick; 15 seconds versus multiple steps in multiple places. So there is a little bit of that and a whole lot of you want to help your customers, you want to get good information in front of them. They want information to get to them in a way in which they live now which is on their mobile devices SMS is the way to go. You don't have to check your e-mail. It just pops up. There's a blue dot. I'm looking at my phone right now. There's a blue dot on my phone right now. I think it's probably from you Mark. Somebody texted me and if I want to make it go away I have to click it. I have to do that. Same with Messenger and Facebook; it shows up on my phone. I could get rid of it. So the engagement is much higher, conversion rate is much higher; gosh if I could just give a statistic here. He gave me something like a 25 time ROAS, return on ad spend. So if you spend a dollar you're getting $25 back. That's amazing. I think they guarantee a 15-time ROAS. It's incredible. That's all I have to say about it.

Mark: That's amazing. I think the emphasis here because we; let's bring this back to what we talk about on this podcast all the time, we're talking about buying and selling internet-based businesses and for somebody buying we're looking at how can we grow what we're acquiring here. And look we know Facebook we know Google but let's face it Mark Zuckerberg has gotten greedy. It's really, really difficult to make Facebook pay well. And if you had a 25 ROAS on Facebook you'd be selling a course next because that's what people do. You're usually happy if you have that 3 ROAS on Facebook. Google is the same sort of thing. And I think it's important for us to look outside of what we think are the most profitable marketing channels. Look all the data does actually point the same direction. The most profitable marketing channels are the ones that you own; email and email we know is cluttered so SMS text makes a lot of sense if you have permission to be able to send SMS texting because no one else is doing it. So it's going to be a really great channel. I'm excited to listen to this because you asked me to add this as an option. I'd like to hear from buyers as well would you want to have text alerts when we release a new list and I think it's a great idea to do. Obviously, it would be opt-in only but it would be a great way to be right at the forefront of that. I'm excited to listen to this and also learn how to implement this as a system within Quiet Light Brokerage. It's fantastic.

Joe: Yeah. You just said opt-in only; you can opt-in, you can opt-out. All of that is right there. So you just invited all of the buyers in the audience to reach out to you and let you know so why don't you give out your cell number so you can have them all text you and say yeah man implement this.

Mark: Yeah.

Joe: No, don't do that.

Mark: Or just e-mail me, [email protected] and then when I reply they'll have my cell phone number because it's right there at the signature.

Joe: I want you all to harass Mark and stay on top of him on this one because I think it's going to be a game-changer for you the buyers to be notified on your phone that there's a new listing that's launching. Right now we're launching one in four hours. Wouldn't you love to be notified two hours in advance of the e-mail launch? It would be great. I think it's a great service that we can do for you and I think it's a great service that all the e-commerce SAS content owners can do out there for their audience as well. So let's stop talking and go to it. Here we go.

Joe: Hey folks Joe Valley here from Quiet Light Brokerage and today we're going to talk about something I'm pretty clueless on which is text marketing, SMS marketing, we've got an expert in the area. I met him at Blue Ribbon Mastermind one Ezra Firestone's Mastermind groups. His name is Arri Bagah. Ari welcome to the Quiet Light Podcast.

Arri: Thanks so much for having me, Joe.

Joe: I'm so glad you're here and I'm going to call out where you are actually because Ramone Van Miller has been on the podcast as well. He's a good friend of Quiet Light. We're actually out filming in California now telling his story and you're sitting in his kitchen because you're working with him on one of his businesses, correct?

Arri: Yeah. That's exactly why I'm here.

Joe: So folks those that actually go to the YouTube page and get to see this, you'll get to see a Ramone's kitchen in the background; at least his guest house at the very least. Alright, Arri tell us about what the heck is text message marketing and tell us a little bit about yourself and how you got into it.

Arri: So I went to Roosevelt University in downtown Chicago for computer science and before I started I met a friend who had like a really nice apartment in downtown Chicago and I just asked hey how did you get that apartment? And then he was like hey I code and build websites. I was like cool I want that apartment. That's how he got this and that's probably what I should do too; to code web sites for people and make money. So fast forward I learned how to code throughout like the first semester. And then it will be like do a lot of the homework just like to learn how to do it myself. And then I decided if I can learn how to code myself then I can just like keep doing it. And that's where like my entrepreneurship journey started. I built a couple of web sites and then got into Facebook marketing. So I decided to move to LA. I got a job at an agency and before that's when I got into Messenger marketing which is a way for brands to leverage Facebook Messenger to market. So at Facebook Messenger marketing, we're seeing really good results. And at this agency, I was running Messenger marketing for like 15 different e-commerce brands at once and it was pretty, pretty crazy. I learned a lot. I got a lot of experience doing it. And I decided to do it for myself. And that's when I left that agency and started Conversmart. And we've grown pretty much since and then got into text messaging this year. And I'm super excited about text messaging because it's a whole different way for brands to be able to reach their customers. It's more direct. And a lot of the brands that we work with have seen really great results. So that's kind of like how everything started.

Joe: So we've had you know guys like Mike Jackness who we're friends with, I sold one of Mike's businesses for him. He's an expert in e-commerce space. He runs EcomCrew. He talks all around the world on e-mail marketing with Klaviyo. Talk to; for those that are new to the space and text message marketing, talk to us about the difference in terms of the open rates and conversion rates and how you're able to reach people and things of that nature.

Arri: Yeah that's a great question. I think email marketing is great. It still works. Billions of dollars generated each year through email. But the problem with email is that everybody is doing it. Especially with this season; the Black Friday holiday season, people are sending like 3 to 5 emails per day so as you can see the open rates and performance just completely drops when everybody is sending that much volume in emails. So the difference is that with text there are not a lot of people doing it. And if people are; people are super-specific to like which text or which brands they subscribe to so there's not a lot of competition when you're able to reach that customer directly. And one of the things that we've seen is that if you look at the traffic split for your e-commerce store the majority of the traffic is probably mobile already. So if somebody is like on their cell phone browsing your web site and you want to get them on your list right now brands have pop-ups and really if you give somebody a coupon and they have to leave your web site and go to their email check that email, get that coupon and hopefully come back to site and you can see how many distractions there are in the e-mail inbox.

Joe: True.

Arri: So there is friction right there already. Whereas with text you get that customer, they're already browsing on your mobile, you get them to opt-in through text, you send them a text, they get the coupon, they click and they're right back to your site. So it's a more direct way to reach customers exactly where they are. And really what we found is that we're not asking people to stop doing email marketing, we just want people to supplement the email marketing with text. Because with text you get 99% open rates, 10 to 20% click-through rates and usually double or triple the conversion rate over convert to like email. I'm working with Ramone like you mentioned on his brands. Really like he was telling me hey like our texts always like performs four times better than our emails let's do more text. So he's sending more text messages now which is something that we help with. We can talk more about what type of content people like. So we come up with really good content that people like and we're able to send it directly to them. They come back to site. They make [inaudible 00:13:29.5] just so that's like I think the big difference between email whereas email has gotten really overused and then text is just like this new channel that allows people to reach their customers directly.

Joe: Let's talk about some of the steps that someone would take if they were going to move into text message marketing. With emails there's opt-in and unsubscribe and things of that nature, what's the equivalent of that with text message marketing?

Arri: Yeah, so you can't talk text marketing without compliance. So with text messaging, we have to get people to double opt-in. I think the reason why people have these misconceptions about text messaging is because they've probably subscribed to a list before and people are just like spamming them. Or they didn't even subscribe and then they got messages. So one of the things that we do today is that we make sure that people are double opting in and that's one of the reasons why we see these high open rates and click-through rates because people are actually expecting you to text them rather than somebody is going through like a form and then you get their phone number and by surprise they receive a text and they're like why is this brand or business texting me. So we make sure that people are consenting to receiving those texts and that's the reason why we see really good results with it because people are now expecting you to go.

Joe: So it starts with the double opt-in just like e-mail and you're capturing then those customers where currently either on someone's website on a laptop, PC, Mac, or whatever it might be or on the mobile device where you've got that pop up asking them to enter their phone number I assume obviously to get a discount or a coupon or to get information in the future. I see pop-ups all day long when I'm on websites. That's what it would be on the mobile phone or mobile device when you're asking for a phone number is that right?

Arri: Yes. So basically we mostly only do it on mobile and the experience is really great because we don't even have people typing in their phone number. All they do is they tap the pop up twice and it opens up they tap to pop up the first time it opens up their messaging app they send the message and they get opt-in and we get the phone number through that. That is all powered by our platform partner called Pop Script. So yeah you know…

Joe: It sounds like a breeze.

Arri: Yeah like when you ask someone to put in their e-mail for a discount a lot of people put in their fake emails and especially with phone number you can expect people to put in like 222 and then whatever to get that discount, right? Now we've bypassed that by getting them to like actually send a text. So that's another compliance step that makes sure that your brand is fully compliant. So they send a text, they get opted in, and that's when they get that welcome message and get opted into the automated flow, abandon cart, and all those different things. So that's kind of like how it's set up.

Joe: Okay. So can you talk to us about specific examples where you've had a client that's just been doing e-mail marketing and they brought you on board and what the change was in terms of their open rate, their conversion rate, their total revenues, and things of that nature so people listening either as current owners of online businesses or potentially buyers of online businesses and looking at growth opportunities as a buyer as well. Can you help out with an example or two?

Arri: Sure. Yeah, we have a lot of examples. So one of the things that I wanted to mention is that your e-mail list is an asset and your text list is also an asset. And those are people that you can reach out to get them to make a purchase even after the rising cost of Facebook ads and all these different things. These are people that you can reach out to because you own that customer list. So if you're buying a business and they have a text list it's a really great asset to own.

Joe: I got to tell you I've sold 120 businesses in the last 7 years and I don't think I've ever asked the question do you have a text list nor has anyone ever said well Joe you're asking about the e-mail list what about my text list? So it's rare. I assume it's coming in the future and that's why I've got you on today. But is the text list usually the equivalent of any e-mail list; smaller, larger, how big are they?

Arri: You can have like large text lists and they usually work way more than your email list just because of the difference in the performance like being able to reach someone directly. So a few examples I think I've been like working with Ramone like you mentioned like when we started working together they were doing a lot of emails. So everybody that we work with it's always hesitant. It's like you know what I've never signed up to receive texts from a business. I don't see why anybody else in the world would want to receive texts from a business. So this is one of the things that we get all the time. And one of the things that we say is that you're not your customer. Like your customer doesn't live the same way. There are people out there who are looking to get like deals sent directly to them so they can save money. And there are all kinds of people out there who are willing to receive texts and most customers are and we have data to prove it. So that's the first thing. And then when we started doing the text messaging, when we launched our promotions and stuff like that we saw that text was performing four times better than e-mail. So we started to like send more text messages.

Joe: In revenue what we got four times more revenue than email?

Arri: Yeah.

Joe: Do the math on that. People if you're listening and you have an e-mail campaign gosh Mike Jackness that's; ColorIt was huge on the e-mail campaigns, text messaging four times the revenue. That's crazy. Crazy good and it's time that we sort of adopted text messaging. I know that it's hard to ignore when it comes through because if you want that blue or green or whatever color of dot you have on your phone when a text comes through if you want it to go away you have to open the text.

Arri: Yeah. And the crazy part is that looking at the millennial group like over I think it was 80% or so opened that text within 90 seconds. I think it was something like that. And yeah people don't always open every text they receive. So that's one of the great things about this. So we send our texts even for this Halloween campaign and things that we just launched every single text that we sent we saw well above 10 or 15% or so click through rates and the conversion rate was at least like 6% or so. And with text like you mentioned people open it and then they want to take to action, right? It's very short. And one of the things that we do is that we add images and GIFs. We design all these custom-built before; our design team does all that stuff. And I think that's one of the biggest value propositions is that we do the creative for the text so that it's not like somebody is just receiving a text from you they're also receiving like engaging content. So we design these GIFs and we improve the conversion rate. So every time we send like a GIF and text compared to just sending text we see twice the conversion rate when we add the engaging GIF. So those are some of the designs that we do.

Joe: So for all non-millennials out there the proper pronunciation is GIF, it's not JIF clearly. That's an ongoing joke in my house. Sorry, I'm sharing a joke, people. So it's a visual aspect to it, it's just not content, they can see the images which is proven to bring more emotions to the surface and obviously convert higher. Are there any sort of categories or spaces in terms of products; e-commerce where it works better than others or certain things that you've tried and it just wouldn't work. You know Quiet Light Brokerage we've got a list of; you and I talked about this, we've got people that want to be notified and get notified when we launch new listings. I would think that text message marketing would work brilliantly for them because they'd get instantly notified instead of having to check their email. In Ramone's space, in his category, it works obviously brilliantly. Are there any spaces where you find that; I'm sure there are people that are listening and going oh yeah but I run a such and such type of business, it wouldn't work for mine? Is there anything that; is there truth to that, any that you can think of, or some categories that work better than others?

Arri: That's a great question. I think the reason why people ask that is that they probably think that their customer is different than like everybody else. And the answer to that is as a business all you're doing is providing a solution to a problem to a specific group of people. And if your product works and if you have happy customers those people would want to hear from you and that's the reason why I say text works for like any space. I don't think there's any sort of brand that we work with that we saw okay their customer is not responding to text. And the reason is like I said you're solving a problem for these people and these people want to hear from you. So every single time it doesn't matter what space you're in or what product you promoted. It has always worked for their target audience.

Joe: Okay, so we've talked about how to capture more phone numbers on the mobile devices, how to reach them, what the conversion rate is, usually four times the amount of revenue in e-mail marketing, and the fact that it works for every category in your opinion. What about A-cost or return on ad spend or average cost per order, how does that compare to e-mail marketing or if you're familiar with the FDA space things of that nature, do you have a sense in terms of whether it cost less or more in terms of cost per order service text marketing?

Arri: Yeah, that's a good question but I wanted to add on to the ways that we collect subscribers real quick. One of the things that we've been doing recently is actually like leveraging Facebook and Instagram ads; lead ads to get more phone numbers. So when we run these text campaigns we realize text is performing way better so why don't we supercharge our text list. So we started running Facebook ads to get people to opt into just text directly through Facebook and then they're able to get on your text list so you can put them through nurturing flows. This was one of the performance methods that we've been using. Going back to your question which I completely forgot.

Joe: No, I love where you just went. I wrote my question down so I can look down and ask it again. But you're talking about what would be in e-mail flow that Mike Jackness has always talked about with Klaviyo. You're doing the same thing with text message marketing.

Arri: Yeah.

Joe: What did you call it; what was that flow you called it just now? In terms of like okay everybody, listening can remember but you and I can't; skip it. It's the flow of nurturing, right?

Arri: Yeah.

Joe: How you're going to nurture that customer along and help them, help them, help them, and then give them something that they could take action on. I was asking about average cost per order or return on ad spend; what are you seeing there?

Arri: Yeah the average return that we see for the plan that we work with is a 25, or the minimum return is 25X and usually for brands that we work with…

Joe: Cut it down, 25X?

Arri: Yeah.

Joe: So I spend $10 and I produce $250; is that right?

Arri: Yeah.

Joe: So I did that really good math. I spend a dollar and I get 25 back. That's easier math for you and me. Really 25 times?

Arri: Yeah.

Joe: I'm seeing on e-commerce businesses between when they're doing e-mail all sorts of PPC, Facebook, Google AdWords, whatever it might be but all of it combined with Google as well where the average cost as a percentage of total revenue is somewhere between 9 and 15%. You're talking an incredibly low number here.

Arri: Yeah.

Joe: It sounds too good to be true. I don't mean to talk over you but people I just want to like hammer home on it really 25 times?

Arri: Actually I'm being super conservative here.

Joe: Really?

Arri: Yeah. So the reason why is that the way we do text messaging we're already like we're capturing for the most part people who are already interested in your brand. So people who are on your web site. So you have good website traffic. That's the reason why text works a lot because we're getting people who are interested and then we're able to reach them directly on their smartphones and then you create really custom automated flows and really great broadcast. So that's how we're able to get really high returns. Like I don't think we have like any brand that's getting lower than like a 50X, to be honest. But we like to say we guarantee a minimum of 15X return. But yeah we get really high returns. And I don't even want to go with the ones that are getting like 200X or whatever because that will scare people.

Joe: There's going to be a limit to what they can spend if they're getting even a 50X or 15X I guess the limit would be the total number of phone numbers that you have and how often you send these messages, right? I mean with e-mail I know that with Klaviyo; Mike's campaign on ColorIt, he would send e-mails all the time. They were helpful educational e-mails and really in that regard and then there would be a promotion where they could get a discount or a sample pack or something like that. How often are you sending text messages on one of these nurturing campaigns or flows as you call them?

Arri: Yeah so we break down the messaging by automated flows and one time messages which is basically broadcasting. So with the automated flows, we like to send; when somebody subscribes we can send them a message immediately with like whatever the offer was and then we can send reminders. We send like two reminders within 24 hours for them to take action. And then on top of that, we have the [inaudible[00:28:04.1] and if they do not take any action or purchase then we'd get them into the Welcome Series which we can send that every three or four days and we'd like to stop after like five messages. We always give people like the reply stop to unsubscribe because if somebody signs and just said then we rather have them unsubscribe and save us some text money. And there was always that option. And then if they get into abandoned carts we have two series abandoned cart recovery messages that we send out until they make the purchase and then we go in to post-purchase. So with post-purchase, you can do a lot of things with like product-specific flows. If somebody bought this product you can say hey; you can upsell them other sort of products are related. So we can get really nitty-gritty with that. And then we have the one-time messages. With broadcasting, we recommend sending at least twice a week. I've seen people who have like text lists and then never want to message them because I think they're scared that hey they're going to receive too many messages. I really talked to a brand yesterday and they're like yeah we sent only one text a month and I'm like yeah you guys need to be sending at least like 6 to 10 maybe 2 every week because you're just going to like double how much revenue you'll generate.

Joe: Right. And if the customer doesn't want to hear from you they're going to opt out; as simple as that.

Arri: Yeah.

Joe: That was the approach Mike took with Klaviyo and ColorIt as well; send as many as you can, be as helpful as you can, and let them know if they don't want to get any messages they can opt-out. It sounds like your approach is the same with your clients.

Arri: Yeah. And I think that content really matters too. It's not about just like blasting sales. I think people think that because we are having all these crazy resources that we're always doing sales but we rarely do sales. It's always like short and sweet content with like a GIF that kind of illustrate what we're trying to say that engages the customer more into taking action and in between, we add like sort of small discounts. So it's not always about sending like hey we're doing like a storewide 20% off or whatever. You can actually send like a content.

Joe: Okay. Talk to me about the cost to get started with something like this. I mean with Conversmart your business; that's Conversmart, there's no T in there folks but we'll put it in the show notes as well. How does someone get started dollar-wise? What's a test look like in terms of giving it a shot and seeing if it works and how many times do they have to really test it? What do you recommend to new clients that are coming in?

Arri: Yeah. So SMS at the very bottom of the funnel so I recommend having a good amount of traffic; at least 20 to 30,000 web site visitors in order for it to work if you just want to do bottom of the funnel but if you want to use the Facebook ads to start growing your list which is a really good strategy because with the Facebook ads you get people to opt in to your text list and those people who were opting in are also buying which is paying for the cost for you to acquire those leads. So you're basically getting free leads.

Joe: That's something beautiful.

Arri: And then we'll tell you about because that's probably we've been doing hey let's get more free leads. So that strategy works really well. So we get people to opt-in through the web site and then we also get people to send some automated messages. Those are some of the great ways to start. So first you got to get people to opt-in. You have to have the traffic. You get people to opt-in by having a pop-up or on your mobile device or you do the Facebook ads and once they opt-in then you have to send messages. I think Thank You messages is the most important part lke it goes back to e-mail, right? I've met some people and it's always the same situation; it's like hey I have this e-mail list but I'm not even e-mailing them. It's the same with texts. You have to text the people who have subscribed. And it's always great to text at least once a week so when are you doing your promotion so these people are not completely forgetting about your brand or who you are. So it's a great way to stay top of mind while generating revenue.

Joe: But budget-wise though for people going should I try this, is something I can give it a go, do they have to have a thousand to 5,000 or 10,000 dollars set aside to test this with? What do you recommend?

Arri: You can get started fairly easy. In fact with our partner Postscript which is the platform that we use; if you own a Shopify, it's the one that we work for Shopify but if you're on another platform we can definitely chat about that. But it's super simple to get started in fact I can give you guys like free 1,000 credit if you want to try out text messaging. You can give them the link or something like that.

Joe: Yeah, great. We'll put that in the show notes.

Arri: Yeah you get charged by how many messages you send if you want to do it yourself. There is no platform fee or anything like that. So once you get those credits you can start sending and see kind of like what the results look like. And like I said it's only going to cost you if you send the text messages and be able to tell if it's working or not. So it's very simple to start.

Joe: Okay. So it's all about the number of texts that you send. First, you've got to capture as many phone numbers as possible and get them to opt-in. Like we've got a fairly large list after a decade of email addresses and phone numbers, we can't just use those phone numbers we've got to get them to opt-in first, correct? We're going to follow the law. Actually, they opt-in to receive information from us anyway via email would that apply for their phone numbers as well?

Arri: No they have to have opted in for the text.

Joe: I got it.

Arri: So if it said like only for them we're going to finish up 5 today check here to opt-in for the e-mails it has to also say text otherwise they're not opting in for the texts.

Joe: That's good to know. Okay, any last thoughts for people with e-commerce businesses in terms of text or actually I'm saying e-commerce but I would imagine this would work for SaaS and content businesses as well, right?

Arri: Yes. In fact like even with like a B2B company. I got a text. I signed him up for like a demo and he's texting me and we actually had a conversation. So this is a great way to like follow up with people if you're like not even in the e-commerce space. You can text them…

Joe: It worked for you and worked for Quiet Light too so I don't know why I'm thinking only e-com.

Arri: Last words; if you're an e-commerce business I definitely recommend looking at text because it's going to be the number one way people are going to be communicating. As emails are being sent even more I think there's going to be like over 319 billion e-mails sent in the next year or whatever so text is a great channel for you to reach those customers and you don't have to go all in. You can do like small tests and kind of see what the results look like. So yeah I highly recommend checking it out and doing some small tests to kind of see what the results look like for you.

Joe: Okay and it looks like they can reach out to you and get a free consultation as well. How do they find you? What's the URL that they'd reach you at or things of that nature?

Arri: Yeah. So Conversmart.com, that's where you'll be able to find us, you'll kind of see like kind of an overview of what we do with text messaging. We take a really different approach to text messaging that people haven't seen before especially with the content that we send and the creative that goes along with that content. That's really what helps brands double that conversion rate when they send all these text messages. And also as an agency, we take over the entire channel for you. So basically you can sign up and basically, you just see like money come in from text messaging after a couple of weeks and then we just give you all the reporting. You don't have to do anything besides approving the content and everything. So we'll basically like take over the entire channel for you. And that's pretty much like what we do for every brand that we work with. We don't want them to like worry about getting 11% open rates and 1% click-through rate over email. We can supplement that by sending people text messages that they actually like. And people are going to convert from those text messages.

Joe: Excellent. Well, I know that what you're doing is working because you're hanging out with the likes of Ramone and that is rad. So you're doing something right. There's no question about it. Anybody out there that's interested in reaching out to Arri just go to Conversmart.com. Arri I will see you at the next Blue Ribbon Mastermind event and when Ramone gets back from filming today which he's doing for Quiet Light thank you, Ramone, give him a high five. Tell him I said hello.

Arri: Yeah.

Joe: Thanks for your time. I appreciate it.

Arri: Alright. Thanks for having me.

Links and Resources:

• Conversmart
• Free 1000 Postscript credits

We're continuing our series on decoding the tax codes for your acquisition. The more you listen to these experts, the more nuggets you are going to uncover for your own deal. Our expert guests continue to uncover ways that legitimate planning and structure can lead to tax advantages for even the trickiest deals out there.

Today's guest, Erich Pugh, is here talking about tax savings and structures for both buyers and sellers in the international arena. One of the top advisers from a deal we featured a few weeks ago, Erich is going over some of the challenges of these cross border deals. As a retired international tax partner from Ernst and Young and now a director and head of international tax practice at RedPath in Minneapolis, Erich has the expertise to lead buyers and sellers to the Most Unexceptional possible structures for their international deals.

Episode Highlights:

• The reason buyers shy away from sales in the foreign markets.
• Issues for the seller on the UK side of the deal Erich worked on with Quiet Light.
• Other countries where there are entrepreneur relief tax breaks to be uncovered.
• Ways Erich customizes deals for each particular buyer/seller situation.
• Description of the structure proposed by Erich for the UK deal.
• Why Erich proposed a structure that had the buyer remaining in the UK.
• Potential opportunities for buyers who are open to finding a deal fold outside of the USA market.
• Why Erich never advises any risk in foreign tax regimes.
• The collaborative nature of the international deal.

Joe: Mark, most of the people that want to exit their business has always asked the question what am I going to be left with; after the broker fees, after the taxes, can you give me a ballpark idea? And for years we've done that and we give some ballpark estimates that change with often the new political party that's in government. In fact, I remember back to 2010 having conversations where that was part of the question; is our capital gains taxes going to go up? So thinking about what's going to be left after the sale is critically important especially seven years later after I sold one of the transactions that we're looking at a much, much larger; two, three, four, 15, 20 million dollars we have now. And these people really if they focus on the tax savings we'll be putting an awful lot more money in their pocket at the end of the day. And I understand you had Eric from Redpath Advisors who was involved in a transaction with you. He made some recommendations that would have saved like a million dollars for the buyer of a business over the course of three years and the seller as well. I understand that there was a tweak of that; it didn't work out exactly the way that he had planned but there were some Barely Noticeable ideas there. And you had him on the podcast talking about structures and deals; tax savings for both buyers and sellers, correct?

Mark: Yeah, that's right. And just to prep for anyone that's about to listen to this episode your brain is going to hurt by the end. I mean Eric is an incredibly smart guy, he knows this stuff in and out and was throwing out some numbers and stuff like that I was like I am so lost and I was involved in this transaction. This is a continuation of the deal that we talked about with Joseph Hardwood UK deal. I'm calling this series Stupendous Exits. It's kind of snappy isn't it Joe?

Joe: Oh I like that. It doesn't flow as well as Painfully Ordinary Exits. Yeah, tongue twister.

Mark: Yeah, it's a tongue twister. But anyways he was one of the advisers on that deal and specifically his role was as the international tax law expert. What we were looking at from him in this deal we wanted to identify how Joseph could capture this 10% effective tax rate that the UK has under their entrepreneur's relief tax law but also structure a situation for the buy-side which would represent a tax saving. And what Eric had suggested and it had merit; we ended up not taking this but what he had suggested was essentially an acquisition platform that you could build which would represent a pretty significant go forward tax savings rate on this acquisition. Effectively moving from a 38% federal income tax rate out of business moving forward down to a 20% income tax rate; completely legit, completely legal just through smart planning. Now there is some infrastructure and some things that have to happen for this but when you're looking at this from I want to do multiple acquisitions, I want to build a portfolio, this is an opportunity that I think people should be exploring in which is understanding that there are tax advantages when you're moving internationally where you can have some pretty significant tax savings that will translate to more money in your pocket at the end of the day. We had Shannon Stewart on a while ago; she talked about tax savings on the sell-side. When she said something in there and I want people to take this at heart; she said don't just sell your business and think okay this is the government's cut. The tax code is a big document. There is a lot in there. It's not as straightforward as this is the government's cut. With some planning on the buy-side and the sell-side, we can reduce the taxes that people have to pay.

Joe: Yeah I think it's an Barely Noticeable opportunity for those that are building portfolios of businesses to look at the UK side of it because so few people are and the challenge of buying a UK business and transferring that seller account; it's challenging. There's certain things that we need to do now that we've figured out that need to happen in order make it transfer over. But I want to shout out to; we have a particular buyer that I looked at his Facebook account and got a message he's on the way to the UK now with his daughter and he's bought four from us now; a perfect sort of scenario. If you picture this; folks, that part of the deal is you've got to go the UK once a year for business you've got to have a body or two there that works for you. So once a year you've got to go to the UK. It doesn't sound like a terrible thing, right?

Mark: Not really. No.

Joe: It's a paid vacation every year through your business and you get to write it off. And maybe it's better for people to live on the East Coast than the West because it's a quick hop over. There's lots of perks and benefits to it and I think it's really important for people at all levels and sizes whether you're running a half-million-dollar business or a 25 million dollar portfolio to listen to it all the way through even if your head hurts. Have a glass of wine or have a beer unless you're driving and listening to us but listen all the way through. It's education. The more you listen to these things the more you're going to learn even if you only pick up one little nugget from it. It's important. And Mark and I are guilty of it as well. Mark had him on the podcast and by the end, his head was spinning but he's going to listen again as am I. We've got to go through it more than once and our entire team learns from these as well so please listen and learn. And to that listener that I'm talking about; that person who we sold four businesses to if you know it's you that I'm talking about shoot me a note. Alright, let's go onto the podcast with Eric.

Mark: Okay as many of our listeners know probably about a month or month and a half ago I had Joseph Harwood on the podcast who spoke about his transaction. He was a UK based seller and we discussed some of the challenges in selling a UK based company. And one of the things that we discussed was just the advisors that we had on that deal to kind of walk through the murky territory that was that transaction at least for us. One of the lead advisors of that was Erich Pugh from Redpath Capital. Erich is here on the line with me. Erich thank you so much for joining me on the call here.

Erich: Mark you're quite welcome. Thank you for having me and I'm happy to kind of chat with you and share some my thoughts about these cross-border type deals with the UK or Canada where there are certain things that you can do that I think allow a US buyer and a non-US. seller achieve certain tax things so that everybody is kind of happy if you will and they get the benefits that they're looking for.

Mark: Yeah. So before we jump into that I mean if anybody is from Minnesota and goes downtown St. Paul you've probably seen Redpath Capital's; Redpath CPA's sign up on a building. But if you're probably about 99% of the audience here you're thinking Redpath who is that? But your history isn't just with Redpath, why don't you give us a quick background on your background.

Erich: Sure. I basically spent most of my career with [inaudible 00:08:13.4]. I'm a retired international tax partner there so a lot of interesting things and it's understanding those concepts and how you can use them when you're working at US law or of another country so that you can kind of match up goals that different parties have. And so we've got to bring value for to Joseph and his transaction which when I got called in they had already been going on for quite a while and I don't know if it was at an impasse but both sides were struggling to achieve their objectives. Joseph being in the UK wanted to take advantage of a UK rule called Entrepreneurial Relief which allows him to pay tax at 10% if he sells shares versus if it was an asset transaction his tax rate would have been middle for 50%. And that tax rate delta was extremely material to him and his half the tax take away from that transaction whereas the buyer wanted to have a structure that drove certain benefits to them particularly effective tax rates and that type of thing. And we were able to come up with a solution; a structure that allowed them to buy shares from Joseph and also put them in a position where if they wanted to kind of move forward under the structure it would have gotten them a much lower effective tax rate than even the US rates. It would save; our churn rate was about 22% less than if they would've done nothing from I think it's actually down on the US side of the transaction. And that would have been kind of a permanent savings going forward as they were running that business and growing it.

Mark: Yeah and I want to unpack this a little bit now. Let's start with the sell-side. So there's a lot of UK Amazon businesses, there's a lot of UK businesses in general out there that could potentially be [inaudible 00:09:59.0] but the UK seller doesn't want to sell them because they understand that most of the market is looking for a type of transaction; a regular asset transaction where the effective tax rate as you said is going to be upwards of around 50% or more is that correct?

Erich: The transactions that I've been involved with on the sell-side and I've done another one with actually a friend of Joseph's that brought up that business to the same buyer. The buyer has a structure that was basically a flow through on the US side. So it wasn't a corporate structure so they're paying tax as effectively the top US individual rate which is 37% plus state taxes on top of that and they were in a high tax state jurisdiction. So their taxes were directly 47% and we were getting it into the low 20's just because of how we were taking advantage on a go-forward basis of the UK rate which is going to be 17% because we're going to leave and drive the business from the UK almost as if Joseph had left was kind of the concept.

Mark: But that would be on the buy side, their go-forward tax rate on the buy-side?

Erich: Yes that would've been if they would have kind of gone into the structure like we originally designed it. That is correct.

Mark: Right. But then on the sell-side though the effective problem that we're running into is that the tax rates…

Erich: In the UK are high, right?

Mark: Yeah.

Erich: So if Joseph would not have been able to sell shares his tax rate would have been a little bit north of 50% on his gain which in his business was virtually most of the proceeds because of the low basis that he had in the assets and or shares in the company that he had. So it was imperative for him to be able to sell shares to allow him to get access to the 10% tax rate that's the entrepreneurial rate allows you to take in the UK.

Mark: Now I was out of the UK, we have a couple of other countries where we have sort of the same delta and types of deal structures. Canada, for example, has an entrepreneur's relief as well.

Erich: Correct. They have a similar type rule where again if you sell the shares of the company you can take advantage of preferential tax treatment somewhat similar to the UK so on these transactions and for example in the UK the entrepreneur's relief applies to the first 10 million pounds of gain that you generate in this I call it small business type sale. And that 10 million is there and it's a lifetime cap of 10. So it could be two or three small transactions that get you to 10. So Canada has a similar rule that allows you to get a beneficial tax rate if you sell shares. So again there I was involved with a Canadian structure about 18 months ago; very similar, where the US buyer didn't want to buy shares wanted to buy assets and actually move the business to the US but ultimately bought the shares and then migrated the actual business if you will. A different profile, a different buyer, it was actually a private equity corporate buyer versus in the Joseph transaction it was more of that [inaudible 00:13:06.4] buyer if you will. You need to understand both sides of this; the seller, the jurisdiction, their profile, and also the buyer. Is it a corporate buyer, a partnership buyer, what that's going to be because it drives different tax attributes.

Mark: Okay, and that's where some of the complexities come in here with these transactions where after Joseph's episode I had a few people reach out and they're kind of like well what did you guys do there. And I said well I'm not going to go into all the details of everything that we did but you can't have a one size fits all approach here right? You do have to cater it towards…

Erich: It is customized; correct. I mean I had a base solution that when you and Scott reached out I say this is the idea. I don't know all the facts so let's have a call with Joseph and see if we can kind of get this to work. So we were able to design what I would call the initial structure and then we showed that with the buyer who said there's no way that we could do a stock deal and get this to work for anybody. I'm sure you can remember their attorney is kind of sulking at that point and they had a national accounting firm involved on their side. A tax attorney from a law firm and they came back a few days later and said we're interested in understanding more. This has merits. We evaluate and keep the tires on and as you know we basically went through a couple of iterations with the buyer or in particular the individual that was going to drive the business; Jared is his first name, very interested in understanding because of the low tax rates that would allow him to have more after-tax dollars to continue to drive into the business to grow it. That's one of his interests.

Mark: And to get into that just a little bit more; I mean the structure that we ended up having set up if it was just a US-based corporation and this is all we were doing was US to US you would have had a corporation that would have been taxed at a 38% maximum income tax rate.

Erich: 21% federal and then it depends upon the state that you're in. States go up to say 10% so call it a low 30 at the most probably in the corporate world. Correct.

Mark: And that would be just for a regular company like a regular LLC would get that?

Erich: No, a regular corporation.

Mark: A regular corporation; C corp.

Erich: C corp; correct. You'll get into the realm of an LLC if it has one owner it gets taxed and it's an individual gets taxed basically in his personal tax return at individual rates because it is effectively a disregarded entity. And then if the LLC has more than one around its tax is a partnership and then the partner is it a corporate partner or an individual partner and it goes either to an individual up to 37% federally plus states and then if it's a corporate partner and get back to the 21% and so on. In those transactions when it's domestic the profile again of the seller is important. Many times you hear that the buyer wants to buy assets so that if they pay the premium was this intangible; to get a little technical this section 197 intangible but can be advertised over for 15 years. So that's why they like to buy assets so they can get a step up as we call it. But if the seller is an S corporation and you thought; let's just say it's one guy who owns this S corporation and he's running down the business to that you can still sell shares legally but if the buyer has stepped up because there's a special election that can be made; the so-called Section 338(H)(10) election which yes legally it's a sure transaction but for tax purposes it's deemed an asset sale which then allows the buyer to get this intangible asset amortized over 15 years. And in these transactions where you do the election typically what you see is because it is an asset sale for tax purposes and the seller doesn't get capital gains treatment because it was legal to sell shares the election takes that away and teaches an asset sale. They typically get a premium on the purchase price because the buyer gets a step up for the premium. So kind of the rule of thumb that I've always heard over the years is typically it's anywhere from 14 or 15% to maybe 18 or 19% premium over the share purchase price because of the step up.

Mark: Right. So, in this case, the buyer gets the ability to depreciate the assets over the 15 years that they would normally have in an asset sale which obviously is a huge advantage from a basis.

Erich: We're covering a lot of ground but yes.

Mark: We are. My head is spinning. And look if you're listening to this and your head is spinning as well you are not alone. I worked on this transaction and my head is still spinning. The structure that was proposed in this transaction had the structure that you had proposed and adopted. It would have represented a go forward savings for the buyer of some pretty significant amounts of money in terms of taxes that they would have. One of the obligations of that structure, if I'm not mistaken, would have been to continue to operate in the UK with UK entities. Is that also correct?

Erich: That is correct; yes. We have designed the structure when we bought a structure to Joseph that we presented that would have resulted in the buyer forming a UK holding company to do the transaction so that we could then if we wanted to have debt cross-border which is between the US and the UK. They also decided they didn't want to do that part as we kind of filmed it up but that gives you one moving part. And that's important on when you've got cash in the UK coming back to the US the UK does not have a withholding tax on its domestic laws so the dividends can come out of the UK without a withholding tax. And under the new rules unless we were talking about forming a C corporation the buyer; then the UK holding company and under the Trump tax reform if you will from the end of '17 dividends come out of the UK without a withholding tax and come back and are not subject to tax because of the 100% dividends received deduction. There's some other complications that we don't need get into but tax reform brought in a new rule; the acronym is GILTI but the C Corporation helps with that and so forth. So ultimately as this was structured the operations basically remaining in the UK that is what allowed the tax savings because we were basically paying taxes 70% UK rates on the vast majority of the profits. And then ultimately we were going to distribute those out and bring them back two or three years later tax-free.

Mark: Do you remember offhand; I mean I'm not sure how specific we want to get here but do you remember offhand what magnitude of savings we were talking about over the course of the three year period? Was it a few hundred thousand dollars in tax savings?

Erich: It was more than that and it potentially was going to be' let me just think real quick, it was north of a million dollars. I want to recall it's a 1.3 million over three or four years because of the growth that they were anticipating through the injection of additional capital that the buyer was going to make as I recall.

Mark: Yes. That's what I recall as well. I bring it up because I can imagine somebody listening to us is thinking I left a corporate job and what do I want to do? I want to run an Amazon business. I want to do something sort of simple now. And they're listening to this thinking wait I have to have operations based in the UK. What are the obligations there? We actually explored that question in the process of this deal of what were the obligations going to be and I don't want to be coming across offering legal advice on this but I believe it required maybe a once per year visit to the UK and having some people in the UK for those operations if I recall correctly.

Erich: Correct. I mean again we're not giving anybody advice. We're kind of talking about something we did back in June or July. Basically, the idea was that we were going to continue to run the business in the UK. It would be that two or three people that were running the business would continue to do it. Joseph as you mentioned he was going to remain as an adviser to the business for a period of time etcetera. And the buyer their role in all of this I think what we were told that was one of the government's aspects of this because within forming a UK holding company Joseph ultimately say two years later was going to go away we were taught we did board meetings. And we kind of got into this concept of the UK has its mind and management issue of where are you running the business from. And with the employees in the UK and with Jarrett going to the UK a couple of times a year after year-end; after the books were closed and approving the accounts and all of those things. That was some of what I would call the operational substance that remained in the UK that allowed it to work.

Mark: Yeah. And so we're I mean to lead or my mind goes from just advising buyers in various aspects over the years is potential opportunity here on behalf of buyers. If they're able to set up a structure; I imagine that this is a structure that could probably be used and once it's set up you use it for multiple acquisitions within the UK. See some of these tax savings as well on a go-forward basis and be able to open up a deal flow that might not exist otherwise here in the US. Once the structure is set up and I'm trying to think about how to ask this question the right way but how reusable is it in your opinion or does each deal really require its own development of new companies to be able to manage this? In other words, there's a C corp here in the US for the structure, do we need to set up a new C corp with every acquisition that we do or can we use just one general holding pass through C corp?

Erich: I see what you're saying. No, the structure; let's just say that they would have been forwarding exactly as we initially designed it and it was all going to work like we had kind of painted that picture and they said yeah we're interested and we need to dig into this. We would only need; if the buyer was going to do self-additional deals and kind of do a roll of three or four or five Amazon businesses from the UK. They just need one sequel. We would have stayed with the one holding company. And then what we would have done is then bought the additional UK targets under that holding company. So I wouldn't call it an acquisition platform for a buyer. You just keep bolting on the next one you if you will. So you're not creating additional sequels and or UK holding company.

Mark: Right. So you gave us an acquisition platform is a perfect way to describe it. I saw this as an opportunity. I know Joseph and I talked about a little bit. I also just had Scott who was another advisor on this deal on and we talked about it just a little bit as well. Okay, this is all very…

Erich: It's interesting because another one of your UK Amazon sellers that you and Scott know reached out to me last week and I'll call it for personal reasons and potentially for exit. He's actually moved to Cyprus and he has a couple of Amazon businesses and a couple of UK companies and also a US Amazon business and a US C corp. And we're looking at how to design a structure for him to continue to build that out because he wants to kind of; I don't know exactly where it's at but let's just say he's at 10 million in revenue and he wants to double that before he wants to take all of it or some of it to market so that he can grow it and package it in a way where it's easy to actually sell to allow him to again take advantage of tax rules in Cyprus or Dubai or some other things that we're talking about. Again it's him because he's got some one way and he's single and flexible as to where he wants to live he's putting himself in a position where he can significantly reduce or eliminate any sell-side taxes down the road so that he can punch his lottery ticket as he put it to me.

Mark: Yeah. And I want to emphasize something here because I think people hear some of this stuff and they think oh my gosh this is complex. Is it legal ball and is it going to be triggering an audit and everything else? That's why I wanted to start with your background. Your background isn't just some guy who's on the internet researching things, right?

Erich: No, no, no, in fact, it's interesting. We did have one call and we have another call on Friday. He has been getting some advice from Cypriots tax advisor and a lot of the concepts that he was putting out there I didn't disagree with but there were some things that they were talking about that I told this individual that I have some concerns. We need substance. We can't play shell game. Some of the things that were being said could be interpreted as tax avoidance. And I said those are the type of things that I would never advise you to do because if you want to sell this and the buyer comes in they're going to do tax due diligence on your structure and they're going to say well okay you've done all of that but if you want us to buy the shares and you don't pay any tax well there's a tax accrual of there's going to be a big number going to Escrow until we get this sorted out. So I agree with you completely Mark, understanding the risk profile and what you're doing is important because I told him if you go to that path I'm not going to be that advisor that can help you. So he got the risk conversation and we just signed an engagement letter and he wants to move forward to do it properly. This whole risk thing I mean look at some of these transactions that you see the buyers are using large law firms or accounting firms and are beating up on the debt tax due diligence side and putting money on Escrow because they're concerned about for example sales tax.

Mark: Sure sales tax liability which came up and you and I could talk about it at length which we won't because we'll get into something else. But these are some of the practices that happen at a more sophisticated deal-making level than what we might normally see with just a simple transaction. This is not uncommon to go through some various tax scenario analyses and figure out a structure that works for the seller and works for the buyer and minimizes taxes on a go-forward basis and the savings can be significant for everyone.

Erich: Exactly that's why on Joseph's transaction the buyer was originally a naysayer before I got involved as you know. And then once we put on the table and they start to understand what was going on their advisors to the table so that they could pick it apart and they said this has merit let's work through this. So that's typically how it's going to evolve. It's not going to be Erich says this is how it's going to work. I mean everyone's going to have someone else look at it and get comfortable or not. You have to protect your clients. And that's my example with the guy that just moved to Cyprus. I'm not going to put him in a position where he thinks he's saving all this money but no one's going to want to buy the shares of this company because of the bad tax structure he's put himself into with all of the risk.

Mark: Right. And ultimately in the Joseph deal, they didn't accept the very first proposal that we put together it was a variant of that. Yeah, these things are collaborative in that way. Okay, we've been talking for about 25 minutes. I'm going to wrap it up here because if we go into another topic we'll go all the way up to that my brain hurts. If we have somebody who's interested in talking about this more Erich where can they reach you; what's the Most Unexceptional way to reach you?

Erich: Well they could reach me here at Redpath. My office is in St. Paul. I don't know when you publish this or post this; if you can provide my email address which is [email protected].

Mark: And if anybody wants an introduction just let me know. I'm happy to provide the introduction. Erich, you are a great resource I think for anyone in this space especially if you are doing anything international or even thinking about it on an international basis. A really, really good resource to have; I appreciate it. And your firm as well is a good resource just in general. It's not just an international tax law firm; you guys do the whole gamut.

Erich: Correct. Yeah, we were actually over this over the last three or four months through; you and Scott connected with a number of companies. In fact, we've just brought on board a larger Amazon business and are doing the bookkeeping and providing other services including restructuring their business for sale as a domestic business in the US.

Mark: That's great. Thanks for coming on. And again if somebody wants an introduction to Erich let me know I'm more than happy to provide it as a way of saying thanks for coming on and also helping out with that deal. It was an eye-opening exercise for me for sure.

Erich: Thanks a lot Mark. Take care and have a good rest of the day.

Links and Resources:

• Erich's Redpath Profile
• Contact Erich